<PAGE>
PROSPECTUS
CONTAINER CORPORATION OF AMERICA
$350,000,000 13 1/2% SENIOR SUBORDINATED NOTES DUE 1999
$300,000,000 14% SUBORDINATED DEBENTURES DUE 2001
$200,000,000 15 1/2% JUNIOR SUBORDINATED ACCRUAL DEBENTURES DUE 2004
------------------------
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED, SUBORDINATED AND
JUNIOR SUBORDINATED BASIS, RESPECTIVELY, BY
JEFFERSON SMURFIT CORPORATION (U.S.)
------------------------
INTEREST ON THE SENIOR SUBORDINATED NOTES AND THE SUBORDINATED DEBENTURES IS
PAYABLE ON JUNE 1 AND DECEMBER 1. INTEREST ON THE JUNIOR ACCRUAL DEBENTURES
FOR THE PERIOD FROM THE DATE OF ISSUANCE UNTIL DECEMBER 1, 1994 ACCRUES
AND COMPOUNDS ON A SEMIANNUAL BASIS, AND IS PAYABLE ON DECEMBER 1,
1994. THEREAFTER, INTEREST ON THE JUNIOR ACCRUAL DEBENTURES WILL
BE PAYABLE ON JUNE 1 AND DECEMBER 1, COMMENCING JUNE 1, 1995.
------------------------
The Securities have been issued by Container Corporation of America, a
Delaware corporation ('CCA'), as part of the financing of a series of
transactions which closed on December 14, 1989 (collectively, the '1989
Transaction'), pursuant to which, among other things, (i) SIBV/MS Holdings,
Inc., a Delaware corporation (since renamed Jefferson Smurfit Corporation)
('Holdings'), acquired the entire equity interest in Jefferson Smurfit
Corporation, a Delaware corporation (since renamed Jefferson Smurfit Corporation
(U.S.)) ('JSC'), and (ii) JSC indirectly acquired the 50 percent interest in CCA
that it did not previously indirectly own. Prior to the consummation of the Debt
Offerings and the substantially concurrent Equity Offerings (each as defined
below), 50% of the common stock of Holdings was owned directly and by an
indirect subsidiary of Smurfit International B.V. ('SIBV'), an indirect
wholly-owned subsidiary of JS Group, a public corporation organized under the
laws of the Republic of Ireland ('JS Group'), 39.7% was beneficially owned by
The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited
partnership investment fund formed to make investments in industrial and other
companies ('MSLEF II'), and the other MSLEF II Associated Entities (as
(continued on following page)
------------------------
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN
EVALUATING AN INVESTMENT IN THE SECURITIES, SEE 'CERTAIN RISK FACTORS'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. Morgan Stanley &
Co. Incorporated may act as principal or agent in such transactions.
October 12, 1994
<PAGE>
(continued from preceding page)
defined below), and 10.3% was beneficially owned by certain other investors.
MSLEF II is an affiliate of Morgan Stanley & Co. Incorporated ('MS&Co.'), the
Underwriter.
After the consummation of the Recapitalization Plan, SIBV beneficially
owned approximately 46.5%, MSLEF II and the other MSLEF II Associated Entities
beneficially owned in the aggregate approximately 28.7%, and all other
stockholders (including public stockholders) beneficially owned approximately
24.8% of the outstanding shares of common stock of Holdings (after giving effect
to the Reclassification as defined below, the 'Holdings Common Stock'). See
'Security Ownership of Certain Beneficial Owners' and 'Certain Transactions'.
The Senior Subordinated Notes will mature on December 1, 1999, and may be
redeemed in whole or in part at the option of CCA at any time on and after
December 1, 1994, at the redemption prices set forth herein. The Subordinated
Debentures will mature on December 1, 2001, and may be redeemed in whole or in
part at the option of CCA at any time on and after December 1, 1994, at the
redemption prices set forth herein. Annual sinking fund payments commencing
December 1, 1999 are calculated to retire 66 2/3% of the Subordinated Debentures
prior to maturity. The Junior Accrual Debentures will mature on December 1, 2004
and may be redeemed in whole or in part at the option of CCA at any time on and
after December 1, 1994, at the redemption price set forth herein. Annual sinking
fund payments commencing December 1, 2002 are calculated to retire 66 2/3% of
the Junior Accrual Debentures prior to maturity. See 'Description of the
Securities' and, for a discussion of the federal income tax treatment to holders
of the Junior Accrual Debentures, 'Certain Federal Income Tax Considerations'.
Pursuant to the Recapitalization Plan (as defined below), the Company plans to
redeem all of the outstanding Securities as of December 1, 1994. Such
redemption, including the payment of accrued and unpaid interest on the Junior
Accrual Debentures as of December 1, 1994, is herein referred to as the
'Subordinated Debt Refinancing'. See 'Recapitalization Plan -- Subordinated Debt
Refinancing'.
------------------------
The Securities are unsecured obligations subordinated in right of payment
to all Senior Debt of CCA (as defined), including indebtedness, secured by
substantially all the assets of CCA and its subsidiaries, totaling $475.6
million on June 30, 1994 (consisting of indebtedness outstanding under the New
Credit Agreement and certain other indebtedness of CCA) and $500 million of
indebtedness represented by the 1993 Notes (as defined below) and $400 million
of indebtedness represented by the 1994 Notes (as defined below). In the case of
the Subordinated Debentures, Senior Debt of CCA also includes the Senior
Subordinated Notes. In the case of the Junior Accrual Debentures, Senior Debt of
CCA also includes the Senior Subordinated Notes and the Subordinated Debentures.
On June 30, 1994, Senior Debt of CCA was approximately $1,388.0 million with
respect to the Senior Subordinated Notes, $1,738.0 million with respect to the
Subordinated Debentures and $2,038.0 million with respect to the Junior Accrual
Debentures. See 'Certain Risk Factors -- Subordination of Securities and
Guarantees' and 'Description of the Securities -- Subordination'.
JSC has unconditionally guaranteed, to the extent described herein, the
payment of interest on, principal of and premium, if any, on the Securities.
JSC's guarantees of the Securities are unsecured obligations subordinated in
right of payment to all Senior Debt of JSC (as defined below), including
indebtedness secured by substantially all the assets of JSC and its subsidiaries
and JSC's guarantee with respect to the 1993 Notes and 1994 Notes. In the case
of JSC's guarantee of the Subordinated Debentures, Senior Debt includes JSC's
guarantee of the Senior Subordinated Notes. In the case of JSC's guarantee of
the Junior Accrual Debentures, Senior Debt includes JSC's guarantees of the
Senior Subordinated Notes and the Subordinated Debentures. On June 30, 1994,
Senior Debt of JSC was approximately $1,653.4 million with respect to the
guarantee of the Senior Subordinated Notes, $2,003.4 million with respect to the
guarantee of the Subordinated Debentures and $2,303.4 million with respect to
the guarantee of the Junior Accrual Debentures. See 'Certain Risk
Factors -- Subordination of Securities and Guarantees' and 'Description of the
Securities -- Subordination' and ' -- Guarantees'.
2
<PAGE>
ADDITIONAL INFORMATION
CCA and JSC have filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement (which term shall encompass all
amendments, exhibits and schedules thereto) under the Securities Act of 1933
(the 'Securities Act') with respect to the Securities and JSC's guarantees
thereof. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
JSC is subject to the informational requirements of the Securities Exchange
Act of 1934 (the 'Exchange Act'), and in accordance therewith is required to
file reports and other information with the Commission. The Registration
Statement and the exhibits thereto filed by CCA and JSC with the Commission, as
well as such reports and other information filed by JSC with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
should also be available for inspection and copying at the regional offices of
the Commission located in the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Such reports and other
information may also be inspected at the offices of the Pacific Stock Exchange,
301 Pine Street, Suite 1104, San Francisco, California 94104, until consummation
of the Subordinated Debt Refinancing.
So long as Senior Subordinated Notes, Subordinated Debentures or Junior
Accrual Debentures are outstanding, both JSC and CCA will furnish to the
relevant Holders quarterly and annual financial reports that they are required
to file with the Commission under the Exchange Act (or similar financial reports
in the event JSC or CCA is not at the time required to file such reports with
the Commission).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission by JSC
are hereby incorporated by reference in this Prospectus:
(1) JSC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, filed with the Commission on March 31, 1994;
(2) JSC's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1994 and June 30, 1994, filed with the Commission on May 16, 1994 and
August 5, 1994, respectively.
(3) JSC's Current Reports on Form 8-K, filed with the Commission on
March 3, 1994 and April 25, 1994; and
(4) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1993.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of the Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to each
such person, upon written or oral request. Requests should be directed to JSC,
Attention: Patrick J. Moore, 8182 Maryland Avenue, St. Louis, Missouri 63105;
telephone (314) 746-1100.
3
<PAGE>
No action has been or will be taken in any jurisdiction by CCA, JSC or by
the Underwriter that would permit a public offering of the Securities or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by CCA, JSC and the
Underwriter to inform themselves about and to observe any restrictions as to the
offering of the Securities and the distribution of the Prospectus.
In this Prospectus, references to 'dollar' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information..................... 3
Incorporation of Certain Documents by
Reference................................ 3
Prospectus Summary......................... 5
Certain Risk Factors....................... 14
Recapitalization Plan...................... 21
Capitalization............................. 26
Selected Historical Financial Data......... 27
Pro Forma Financial Data................... 28
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................ 34
Business................................... 42
Management................................. 59
Security Ownership of Certain Beneficial
Owners................................... 69
Certain Transactions....................... 71
Description of Certain Indebtedness........ 77
Description of the Securities.............. 84
Certain Federal Income Tax
Considerations........................... 116
Market Making Activities of MS&Co.......... 119
Legal Matters.............................. 119
Experts.................................... 119
Index to Financial Statements.............. F-1
</TABLE>
4
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and the financial statements and notes thereto that appear elsewhere
in this Prospectus. The Securities are obligations of CCA, unconditionally
guaranteed on a senior subordinated, subordinated and junior subordinated basis,
as applicable, by JSC. As used in this Prospectus, the 'Company' refers to JSC
and its consolidated subsidiaries, including CCA and references to 'Holdings'
refer to Jefferson Smurfit Corporation, the parent of JSC. Capitalized terms not
defined in this Summary are defined elsewhere in this Prospectus.
THE COMPANY
The Company believes it is one of the nation's largest producers of
paperboard and packaging products and is the largest producer of recycled
paperboard and recycled packaging products. The Company's system of 16
paperboard mills produces virgin and recycled containerboard, solid bleached
sulfate ('SBS') and recycled boxboard, and recycled cylinderboard, which are
sold to the Company's own converting operations or to third parties. The
Company's converting operations consist of 52 corrugated container plants, 18
folding carton plants, and 16 industrial packaging plants located across the
country, with three plants located outside the U.S. In 1993, the Company's
container plants converted an amount of containerboard equal to approximately
105.5% of the amount the Company produced, its folding carton plants converted
an amount of SBS, recycled boxboard and coated natural kraft equal to
approximately 65.4% of the amount the Company produced, and its industrial
packaging plants converted an amount of recycled cylinderboard equal to
approximately 59.7% of the amount the Company produced. The Company's
Paperboard/Packaging Products segment contributed 91.6% of the Company's net
sales in 1993. The Company's paperboard operations are supported by its
reclamation division and by its timber operations which manage approximately one
million acres of owned or leased timberland located in close proximity to its
virgin fibre mills.
In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint. The Company's Newsprint Segment includes two
newsprint mills in Oregon and two facilities that produce Cladwood'r', a
construction material produced from newsprint and wood by-products.
The predecessor to the Company was founded in 1974 when Jefferson Smurfit
Group plc ('JS Group'), a worldwide leader in the packaging products industry,
commenced operations in the United States by acquiring 40% of a small paperboard
and packaging products company. The remaining 60% of that company was acquired
in 1977, and in 1978 net sales were $42.9 million. The Company implemented a
strategy to build a fully integrated, broadly based, national packaging
business, primarily through acquisitions, including Alton Box Board Company in
1979, the paperboard and packaging divisions of Diamond International
Corporation in 1982, 80% of Smurfit Newsprint Corporation ('SNC') in 1986, and
50% of CCA in 1986. The Company financed its acquisitions by using leverage, and
in several cases, utilized joint venture financing whereby the Company
eventually obtained control of the acquired company. While no major acquisition
has been made since 1986, the Company has made 18 smaller acquisitions and
started up five new facilities which had combined sales in 1993 of $280.3
million. JSC was formed in 1983 to consolidate the operations of the Company,
and today the Company ranks among the industry leaders in its two business
segments, Paperboard/Packaging Products and Newsprint. In 1993, the Company had
net sales of $2.9 billion, achieving a compound annual sales growth rate of
32.6% for the period since 1978 (although net sales decreased 1.7% from 1992
levels due primarily to lower prices and changes in product mix).
The principal components of the Company's business strategy include the
following:
Maintain Focus on Recycled Products. The Company believes that it is
the largest processor of wastepaper, the largest producer of coated
recycled paperboard, the largest producer of recycled medium and one
of the largest producers of recycled newsprint in the United States.
The Company has historically utilized a significant amount of
recycled fibre in its products and has maintained a strategy to allow
it to supply all of the Company's recycled fibre needs for its paper
producing operations.
Focus on Cost Reduction. The Company is implementing a company-wide
cost reduction program designed to improve the cost competitiveness
of all the Company's operating facilities and staff functions.
Additionally, in 1993 the Company began a restructuring
5
<PAGE>
program to improve the Company's long-term competitive position by,
among other things, realigning and consolidating various
manufacturing operations over the next two to three years. In
September 1993, the Company recorded pre-tax charges of $96 million
to implement its restructuring program.
Continue to Pursue Vertical Integration. The Company's integration
reduces the volatility of pricing for the Company's containerboard
products, allows the Company to run its mills at higher operating
rates during industry downturns and protects the Company from
potential regional supply and demand imbalances for recycled fibre
grades.
Continue Growth in Core Businesses. The Company intends to continue
its strategy of building its core Paperboard/Packaging Products
segment primarily by pursuing acquisitions and through capital
improvement programs.
Maintain Leading Market Positions. The Company's prominence in the
United States packaging industry provides the Company certain
advantages in marketing its products, including excellent customer
visibility and recognition as a quality producer, which has enabled
the Company to enter into strategic alliances with select large
national account customers. The Company's broad range of packaging
products provides a single source option to supply all of a
customer's packaging needs.
Improve Financial Profile. The Recapitalization Plan (as defined
below) will improve the Company's operating and financial flexibility
by reducing the level and overall cost of its debt, extending
maturities of indebtedness, increasing stockholders' equity and
increasing its access to capital markets.
All of the outstanding shares of capital stock of JSC are owned by
Holdings. Prior to the consummation of the Recapitalization Plan (other than the
Subordinated Debt Refinancing), 50% of the common stock of Holdings was owned
directly and by SIBV, 39.7% was beneficially owned by MSLEF II, and the other
MSLEF II Associated Entities, and 10.3% was beneficially owned by certain other
investors. MSLEF II is an affiliate of MS&Co., the Underwriter.
Immediately after the consummation of the Recapitalization Plan (other than
the Subordinated Debt Refinancing), SIBV beneficially owned approximately 46.5%,
MSLEF II and the other MSLEF II Associated Entities beneficially owned in the
aggregate approximately 28.7%, and all other stockholders (including public
stockholders) beneficially owned approximately 24.8% of the outstanding shares
of Holdings Common Stock. See 'Security Ownership of Certain Beneficial Owners'
and 'Certain Transactions'.
6
<PAGE>
The following chart illustrates the corporate structure of Holdings, JSC
and CCA, and the indebtedness of such corporations following the consummation of
the Recapitalization Plan.
[GRAPHIC MATERIAL-SEE APPENDIX]
- ------------
* Prior to May 1994, Holdings had been named 'SIBV/MS Holdings, Inc.' and JSC
had been named 'Jefferson Smurfit Corporation'.
** Includes those obligations (other than intercompany indebtedness) that are
senior with respect to all subordinated obligations listed and rank equally
with each other senior obligation listed (except that certain of such
obligations, but not all, are secured).
*** Prior to the consummation of the Subordinated Debt Refinancing (as defined
below), CCA will have outstanding, and JSC will guarantee on a subordinated
basis, subordinated obligations consisting of the Senior Subordinated
Notes, the Subordinated Debentures and the Junior Accrual Debentures (each
as defined below). On approximately December 1, 1994, the Company intends
to use available proceeds of the Debt Offerings (as defined below),
remaining borrowings under the Delayed Term Loan (as defined below) and, to
the extent required, borrowings under the New Revolving Credit Facility (as
defined below) or available cash to refinance such subordinated debt as
contemplated by the Subordinated Debt Refinancing.
**** A limited-purpose subsidiary of the Company has certain borrowings pursuant
to the Company's accounts receivable securitization program. See
'Description of Certain Indebtedness -- Securitization' and 'Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources'.
7
<PAGE>
RECAPITALIZATION PLAN
Holdings and the Company are implementing a recapitalization plan (the
'Recapitalization Plan') to repay or refinance a substantial portion of their
indebtedness in order to improve operating and financial flexibility by reducing
the level and overall cost of their debt, extending maturities of indebtedness,
increasing stockholders' equity and increasing their access to capital markets.
In May 1994, Holdings and the Company completed the Recapitalization Plan (other
than the Subordinated Debt Refinancing). For the six months ended June 30, 1994,
the Recapitalization Plan would, on a pro forma basis, have resulted in $29.4
million of aggregate savings in interest expense, of which $22.6 million
represents cash interest expense savings (in each case on a pre-tax basis). See
'Pro Forma Financial Data'.
The Recapitalization Plan includes the following primary components:
(i) (a) The offering (the 'Debt Offerings') by CCA of $300
million aggregate principal amount of 11 1/4% Series A Senior
Notes due 2004 (the 'Series A Senior Notes') and $100 million
aggregate principal amount of 10 3/4% Series B Senior Notes due
2002 (the 'Series B Senior Notes' and, together with the Series A
Senior Notes, the '1994 Notes');
(b) The offering by Holdings of 19,250,000 shares of Holdings
Common Stock through an offering within the United States and
Canada and an offering outside the United States and Canada (the
'Equity Offerings'). The Equity Offerings and the Debt Offerings
are collectively referred to herein as the '1994 Offerings';
(c) The purchase by SIBV (or a corporate affiliate of SIBV)
of shares of Holdings Common Stock for an aggregate purchase price
of $150 million (the 'SIBV Investment');
(d) The entering into of a new credit agreement by CCA and
JSC (the 'New Credit Agreement') consisting of a $450 million
revolving credit facility (the 'New Revolving Credit Facility'), a
$300 million term loan (the 'Initial Term Loan') and a $900
million delayed term loan (the 'Delayed Term Loan' and, together
with the Initial Term Loan, the 'New Term Loans').
(ii) The application of the net proceeds of the Equity Offerings and
the SIBV Investment and a portion of the net proceeds of the Debt
Offerings, together with borrowings under the New Credit Agreement, to
refinance (the 'Bank Debt Refinancing') all of the Company's indebtedness
outstanding under (a) the Second Amended and Restated Credit Agreement,
dated as of November 9, 1989, among Holdings, JSC, CCA, the lenders which
are parties thereto, Bankers Trust Company as agent and Chemical Bank and
Bank of America National Trust and Savings Association as co-agents (the
'1989 Credit Agreement'); (b) the Amended and Restated Note Purchase
Agreement, dated as of December 14, 1989, among Holdings, JSC, CCA and the
purchasers of the senior secured notes (the 'Secured Notes') issued
thereunder (the 'Secured Note Purchase Agreement'), and (c) the Loan and
Note Purchase Agreement, dated as of August 26, 1992, among Holdings, JSC,
CCA, the lenders which are parties thereto, Chemical Bank as agent and the
managing agents and collateral trustee which are parties thereto (the '1992
Credit Agreement' and, together with the 1989 Credit Agreement, the 'Old
Bank Facilities').
(iii) The application, on approximately December 1, 1994, of
borrowings, including borrowings under the New Credit Agreement, to redeem
CCA's (a) Senior Subordinated Notes, (b) Subordinated Debentures and (c)
Junior Accrual Debentures. The earliest date the Subordinated Debt may be
redeemed is December 1, 1994. Borrowings under the Delayed Term Loan will
be subject to the satisfaction of certain limited conditions.
8
<PAGE>
SOURCES AND USES
The following table sets forth the sources and uses of funds which were or
are anticipated to be used to effect the Recapitalization Plan:
<TABLE>
<CAPTION>
($ MILLIONS)
------------
<S> <C>
Sources of Funds
The Debt Offerings(a)................................................................. $ 400
The Equity Offerings(a)............................................................... 250
SIBV Investment....................................................................... 150
New Revolving Credit Facility(b)...................................................... 30
New Term Loans........................................................................ 1,200
------------
Total............................................................................ $2,030
------------
------------
Uses of Funds
Prepayment of debt under Old Bank Facilities.......................................... $ 810
Prepayment of Secured Notes........................................................... 271
Redemption of the Securities(c)....................................................... 844
Fees and expenses(d).................................................................. 105
------------
Total............................................................................ $2,030
------------
------------
</TABLE>
- ------------
(a) Without deducting estimated underwriting discounts and commissions and
expenses. To the extent proceeds of the Debt Offerings are used to fund a
portion of the Company's 1994 capital expenditures, the Company will use
available cash or borrow under the New Revolving Credit Facility (or, to
the extent proceeds are available, under the Delayed Term Loan) to pay
interest due on the Junior Accrual Debentures as of December 1, 1994.
(b) The amount shown is net of available cash. The maximum amount available
under such facility is $450 million, with up to $150 million of such amount
being available for letters of credit. Immediately following the 1994
Offerings, borrowings of $65 million and letters of credit of approximately
$90 million were outstanding under such facility. See also footnotes (a)
and (c).
(c) Represents the outstanding principal amount and redemption premiums
required to be paid on the Senior Subordinated Notes and the Subordinated
Debentures, and the estimated accreted value, including accrued and unpaid
interest, of the Junior Accrual Debentures as of December 1, 1994. The
Company expects that accrued and unpaid interest at December 1, 1994 on the
Senior Subordinated Notes and the Subordinated Debentures will be paid
through internal cash flow or with additional borrowings under the New
Revolving Credit Facility.
(d) Expenses include estimated fees and expenses relating to the Bank Debt
Refinancing, estimated commissions and underwriting discounts relating to
the Debt Offerings and the Equity Offerings, respectively, and
reimbursement of certain fees and expenses of SIBV incurred in connection
with the Recapitalization Plan. See 'Certain Transactions -- Other
Transactions'. There are no underwriting discounts or commissions on the
sale of Holdings Common Stock pursuant to the SIBV Investment.
The Company has obtained certain consents and waivers which were necessary
for it to consummate the Recapitalization Plan, consisting, among others, of the
consent of (i) the holders of a majority in aggregate principal amount of the
1993 Notes outstanding, (ii) 60% of the holders of the outstanding aggregate
principal amount of Secured Notes and (iii) certain parties under JSC's and
CCA's trade receivables securitization (the 'Securitization') (collectively, the
'Consents and Waivers'). For more information concerning the Consents and
Waivers, see 'Recapitalization Plan -- Consents and Waivers'.
For more information concerning the Recapitalization Plan, see
'Recapitalization Plan'.
9
<PAGE>
THE SECURITIES
$350,000,000 principal amount of 13 1/2% Senior Subordinated Notes
Due 1999 (the 'Senior Subordinated Notes')
$300,000,000 principal amount of 14% Subordinated Debentures
Due 2001 (the 'Subordinated Debentures')
$200,000,000 principal amount of 15 1/2% Junior Subordinated Accrual Debentures
Due 2004 (the 'Junior Accrual Debentures')
The Senior Subordinated Notes, the Subordinated Debentures and the Junior
Accrual Debentures are collectively referred to herein as the 'Securities'. The
Securities were issued by CCA and are guaranteed by JSC as set forth below.
Pursuant to an agreement (the 'Direct Investors Securities Purchase
Agreement'), the Direct Investors (as defined below) purchased from CCA $129.2
million aggregate principal amount of Junior Accrual Debentures and $30.8
million principal amount of Subordinated Debentures. The Securities purchased by
the Direct Investors are hereinafter referred to as the 'Direct Investor
Securites'. All other Securities (the 'Underwritten Securities') were offered by
the Underwriter. The Direct Investor Securities are identical to the
Underwritten Securities of the same class.
Pursuant to the Subordinated Debt Refinancing, the Company plans to redeem
all of the outstanding Securities as of December 1, 1994. See
'Recapitalization -- Subordinated Debt Refinancing'.
THE SENIOR SUBORDINATED NOTES
<TABLE>
<S> <C>
Maturity Date............................. December 1, 1999.
Interest Payment Dates.................... June 1 and December 1.
Optional Redemption....................... The Senior Subordinated Notes may be redeemed in whole or in part at
the option of CCA at any time on and after December 1, 1994, at the
redemption prices set forth herein.
THE SUBORDINATED DEBENTURES
Maturity Date............................. December 1, 2001.
Interest Payment Dates.................... June 1 and December 1.
Optional Redemption....................... The Subordinated Debentures may be redeemed in whole or in part at
the option of CCA at any time on and after December 1, 1994, at the
redemption prices set forth herein.
Sinking Fund.............................. Annual sinking fund payments of 33 1/3% of the principal amount of
Subordinated Debentures on each of December 15, 1999 and December
15, 2000 are calculated to retire approximately 66 2/3% of the
originally issued Subordinated Debentures prior to maturity.
THE JUNIOR ACCRUAL DEBENTURES
Maturity Date............................. December 1, 2004.
Interest and Interest Payment Dates....... Interest on the Junior Accrual Debentures for the period from the
date of issuance until December 1, 1994 will accrue and compound on
a semiannual basis and be payable on December 1, 1994. Thereafter,
interest will be payable on June 1 and December 1, commencing June
1, 1995. For a discussion of the federal income tax treatment for
holders of the Junior Accrual Debentures, see 'Certain Federal
Income Tax Considerations'.
Optional Redemption....................... The Junior Accrual Debentures may be redeemed in whole or in part at
the option of CCA at any time on and after December 1, 1994 at the
redemption price set forth herein.
Sinking Fund.............................. Annual sinking fund payments of 33 1/3% of the principal amount of
Junior Accrual Debentures on each of December 1, 2002 and December
1, 2003 are calculated to retire approximately 66 2/3% of the
originally issued Junior Accrual Debentures prior to maturity.
ADDITIONAL TERMS OF THE SECURITIES
Subordination............................. The Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures are subordinated in right of payment to
all Senior Debt of CCA (as such term is defined in each of the
respective indentures pursuant to
</TABLE>
10
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<TABLE>
<S> <C>
which the Securities were issued (the 'Indentures'), which includes
CCA's obligations under the New Credit Agreement, the 1993 Notes,
the 1994 Notes and certain other indebtedness of CCA, and, in the
case of the Subordinated Debentures, includes the Senior
Subordinated Notes, and, in the case of the Junior Accrual
Debentures, includes the Senior Subordinated Notes and the
Subordinated Debentures. At June 30, 1994, Senior Debt of CCA was
approximately $1,388.0 million with respect to the Senior
Subordinated Notes, $1,738.0 million with respect to the
Subordinated Debentures and $2,038.0 million with respect to the
Junior Accrual debentures. Additional Senior Debt may be incurred
to the extent permitted by the New Credit Agreement, the 1993
Notes, the 1994 Notes and the respective Indentures. CCA's
obligations under the New Credit Agreement, but not the Securities,
are secured by liens on substantially all of the assets of CCA and
its subsidiaries with the exception of cash and cash equivalents
and trade receivables. See 'Certain Risk Factors -- Effect of
Secured Indebtedness on the Securities; Ranking'.
Covenants................................. The Indentures contain covenants which, among other things, limit the
incurrence of indebtedness and the payment of dividends and the
making of other distributions by JSC and its subsidiaries
(including CCA), the ability of JSC and its subsidiaries (including
CCA) to create liens, the ability of JSC and its subsidiaries
(including CCA) to engage in certain transactions with certain
stockholders or affiliates and to merge or consolidate or transfer
substantially all their assets.
Certain Put Options....................... Holders have the right, subject to certain limitations, to require
CCA to repurchase their Securities at 101% of their principal
amount plus accrued and unpaid interest, upon the occurrence of a
Change of Control (as defined), a Holding Company Transaction (as
defined), or in certain events from certain proceeds of major asset
sales. A Holding Company Transaction is generally a transaction in
which a person that beneficially owns or controls fifty percent or
more of the outstanding voting interest of JSC both at the date of
the Indentures and at the time of such transaction (other than
MSLEF II, any general partner thereof, Morgan Stanley Group, SIBV
or any person that beneficially owns fifty percent or more of their
outstanding voting interests) issues any debt securities or
Redeemable Stock (as defined) and applies the proceeds to make a
dividend, distribution or similar payment that, if made by JSC,
would be prohibited at the time by the Indentures. CCA will not be
obligated to repurchase Securities in connection with a Holding
Company Transaction if (i) Morgan Stanley Group or SIBV makes or
causes to be made within 30 days a capital contribution to such
person in an amount equal to such payment or (ii) holders of
Securities of a particular class tender Securities representing
less than 50% of the principal amount of such class then
outstanding. Prior to repurchasing any Securities tendered in
connection with a Change of Control or a Holding Company
Transaction, CCA must (i) offer to repay all Debt under the New
Credit Agreement (as defined below) and repay each Bank and holder
who has accepted such offer or (ii) obtain the requisite consents
under the New Credit Agreement, the 1993 Notes and 1994 Notes to
permit the repurchase of the Securities. In connection with all
such repurchase obligations, CCA will not be required to repurchase
any Subordinated Debentures until it has repurchased all tendered
Senior Subordinated Notes and will not be required to purchase any
Junior
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Accrual Debentures until it has purchased all tendered Senior
Subordinated Notes and Subordinated Debentures.
Guarantees................................ The payment of principal and interest on the Senior Subordinated
Notes, the Subordinated Debentures and the Junior Accrual
Debentures is guaranteed on a senior subordinated, subordinated and
junior subordinated basis, respectively, by JSC. Such guarantees
are subordinated in right of payment to all Senior Debt of JSC (as
such term is defined in the respective Indentures), which includes
JSC's obligations under the New Credit Agreement (including its
guarantee of CCA's obligations thereunder), JSC's guarantee of
CCA's obligations under the 1993 Notes and 1994 Notes and certain
other borrowings of JSC, and, in the case of the guarantee of the
Subordinated Debentures, includes JSC's guarantee of the Senior
Subordinated Notes, and, in the case of the guarantee of the Junior
Accrual Debentures, includes JSC's guarantees of the Senior
Subordinated Notes and the Subordinated Debentures. As of June 30,
1994, JSC's senior debt was approximately $1,653.4 million with
respect to JSC's guarantee of the Senior Subordinated Notes,
$2,003.4 million with respect to JSC's guarantee of the
Subordinated Debentures, and $2,303.4 million with respect to JSC's
guarantee of the Junior Accrual Debentures. JSC's obligations under
the New Credit Agreement, but not its guarantees of the Securities,
are secured by liens on substantially all of the assets of JSC and
its subsidiaries with the exception of cash and cash equivalents
and trade receivables, and guaranteed by CCA and certain
subsidiaries of JSC and CCA. See 'Certain Risk Factors -- Effect of
Secured Indebtedness on the Securities; Ranking'. In the event that
(i) a purchaser of Capital Stock of CCA acquires a majority of the
voting rights thereunder or (ii) there occurs a merger or
consolidation of CCA that results in CCA having a parent other than
JSC, and, at the time of and after giving effect to such
transaction, such purchaser or parent satisfies certain minimum net
worth and cash flow requirements, JSC will be released from its
obligation to guarantee the Securities. Such sale, merger or
consolidation will be prohibited unless certain other requirements
are met, including that the purchaser or the entity surviving such
a merger or consolidation expressly assumes JSC's and CCA's
obligations, and that no Event of Default (as defined) occur or be
continuing. See 'Description of the Securities -- Mergers and
Consolidations'.
</TABLE>
For more complete information regarding the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures and the guarantees
thereof, see 'Description of the Securities'.
CERTAIN RISK FACTORS
For a discussion of certain risk factors that should be considered in
evaluating an investment in the Securities, see 'Certain Risk Factors'.
12
<PAGE>
SUMMARY FINANCIAL DATA
The summary historical and pro forma financial data presented below were
derived from the consolidated financial statements and the pro forma financial
statements of the Company included elsewhere herein and should be read in
conjunction with 'Selected Historical Financial Data', 'Pro Forma Financial
Data', 'Management's Discussion and Analysis of Results of Operations and
Financial Condition' and the consolidated financial statements and the pro forma
financial statements of the Company included elsewhere in this Prospectus. The
summary pro forma financial data presented below give effect to the offering of
the 1993 Notes in April 1993 and the Recapitalization Plan as if such
transactions had occurred as of January 1, 1993, in the case of operating
results for the year ended December 31, 1993, and give effect to the
Recapitalization Plan as if such transaction had occurred as of January 1, 1994,
in the case of operating results for the six months ended June 30, 1994. The pro
forma balance sheet data is as if the Recapitalization Plan occurred at December
31, 1993 and June 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
HISTORICAL 31, 1993 SIX MONTHS ENDED
------------------------------------------------------------ -------------------- JUNE 30, 1994
AS ADJUSTED FOR --------------------
YEAR ENDED DECEMBER 31, THE RECAPITALIZATION AS ADJUSTED FOR
-------------------------------- SIX MONTHS PLAN AND 1993 THE RECAPITALIZATION
1991 1992 1993 ENDED JUNE 30, NOTE OFFERING(a) PLAN(a)
-------- -------- -------- ------------------------- -------------------- --------------------
1993 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
OPERATING RESULTS:
Net sales............ $2,940.1 $2,998.4 $2,947.6 $ 1,470.8 $ 1,493.6 $2,947.6 $1,493.6
Restructuring and
environmental and
other charges...... 150.0 -- -- 150.0 --
Income (loss) from
operations......... 305.5 267.7 (14.7) 82.3 102.4 (14.7) 102.4
Interest expense..... (335.2) (300.1) (254.2) (127.7) (134.1) (200.7) (104.7)
Loss before
extraordinary item
and cumulative
effect of
accounting
changes(b)......... (77.1) (34.0) (174.6) (30.1) (20.2) (139.8) (2.0)
Extraordinary
item -- (loss) from
early
extinguishment of
debt, net of income
tax benefit........ (49.8) (37.8) (37.8) (51.6) (98.1) (53.1)
Cumulative effect of
accounting
changes............ (16.5) (16.5) -- (16.5) --
Net loss............. (77.1) (83.8) (228.9) (84.4) (71.8) (254.4) (55.1)
Ratio of earnings to
fixed charges
(c)................ (d) (d) (d) (d) (d) (d) (d)
OTHER DATA:
Gross profit
margin(e).......... 18.1% 16.6% 12.7% 13.7% 14.0% 12.7% 14.0%
Selling and
administrative
expenses as a
percent of net
sales.............. 7.7 7.7 8.1 8.1 7.2 8.1 7.2
EBITDA(f)............ $ 440.9 $ 407.8 $ 274.2 $ 147.7 $ 171.1 $ 274.2 $ 171.1
Ratio of EBITDA to
interest expense... 1.32x 1.36x 1.08x 1.16x 1.28x 1.37x 1.63x
Property and
timberland
additions.......... $ 118.9 $ 97.9 $ 117.4 $ 55.7 $ 65.0 $ 117.4 $ 65.0
Depreciation,
depletion and
amortization....... 130.0 134.9 130.8 63.1 65.6 130.8 65.6
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital...... $ 76.9 $ 105.7 $ 40.0 $ 95.7 $ 44.1 $ 41.3 $ 44.1
Total assets......... 2,460.1 2,436.4 2,597.1 2,659.6 2,720.0 2,639.6 2,720.0
Long-term debt
(excluding current
maturities)........ 2,650.4 2,503.0 2,619.1 2,573.7 2,434.9 2,378.3 2,434.9
Stockholders'
deficit............ (976.9) (828.9) (1,057.8) (913.2) (743.0) (743.2) (743.0)
STATISTICAL DATA:
Containerboard
production
(thousand tons).... 1,830 1,918 1,840 928 951
Boxboard production
(thousand tons).... 826 832 829 422 371
Newsprint production
(thousand tons).... 614 615 615 303 307
Corrugated shipping
containers sold
(thousand tons).... 1,768 1,871 1,936 946 1,000
Folding cartons sold
(thousand tons).... 482 487 475 235 235
Fibre reclaimed and
brokered (thousand
tons).............. 3,666 3,846 3,907 1,917 1,957
Timberland owned or
leased (thousand
acres)............. 978 978 984 979 984
</TABLE>
- ------------
(a) The pro forma financial data above includes the Subordinated Debt
Refinancing which is expected to occur on approximately December 1, 1994.
See 'Pro Forma Financial Data' for certain pro forma financial data giving
effect to the Recapitalization Plan (excluding the Subordinated Debt
Refinancing).
(b) The loss before extraordinary item for the year ended December 31, 1991
includes after-tax charges of $29.3 million and $6.7 million for the
write-off of the Company's equity investments in Temboard, Inc., formerly
Temboard and Company Limited Partnership ('Temboard'), and PCL Industries
Limited ('PCL'), respectively. See Note 3 to the Company's consolidated
financial statements at and for the year ended December 31, 1993.
(c) For purposes of these calculations, earnings consist of income (loss)
before income taxes, equity in earnings (loss) of affiliates, minority
interests, extraordinary item and cumulative effect of accounting changes,
plus fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(d) For the six months ended June 30, 1994 and 1993 and for the years ended
December 31, 1991, 1992 and 1993, earnings were inadequate to cover fixed
charges by $30.1 million, $24.3 million, $26.7 million, $31.4 million and
$264.2 million, respectively. On a pro forma basis for 1993, earnings were
inadequate to cover fixed charges by $195.9 million as adjusted for the
1993 Note Offering and the Recapitalization Plan. On a pro forma basis,
earnings were inadequate to cover fixed charges for the six> months ended
June 30, 1994 by $.7 million as adjusted for the Recapitalization Plan.
(e) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(f) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests and extraordinary items and cumulative
effect of accounting changes and in 1993, restructuring and environmental
and other charges. The restructuring and environmental and other charges
include $43 million of asset writedowns and $107 million of future cash
expenditures. EBITDA is presented here, not as a measure of operating
results, but rather as a measure of the Company's debt service ability.
13
<PAGE>
CERTAIN RISK FACTORS
The Securities offered hereby involve a high degree of risk. Prospective
purchasers of the Securities should consider the specific risk factors set forth
below, as well as the other information set forth in this Prospectus.
SUBSTANTIAL LEVERAGE
The Company has on a consolidated basis a substantial amount of debt. The
Company's long-term debt at June 30, 1994 was $2,434.9 million and, on a pro
forma basis after giving effect to the Recapitalization Plan, the Company's
long-term debt as of such date would have been $2,434.9 million. The amount of
long-term indebtedness at such date on a historical basis is substantial
relative to the Company's stockholders' equity, which has been negative in
recent years due to the accounting treatment of the 1989 Transaction (as defined
below) and recent net losses. See ' -- Recent Losses; Negative Stockholders'
Equity'. Although the consummation of the Recapitalization Plan will reduce the
Company's consolidated interest expense over the next several years, JSC and CCA
will remain obligated to make substantial interest payments on their
indebtedness. See 'Description of Certain Indebtedness'. For the six months
ended June 30, 1994, the Company's earnings were inadequate to cover fixed
charges by $30.1 million and, on a pro forma basis, after giving effect to the
Recapitalization Plan, would have been inadequate to cover fixed charges by $.7
million. See 'Capitalization' and 'Pro Forma Financial Data'.
ABILITY TO SERVICE DEBT
The Company generally expects to fund its and its subsidiaries' debt
service obligations, capital expenditures and working capital requirements
through funds generated from operations and additional borrowings under the New
Revolving Credit Facility. As of the closing of the 1994 Offerings and the
consummation of the other transactions contemplated by the Recapitalization Plan
(other than the Subordinated Debt Refinancing), the Company had in the aggregate
approximately $295 million in unused borrowing capacity under the New Revolving
Credit Facility. See 'Capitalization'. The Securitization matures in April 1996,
at which time the Company expects to refinance it. Although the Company believes
that it will be able to do so, no assurances can be given in this regard. See
'Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources'.
The ability of the Company to meet its obligations and to comply with the
financial covenants contained in its indebtedness is largely dependent upon the
future performance of the Company, which will be subject to financial, business
and other factors affecting it. Many of these factors are beyond the Company's
control, such as the state of the economy, demand for and selling prices of its
products, costs of its raw materials and legislative factors and other factors
relating to its industry generally or to specific competitors. There can be no
assurance that the Company will generate sufficient cash flow to meet its
obligations under its indebtedness, which includes repayment obligations,
assuming consummation of the Subordinated Debt Refinancing, of $92 million
during the second year, $142 million during the third year and $162 million in
each of the fourth and fifth years following consummation of the 1994 Offerings
(and increasing thereafter). If the Company were unable to generate sufficient
cash flow or otherwise obtain funds necessary to make required payments on its
indebtedness, or if the Company fails to comply with the various covenants in
such indebtedness, it would be in default under the terms thereof, which would
permit the lenders thereunder to accelerate the maturity of such indebtedness
and could cause defaults under other indebtedness of the Company or result in a
bankruptcy of the Company. See 'Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Liquidity and Capital Resources' and
'Description of Certain Indebtedness'. In addition, if a 'Change of Control' as
defined in the New Credit Agreement, the 1993 Notes, the 1994 Notes or the
Subordinated Debt is deemed to have occurred, then the holders of such
indebtedness shall have the right to be repaid 101% of the principal amount of
such indebtedness plus accrued and unpaid interest thereon. See 'Description of
Certain Indebtedness'. The occurrence of a 'Change of Control' as so defined
could also result in The Times Mirror Company having certain rights under the
shareholders agreement between the Company and The Times Mirror Company. See
'Certain
14
<PAGE>
Transactions -- Other Transactions'. Similarly, the exercises of such rights
could also trigger cross-default or cross-acceleration provisions, and lead to
the bankruptcy of the Company.
RESTRICTIVE COVENANTS
The limitations contained in the agreements relating to the Company's
indebtedness, together with its highly leveraged position, as well as various
provisions in the agreements relating to the governance of Holdings and the
Company, including the Stockholders Agreement and the Registration Rights
Agreement (each as defined below), could limit the ability of the Company to
effect future debt or equity financings and may otherwise restrict corporate
activities, including its ability to avoid defaults and to respond to market
conditions, to provide for capital expenditures beyond those permitted or to
take advantage of business opportunities. If the Company cannot generate
sufficient cash flow from operations to meet its obligations, then its
indebtedness might have to be refinanced. There can be no assurance that any
such refinancing could be effected successfully or on terms that are acceptable
to the Company. In the absence of such refinancing, the Company could be forced
to dispose of assets in order to make up for any shortfall in the payments due
on its indebtedness under circumstances that might not be favorable to realizing
the best price for such assets. Moreover, the lenders under the New Credit
Agreement generally have a prior right to the proceeds of asset sales and
certain sales of securities by the Company. Further, there can be no assurance
that any assets could be sold quickly enough, or for amounts sufficient, to
enable the Company to make any such payments.
RECENT LOSSES; NEGATIVE STOCKHOLDER'S EQUITY
Although the Company has consistently generated substantial income from
operations, it has experienced, primarily as a result of interest expense
resulting from high leverage (see ' -- Substantial Leverage'), net losses for
the fiscal years ended December 31, 1993, 1992 and 1991. See 'Selected
Historical Financial Data' and 'Pro Forma Financial Data'. Improvements in the
Company's consolidated results of operations depend largely upon its ability to
increase prices of its products; accordingly, there can be no assurances as to
its ability to generate net income in future periods. See ' -- Pricing' and
'Management's Discussion and Analysis of Results of Operations and Financial
Condition'.
The Company has had a deficit in stockholder's equity since 1989 when
Holdings was organized to effect the acquisition of the publicly held shares of
JSC and the shares of CCA not then owned by JSC, and the recapitalization of
such companies (the '1989 Transaction'), since such transaction was treated as a
recapitalization for financial accounting purposes. On a historical basis, at
June 30, 1994, the Company's stockholder's deficit was $743.0 million. See
'Capitalization' and 'Pro Forma Financial Data'.
SUBORDINATED DEBT REFINANCING
The Subordinated Debt Refinancing is an integral part of the
Recapitalization Plan and a significant portion of the benefits intended to be
achieved as a result of the Recapitalization Plan is derived from it. The
availability of the financing under the Delayed Term Loan necessary to effect
the Subordinated Debt Refinancing is subject to the satisfaction of certain
conditions, although the failure to satisfy such conditions will in almost all
instances indicate that a significant and adverse change in the Company's
financial condition has occurred. The Company expects to be able to satisfy such
conditions, although, in any event, it reserves the right not to consummate the
Subordinated Debt Refinancing for any reason. See 'Recapitalization
Plan -- Subordinated Debt Refinancing'. In addition, the Company believes that,
even if the Subordinated Debt Refinancing is not consummated, it will realize
substantial benefits from the consummation of the other components of the
Recapitalization Plan, including a decrease in leverage and a resulting increase
in stockholder's equity. See 'Pro Forma Financial Data'.
EFFECT OF SECURED INDEBTEDNESS ON THE SECURITIES; RANKING
Payments by CCA on the Securities are subordinated to all Senior Debt (as
defined in each Indenture) of CCA, and payments by JSC on its guarantees of the
Securities are subordinated to all
15
<PAGE>
Senior Debt (as defined in each Indenture) of JSC. 'Senior Debt' of CCA and JSC
includes their respective obligations under the New Credit Agreement, the 1993
Notes, the 1994 Notes and certain other indebtedness, as to the Subordinated
Debentures also includes the Senior Subordinated Notes, and as to the Junior
Accrual Debentures also includes the Senior Subordinated Notes and the
Subordinated Debentures. As of June 30, 1994, CCA had, under the definitions of
Senior Debt of CCA contained in the Indentures relating to the Senior
Subordinated Notes, the Subordinated Debentures and the Junior Accrual
Debentures, approximately $1,388.0 million, $1,738.0 million and $2,038.0
million, respectively, of Senior Debt outstanding, and JSC had, under the
definitions of Senior Debt of JSC contained in the Indentures relating to the
Senior Subordinated Notes, the Subordinated Debentures and the Junior Accrual
Debentures, approximately $1,653.4 million, $2,003.4 million and $2,303.4
million, respectively, of Senior Debt outstanding. The Indentures permit CCA and
JSC, subject to certain limitations, to incur additional indebtedness, including
Senior Debt. Upon CCA's or JSC's bankruptcy, insolvency or liquidation, or upon
acceleration of the Senior Debt of JSC or CCA, the holders of Senior Debt of JSC
and CCA must be paid in full before holders of the Securities may be paid on the
Securities or the guarantees of JSC thereof, and sufficient assets may not exist
to pay amounts due to holders of the Securities after payments to holders of
such Senior Debt. Further, payment on the Securities or the guarantees might not
be permitted if a default exists on any Senior Debt of JSC or CCA, as the case
may be. See 'Description of the Securities'.
In addition, the indebtedness outstanding under the New Credit Agreement
(including all guarantee obligations of JSC and CCA in respect thereof) is
secured by (i) a security interest in substantially all of the assets, with the
exception of cash and cash equivalents and trade receivables, of JSC, CCA and
their material subsidiaries, (ii) a pledge of all of the capital stock of
material subsidiaries of JSC and CCA and (iii) a pledge of all intercompany
notes (including the notes of CCA Enterprises Inc., a wholly-owned subsidiary of
CCA ('CCA Enterprises'). See 'Description of Certain Indebtedness -- The New
Credit Agreement'. The 1993 Notes, the 1994 Notes, as well as the Securities,
and JSC's guarantees thereof are unsecured and therefore do not have the benefit
of such collateral; that is, if an event of default occurs under the New Credit
Agreement, the banks party thereto will have a prior right to the Company's
assets and may foreclose upon such collateral to the exclusion of the holders of
the 1993 Notes, the 1994 Notes and the Securities, notwithstanding the existence
of an event of default with respect thereto. Accordingly, in such an event the
Company's assets would first be used to repay in full amounts under the New
Credit Agreement, resulting in a portion of the Company's assets being
unavailable to satisfy the claims of holders of the 1993 Notes, the 1994 Notes,
and the Securities. As of June 30, 1994, the Company had outstanding
approximately $736.9 million of secured indebtedness, including indebtedness
under the New Credit Agreement.
PAYMENTS DUE ON COMPANY INDEBTEDNESS PRIOR TO MATURITY OF SECURITIES;
REFINANCING RISKS
The Securitization matures in April 1996, at which time the Company expects
to refinance it. Without giving effect to the Subordinated Debt Refinancing, an
aggregate of approximately $323.5 million, $589.0 million and $1,628.3 million
of senior indebtedness (excluding intercompany indebtedness) matures prior to
the Senior Subordinated Debt, the Subordinated Debentures, and the Junior
Accrual Debentures, respectively. Accordingly, the Company will have to
refinance or otherwise generate sufficient cash to repay a substantial amount of
indebtedness prior to the time the Senior Subordinated Debt, the Subordinated
Debentures, and the Junior Accrual Debentures, respectively, mature. The
Company's ability to do this will depend, in part, on the Company's financial
condition at the time and the covenants and other provisions in its debt
agreements. In this regard, it should be noted that the Company's ability to
incur new indebtedness will be quite limited by the terms of its outstanding
indebtedness and, in particular, unless and until the Subordinated Debt
Refinancing is consummated, the indentures governing the Subordinated Debentures
and Junior Accrual Debentures with respect to the Senior Subordinated Debt, and
the indenture governing the Junior Accrual Debenture with respect to the
Subordinated Debenture.
16
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS FOR PURCHASERS OF JUNIOR ACCRUAL
DEBENTURES
For federal income tax purposes, holders of Junior Accrual Debentures will
be required to include in income original issue discount thereon as such
original issue discount accrues although no cash payments of interest on such
Junior Accrual Debentures will be paid prior to December 1, 1994. See 'Certain
Federal Income Tax Considerations'.
PRICING
General. Most markets in which the Company competes are subject to
significant price fluctuations. The Company's sales and profitability have
historically been more sensitive to price changes than changes in volume, and
reductions in prices during 1991 through 1993 have had an adverse impact on the
Company's results of operations. Future decreases in prices (or the inability to
achieve price increases) for the Company's products would adversely affect its
operating results. These factors, coupled with the highly leveraged financial
position of the Company, may adversely impact the Company's ability to respond
to competition and to other market conditions or to otherwise take advantage of
business opportunities.
Containerboard. Operating rates in the industry during 1991 and 1992 were
at high levels relative to demand, which was lower due to the sluggish U.S.
economy and a decline in export markets. This imbalance resulted in excess
inventories in the industry and lower prices for the Company's containerboard
and corrugated shipping container products, which began early in 1991 and has
continued throughout 1992 and most of 1993. During 1993, industry operating
rates were lower as many containerboard producers, including the Company, took
downtime at containerboard mills to reduce the excess inventories. By the end of
the third quarter of 1993, inventory levels had decreased significantly. The
lower level of inventories and the stronger U.S. economy provided what the
Company believes were improved market conditions late in 1993, enabling the
Company and other producers to implement a $25 per ton price increase for
linerboard. Further improvements in market conditions have led to linerboard
increases of $30 and $40 per ton being implemented by all major integrated
containerboard producers, including the Company, effective March 1, 1994 and
July 1, 1994, respectively. See 'Business -- Industry Overview -- Paperboard'.
Newsprint. Newsprint prices have fallen substantially since 1990 due to
supply and demand imbalances. During 1991 and 1992, new capacity of
approximately two million tons annually came on line, representing an
approximate 12% increase in supply. At the same time, U.S. consumption of
newsprint fell due to declines in readership and ad linage. As prices fell,
certain high cost, virgin paper machines, primarily in Canada, representing
approximately 1.2 million tons of annual production capacity, were shut down and
remained idle during 1993. While supply was diminished, a price increase
announced for 1993 was unsuccessful. However, due to strengthening demand,
successful price increases were implemented in May and August of 1994. See
'Business -- Industry Overview -- Newsprint'.
COMPETITION
The paperboard and packaging products industries are highly competitive,
and no single company is dominant. The Company's competitors include large,
vertically integrated paperboard and packaging products companies and numerous
smaller companies. In recent years, there has been a trend toward consolidation
within the paperboard and packaging products industries, and the Company
believes that this trend is likely to continue. See 'Business -- Industry
Overview'. The primary competitive factors in the paperboard and packaging
products industries are price, design, quality and service, with varying
emphasis on these factors depending on the product line. To the extent that one
or more of the Company's competitors becomes more successful with respect to any
key competitive factor, the Company's business could be materially, adversely
affected. The market for the Newsprint segment is also highly competitive. See
'Business -- Competition'.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
The Company faces potential environmental liability
17
<PAGE>
as a result of violations of permit terms and similar authorizations that have
occurred from time to time at its facilities. In addition, the Company faces
potential liability for 'response costs' at various sites with respect to which
the Company has received notice that it may be a 'potentially responsible party'
as well as for contamination of certain Company-owned properties, under the
Comprehensive Environmental Response, Compensation and Liability Act, analogous
state laws and other laws concerning hazardous substance contamination. In 1993,
the Company recorded a pre-tax charge which included approximately $39 million
related to environmental matters, representing primarily asbestos and PCB
removal, solid waste cleanup at existing and former operating sites, and
expenses for response costs at various sites where the Company has received
notice that it is a potentially responsible party. While the Company believes
that such charges are adequate, there can be no assurance that actual
expenditures relating to such matters will not exceed such charges over the
period covered thereby. Similarly, while the Company believes it is currently in
compliance with all applicable environmental laws in all material respects and
has budgeted for future expenditures required to maintain such compliance,
unforeseen significant expenditures in connection with such compliance could
have an adverse effect on the Company's financial condition. See 'Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- General -- Environmental Matters' and 'Business -- Environmental
Matters'.
POTENTIAL FRAUDULENT CONVEYANCE LIABILITY
Various laws enacted for the protection of creditors may have applied to
the Company's incurrence of indebtedness and the making of certain payments in
connection with the 1989 Transaction, including the issuance of the Securities,
debt under the New Credit Agreement, and JSC's guarantees thereof. Such state
and federal fraudulent transfer laws may also apply to refinancings of such
debt, including the issuance by CCA of the 1993 Notes and the 1994 Notes, the
entering into and incurrence of debt under the New Credit Agreement, guarantees
by JSC and its subsidiaries thereof and the application of the proceeds thereof.
If a court in a lawsuit by an unpaid creditor or representative of creditors of
Holdings, JSC or CCA, such as a trustee in bankruptcy or Holdings, JSC or CCA as
debtor in possession, were to find that, at the time of the 1989 Transaction,
Holdings, JSC or CCA (a) was insolvent or was rendered insolvent by reason of
the 1989 Transaction or the indebtedness incurred and payments made in
connection therewith, (b) was engaged in a business or transaction for which the
assets remaining with Holdings, JSC or CCA constituted unreasonably small
capital, (c) intended to, or believed that it would, incur debts beyond its
ability to pay as such debts matured or (d) intended to hinder, delay or defraud
its creditors, such court could, under state or federal fraudulent transfer law,
avoid the 1993 Notes or such other indebtedness (including under the 1994 Notes
and the New Credit Agreement) and order that all payments made by Holdings, JSC
or CCA with respect thereto be returned to it or to a fund for the benefit of
its creditors. Such court could also subordinate the 1993 Notes or such other
indebtedness (including under the 1994 Notes and the New Credit Agreement) or
the guarantees thereof to all existing and future indebtedness of JSC or CCA.
Such avoidance or subordination would result in an event of default under the
New Credit Agreement.
The measure of insolvency for purposes of the foregoing would vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company would be considered insolvent if the sum of such company's debts were
greater than all of such company's property at a fair valuation or if the
present fair saleable value of such company's assets were less than the amount
that would be required to pay its probable liability on its existing debts
(including contingent liabilities) as they become absolute and matured.
Accordingly, the Company does not believe that the fact that the liabilities of
it or Holdings exceed the book value of such corporation's assets, as reflected
on its balance sheet (which is not based on fair saleable value or fair value),
would be a significant factor in any fraudulent conveyance analysis.
The Company believed at the time of the 1989 Transaction and continues to
believe today, that at the time of the 1989 Transaction, and after giving effect
thereto, none of Holdings, JSC or CCA came within any of the clauses (a) through
(d) above and that therefore the incurrence of indebtedness under the 1993 Notes
or such other indebtedness (including under the 1994 Notes and the New Credit
Agreement) will not constitute fraudulent transfers. These beliefs were (and
are) based on
18
<PAGE>
management's analysis of, among other things, (i) internal cash flow
projections, (ii) the Company's historical financial information and (iii)
valuations of assets and liabilities of the Company. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
analysis.
CONTROL BY PRINCIPAL STOCKHOLDERS
General. Upon completion of the Equity Offerings, SIBV and MSLEF II and
certain related entities described below (the 'MSLEF II Associated Entities'),
acting together were, by reason of their ownership of Holdings Common Stock,
able to control the vote on all matters submitted to a vote of holders of
Holdings Common Stock. In this regard, Holdings, SIBV, the MSLEF II Associated
Entities and certain other entities have entered into a Stockholders Agreement
(the 'Stockholders Agreement'), which became effective as of the completion of
the Equity Offerings and which contains, among other things, provisions for
various corporate governance matters, including the election as directors and
the appointment as officers of certain designees of SIBV or MSLEF II. Pursuant
to the Stockholders Agreement, each of SIBV and MSLEF II have the right to elect
one-half of the Company's Board of Directors. See 'Management -- Provisions of
Stockholders Agreement Pertaining to Management' and 'Certain
Transactions -- Stockholders Agreement'. The presence of SIBV and, until they
dispose of their shares (see below), the MSLEF II Associated Entities, as
controlling stockholders, is also likely to deter a potential acquirer from
making a tender offer or otherwise attempting to obtain control of Holdings,
even if such events might be favorable to Holdings' stockholders.
SIBV. SIBV, which owns its Holdings Common Stock directly and through an
indirect wholly-owned subsidiary, is itself an indirect wholly-owned subsidiary
of JS Group, an international paperboard and packaging corporation organized
under the laws of the Republic of Ireland. JS Group is listed on the London and
Dublin Stock Exchanges and is the largest industrial corporation in Ireland. JS
Group and its subsidiaries have a number of operations similar to those of the
Company, although for the most part outside the United States other than their
newsprint operations. Accordingly, JS Group's interests with respect to various
business decisions of Holdings and the Company may conflict with the interests
of Holdings and the Company. See 'Certain Transactions -- Stockholders
Agreement -- Transactions with Affiliates; Other Businesses'.
MSLEF II Associated Entities. The intention of the MSLEF II Associated
Entities is to dispose of the shares of Holdings Common Stock owned by them. The
timing of such sales or other dispositions by them (which could include
distributions to the partners of MSLEF II) will depend on market and other
conditions, but could occur or commence relatively soon after the 180 day hold
back period imposed by the underwriters in the Equity Offerings, including
pursuant to the exercise of registration rights granted to them. MSLEF II is
unable to predict the timing of sales by any of its limited partners in the
event of a distribution to them.
Under the Stockholders Agreement, sales or other dispositions by the MS
Holders (as defined in the Stockholders Agreement and which term includes the
MSLEF II Associated Entities) (including distributions to the partners of MSLEF
II) could result in SIBV no longer being limited by such agreement to electing
only one-half of Holdings' Board of Directors. In addition, such sales or other
dispositions could result in Holdings and SIBV no longer being required to
obtain the approval of two directors who are designees of MSLEF II for Holdings
and the Company to engage in certain activities, for which such approval is
otherwise required by the Stockholders Agreement. See 'Management -- Provisions
of Stockholders Agreement Pertaining to Management'. Furthermore, MSLEF II has
the right at any time to waive any of the provisions of the Stockholders
Agreement, to agree to the early termination thereof or to fail to exercise any
of its rights thereunder.
No Obligation to Invest. Although SIBV and the MSLEF II Associated Entities
have in the past made additional investments in Holdings and the Company, they
are not obligated to do so in the future. Investors should not assume or expect
that either or both of such stockholders or their affiliates will invest
additional capital, whether in the form of debt or equity, in the future,
particularly in light of the intention of the MSLEF II Associated Entities to
dispose of their shares of Holdings Common Stock and the fact that SIBV's
ability to make such investments is subject to limitations contained in
agreements relating to indebtedness of SIBV and its affiliates.
19
<PAGE>
TAX NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1993, the Company and the other members of its
consolidated group had aggregate net operating loss ('NOL') carryforwards of
approximately $309 million for federal income tax purposes. These carryforwards,
if not utilized to offset taxable income in future periods, will expire at
various times in 2005 through 2008.
If Holdings experiences an 'ownership change' within the meaning of Section
382 of the Internal Revenue Code of 1986, as amended (the 'Code'), the Company's
ability to use NOL carryforwards existing at such time to offset its taxable
income, if any, generated in taxable periods after the ownership change would be
subject to an annual limitation (the 'Section 382 Limitation'). The amount of
NOL carryforwards which may be utilized on an annual basis following an
ownership change generally would be equal to the product of the value of the
outstanding stock of Holdings immediately prior to the ownership change (reduced
by certain contributions to Holdings' capital made in the two years prior to the
ownership change) multiplied by the 'long-term tax-exempt rate', which is
determined monthly and is 6.05% for September 1994.
Although the Company does not believe that Holdings experienced an
ownership change upon or following consummation of the Equity Offerings, it is
possible that future events which are beyond the control of the Company and
Holdings (such as transfers of Holdings Common Stock by certain stockholders) or
certain stock issuances or other actions by Holdings or the Company, could cause
Holdings to experience an ownership change. By way of example and without
limitation, a sale by MSLEF II of a substantial amount of Holdings Common Stock,
when combined with prior owner shifts in the three years preceding the sale by
MSLEF II, would likely result in an ownership change. As indicated under
' -- Control by Principal Stockholders', MSLEF II currently intends to dispose
of its Holdings Common Stock, and sales or other dispositions by it could occur
relatively soon after the 180 day hold back period for the Equity Offerings.
If Holdings experienced an ownership change at a time at which the value of
the Holdings Common Stock was equal to $20.25 per share (the closing price on
September 1, 1994, as reported on the NASDAQ National Market), the Section 382
Limitation would be approximately $98 million using a 'long-term tax exempt
rate' of 6.05%. Depending on the circumstances, such an ownership change could
significantly restrict the Company's ability to utilize NOLs existing at such
time to offset subsequent taxable income. Accordingly, due to uncertainty as to
whether an ownership change will occur in the future, prospective purchasers of
the Securities should not assume the unrestricted availability of currently
existing or future NOL carryforwards in making their investment decisions.
TRADING MARKET FOR THE SECURITIES
Other than the Junior Accrual Debentures, which are listed on the Pacific
Stock Exchange, the Securities are not listed for trading on any securities
exchange or on any automated dealer quotation system. MS&Co. currently makes a
market in the Securities. However, MS&Co. is not obligated to make a market for
the Securities and may discontinue or suspend such market making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of,
or the trading market for, the Securities. The Junior Accrual Debentures are
listed on the Pacific Stock Exchange. The liquidity of, and trading market for,
the Securities may be adversely affected by declines and volatility in the
market for high yield securities generally as well as any changes in the
Company's financial performance or prospects.
20
<PAGE>
RECAPITALIZATION PLAN
Holdings and the Company are implementing the Recapitalization Plan to
repay or refinance a substantial portion of their indebtedness in order to
improve operating and financial flexibility by reducing the level and overall
cost of their debt, extending maturities of indebtedness, increasing
stockholders' equity and increasing their access to capital markets. The Company
is implementing the Recapitalization Plan at this time to take advantage of
favorable conditions in the capital markets and in anticipation of refinancing
the Securities with lower cost indebtedness in December 1994 (when the
Securities first becomes redeemable). The Recapitalization Plan includes the
following primary components in addition to others described below: (i) the Debt
Offerings, (ii) the Equity Offerings, (iii) the SIBV Investment, (iv) the Bank
Debt Refinancing and (v) the Subordinated Debt Refinancing, which is anticipated
to occur on approximately December 1, 1994.
For the six months ended June 30, 1994, the Recapitalization Plan would, on
a pro forma basis, have resulted in $29.4 million of aggregate savings in
interest expense, of which $22.6 million represents cash interest expense
savings (in each case on a pre-tax basis). See 'Pro Forma Financial Data'.
SOURCES AND USES
The following table sets forth the anticipated sources and uses of funds to
be used to effect the Recapitalization Plan:
<TABLE>
<CAPTION>
($ MILLIONS)
<S> <C>
Sources of Funds
The Debt Offerings(a)............................................................. $ 400
The Equity Offerings(a)........................................................... 250
SIBV Investment................................................................... 150
New Revolving Credit Facility(b).................................................. 30
Initial Term Loan................................................................. 300
Delayed Term Loan(c).............................................................. 900
-------
Total........................................................................ $2,030
-------
-------
Uses of Funds
Prepayment of debt under 1989 Credit Agreement.................................... $ 609
Prepayment of debt under 1992 Credit Agreement.................................... 201
Prepayment of Secured Notes....................................................... 271
Redemption of Senior Subordinated Notes(d)........................................ 374
Redemption of Subordinated Debentures(d).......................................... 321
Redemption of Junior Accrual Debentures(e)........................................ 149
Fees and expenses(f).............................................................. 105
-------
Total........................................................................ $2,030
-------
-------
</TABLE>
- ------------
(a) Without deducting estimated underwriting discounts and commissions and
expenses. To the extent proceeds of the Debt Offerings are used to fund a
portion of the Company's 1994 capital expenditures, the Company will use
available cash or borrow under the New Revolving Credit Facility (or, to
the extent proceeds are available, under the Delayed Term Loan) to pay
interest due on the Junior Accrual Debentures as of December 1, 1994.
(b) The amount shown is net of available cash. The maximum amount available
under such facility is $450 million, with up to $150 million of such amount
being available for letters of credit. Immediately following the 1994
Offerings, borrowings of $65 million and letters of credit of approximately
$90 million were outstanding under such facility. See also footnotes (a)
and (d).
(c) Immediately following the 1994 Offerings, borrowings of $100 million were
outstanding under the Delayed Term Loan.
(d) Represents the outstanding principal amount and redemption premiums
required to be paid on such securities. Aggregate redemption premiums for
the Senior Subordinated Notes and the Subordinated Debentures are estimated
to be $24 million and $21 million, respectively. Accrued and unpaid
interest on the Senior Subordinated Notes and the Subordinated Debentures
was paid on June 1, 1994, and the Company expects that such accrued and
unpaid interest will be paid on December 1, 1994, through internal cash
flow or with additional borrowings under the New Revolving Credit Facility.
(e) Represents the estimated accreted value of the Junior Accrual Debentures as
of December 1, 1994, and includes accrued and unpaid interest payable as of
such date.
(f) Expenses include estimated fees and expenses relating to the Bank Debt
Refinancing, commissions and underwriting discounts relating to the Debt
Offerings and the Equity Offerings, respectively, and reimbursement of
certain fees and expenses of SIBV incurred in connection with the
Recapitalization Plan. See 'Certain Transactions -- Other Transactions'.
There were no underwriting discounts or commissions on the sale of Holdings
Common Stock pursuant to the SIBV Investment.
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<PAGE>
DEBT OFFERINGS
Concurrently with the Equity Offerings, CCA offered the 1994 Notes in the
Debt Offerings. The 1994 Notes are general unsecured obligations of CCA,
guaranteed by JSC, and rank pari passu in right of payment with all other senior
indebtedness of CCA. For a description of certain terms of the 1994 Notes see
'Description of Certain Indebtedness_--_Terms of the 1994 Notes'.
EQUITY OFFERINGS
Concurrently with the Debt Offerings, Holdings offered 15,400,000 shares of
Holdings Common Stock initially in the United States and Canada and 3,850,000
shares of Holdings Common Stock initially outside the United States and Canada.
The closings of the Equity Offerings and the Debt Offerings were conditioned on
one another as well as on the substantially concurrent consummation of the other
components of the Recapitalization Plan (other than the Subordinated Debt
Refinancing) and on the satisfaction of certain other closing conditions
contained in the respective underwriting agreements related thereto.
SALE OF STOCK TO SIBV
SIBV purchased from Holdings pursuant to the SIBV Investment 11,538,462
shares of Holdings Common Stock for an aggregate purchase price of $150 million.
Holdings and SIBV entered into a subscription agreement (the 'Subscription
Agreement') which, among other things, provides for the SIBV Investment.
Following the consummation of the Equity Offerings and the SIBV Investment,
SIBV, directly and indirectly through a wholly owned subsidiary, beneficially
owned 46.5% of the outstanding shares of Holdings Common Stock. See 'Security
Ownership of Certain Beneficial Owners'. In addition, the Subscription Agreement
provides that SIBV shall have certain contractual preemptive rights which
generally allow SIBV to maintain its percentage ownership of Holdings Common
Stock.
BANK DEBT REFINANCING
As part of the Recapitalization Plan, CCA and JSC have entered into the New
Credit Agreement. Substantially concurrently with the consummation of the 1994
Offerings, CCA used borrowings under the New Credit Agreement, the net proceeds
of the Equity Offerings and the SIBV Investment and a portion of the net
proceeds of the Debt Offerings contributed to it by Holdings, to refinance its
indebtedness outstanding under the Old Bank Facilities and Secured Notes. See
'Description of Certain Indebtedness -- The New Credit Agreement'.
RECLASSIFICATION AND RELATED TRANSACTIONS
Prior to the consummation of the Equity Offerings, the capital stock of
Holdings consisted of four classes of outstanding common stock (Class A, Class
B, Class C and Class D) and a fifth class of common stock (Class E) reserved for
issuance upon the exercise of outstanding options. Prior to the consummation of
the Equity Offerings, the only outstanding shares of voting stock of Holdings
were the shares of Class A common stock (all outstanding shares of which were
directly and indirectly owned by SIBV) and Class B common stock (all outstanding
shares of which were owned by MSLEF II). Immediately prior to the consummation
of the Equity Offerings, the Reclassification occurred, pursuant to which
Holdings' five classes of common stock were converted into one class, on a basis
of ten shares of Holdings Common Stock for each share of stock outstanding of
each of the old classes. Following the Reclassification, Holdings' only class of
common stock was the Holdings Common Stock, 80,200,000 shares of which were
outstanding immediately prior to the Equity Offerings and the SIBV Investment.
The Company intends, pursuant to the Substitution Transaction (as defined
below), to (i) merge CCA Enterprises into CCA, (ii) merge JSC Enterprises into
JSC and (iii) merge JSC into CCA. This will result in the elimination of the
intercompany notes held by CCA Enterprises and JSC Enterprises which are their
only assets (other than, in the case of JSC Enterprises, stock of subsidiaries,
including CCA and SNC). Prior to the merger of JSC into CCA, Holdings also
intends to interpose a wholly-
22
<PAGE>
owned subsidiary between it and JSC, which would own all of the capital stock of
JSC prior to such merger, and all of the capital stock of CCA after such merger.
See 'Description of Certain Indebtedness -- Substitution Transaction'. The
Company reserves the right to abandon any or all of such transactions.
STOCKHOLDERS AGREEMENT; CHARTER AND BY-LAW AMENDMENTS
Subsequent to the 1989 Transaction and prior to the Equity Offerings,
Holdings, JSC and CCA had been operated pursuant to the terms of an organization
agreement (the 'Organization Agreement'), which, among other things, provided
for the election of directors, the selection of officers and the day-to-day
management of Holdings and the Company. In connection with the Recapitalization
Plan, (i) the Organization Agreement was terminated upon the closing of the
Equity Offerings and, at such time, the Stockholders Agreement among Holdings,
SIBV, the MSLEF II Associated Entities and certain other entities, became
effective and (ii) the certificates of incorporation and by-laws of each of
Holdings, JSC and CCA were amended. See 'Management -- Directors',
'Management -- Provisions of Stockholders Agreement Pertaining to Management'
and 'Certain Transactions -- Stockholders Agreement' for a description of the
Stockholders Agreement. In addition, a prior commitment, subject to certain
conditions, of SIBV to purchase subordinated debt of CCA guaranteed by JSC in
order to fund purchases by CCA of the Securities, was terminated upon
consummation of the 1994 Offerings. See 'Certain Transactions -- Other
Transactions'.
SUBORDINATED DEBT REFINANCING
On approximately December 1, 1994, CCA intends to use available proceeds of
the Debt Offerings, remaining borrowings under the Delayed Term Loan and, to the
extent required, borrowings under the New Revolving Credit Facility or available
cash to effect the Subordinated Debt Refinancing, which consists of the
redemption of the Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures and the payment of accrued and unpaid interest on the
Junior Accrual Debentures as of December 1, 1994 (and, to the extent necessary,
to use borrowings under the New Revolving Credit Facility to pay accrued but
unpaid interest on the Senior Subordinated Notes and the Subordinated
Debentures). The earliest date such securities may be redeemed is December 1,
1994. CCA reserves the right, however, to acquire the Securities in open market
or privately negotiated transactions prior to such date. Such acquisitions of
the Securities are expected to be financed with borrowings under the New Credit
Agreement, subject to the limitation that the indentures governing each of the
classes of the Securities prohibit borrowings under the New Credit Agreement to
be used to acquire Securities junior to such class. This is likely to result in
only Senior Subordinated Notes being acquired prior to December 1, 1994. The
amount of the Securities so acquired, if any, will depend on market conditions
and availability of such securities at acceptable prices. JSC and CCA also
reserve the right to determine not to consummate the Subordinated Debt
Refinancing for any reason, even if they are able to do so.
Borrowings under the Delayed Term Loan, which are necessary to effect the
Subordinated Debt Refinancing, are subject to the following and only the
following conditions: (a) no order, judgment or decree shall purport to enjoin
or restrain (i) borrowings under the Delayed Term Loan or (ii) CCA from
redeeming the Securities, (b) certain events of bankruptcy, insolvency or
reorganization with respect to Holdings, JSC or CCA shall not have occurred, (c)
there shall not have occurred and be continuing a payment default under the New
Credit Agreement, the 1993 Notes, the 1994 Notes or under any subordinated debt
(in each case, other than under the New Credit Agreement, after the expiration
of any applicable grace period), (d) the lenders under the New Credit Agreement
shall not have accelerated all or any of the loans under the New Credit
Agreement, (e) there shall not have occurred and be continuing any event of
default under the New Credit Agreement relating to cross-acceleration of certain
other debt and (f) in the event of any borrowing under the Delayed Term Loan
prior to December 15, 1994, the Securities repurchased with the proceeds thereof
shall have been repurchased pursuant to open-market or negotiated transactions
for a price not in excess of 113% of the aggregate principal amount of the
Securities to be so repurchased.
23
<PAGE>
CONSENTS AND WAIVERS
As described below, the Company was required to obtain the Consents and
Waivers under, among other things, the 1993 Notes, the Secured Notes and the
Securitization in order to consummate the Recapitalization Plan. The Company
obtained the Consents and Waivers.
The 1993 Notes. The prior terms of the 1993 Notes prohibited the
Subordinated Debt Refinancing because the indebtedness incurred to effect such
refinancing would be unsubordinated secured debt under the New Credit Agreement.
The Company obtained the consent of the holders of the 1993 Notes to amend the
1993 Note Indenture, among other things, in order to allow the Subordinated Debt
Refinancing to be consummated without any violation thereof. In connection with
such solicitation, CCA made certain consent payments, in cash, for each $1,000
principal amount of such securities for which consents were validly tendered
(and not revoked) on or before the date a supplemental indenture, dated April 8,
1994 (the 'First Supplemental Indenture') was executed.
Pursuant to the First Supplemental Indenture (i) the covenant contained in
the 1993 Note Indenture which limited debt incurrence by JSC and CCA was
modified, among other things, to allow Holdings, JSC or CCA to refinance the
existing Securities (or any portion thereof) with indebtedness for borrowed
money or with an exchange for indebtedness of any such company, so long as, at
or prior to the time such indebtedness is incurred but in no event later than
April 30, 1995, Holdings, JSC or CCA shall have consummated one or more public
or private sales of its capital stock and applied not less than $300 million of
the proceeds therefrom to the repayment of indebtedness of JSC or CCA which is
not by its terms expressly subordinated in right of payment to the 1993 Notes,
(ii) the covenant contained in the 1993 Note Indenture which limited certain
payments by JSC and CCA was modified to allow the payment of dividends on the
capital stock of JSC or CCA, following any initial public offering of capital
stock of Holdings, JSC or CCA (including the Equity Offerings) of up to 6% per
annum of the net proceeds received by JSC or CCA, as the case may be, out of
proceeds of, or from Holdings out of the proceeds of, (a) such public offering
and (b) the SIBV Investment or any other sale of capital stock of JSC, CCA or
Holdings which is substantially concurrent with the public offering referred to
in clause (a) above (in each case, net of underwriting discounts and
commissions, if any, but without deducting other fees and expenses therefrom),
(iii) the definition of 'change of control' was amended to delete therefrom a
change in a majority of the outstanding directors, (iv) the Substitution
Transaction (as defined under 'Description of Certain
Indebtedness -- Substitution Transaction') will be permitted to occur and (v)
certain other technical amendments were made to the 1993 Note Indenture.
Secured Notes. Under the terms of the Secured Notes, the Bank Debt
Refinancing (which involves a prepayment of the Secured Notes) would have
required that the holders of the Secured Notes be given a 30 day notice of
prepayment. The holders of the Secured Notes waived such 30 day notice of
prepayment.
Securitization. In 1991, JSC and CCA entered into the Securitization. The
Securitization involved the sale of JSC's and CCA's trade receivables (the
'Receivables') to Jefferson Smurfit Finance Corporation ('JSFC'), a special
purpose subsidiary of JSC. Under the Securitization, JSFC has borrowings of
$201.5 million outstanding at June 30, 1994, from Emerald Funding Corporation
('EFC'), a third-party owned corporation not affiliated with JSC, and has
pledged its interest in such Receivables to EFC. EFC issued commercial paper
notes ('CP Notes') and term notes ('Term Notes'). EFC also entered into a
liquidity facility with a group of banks, for whom Dresdner Bank AG acted as
agent (the 'Liquidity Banks'), and a subordinated loan agreement with Bank
Brussels Lambert (the 'Subordinated Lender') to provide additional sources of
funding. EFC pledged its interest in the Receivables assigned to it by JSFC to
secure EFC's obligations to the Liquidity Banks, the Subordinated Lender, and
the holders of the CP Notes and the Term Notes.
Under the prior terms of the Master Agreement relating to the
Securitization, the completion of the Equity Offerings would have resulted in
the occurrence of a 'Liquidation Event' because JS Group and its affiliates
would have ceased to own or control at least 50% of the issued and outstanding
shares of capital stock of Holdings entitled to vote for the election of members
of the Holdings' Board of Directors. In addition, the consummation of a merger
of JSC into CCA (see 'Description of Certain Indebtedness -- Substitution
Transaction') would have constituted a 'Liquidation Event.' The effect of the
occurrence of a Liquidation Event which is not waived is that collections on
receivables are no
24
<PAGE>
longer applied to purchase new receivables, but are used to pay down the amount
of outstanding debt owed to the Liquidity Banks, the Subordinated Lender and the
holders of the CP Notes and the Term Notes.
The Securitization documents were amended so that the consummation of the
Equity Offerings and of a subsequent merger of JSC into CCA would not result in
the occurrence of a Liquidation Event.
Other. The consent of The Times Mirror Company was required under the
shareholders agreement between JSC and The Times Mirror Company in order to
consummate the Recapitalization Plan. Certain transactions related to the
Recapitalization Plan may have needed to be approved by the Company's creditors
under the Old Bank Facilities and the Secured Note Purchase Agreement prior to
the Bank Debt Refinancing. All of such consents were obtained.
25
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of June 30, 1994 and as of June 30, 1994 as adjusted for the
Recapitalization Plan. This table should be read in conjunction with the
historical consolidated statements of operations and balance sheet of the
Company and 'Pro Forma Financial Data' included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------
AS ADJUSTED FOR
THE
RECAPITALIZATION
PLAN (INCLUDING
THE
SUBORDINATED
DEBT
ACTUAL REFINANCING)
-------- ---------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt (represents current maturities of long-term debt)............... $ 8.1 $ 8.1
-------- ---------------
Long-term debt:
New Revolving Credit Facility(a)(b)........................................ $ 69.0 $ 58.6
Initial Term Loan(a)....................................................... 300.0 300.0
Delayed Term Loan(a)....................................................... 100.0 900.0
Revolving Credit Facility(b)............................................... -- --
1989 Term Loan Facility.................................................... -- --
1992 Term Loan Facility.................................................... -- --
Secured Notes.............................................................. -- --
1993 Notes(c).............................................................. 500.0 500.0
1994 Notes(d).............................................................. 400.0 400.0
Securitization Loans....................................................... 201.5 201.5
Other senior indebtedness (excluding current maturities)................... 74.8 74.8
Senior Subordinated Notes(e)............................................... 350.0 --
Subordinated Debentures(e)................................................. 300.0 --
Junior Accrual Debentures(e)(f)............................................ 139.6 --
-------- ---------------
Total long-term debt....................................................... 2,434.9 2,434.9
-------- ---------------
Minority interest in subsidiary................................................. 17.3 17.3
-------- ---------------
Stockholder's deficit:
Additional paid-in capital and common stock................................ 1,118.3 1,118.3
Retained deficit........................................................... (1,861.3) (1,861.3)
-------- ---------------
Total stockholder's deficit................................................ (743.0) (743.0)
-------- ---------------
Total capitalization.................................................. $1,709.2 $ 1,709.2
-------- ---------------
-------- ---------------
</TABLE>
- ------------
(a) For further information about the New Revolving Credit Facility, the
Initial Term Loan and the Delayed Term Loan, see 'Description of Certain
Indebtedness -- The New Credit Agreement'. Immediately following the 1994
Offerings, borrowings of $100 million were outstanding under the Delayed
Term Loan.
(b) The amount shown for the New Revolving Credit Facility is net of available
cash. Represents funds utilized under such revolving credit facilities.
The maximum amount available under each of the New Revolving Credit
Facility (including the amount which was drawn down upon consummation of
the Recapitalization Plan) and the Revolving Credit Facility is $450
million (with up to $150 million of such amount being available for
letters of credit) and $400 million (with up to $125 million of such
amount being available for letters of credit), respectively. Immediately
following the 1994 Offerings, borrowings of $65 million and letters of
credit of approximately $90 million were outstanding under the New
Revolving Credit Facility. The Company paid accrued and unpaid interest on
June 1, 1994 on the Senior Subordinated Notes and the Subordinated
Debentures, and the Company expects that such interest will be paid on
December 1, 1994 through internal cash flow or with additional borrowings
under the New Revolving Credit Facility. See also footnote (d) below.
(c) For further information about the 1993 Notes, see 'Description of 1993
Notes'.
(d) For further information about the 1994 Notes, see 'Description of Certain
Indebtedness_--_Terms of the 1994 Notes'. To the extent proceeds of the
Debt Offerings are used to fund a portion of the Company's 1994 capital
expenditures, the Company will use available cash or borrow under the New
Revolving Credit Facility (or, to the extent proceeds are available, under
the Delayed Term Loan) to pay interest due on the Junior Accrual
Debentures as of December 1, 1994.
(e) For further information about the Subordinated Debt, see 'Description of
the Securities'.
(f) The Junior Accrual Debentures accrete in value at the rate of 15 1/2%
compounded semi-annually. The aggregate accreted value, including accrued
interest, of the Junior Accrual Debentures was approximately $139.6
million at June 30, 1994 and will be approximately $148.7 million at
December 1, 1994.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for each of the six months ended June 30, 1993 and 1994 and
the years ended December 31, 1989, 1990, 1991, 1992 and 1993. This data should
be read in conjunction with 'Management's Discussion and Analysis of Results of
Operations and Financial Condition' and the consolidated financial statements of
the Company and the related notes included elsewhere in this Prospectus. The
selected consolidated financial data of the Company as of and for the years
ended December 31, 1989, 1990, 1991, 1992 and 1993 presented under the captions
Operating Results and Balance Sheet Data, with the exception of the ratio of
earnings to fixed charges, were derived from the consolidated financial
statements of the Company, which were audited by independent auditors. The
information presented for the interim periods is unaudited but, in the opinion
of management, such information reflects all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of the financial
data for the interim periods. The results for the interim periods are not
necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------------
1989 1990 1991 1992 1993 1993 1994
--------- -------- -------- -------- -------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
OPERATING RESULTS:
Net sales........................ $ 2,936.3 $2,910.9 $2,940.1 $2,998.4 $2,947.6 $ 1,470.8 $ 1,493.6
Cost of goods sold............... 2,275.9 2,296.1 2,409.4 2,499.3 2,573.1 1,268.8 1,284.1
Selling and administrative
expenses....................... 254.9 218.8 225.2 231.4 239.2 119.7 107.1
Restructuring charge............. 96.0
Environmental and other
charges........................ 54.0
--------- -------- -------- -------- -------- ----------- -----------
Income (loss) from operations.... 405.5 396.0 305.5 267.7 (14.7) 82.3 102.4
Recapitalization expenses........ (139.2)
Interest expense................. (119.1) (337.8) (335.2) (300.1) (254.2) (127.7) (134.1)
Other, net....................... 8.4 6.5 5.4 5.2 8.1 2.3 3.1
--------- -------- -------- -------- -------- ----------- -----------
Income (loss) before income
taxes, equity in earnings
(loss) of affiliates, minority
interests, extraordinary item
and cumulative effect of
accounting changes............. 155.6 64.7 (24.3) (27.2) (260.8) (43.1) (28.6)
Provision for (benefit from)
income taxes................... 74.0 35.4 10.0 10.0 (83.0) (13.0) (8.4)
Equity in earnings (loss) of
affiliates(a).................. 11.9 (2.2) (39.9) 0.5
Minority interest share of income
(loss) in:
Smurfit Newsprint
Corporation.................. 3.6 5.3 2.9 (2.7) (3.2)
CCA, prior to acquisition...... 24.4
--------- -------- -------- -------- -------- ----------- -----------
Income (loss) before
extraordinary item and
cumulative effect of accounting
changes........................ 65.5 21.8 (77.1) (34.0) (174.6) (30.1) (20.2)
Extraordinary item:
Loss from early extinguishment
of debt, net of income tax
benefit...................... (29.7) (49.8) (37.8) (37.8) (51.6)
Cumulative effect of accounting
changes:
Postretirement benefits........ (37.0) (37.0)
Income taxes................... 20.5 20.5
--------- -------- -------- -------- -------- ----------- -----------
Net income (loss)................ $ 35.8 $ 21.8 $ (77.1) $ (83.8) $ (228.9) $ (84.4) (71.8)
--------- -------- -------- -------- -------- ----------- -----------
--------- -------- -------- -------- -------- ----------- -----------
Ratio of earnings to fixed
charges(b)..................... 2.24 1.17 (c) (c) (c) (c) (c)
--------- -------- -------- -------- -------- ----------- -----------
--------- -------- -------- -------- -------- ----------- -----------
OTHER DATA:
Gross profit margin(d)........... 22.5% 21.1% 18.1% 16.6% 12.7% 13.7% 14.0%
Selling and administrative
expenses as a percent of net
sales.......................... 8.7 7.5 7.7 7.7 8.1 8.1 7.2
EBITDA(e)........................ $ 508.8 $ 525.1 $ 440.9 $ 407.8 $ 274.2 $ 147.7 $ 171.1
Ratio of EBITDA to interest
expense........................ 4.27x 1.55x 1.32x 1.36x 1.08x 1.16x 1.28x
Property and timberland
additions...................... $ 201.3 $ 192.0 $ 118.9 $ 97.9 $ 117.4 $ 55.7 $ 65.0
Depreciation, depletion and
amortization................... 94.9 122.6 130.0 134.9 130.8 63.1 65.6
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $ 156.9 $ 60.7 $ 76.9 $ 105.7 $ 40.0 $ 95.7 $ 44.1
Property, plant and equipment and
timberland, net................ 1,422.3 1,527.3 1,525.9 1,496.5 1,636.0 1,686.3 1,641.6
Total assets..................... 2,436.7 2,447.9 2,460.1 2,436.4 2,597.1 2,659.6 2,720.0
Long-term debt (excluding current
maturities).................... 2,684.4 2,636.7 2,650.4 2,503.0 2,619.1 2,573.7 2,434.9
Deferred income taxes (excluding
current portion)............... 145.5 168.6 158.3 159.8 232.2 307.5 190.2
Stockholders' deficit............ (921.6) (899.4) (976.9) (828.9) (1,057.8) (913.2) (743.0)
STATISTICAL DATA:
Containerboard production
(thousand tons)................ 1,792 1,797 1,830 1,918 1,840 928 951
Boxboard production (thousand
tons).......................... 816 809 826 832 829 422 371
Newsprint production (thousand
tons).......................... 582 623 614 615 615 303 307
Corrugated shipping containers
sold (thousand tons)........... 1,581 1,655 1,768 1,871 1,936 946 1,000
Folding cartons sold (thousand
tons).......................... 444 455 482 487 475 235 235
Fibre reclaimed and brokered
(thousand tons)................ 3,549 3,547 3,666 3,846 3,907 1,917 1,957
Timberland owned or leased
(thousand acres)............... 992 968 978 978 984 979 984
</TABLE>
- ------------
(a) Equity in earnings (loss) of affiliates in 1991 includes after-tax charges
of $29.3 million and $6.7 million for the write-off of the Company's equity
investments in Temboard and PCL, respectively.
(b) For purposes of these calculations, earnings consist of income (loss) before
income taxes, equity in earnings (loss) of affiliates, minority interests
and extraordinary item and cumulative effect of accounting changes, plus
fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(c) For the six months ended June 30, 1993 and 1994 and for years ended December
31, 1991, 1992 and 1993, earnings were inadequate to cover fixed charges by
$24.3 million, $30.1 million, $26.7 million, $31.4 million and $264.2
million, respectively.
(d) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(e) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests, recapitalization expense, extraordinary
items and cumulative effect of accounting changes and in 1993, a
restructuring charge and environmental and other charges. The restructuring
and environmental and other charges include $43 million of asset writedowns
and $107 million of future cash expenditures. EBITDA is presented here, not
as a measure of operating results, but rather as a measure of the Company's
debt service ability.
27
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations for the six months ended June 30, 1994 and the year ended December
31, 1993 have been prepared to reflect the following: (i) the Recapitalization
Plan (excluding the Subordinated Debt Refinancing) and (ii) the Recapitalization
Plan (including the Subordinated Debt Refinancing). The statement of operations
for the year ended December 31, 1993 also includes the pro forma effect of the
1993 Notes. The pro forma effects of such transactions have been presented
assuming that they occurred as of the beginning of the period presented in the
unaudited pro forma condensed consolidated statement of operations. The
unaudited pro forma condensed consolidated balance sheet as of June 30, 1994 was
prepared as if the Subordinated Debt Refinancing occurred as of June 30, 1994.
The pro forma financial data are provided for informational purposes only
and do not purport to be indicative of the Company's financial position or
results which would actually have been obtained had such transactions been
completed as of the date or for the periods presented, or which may be obtained
in the future.
The pro forma financial data should be read in conjunction with the
historical financial statements of the Company and related notes thereto
appearing elsewhere in this Prospectus.
28
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
SUBORDINATED DEBT
REFINANCING
JEFFERSON ----------------------------
SMURFIT JSC
CORPORATION PRO FORMA (U.S.)
HISTORICAL (U.S.) ADJUSTMENTS PRO FORMA
------------------ ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 80.9 $ $ 80.9
Receivables...................................................... 289.9 289.9
Inventories...................................................... 218.0 218.0
Refundable income taxes.......................................... 0.2 0.2
Deferred income taxes............................................ 41.8 41.8
Prepaid expenses and other current assets........................ 3.3 3.3
-------- ----------- ---------
Total current assets......................................... 634.1 0.0 634.1
Property, plant and equipment, net................................... 1,381.8 1,381.8
Timberland, net...................................................... 259.8 259.8
Deferred debt issuance costs......................................... 87.4 87.4
Goodwill, less accumulated amortization.............................. 258.6 258.6
Other assets......................................................... 98.3 98.3
-------- ----------- ---------
Total assets......................................................... $2,720.0 $ 0.0 $2,720.0
-------- ----------- ---------
-------- ----------- ---------
LIABILITIES AND
STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt............................. $ 8.1 $ $ 8.1
Accounts payable................................................. 324.4 324.4
Accrued compensation and payroll taxes........................... 118.8 118.8
Interest payable................................................. 45.2 45.2
Other accrued liabilities........................................ 93.5 93.5
-------- ----------- --------
Total current liabilities.................................... 590.0 0.0 590.0
Existing long-term debt, less current maturities:
Nonsubordinated.................................................. 776.3 776.3
Subordinated..................................................... 789.6 (789.6)(a)
New Revolving Credit Facility........................................ 69.0 (10.4)(a) 58.6
Initial Term Loan.................................................... 300.0 300.0
Delayed Term Loan.................................................... 100.0 800.0(a) 900.0
Debt Offerings....................................................... 400.0 400.0
Other long-term liabilities.......................................... 230.6 230.6
Deferred income taxes................................................ 190.2 190.2
Minority interests................................................... 17.3 17.3
Stockholder's deficit
Common stock and additional paid-in capital...................... 1,118.3 1,118.3
Retained deficit................................................. (1,861.3) (1,861.3)
-------- ----------- --------
Total stockholder's deficit.................................. (743.0) 0.0 (743.0)
-------- ----------- --------
Total liabilities and stockholder's deficit.......................... $2,720.0 $ 0.0 $2,720.0
-------- ----------- --------
-------- ----------- --------
</TABLE>
- ------------
(a) Represents repayment of existing subordinated indebtedness and issuance of
new indebtedness under the Delayed Term Loan.
29
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED SUBORDINATED
DEBT REFINANCING) DEBT REFINANCING)
JEFFERSON ---------------------- ----------------------
SMURFIT JSC JSC
CORPORATION (U.S.) PRO FORMA (U.S.) PRO FORMA (U.S.)
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------------ ----------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1994:
Net sales.................................... $1,493.6 $ $1,493.6 $ $1,493.6
Cost of goods sold........................... 1,284.1 1,284.1 1,284.1
Selling and administrative expenses.......... 107.1 107.1 107.1
----------- ----------- --------- ----------- ---------
Income from operations....................... 102.4 0.0 102.4 0.0 102.4
Interest expense(a).......................... (134.1) 0.7 (133.4) 29.4 (104.7)
Other -- net................................. 3.1 3.1 3.1
----------- ----------- --------- ----------- ---------
Loss before income taxes........................ (28.6) 0.7 (27.9) 29.4 0.8
Provision for (benefit from) income taxes(b).... (8.4) 0.3 (8.1) 11.2 2.8
----------- ----------- --------- ----------- ---------
Loss before extraordinary item(c)................. $ (20.2) $ 0.4 $ (19.8) $18.2 (2.0)
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED SUBORDINATED
DEBT REFINANCING) DEBT REFINANCING)
JEFFERSON ---------------------- ----------------------
SMURFIT JSC JSC
CORPORATION (U.S.) PRO FORMA (U.S.) PRO FORMA (U.S.)
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------------ ----------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Net sales.................................... $2,947.6 $ $2,947.6 $ $2,947.6
Cost of goods sold........................... 2,573.1 2,573.1 2,573.1
Selling and administrative expenses.......... 239.2 239.2 239.2
Restructuring and other charges.............. 150.0 150.0 150.0
----------- ----------- --------- ----------- ---------
Loss from operations......................... (14.7) (14.7) (14.7)
Interest expense(a).......................... (254.2) (7.1) (261.3) 53.5 (200.7)
Other -- net................................. 8.1 8.1 8.1
----------- ----------- --------- ----------- ---------
Loss before income taxes, minority interest,
extraordinary item, and cumulative effect of
accounting changes.............................. (260.8) (7.1) (267.9) 53.5 (207.3)
Provision for (benefit) from income taxes(b)...... (83.0) (2.5) (85.5) 18.7 (64.3)
----------- ----------- --------- ----------- ---------
(177.8) (4.6) (182.4) 34.8 (143.0)
Minority interest share of loss................... 3.2 0.0 3.2 0.0 3.2
----------- ----------- --------- ----------- ---------
Loss before extraordinary item(c) and cumulative
effect of accounting changes.................... $ (174.6) $(4.6) $ (179.2) $34.8 $ (139.8)
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
</TABLE>
30
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Interest expense is based upon pro forma consolidated indebtedness
following consummation of the Senior Notes, the Recapitalization Plan
(excluding the Subordinated Debt Refinancing), and the Recapitalization
Plan (including the Subordinated Debt Refinancing) as if the transactions
had been consummated as of the beginning of the period presented, as
follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1994 YEAR ENDED DECEMBER 31, 1993
----------------------------------------------- -----------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
AS ADJUSTED FOR THE AS ADJUSTED FOR THE AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE (EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING) REFINANCING) REFINANCING)
--------------------- --------------------- --------------------- ---------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Senior Notes:
Net increase of interest
expense, interest rate
swap payments,
mark-to-market
adjustment and
amortization of
related deferred debt
issuance costs in
connection with the
issuance of the Senior
Notes and repayment of
existing
indebtedness(1)....... $ $ $ 5.3 $ 5.3
------ -------
5.3 5.3
Recapitalization Plan:
Interest expense related
to New Revolving
Credit Facility,
Initial Term Loan,
Delayed Term Loan and
Debt
Offerings(2)(5)....... 27.8 27.8 72.5 72.5
Net reduction of
interest expense,
interest rate swap
payments and
amortization of
related deferred debt
issuance costs on
indebtedness assumed
to be retired(3)...... (30.6) (30.6) (76.7) (76.7)
Amortization of deferred
debt issuance costs
associated with the
above debt(4)......... 2.1 2.1 6.0 6.0
------ ------ ------ -------
(0.7) (0.7) 1.8 1.8
Subordinated Debt
Refinancing:
Interest expense related
to Delayed Term
Loan(5)............... 24.1 45.7
Net reduction of
interest expense and
amortization of
related deferred debt
issuance costs on
indebtedness assumed
to be retired(6)...... (55.4) (110.6)
Amortization of deferred
debt issuance costs
associated with the
above debt(4)......... 2.6 4.3
------ -------
(28.7) (60.6)
------ ------ ------ -------
Net increase (decrease) of
interest expense.......... $ (0.7) $ (29.4) $ 7.1 $ (53.5)
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
- ------------
(1) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, cash payments and the mark-to-market
adjustment of the related interest rate swap agreements during the year
ended December 31, 1993 on indebtedness assumed to be retired in the
refinancing of the term loan under the 1989 Credit Agreement in connection
with the Senior Notes. The pro forma condensed consolidated statement of
operations assumes that the interest rate swap agreements on debt assumed to
be retired were marked-to-market as of the beginning of the period
presented. The loss associated with marking these agreements to market was
treated as an extraordinary charge and therefore does not appear in
(footnotes continued on next page)
31
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(footnotes continued from previous page)
the pro forma statement of operations for the year ended December 31, 1993.
See Note (c) to the pro forma condensed consolidated statement of
operations.
(2) Interest expense on the New Revolving Credit Facility is at the Adjusted
LIBOR Rate (as defined below) plus 2.5% and on the Initial Term Loan at the
Adjusted LIBOR Rate plus 3.00%. A change in the interest rate of .25% would
change interest expense on the New Revolving Credit Facility and the Initial
Term Loan by approximately $.5 million and $.9 million for the six months
ended June 30, 1994 and for the year ended December 31, 1993, respectively.
(3) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, and cash payments under swap agreements during
the six months ended June 30, 1994 and the year ended December 31, 1993 on
indebtedness assumed to be repaid with proceeds from the Equity Offerings,
Debt Offerings and the Initial Term Loan. Assumes that the interest rate
swap agreements on debt assumed to be repaid were marked-to-market as of the
beginning of the period presented. The loss associated with marking these
agreements to market was treated as an extraordinary charge and therefore
does not appear in the pro forma statements of operations. See Note (c) to
the pro forma condensed consolidated statements of operations.
(4) Deferred debt costs will be amortized over the term of the related debt.
(5) Interest expense on the Delayed Term Loan is at the Adjusted LIBOR rate plus
2.50%. A change in the interest rate of .25% would change interest expense
on the Delayed Term Loan by approximately $1.1 million and $2.3 million for
the six months ended June 30, 1994 and the year ended December 31, 1993
respectively.
(6) Represents the actual interest expense incurred and amortization of related
deferred debt issuance costs during the six months ended June 30, 1994 and
the year ended December 31, 1993 on indebtedness assumed to be retired by
the Subordinated Debt Refinancing.
(b) Tax expense related to reduction in the interest expense at an effective tax
rate of 38.0% and 35.0% for the six months ended June 30, 1994 and the year
ended December 31, 1993 respectively.
32
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(c) The preceding historical statement of operations for the six months ended
June 30, 1994 and for the year ended December 31, 1993 excludes an after tax
extraordinary loss of $51.6 million and $37.8 million, respectively,
resulting from the early extinguishment of debt as a result of the
Recapitalization Plan and the issuance of the Senior Notes. The following
details the nonrecurring charges resulting from the Recapitalization Plan
including and excluding the Subordinated Debt Refinancing. For the six
months ended June 30, 1994 the extraordinary item on a pro forma basis is
greater than the historical because the transaction is assumed to have
occurred on January 1, 1994. These charges would be treated as an
extraordinary loss from early extinguishment of debt and consequently are
not included on the pro forma statements of operations for the six months
ended June 30, 1994 and the year ended December 31, 1993.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1994 YEAR ENDED DECEMBER 31, 1993
---------------------------------------------- ----------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
AS ADJUSTED FOR THE AS ADJUSTED FOR THE AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE (EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING) REFINANCING) REFINANCING)
--------------------- --------------------- --------------------- ---------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Senior Notes:
Write-off of existing
deferred debt issuance
costs related to
long-term debt
repaid................ $ $ $ 2.6 $ 2.6
Impact of
marking-to-market the
interest rate swap
agreements related to
the Senior Notes...... (2.4) (2.4)
----- -----
0.2 0.2
Recapitalization Plan:
Write-off of existing
deferred debt issuance
costs related to
indebtedness assumed
to be retired, consent
fees and premiums..... (0.9) (0.9) 8.7 8.7
Impact of
marking-to-market the
interest rate swap
agreements............ 2.3 2.3 12.5 12.5
----- ----- ----- -----
1.4 1.4 21.2 21.2
Subordinated Debt
Refinancing:
Write-off of deferred
debt issuance costs
related to
subordinated debt
repaid or retired..... 1.1 26.7
Premiums paid on debt
retired............... 0.0 44.6
----- ----- ----- -----
1.1 71.3
----- ----- ----- -----
1.4 2.5 21.4 92.7
Assumed tax benefit......... 0.6 1.0 7.5 32.4
----- ----- ----- -----
Pro forma adjustment to
extraordinary item........ 0.8 1.5 13.9 60.3
Extraordinary item, net of
income tax benefit of $6.2
million and $31.6 million
for the six months ended
June 30, 1994 excluding
the Subordinated Debt
Refinancing and including
the Subordinated Debt
Refinancing, respectively,
and $21.7 million for the
year ended December 31,
1993...................... 10.2 51.6 37.8 37.8
----- ----- ----- -----
Pro forma extraordinary
item, net of tax
benefit................... $11.0 $53.1 $51.7 $98.1
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
the selected historical financial data and the historical consolidated financial
statements of the Company. Except as otherwise indicated, the following
discussion relates solely to historical results and does not consider the
potential impact from the Recapitalization Plan.
GENERAL
INDUSTRY CONDITIONS
Sales of containerboard and corrugated shipping containers, two of the
Company's most important products, are generally subject to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact selling prices and the Company's profitability. Operating rates in the
industry during 1992 and 1991 were at high levels relative to demand, which was
lower due to the sluggish U.S. economy and a decline in export markets. This
imbalance resulted in excess inventories in the industry and lower prices for
the Company's containerboard and corrugated shipping container products, which
began early in 1991 and continued throughout 1992 and most of 1993. From the
first quarter of 1991 through the third quarter of 1993 industry linerboard
prices fell from $350 per ton to $295 per ton. During 1993, industry operating
rates were lower as many containerboard producers, including the Company, took
downtime at containerboard mills to reduce the excess inventories. By the end of
the third quarter of 1993, inventory levels had decreased significantly. The
lower level of inventories and the stronger U.S. economy provided what the
Company believes were improved market conditions late in 1993, enabling the
Company and other producers to implement a $25 per ton price increase for
linerboard. Further improvements in market conditions have led to linerboard
increases of $30 and $40 per ton being implemented by all major integrated
containerboard producers, including the Company, effective March 1, 1994 and
July 1, 1994, respectively.
Newsprint prices have fallen substantially since 1990 due to supply and
demand imbalances. During 1991 and 1992, new capacity of approximately 2.0
million tons annually came on line, representing an approximate 12% increase in
supply. At the same time, U.S. consumption of newsprint fell, due to declines in
readership and ad linage. As prices fell, certain high cost, virgin paper
machines, primarily in Canada, representing approximately 1.2 million tons of
annual production capacity, were shut down and remained idle during 1993. While
supply was diminished, a price increase announced for 1993 was unsuccessful.
However, due to strengthening demand, successful price increases were
implemented in May and August of 1994.
Price movements of reclaimed fibre can have a significant effect on the
Company's profitability. In weakening markets when reclaimed fibre prices are
lower, the effect is unfavorable to the reclamation products division, but is
favorable to the Company overall because of the reduction in fibre cost to be
absorbed by the Company's paper mills that use reclaimed fibre. In a tightening
market the opposite is normally true. Generally, the tightness of supply in the
reclaimed fibre market matches increased demand for recycled paperboard, and
paperboard price increases may offset the higher cost of reclaimed fibre. During
the period 1990 to 1993, the demand for reclaimed fibre weakened and the higher
levels of supply in the market resulted in decreases in the price of reclaimed
fibre. However, increasing demand for recycled paperboard in the latter part of
1993 and in the first half of 1994 has resulted in dislocations in the supply of
reclaimed fibre which has driven the price of reclaimed fibre particularly in
the last half of the second quarter of 1994, to new high levels. While unable to
predict how long this unusual demand will last, the Company does not anticipate
a problem satisfying its need for this material in the foreseeable future.
In addition, prices for many of the Company's other products (including
solid bleached sulfate, recycled boxboard and folding cartons), which weakened
in 1993 and 1992, have now begun to improve. The Company has taken various steps
to extend its business into less cyclical product lines, such as industrial
packaging and consumer packaging.
As a result of these industry conditions, the Company's gross margin
declined from 18.1% in 1991 to 16.6% in 1992 and 12.7% in 1993. However, the
Company's gross margin increased from 13.7% for the first six months of 1993 to
14.0% for the first six months of 1994.
34
<PAGE>
The Company's sales and profitability have historically been more sensitive
to price changes than changes in volume. There can be no assurance that
announced price increases for the Company's products can be implemented, or that
prices for the Company's products will not decline from current levels.
COST REDUCTION INITIATIVES
The recent cyclical downturn in the Paperboard/Packaging Products segment
has led management to undertake several major cost reduction initiatives. In
1991, the Company implemented an austerity program to freeze staff levels, defer
certain discretionary spending programs and more aggressively manage capital
expenditures and working capital in order to conserve cash and reduce interest
expense. While these measures successfully reduced expenses and increased cash
flow, the length and extent of the industry downturn led the Company, in 1993,
to initiate a new six year plan to reduce costs, increase volume and improve
product mix (the 'Cost-Reduction Plan').
The Cost-Reduction Plan is a systematic Company-wide effort designed to
improve the cost competitiveness of all the Company's operating facilities and
staff functions. In addition to increases in volume and improvements in product
mix resulting from a focus on less commodity oriented business at its converting
operations, the Cost-Reduction Plan will focus on opportunities to reduce costs
and other measures, including (i) productivity improvements, (ii) capital
projects which provide high returns and quick paybacks, (iii) reductions in
fibre cost, (iv) reductions in the purchase cost of materials, (v) reductions in
personnel costs and (vi) reductions in waste cost. See 'Business -- Business
Strategy'.
RESTRUCTURING PROGRAM
To further counteract the downturn in the industries in which the Company
operates, management examined its cost and operating structure and developed a
restructuring program (the 'Restructuring Program') to improve its long-term
competitive position. As a result of management's review, in September 1993, the
Company recorded a pre-tax charge of $96 million including a provision for
direct expenses associated with (i) plant closures (consisting primarily of
employee severance and termination benefits, lease termination costs, and
environmental costs); (ii) asset write-downs (consisting primarily of write-off
of machinery no longer used in production and nonperforming machine upgrades);
(iii) employee severance and termination benefits for the elimination of
salaried and hourly personnel in operating and management realignment; and (iv)
relocation of employees and consolidation of plant operations. Management
anticipates that it will take approximately two to three years to complete the
Restructuring Program due to ongoing customer demands. The Restructuring Program
is expected to reduce production costs, employee expenses and depreciation
charges. As part of the Restructuring Program, the Company closed certain high
cost operating facilities, including a coated recycled boxboard mill and five
converting plants, in January 1994. While future benefits of the Restructuring
Program are uncertain, the operating losses in 1993 for the plants shut down in
January 1994 and those contemplated in the future were $31 million. While the
Company believes that it would have realized financial benefits in 1993 had
these plants been shut down at the beginning of the year, and that it will
realize such benefits in future periods, no assurances can be given in this
regard and, in particular, no assurances can be given as to what portion of such
loss would not have been realized in 1993 had such plants been shut down for the
entire year.
The $96 million charge consists of approximately $43 million for the
write-down of assets at closed facilities and certain other nonproductive assets
and $53 million of future cash expenditures. The Company anticipates that the
cash expenditures will be funded through operations. Significant anticipated
cash expenditures reflected in the above amount include $33 million of plant
closure costs, $5 million of employee severance and termination benefits and $7
million of consolidation and relocation of plant employees and equipment, a
substantial portion of which will be paid in 1994, 1995 and 1996.
ENVIRONMENTAL MATTERS
In 1993, the Company recorded a provision of $54 million of which $39
million relates to environmental matters, representing asbestos and PCB removal,
solid waste cleanup at existing and former operating sites, and expenses for
response costs at various sites where the Company has received notice that it is
a potentially responsible party ('PRP'). As discussed under 'Risk Factors --
35
<PAGE>
Environmental Matters' and 'Business -- Environmental Matters', the Company, as
well as other companies in the industry, faces potential environmental liability
related to various sites at which wastes have allegedly been deposited. The
Company has received notice that it is or may be a PRP at a number of federal
and state sites (the 'Sites') where remedial action may be required. Because the
laws that govern the clean up of waste disposal sites have been construed to
authorize joint and several liability, government agencies or other parties
could seek to recover all response costs for any Site from any one of the PRPs
for such Site, including the Company, despite the involvement of other PRPs.
Although the Company is unable to estimate the aggregate response costs in
connection with the remediation of all Sites, if the Company were held jointly
and severally liable for all response costs at some or all of the Sites, it
would have a material adverse effect on the financial condition and results of
operations of the Company. However, joint and several liability generally has
not in the past been imposed on PRPs, and, based on such past practice, the
Company's past experience and the financial conditions of other PRPs with
respect to the Sites, the Company does not expect to be held jointly and
severally liable for all response costs at any Site. Liability at waste disposal
sites is typically shared with other PRPs and costs generally are allocated
according to relative volumes of waste deposited. At most Sites, the waste
attributed to the Company is a very small portion of the total waste deposited
at the Site (generally significantly less than 1%). There are approximately ten
Sites where final settlement has not been reached and where the Company's
potential liability is expected to exceed de minimis levels. Accordingly, the
Company believes that its estimated total probable liability for response costs
at the Sites was adequately reserved at December 31, 1993. Furthermore, the
estimate takes into consideration the number of other PRPs at each site, the
identity, and financial position of such parties, in light of the joint and
several nature of the liability, but does not take into account possible
insurance coverage or other similar reimbursement.
RESULTS OF OPERATIONS
The following tables present net sales on a segment basis for the six
months ended June 30, 1994 and 1993 and for the years ended December 31, 1993,
1992 and 1991 and an analysis of period-to-period increases (decreases) in net
sales (in millions):
NET SALES BY SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Paperboard/Packaging Products................. $1,369.7 $1,348.7 $2,699.5 $2,751.0 $2,653.9
Newsprint..................................... 123.9 122.1 248.1 247.4 286.2
-------- -------- -------- -------- --------
Total net sales.......................... $1,493.6 $1,470.8 $2,947.6 $2,998.4 $2,940.1
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
NET SALES ANALYSIS
<TABLE>
<CAPTION>
SIX MONTHS 1994 1993 1992
COMPARED TO COMPARED TO COMPARED TO
SIX MONTHS 1993 1992 1991
--------------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) due to:
Sales price and product mix
Paperboard/Packaging Products.................. $ (21.2) $ (91.2) $ .8
Newsprint...................................... .2 (3.0) (39.4)
------- ----------- -----------
(21.0) (94.2) (38.6)
Sales volume
Paperboard/Packaging Products.................. 98.8 15.8 88.7
Newsprint...................................... 1.5 3.7 .6
------- ----------- -----------
100.3 19.5 89.3
Acquisitions and new facilities
Paperboard/Packaging Products.................. 2.2 34.9 9.8
Plant closings and asset distributions
Paperboard/Packaging Products.................. (58.7) (11.0) (2.2)
------- ----------- -----------
Total net sales increase (decrease)....... 22.8 $ (50.8) $ 58.3
------- ----------- -----------
------- ----------- -----------
</TABLE>
36
<PAGE>
SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993
The Company's net sales for the six months ended June 30, 1994 increased
1.6% to $1,493.6 million, compared to $1,470.8 million for the same period in
1993. Net sales increased 1.6% in the Paperboard/Packaging Products segment and
1.5% in the Newsprint segment.
The increase in Paperboard/Packaging Products segment sales was due
primarily to higher sales volumes, particularly for corrugated shipping
containers which increased 6% during the period. Sales growth was mitigated by
lower average sales prices, the shutdown of several operating facilities
pursuant to the Company's Restructuring Program (as defined below), product mix
changes and severe weather conditions experienced in January and February.
Despite two price increases since November 1993, average prices for corrugated
shipping containers were lower during the first half of 1994, reflecting the
severe price deterioration which occurred in the second half of 1993. An
additional price increase was implemented at the beginning of the third quarter.
Cost of goods sold as a percent of net sales for the six months ended June
30, 1994 and 1993 were 84.6% and 85.0%, respectively, for the
Paperboard/Packaging Products segment and 101.5% and 102.0%, respectively, for
the Newsprint segment. The price of reclaimed fibre a key element of the
Company's cost of sales, has escalated in recent months due to increased demand.
While unable to predict how long this upward demand will last, the Company does
not anticipate a problem satisfying its need for this material in the
foreseeable future. Selling and administrative expenses decreased to $107.1
million (10.5%) for the six months ended June 30, 1994 compared to $119.7
million for the same period in 1993. The decline in cost of goods sold as a
percent of net sales, particularly in view of lower sales prices for corrugated
containers, and the reductions in selling and administrative expenses are due in
large part to cost reduction initiatives and the Restructuring Program.
The restructuring program, which was implemented late in 1993 (the
'Restructuring Program'), was developed by the Company as a means to improve its
long-term competitive position. The Restructuring Program provides for plant
closures, asset write-downs, reductions in workforce, and relocation of
employees and consolidation of certain plant operations, which are expected to
be completed over an approximate two to three year period. In accordance with
the Restructuring Program, the Company closed certain high cost operating
facilities, including a coated recycled boxboard mill, and five converting
plants in the first quarter of 1994 and two reclamation plants in the fourth
quarter of 1993. Approximately 40% of the $53 million of cash expenditures
anticipated under the Restructuring Program was paid in the six months ended
June 30, 1994. The Company believes that a substantial portion of the cash
expenditures related to the Restructuring Program will be funded through
operations in 1994, 1995, and 1996, as originally planned.
Income from operations increased 24.4% to $102.4 million for the six months
ended June 30, 1944 compared to $82.3 million for the same period in 1993 due
primarily to the cost reduction initiatives, the Restructuring Program and
higher sales volumes, as mentioned above.
Interest expense of $134.1 million for the six months ended June 30, 1994
was $6.4 million higher than the comparable period in 1993 due to higher
effective interest rates in the 1994 period.
The benefit from income taxes for the six months ended June 30, 1994 was
$8.4 million. The effective tax rate for the period was lower than the Federal
statutory tax rate due to several factors, the most significant of which was the
nondeductibility of goodwill amortization.
The Company had a loss before extraordinary item and cumulative effect of
accounting changes for the six months ended June 30, 1994 and 1993 of $20.2
million and $30.1 million, respectively. The Company recorded an extraordinary
loss from the early extinguishment of debt in the second quarter of each year,
bringing the net loss for the six months ended June 30, 1994 and 1993 to $71.8
million and $84.4 million, respectively. The Company refinanced a majority of
its debt in 1993 and 1994 in preparation for and in conjunction with its initial
public offering completed earlier this year. The net loss for the 1993 period
also included a loss of $16.5 million for the cumulative effects of accounting
changes related to the adoption of Statement of Financial Accounting Standards
('SFAS') No. 106, 'Employers' Accounting for Postretirement Benefits Other Than
Pensions' and SFAS No. 109, 'Accounting for Income Taxes'.
37
<PAGE>
1993 COMPARED TO 1992
The Company's net sales for 1993 decreased 1.7% to $2.95 billion compared
to $3.0 billion in 1992. Net sales decreased 1.9% in the Paperboard/Packaging
Products segment and increased 0.3% in the Newsprint segment.
The decrease in Paperboard/Packaging Products segment sales for 1993 was
due primarily to lower prices and changes in product mix for containerboard,
corrugated shipping containers and folding cartons. This decrease was partially
offset by an increase in sales volume primarily of corrugated shipping
containers, which set a record in 1993. A newly constructed corrugated container
facility and several minor acquisitions in 1992 caused net sales to increase
$34.9 million for 1993.
The net sales increase in the Newsprint segment was a result of an increase
in sales volume in 1993 compared to 1992, partially offset by a decline in sales
prices.
Cost of goods sold as a percent of net sales for 1993 and 1992 were 85.9%
and 81.9%, respectively, for the Paperboard/Packaging Products segment and
102.8% and 99.0%, respectively, for the Newsprint segment. The increase in cost
of goods sold as a percent of net sales for the Paperboard/Packaging Products
segment was due primarily to the aforementioned changes in pricing and product
mix. The increase in the cost of goods sold as a percent of net sales for the
Newsprint segment was due primarily to the higher cost of energy and fibre and
decreases in sales price. In 1993, the Company changed the estimated depreciable
lives of its paper machines and major converting equipment. These changes were
made to better reflect the estimated periods during which the assets will remain
in service and were based upon the Company's historical experience and
comparable industry practice. These changes were made effective January 1, 1993
and had the effect of reducing depreciation expense by $17.8 million and
decreasing the 1993 net loss by $11.0 million.
Selling and administrative expenses increased to $239.2 million (3.4%) for
1993 compared to $231.4 million for 1992. The increase was due primarily to
higher provisions for retirement costs, acquisitions, new facilities and other
costs.
In order to minimize significant year-to-year fluctuations in pension cost
caused by financial market volatility, the Company changed, effective January 1,
1993, the method of accounting for the recognition of fluctuations in the market
value of pension assets. The effect of this change on 1993 results of
operations, including the cumulative effect of prior years, was not material.
See Note 8 to the Company's consolidated financial statements.
The Company reduced its weighted average discount rate in measuring its
pension obligations from 8.75% to 7.6% and its rate of increase in compensation
levels from 5.5% to 4.0% at December 31, 1993. The net effect of changing these
assumptions was the primary reason for the increase in the projected benefit
obligations and the changes are expected to increase pension cost by
approximately $3.4 million in 1994.
As a result of the $96 million restructuring charge, the $54 million
environmental and other charges, and the lower margins, primarily for newsprint
and containerboard products, the Company had a loss from operations of $14.7
million for 1993, compared to $267.7 million income from operations for 1992.
Interest expense for 1993 declined $45.9 million due to lower effective
interest rates and the lower level of subordinated debt outstanding resulting
primarily from the 1992 Transaction (as defined below).
The benefit from income taxes for 1993 was $83.0 million compared to a tax
provision of $10.0 million in 1992. The significant difference in the income tax
provision from 1993 to 1992 results from the use of the liability method of
accounting which restored deferred income taxes and increased the related asset
values for tax effects previously recorded as a reduction of the carrying amount
of the related assets under prior business combinations. The Company's effective
tax rate for 1993 was lower than the Federal statutory tax rate due to the
nondeductibility of goodwill amortization and a $5.7 million provision to adjust
deferred tax assets and liabilities in 1993 due to the enacted Federal income
tax rate change from 34% to 35%.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes' and SFAS
No. 106, 'Employers' Accounting for Postretirement Benefits Other Than
Pensions'. The cumulative effect of adopting SFAS No. 109 was to increase net
income for 1993 by approximately $20.5 million. The cumulative effect of
adopting SFAS
38
<PAGE>
No. 106 was to decrease net income for 1993 by approximately $37 million. The
Company will adopt SFAS No. 112 'Employers' Accounting for Postemployment
Benefits' in 1994, the effect of which is not expected to be material.
The loss before extraordinary item and cumulative effect of accounting
changes for 1993 was $174.6 million, compared to $34.0 million for the
comparable period in 1992. The Company recorded an extraordinary loss of $37.8
million (net of income tax benefits of $21.7 million) for the early
extinguishment of debt associated with the issuance of the 1993 Notes.
1992 COMPARED TO 1991
Net sales for 1992 increased to $3.0 billion (2.0%) compared to $2.94
billion in 1991. Net sales increased 3.7% in the Paperboard/Packaging Products
segment and decreased 13.6% in the Newsprint segment.
The increase in Paperboard/Packaging Products segment sales was due
primarily to a 5.6% increase in sales volume for corrugated shipping containers.
Segment sales were also positively affected by increases in sales volumes for
papertubes and partitions and to a lesser extent for folding cartons and
reclamation products. Prices of containerboard products improved over 1991 but
did not increase sufficiently to cover cost increases, causing margins to be
somewhat lower in 1992. Prices for most of the Company's other packaging
products have declined compared to 1991. A minor acquisition in 1992 and the
operation of new facilities in the Paperboard/Packaging Products segment
resulted in an increase in net sales of $9.8 million, while plant closings
caused net sales to decrease by $2.2 million.
The net sales decrease in the Newsprint segment was a result of the lower
sales prices as discussed above. Newsprint sales volume for 1992 was virtually
the same as 1991.
The Company continued to benefit from certain austerity measures first
implemented during 1991 to help offset the impact of the recession. These
measures had a positive effect on cost of goods sold and selling and
administrative expenses. Cost of goods sold as a percent of net sales for 1992
and 1991 were 81.9% and 81.8%, respectively, for the Paperboard/Packaging
Products segment and 99.0% and 83.1% respectively, for the Newsprint segment.
The increase in the Newsprint segment was due primarily to the aforementioned
decrease in sales price.
Selling and administrative expense as a percent of net sales for 1992 was
7.7%, unchanged from 1991. The Company continues to benefit from certain cost
containment measures implemented in 1991 to reduce expenses to help offset the
impact of the recession and inflation.
Income from operations for 1992 decreased 12.4% to $267.7 million as a
result of the low average selling prices for newsprint and packaging products
discussed above.
Interest expense for 1992 was lower by $35.1 million, due to lower
effective interest rates and the lower level of debt outstanding as a result of
the 1992 Transaction (as defined in 'Certain Transactions'). During 1992, the
Company replaced $425.0 million of mature swaps with $400.0 million of the new
two-year fixed interest rate swaps at an annual savings of approximately 3.8% on
such amount (equivalent to an annual savings of approximately $15.1 million).
The Company recorded a $10.0 million income tax provision in both 1992 and
1991 on income before income taxes, equity in earnings (loss) of affiliates and
extraordinary item of $27.2 million and $24.3 million, respectively. The tax
provisions for 1992 and 1991 were higher than the Federal statutory tax rate due
to several factors, the most significant of which was the impact of permanent
differences from applying purchase accounting.
Equity in loss of affiliates for 1991 included a write-down of $36.0
million with respect to the Company's equity investments in Temboard and Company
Limited Partnership and PCL Industries Limited. See Note 3 to the Company's
consolidated financial statements. For 1992 the Company had an extraordinary
loss of $49.8 million (net of income tax benefits of $25.8 million) for the
early extinguishment of debt associated with the 1992 Transaction.
39
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Company uses the LIFO method of accounting for approximately 81% of its
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current cost and thus reduces the distortion
in reported income due to increasing costs. In recent years, inflation has not
had a material effect on the financial position or results of operations of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash for the next several years will be
principal and interest payments on its indebtedness and capital expenditures.
In May 1994, the Company implemented the Recapitalization Plan to repay or
refinance a substantial portion of indebtedness in order to improve operating
and financial flexibility by reducing the level and overall cost of debt,
extending maturities of indebtedness, increasing stockholder's equity and
increasing access to capital markets. The Recapitalization Plan includes the
following: (i) the issuance and sale by CCA of $300 million aggregate principal
amount of $11.25% Series A Senior Notes due 2004 and $100 million aggregate
principal amount of 10.75% Series B Senior Notes due 2002; (ii) the issuance and
sale by Holdings of 19,250,000 shares of Holdings Common Stock for $13.00 per
share; (iii) the purchase by SIBV of 11,538,462 shares of Holdings Common Stock
for $13.00 per share; and (iv) the entering into of the New Credit Agreement by
CCA and JSC consisting of a $450 million revolving credit facility, a $300
million initial term loan and a $900 million delayed term loan.
The first step of the Recapitalization Plan, pursuant to which the Company
applied the net proceeds of the Equity Offerings and the SIBV Investment and a
portion of the net proceeds of the Debt Offerings, together with borrowings
under the New Credit Agreement, to pay in full the Company's previously
outstanding bank debt, was completed in May 1994. The second step of the
Recapitalization Plan involves the application, on approximately December 1,
1994, of borrowings, including borrowings under the New Credit Agreement
(including under the Delayed Term Loan), to redeem CCA's (a) 13.5% Senior
Subordinated Notes due 1999, (b) 14.0% Subordinated Debentures due 2001 and (c)
15.5% Junior Subordinated Accrual Debentures due 2004. The earliest date the
Subordinated Debt may be redeemed is December 1, 1994. Approximately $78 million
of net proceeds of the Debt Offerings were segregated primarily to fund a
portion of the Company's 1994 capital expenditures or to pay accrued and unpaid
interest on the Junior Subordinated Accrual Debentures as of December 1, 1994.
To the extent such proceeds of the Debt Offerings are used to fund the Company's
1994 capital expenditures, the Company will use available cash or borrow under
the New Revolving Credit Facility (or, to the extent available, under the
Delayed Term Loan) to pay such interest.
The New Credit Agreement imposes an annual limit on future capital
expenditures of approximately $150.0 million. The capital spending limit is
subject to increase by an amount up to $75 million in any year if the prior
year's spending was less than the maximum amount allowed; for 1994, the Company
has a carryover of $75.0 million. Capital expenditures consist of property and
timberland additions and acquisitions of businesses. Capital expenditures for
the six months ended June 30, 1994 were $65.0 million. Because the Company has
invested heavily in its core businesses over the last several years, management
believes the annual limitation for capital expenditures should not impair its
plans for maintenance, expansion and continued modernization of its facilities.
The New Credit Agreement also prohibits the payment of any dividends by the
Company for the foreseeable future.
The Company has historically financed its operations through cash provided
by operations, borrowings under its credit agreement and debt and equity
financings. The Company expects that liquidity will be provided by its
operations and through the utilization of unused borrowing capacity under its
New Credit Agreement and the Securitization. At June 30, 1994, the Company had
$287.5 million in unused borrowing capacity under its New Credit Agreement and
borrowing capacity of $27.8
40
<PAGE>
million under the Securitization subject to the Company's level of eligible
accounts receivable. There are no significant scheduled payments due on bank
debt until October 1995, at which time approximately $46.0 million will be
payable.The Securitization matures in April 1996, at which time the Company
expects it to be refinanced.
The Company's existing indebtedness imposes restrictions on its ability to
incur additional indebtedness. Such restrictions, together with the highly
leveraged position of the Company, could restrict corporate activities,
including the Company's ability to respond to market conditions, to provide for
unanticipated capital expenditures or to take advantage of business
opportunities. However, the Company believes that cash provided by operations
and available financing sources will be sufficient to meet the Company's cash
requirements for the next several years.
41
<PAGE>
BUSINESS
GENERAL
The predecessor to the Company was founded in 1974 when JS Group, a
worldwide leader in the packaging products industry, commenced operations in the
United States by acquiring 40% of a small paperboard and packaging products
company. The remaining 60% of that company was acquired by JS Group in 1977, and
in 1978 net sales were $42.9 million. The Company implemented a strategy to
build a fully integrated, broadly based, national packaging business, primarily
through acquisitions, including Alton Box Board Company in 1979, the paperboard
and packaging divisions of Diamond International Corporation in 1982, 80% of SNC
in 1986 and 50% of CCA in 1986. The Company financed its acquisitions by using
leverage and, in several cases, utilized joint venture financing whereby the
Company eventually obtained control of the acquired company. While no major
acquisition has been made since 1986, the Company has made 18 smaller
acquisitions and started up five new facilities which had combined sales in 1993
of $280.3 million. JSC was formed in 1983 to consolidate the operations of the
Company, and today the Company ranks among the industry leaders in its two
business segments, Paperboard/Packaging Products and Newsprint. In 1993, the
Company had net sales of $2.9 billion, achieving a compound annual sales growth
rate of 32.6% for the period since 1978.
The Company believes it is one of the nation's largest producers of
paperboard and packaging products and is the largest producer of recycled
paperboard and recycled packaging products. In 1993, the Company's system of 16
paperboard mills produced 1,840,000 tons of virgin and recycled containerboard,
829,000 tons of coated and uncoated recycled boxboard and SBS and 206,000 tons
of recycled cylinderboard, which were sold to the Company's own converting
operations or to third parties. The Company's converting operations consist of
52 corrugated container plants, 18 folding carton plants, and 16 industrial
packaging plants located across the country, with three plants located outside
the U.S. In 1993, the Company's container plants converted 1,942,000 tons of
containerboard, an amount equal to approximately 105.5% of the amount it
produced, its folding carton plants converted 542,000 tons of SBS, recycled
boxboard and coated natural kraft, an amount equal to approximately 65.4% of the
amount it produced, and its industrial packaging plants converted 123,000 tons
of recycled cylinderboard, an amount equal to approximately 59.7% of the amount
it produced. The Company's Paperboard/Packaging Products segment contributed
91.6% of the Company's net sales in 1993.
The Company's paperboard operations are supported by its reclamation
division, which processed or brokered 3.9 million tons of wastepaper in 1993,
and by its timber division which manages approximately one million acres of
owned or leased timberland located in close proximity to its virgin fibre mills.
The paperboard/packaging products operations also include 14 consumer packaging
plants.
In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint. The Company's Newsprint segment includes two
newsprint mills in Oregon, which produced 615,000 tons of recycled newsprint in
1993, and two facilities that produce Cladwood'r', a construction material
produced from newsprint and wood by-products. The Company's newsprint mills are
also supported by the Company's reclamation division.
DEVELOPMENT OF BUSINESS
Since its founding in 1974, the Company has followed a strategy to build a
broadly based packaging business, primarily through acquisitions. The Company's
acquisitions were principally motivated by opportunities to expand productive
capacity, both geographically and into new product lines, further integrate its
operations and broaden its existing product lines and customer base. The Company
has sought to improve the productivity of plants and operations acquired by it.
The most significant acquisitions were:
1979 -- Acquired 51% of Alton Box Board Company; the remaining 49% was
acquired in 1981. Alton's containerboard and industrial packaging
businesses consisted of fully integrated containerboard and paperboard
operations. The Alton acquisition significantly enhanced the Company's
presence in the midwest and expanded its operations to the southeast. In
addition, the Alton acquisition expanded the Company's product lines to
include folding cartons and industrial packaging and provided a network of
reclamation facilities which supplied wastepaper
42
<PAGE>
to the Company's recycled mills. Alton owned a kraft linerboard mill and a
recycled medium mill, two recycled cylinderboard mills, 32 converting
facilities and nine recycled wastepaper plants. Alton's total annual
paperboard production at the date of acquisition was 471,775 tons, as
compared to 582,017 tons in 1993.
1982 -- Acquired 50% of the paperboard and packaging divisions of Diamond
International Corporation through a joint venture; the remaining 50% was
acquired in 1983. In addition to expanding the Company's existing product
lines and customer base, the Diamond acquisition added new product lines,
including labels and other consumer packaging, and a related business
which produced rotogravure cylinders for use on printing presses used
extensively by the folding carton industry. Diamond owned two coated
recyled boxboard mills, which provided the Company with an integrated
source of recycled boxboard for use in its folding carton plants, as well
as three folding carton plants, three shipping container plants and three
consumer packaging plants. Diamond's operations were located primarily in
the midwest. Diamond's annual coated recycled boxboard production,
exclusive of a mill recently shut down, at the date of acquisition was
74,494 tons, as compared to 113,006 tons in 1993.
1986 -- Acquired 80% of SNC, formerly Publishers Paper Company. The SNC
acquisition extended the Company's product line to include newsprint and
also expanded the Company's reclamation operations to the west coast. The
SNC acquisition consisted of two newsprint mills and two Cladwood'r'
manufacturing plants, all of which are located in Oregon. SNC's annual
newsprint production at the date of acquisition was 592,804 tons, as
compared to 615,151 tons in 1993.
1986 -- Acquired 50% of CCA through a joint venture with The Morgan
Stanley Leveraged Equity Fund, L.P.; the remaining 50% was acquired in
1989. The total CCA acquisition cost was $1,130 million, which was
financed with $1,060 million of debt and $70 million of preferred and
common equity. The CCA acquisition substantially enhanced the Company's
production capacity and further integrated the Company's operations. It
also expanded its paperboard and packaging operations to the west coast,
which enabled the Company to compete on a national level and broaden its
customer base. The CCA acquisition consisted primarily of nine paperboard
mills, 40 converting plants and five reclamation facilities as well as
approximately 1,000,000 acres of owned or leased timberlands. CCA's
operations are located throughout the United States. CCA's total annual
paperboard production at the date of acquisition was 1,760,039 tons, as
compared to 2,002,064 tons in 1993.
INDUSTRY OVERVIEW
PAPERBOARD
General
Paperboard is a general term used to describe certain heavyweight grades of
paper primarily used for packaging products. Paperboard is produced from four
basic types of pulp: (i) unbleached kraft; (ii) bleached kraft; (iii) recycled
and (iv) semi-chemical. Unbleached kraft, bleached kraft and semi-chemical
paperboards are produced primarily from wood pulp. Recycled paperboard is
produced primarily from wastepaper. Recycled paperboard demand has grown at a
more rapid rate than virgin grades based primarily on its increased quality and
rising environmental awareness by consumers.
Paperboard is classified by three major end-uses: (i) containerboard, (ii)
boxboard and (iii) other paperboard. Containerboard primarily includes
linerboard and corrugating medium, the components of corrugated boxes used in
the transportation of manufactured goods. Boxboard includes folding carton
stock, setup boxboard and food board. Folding cartons, the major segment of
boxboard, are used to package a wide range of consumer products such as health
and beauty products, dry cereals and soap powders. Folding cartons are often
clay-coated for better printability and consumer appeal. Other paperboard
includes paperboard used in a number of industrial applications: fibre drums,
composite cans, spiral tubes, cores, gypsum wallboard liner and box partitions.
43
<PAGE>
According to the American Forest & Paper Association (the 'AFPA'), the
following table represents 1993 containerboard and boxboard production in the
United States.
<TABLE>
<CAPTION>
%
PRODUCTION(1) --------------------------------------------------
------------- UNBLEACHED BLEACHED
END-USE % OF TOTAL KRAFT KRAFT RECYCLED SEMICHEMICAL
- ----------------------------------- (TONS IN ---------- ---------- -------- -------- ------------
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Containerboard..................... 26,175 77% 64 1 14 21
Boxboard........................... 7,718 23 16 45 39 --
------------- ----------
33,893 100%
------------- ----------
------------- ----------
</TABLE>
- ------------
(1) Excludes approximately 3.0 million export containerboard tons and 1.1
million export boxboard tons.
Containerboard
Demand. Total containerboard production grew from 21.3 million tons in 1983
to 29.2 million tons in 1993 (consisting of 26.2 million tons of domestic
production and 3.0 million tons of exports) for a compound annual growth rate
('Rate') of 3.3%. From 1983-1993, containerboard produced from recycled
paperboard grew at a much faster rate than unbleached kraft, experiencing a 7.6%
Rate. Containerboard demand is highly cyclical and fluctuates with the general
level of economic activity.
GDP % CHANGE VS. CONTAINERBOARD PRODUCTION % CHANGE
[GRAPHIC MATERIAL -- SEE APPENDIX]
Overall, containerboard demand is a function of the level of corrugated box
shipments from box converting plants and, to some extent, the level of
containerboard inventories on hand. Over the last six months of 1993, corrugated
box demand was very strong with shipments from August 1993 through December 1993
exceeding corresponding 1992 months by 9.1%, 6.6%, 5.7%, 12.3% and 10.1%,
respectively. Box plant containerboard inventory levels were at 2.16 million
tons on December 31, 1993, up slightly from 1.98 million tons on October 31,
1993, their lowest level on a tonnage basis since 1987. Containerboard demand
has also been assisted in recent months by an increase in exports. The Company
is currently experiencing strong demand and believes that it will continue as
the economy improves. Resource Information Systems, Inc. ('RISI'), a well known
industry consultant, projects domestic containerboard production to grow to 28.9
million tons by 1996, a 3.3% Rate from 1993. RISI projects exports to remain
relatively flat through 1996.
44
<PAGE>
Supply. U.S. containerboard capacity totaled 31.1 million tons in 1993, for
a 2.9% Rate from 1983 to 1993. From 1983 to 1993, capacity utilization reached a
high of 97.8% in 1987 and a low of 90.3% in 1985. Approximately, 4.0 million
tons of new capacity was added between year-end 1988 and year-end 1993,
decreasing operating rates from 1987 levels.
Operating rates in the industry during 1991 and 1992, however, ran at high
levels relative to demand, which was lower due to the sluggish U.S. economy and
a decline in export markets. This imbalance resulted in excess inventories in
the industry and lower prices for the Company's containerboard and corrugated
shipping container products, which continued throughout most of 1993. To reduce
rising inventories, many containerboard producers, including the Company, took
downtime at containerboard mills which resulted in lowering industry operating
rates to 93.7% for 1993. By the end of the third quarter of 1993, inventory
levels had decreased significantly.
According to the AFPA, producers plan to add only a modest 2.1 million tons
of containerboard capacity in 1994-1996. One million four hundred thousand tons,
or 67.0% of the added capacity, will be recycled linerboard and corrugating
medium. The following graph reflects the historical relationship between
containerboard capacity utilization and linerboard prices, the predominant grade
for containerboard products.
CAPACITY UTILIZATION VS. LINERBOARD PRICES
[GRAPHIC MATERIAL -- SEE APPENDIX]
Pricing. Pricing historically has been correlated with the levels of
industry capacity utilization. Over the past business cycle, containerboard
prices peaked in 1989. Linerboard peaked at approximately $410 per ton and
reached a low of $290-$300 per ton in July 1993, owing to decreased demand and
increased inventories. Over the past several months, containerboard pricing has
strengthened as demand has increased, inventories have fallen, and corrugated
box producers have been successful in increasing prices to customers. For
example, a $25 per ton increase for linerboard was implemented in November 1993,
raising prices to $315-$325 per ton, and most of the major linerboard producers,
including the Company, implemented a $30 per ton increase effective March 1,
1994. Although there can be no assurance that this price increase will be
sustained, management believes that such price increase will hold.
45
<PAGE>
Boxboard
Demand. Total boxboard production (including exports) grew to 8.8 million
tons in 1993 from 6.8 million tons in 1983, representing a 2.5% Rate.
Traditionally, recycled and SBS have been by far the largest segments of
boxboard production, representing 40% and 49%, respectively. During 1983 to
1993, recycled boxboard grew at a 2.0% Rate, SBS boxboard grew at a 1.0% Rate
and unbleached kraft, starting from a much smaller base, grew at a 5.2% Rate.
Like containerboard, boxboard demand tends to fluctuate with the general level
of economic activity. During the late 1980s, the use of clay coated recycled
boxboard as a substitute for SBS boxboard increased based on its improved
quality, heightened environmental awareness by consumers and increased demand by
customers for less expensive packaging alternatives. RISI projects both recycled
boxboard production and SBS production to increase at a 2.2% Rate from 1993 to
1996.
Supply. From 1983 to 1993 total boxboard capacity grew from 7.6 million
tons to 9.3 million tons, a 2.0% Rate. SBS folding boxboard grew at a 1.7% Rate,
reaching 2.5 million tons by 1993, while recycled folding boxboard grew to 3.0
million tons by 1993, a 1.1% Rate.
BOXBOARD CAPACITY UTILIZATION
[GRAPHIC MATERIAL -- SEE APPENDIX]
According to the AFPA, 1.2 million tons of boxboard capacity will be added
between 1993-1996. Recycled boxboard accounts for 16% and SBS for 56% of
announced capacity additions.
Pricing. While general boxboard pricing levels are dependent on the overall
balance of supply and demand, relative pricing of different grades of boxboard
is affected by the substitutability of one grade for another in various customer
applications. For example, although the clay coated recycled demand and supply
situation is positive for the upcoming years, clay coated recycled prices are
influenced by SBS prices. During the late 1980s, SBS prices were substantially
higher than clay coated recycled prices. In recent years, SBS prices have
declined at a greater percentage than clay coated recycled, so that on a yield
basis, there is not currently a significant price differential between the two.
Future price growth in some grades of SBS may be tempered by recent and
projected capacity increases.
NEWSPRINT
General. Newsprint is an uncoated paper used in newspaper production.
Virgin newsprint is manufactured primarily from mechanical or groundwood pulps.
The bulk of North American virgin newsprint capacity is located in Canada and
the majority of recycled newsprint capacity is located in the
46
<PAGE>
U.S. because of the close proximity of wastepaper collection sites. In recent
years, the majority of U.S. state legislatures have enacted recycled content
laws requiring newspaper publishers to use newsprint containing various
percentages of recycled fibre.
Demand. According to the AFPA, the total U.S. newsprint production in 1993
remained flat, compared to 1992, with 7.08 million tons being produced. Canadian
production is estimated to have been 10.39 million tons in 1993, compared to
9.84 million tons in 1992. From 1983 to 1993, North American newsprint
production grew at a 1.6% Rate. Newsprint demand is dependent on the general
level of newspaper advertising. RISI estimates North American newsprint
shipments will remain flat through 1995.
According to the AFPA, North American production is also influenced by the
export levels to major newsprint consuming regions such as Western Europe and
Asia. In 1992, U.S. and Canadian producers increased export shipments 17% over
1991. 1993 witnessed a significant decline in North American exports due to
unfavorable currency exchange rates and new capacity in Europe and Asia.
Supply. According to the AFPA, North American newsprint capacity was 18.2
million tons in 1993, reflecting a 1.2% Rate since 1983. During the period from
year end 1988 to year end 1991, 0.95 million tons of U.S. newsprint capacity and
0.37 million tons of Canadian newsprint capacity were added, severely depressing
utilization rates in the early 1990s. Capacity expansion in the newsprint
industry has been concentrated on recycling and, over the last three years,
eleven new deinking plants have been brought into operation with the capacity to
recycle 2.9 million tons of recovered paper.
Capacity utilization has been at relatively low levels during the early
1990s as a large growth in capacity has coincided with a decline in newsprint
demand, which has led to lower rates for North American mills overall. Capacity
utilization from 1983 to 1993 is shown in the table below:
NORTH AMERICAN NEWSPRINT CAPACITY UTILIZATION
[GRAPHIC MATERIAL -- SEE APPENDIX]
According to the AFPA, North American newsprint capacity will remain flat
through 1996 because no new mills or machines are planned during this period and
capacity gains resulting from rebuilds of existing machines and miscellaneous
improvements will be offset by the reallocation of capacity in several mills to
produce groundwood and specialty papers rather than newsprint. Several new
recycled newsprint mills have been announced recently in Western Europe, and
such mills are expected to affect future exports by North American producers.
47
<PAGE>
Pricing. Newsprint is a commodity paper grade with pricing largely a
function of capacity utilization. West coast prices fell from a peak of
approximately $595 per metric ton (30-lb, delivered) in 1988 to a low of $420
per metric ton in the second quarter of 1992. In December, 1993 newsprint
producers, including the Company, announced price increases which were
unsuccessful. However, due to strengthening demand, successful price increases
were implemented in May and August of 1994.
BUSINESS STRATEGY
The principal components of the Company's business strategy include the
following:
MAINTAIN FOCUS ON RECYCLED PRODUCTS
The Company believes it is the largest processor of wastepaper, the largest
producer of coated recycled paperboard, the largest producer of recycled medium
and one of the largest producers of recycled newsprint in the U.S. The Company
has historically utilized a significant amount of recycled fibre in its products
and has maintained a strategy to allow it to supply all of the Company's
recycled fibre needs for its paper producing operations. There are several
advantages to this strategy. First, the Company's national operations allow it
to minimize costs of transporting wastepaper to its mills. Second, recycled
fibre has a lower cost base than virgin fibre and wastepaper supplies are
increasing. Third, recycled products are gaining in popularity with customers as
a result of increased environmental awareness and improved quality, making them
more competitive with products made from virgin fibre. The following chart
indicates the significant percentage of recycled paperboard produced and
consumed by the Company's operations.
<TABLE>
<CAPTION>
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Total paperboard produced by the Company............................. 2,852 2,963 2,875
Percent recycled................................................ 46.5% 46.1% 47.5%
Total paperboard consumed by the Company............................. 2,476 2,569 2,607
Percent recycled................................................ 34.5% 35.9% 36.6%
</TABLE>
FOCUS ON COST REDUCTION
The Company continuously strives to reduce operating costs on a system-wide
basis through the implementation of cost reduction programs. In 1991, the
Company implemented an austerity program to offset the impact of declining
prices. This austerity program froze staff levels, deferred certain
discretionary spending programs and more aggressively managed capital
expenditures and working capital to conserve cash and reduce interest expense.
For example, as a result of the austerity program the Company's average working
capital as a percentage of annual sales has averaged 2.8% over the last two
years.
While the austerity program succeeded in reducing expenses and improving
cash flow, the length and extent of the recession led the Company in 1993 to
initiate the Cost-Reduction Plan and the Restructuring Program.
The Cost-Reduction Plan is a systematic Company-wide effort designed to
improve the cost competitiveness of all the Company's operating facilities and
staff functions. The Cost-Reduction Plan focuses on reducing costs and other
measures, including:
Productivity improvements to reduce variable unit cost at production
facilities and to increase volume.
Identification of approximately $100 million of high return, quick payback
capital projects for which spending will be accelerated.
Reduction in fibre cost.
Reduction in cost of materials generated through a Company-wide council
which will negotiate large national purchasing activities.
48
<PAGE>
Reductions in personnel cost through a Company-wide freeze on compensation
for salaried employees in 1994 and reductions in workforce.
Reduction in waste cost in the manufacturing process.
Increased focus on specialty niche businesses which are less commodity
oriented and carry pricing premiums.
The Company is implementing the Restructuring Program to improve the
Company's long-term competitive position. The Restructuring Program includes
plant closures, reductions in workforce, and the realignment and consolidation
of various manufacturing operations over an approximately two to three year
period. The Restructuring Program is expected to reduce production cost,
employee expense and depreciation charges. While future benefits of the
Restructuring Program are uncertain, the operating losses in 1993 for the plants
shut down in January 1994 and those contemplated in the future were $31 million.
While the Company believes that it would have realized financial benefits in
1993 had these plants been shut down at the beginning of the year, and that it
will realize such benefits in future periods, no assurances can be given in this
regard and, in particular, no assurances can be given as to what portion of such
loss would not have been realized in 1993 had such plants been shut down for the
entire year. The Company closed certain high cost operating facilities,
including a coated recycled boxboard mill and five converting plants, in January
1994. For further information concerning the Restructuring Program, see
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General'.
CONTINUE TO PURSUE VERTICAL INTEGRATION
The Company's operations are vertically integrated in that the Company uses
significant amounts of timber harvested from its timberlands and wastepaper
provided by its reclamation operations in the manufacture of paperboard and
newsprint, and converts its production of paperboard into shipping containers,
folding cartons, papertubes and other products. The Company also exchanges a
significant amount of containerboard with other major companies in the industry.
These exchanges are generally used when shipment from the Company's mills would
not be freight cost efficient or when container plants require a certain grade
of containerboard not manufactured by the Company.
The Company's integration reduces the volatility of pricing for its
containerboard products, allows it to run its mills at higher operating rates
during industry downturns and protects the Company from potential regional
supply and demand imbalances for recycled fibre grades.
The following table illustrates the balance between the Company's
production and consumption levels for its core businesses for the last three
years.
<TABLE>
<CAPTION>
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Wastepaper
Collected by reclamation division................................................... 3,666 3,846 3,907
Consumed by paperboard and newsprint mills.......................................... 1,822 1,910 1,905
Containerboard
Produced by containerboard mills.................................................... 1,830 1,918 1,840
Consumed by container plants........................................................ 1,813 1,898 1,942
SBS and Recycled Boxboard
Produced by SBS and recycled boxboard mills......................................... 826 832 829
Consumed by folding carton plants................................................... 561 551 542
</TABLE>
CONTINUE GROWTH IN CORE BUSINESSES
The Company has built its core businesses through selective acquisitions of
existing businesses and ongoing capital improvements.
Over the years, the Company's acquisition strategy has accomplished several
objectives, including (i) geographic expansion of its operations, (ii) growth of
its recycling capacity and expertise,
49
<PAGE>
(iii) expansion of its product lines in order to satisfy most of the packaging
needs of large national and multinational customers, (iv) expansion of its
operations into related products which can be successfully marketed to existing
customers as well as into related products to which the Company can apply its
papermaking expertise, and (v) integration of its operations. The Company
intends to continue its current strategy by exploring potential acquisitions and
pursuing those which meet its business objectives.
MAINTAIN LEADING MARKET POSITIONS
The Company believes it is one of the most broadly based paperboard
packaging producers in the United States. The Company has achieved this status
through its selective acquisitions and its ongoing capital improvements program.
The Company believes it maintains significant U.S. market positions including
the following:
largest producer of recycled paperboard
largest producer of folding cartons
largest producer of coated recycled boxboard
largest processor of wastepaper
largest producer of mottled white linerboard
one of the largest producers of recycled newsprint
third largest producer of corrugated shipping containers
largest producer of recycled medium
fifth largest producer of containerboard
The Company believes that its size, as evidenced by its leading U.S. market
positions, provides certain advantages in marketing its products. The Company's
prominence in the U.S. packaging industry gives it excellent customer
visibility. The Company is well recognized by its customers as a quality
producer and has recently entered into strategic alliances with select large,
national account customers to supply packaging. In addition, the Company's broad
range of packaging products provides a single source option, whereby all of the
customers' packaging needs can be satisfied by the Company.
IMPROVE FINANCIAL PROFILE TO GROW CORE BUSINESSES
Since the 1989 recapitalization of JSC, the Company has pursued a strategy
designed to reduce its financial risk profile. During this period, the Company
has accessed various capital markets through several transactions, resulting in
improved financial flexibility.
In 1991, the Company completed a $230 million accounts receivable
securitization. Initial proceeds of $168 million were raised by an A1/D1+
commercial paper issue and a AA- medium term note issue. The proceeds were used
to retire debt, while the transaction increased the liquidity of the Company by
$180 million.
In 1992, Holdings received cash equity capital from a subsidiary of JS
Group and MSLEF II (and certain of its limited partners who owned Junior Accrual
Debentures) of $33 million and $200 million, respectively, and in December 1993
a subsidiary of JS Group converted $167 million of preferred stock of Holdings
into common stock of Holdings. The Company also negotiated a $400 million senior
secured term loan. The equity and loan proceeds were used to repurchase $193.5
million of the Junior Accrual Debentures and to prepay a portion of certain
subordinated indebtedness and $400 million of the 1989 term loan. This
transaction reduced near term debt service requirements and also reduced annual
interest expense by $30 million.
In 1993, in order to improve operating and financial flexibility, CCA
issued $500 million aggregate principal amount of 1993 Notes, the proceeds of
which were used to repay $100 million of revolving credit indebtedness and an
aggregate of $387.5 million of term loan indebtedness under its existing credit
agreements. As a result of such refinancing, the Company successfully extended
maturities of its indebtedness and improved its liquidity.
50
<PAGE>
The Company anticipates that the Recapitalization Plan will further improve
operating and financial flexibility by reducing the level and overall cost of
its debt, extending maturities of indebtedness, increasing stockholder's equity
and increasing its access to capital markets.
PRODUCTS
PAPERBOARD/PACKAGING PRODUCTS SEGMENT
Containerboard and Corrugated Shipping Containers. The Company's
containerboard operations are highly integrated and the Company believes this
integration enhances its ability to respond quickly and efficiently to customers
and to fill orders on short lead times. Tons of containerboard produced and
converted for the last three years were:
<TABLE>
<CAPTION>
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Containerboard
Production................................................................ 1,830 1,918 1,840
Consumption............................................................... 1,813 1,898 1,942
</TABLE>
The Company's mills produce a full line of containerboard, including
unbleached kraft linerboard, mottled white linerboard and recycled medium.
The Company believes it is the nation's largest producer of mottled white
linerboard, the largest producer of recycled medium and the fifth largest
producer of containerboard. Unbleached kraft linerboard is produced at the
Company's mills located in Fernandina Beach and Jacksonville, Florida and
mottled white linerboard is produced at its Brewton, Alabama mill. Recycled
medium is produced at the Company's mills located in Alton, Illinois, Carthage,
Indiana, Circleville, Ohio and Los Angeles, California. In 1993, the Company
produced 1,018,000, 315,000 and 507,000 tons of unbleached kraft linerboard,
mottled white linerboard and recycled medium, respectively.
Large capital investment is required to sustain the Company's
containerboard mills, which employ state of the art computer controlled
machinery in their manufacturing processes. During the last five years, the
Company has invested approximately $246 million to enhance product quality,
reduce costs, expand capacity and increase production efficiency, as well as
make required improvements to stay in compliance with environmental regulations.
Major capital projects completed in the last five years include (i) a rebuild of
Jacksonville's linerboard machine to produce high performance, lighter weight
grades now experiencing higher demand, (ii) modifications to Brewton's mottled
white machine to increase run speed by 100 tons per day and (iii) a project to
reduce sulfur emissions from the Fernandina Beach linerboard mill. A key
strategy for the next few years will be to reduce wood cost at its virgin fibre
mills by modifying methods of woodchip production and handling, utilizing random
length roundwood forms and continuing to pursue forest management practices
designed to enhance timberland productivity.
The Company's sales of containerboard in 1993 were $670.6 million
(including $384.1 million of intracompany sales). Sales of containerboard to its
52 container plants are reflected at prices based upon those published by
Official Board Markets which are generally higher than those paid by third
parties except in exchange contracts.
The Company believes it is the third largest producer of corrugated
shipping containers in the U.S. Corrugated shipping containers, manufactured
from containerboard in converting plants, are used to ship such diverse products
as home appliances, electric motors, small machinery, grocery products, produce,
books, tobacco and furniture, and for many other applications, including point
of purchase displays. The Company stresses the value added aspects of its
corrugated containers, such as labeling and multi-color graphics, to
differentiate its products and respond to customer requirements. The Company's
container plants serve local customers and large national accounts and are
located nationwide, generally in or near large metropolitan areas. The Company's
total sales of corrugated shipping containers in 1993 were $1,175.7 million
(including $81.1 million of intracompany sales).
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<PAGE>
Corrugated shipping container sales volumes for 1991, 1992 and 1993 were 25,178,
26,593 and 27,268 million square feet, respectively.
Recycled Boxboard, SBS and Folding Cartons. The Company's recycled
boxboard, SBS and folding carton operations are also well integrated. Tons of
recycled boxboard and SBS produced and converted for the last three years were:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Recycled Boxboard and SBS
Production...................................................... 826 832 829
Consumption..................................................... 561 551 542
</TABLE>
The Company's mills produce recycled coated and uncoated boxboard and SBS.
The Company believes it is the nation's largest producer of coated recycled
boxboard, made from 100 percent recycled fibre, which offers comparable quality
to virgin boxboard for most applications. The Company also believes that its
premium-priced SBS offers a high quality product for packaging applications.
Coated recycled boxboard is produced at the Company's mills located in
Middletown, Ohio, Philadelphia, Pennsylvania, Santa Clara, California and
Wabash, Indiana. The Company produces uncoated recycled boxboard at its Los
Angeles, California mill and SBS at its Brewton, Alabama mill. The Company
believes its coated recycled boxboard, known as MASTERCOAT'r', is recognized in
the industry for its high quality and extensive range of grades and calipers.
The Brewton machine produces four basic grades of SBS including MASTERPRINT'r',
which is ideally suited for converting into folding cartons and related end
uses, MASTERSEAL'r' and MASTERVAC'r', which are used for visual carded packaging
that facilitates merchandising at the point of sale, and MASTERWITE'r', which is
designed for intricately printed and die-cut greeting cards and other specialty
uses. In 1993, the Company produced 653,000 and 176,000 tons of recycled
boxboard and SBS, respectively. The Company's total sales of recycled boxboard
and SBS in 1993 were $409.7 million (including $197.2 million of intracompany
sales).
The Company believes it is the nation's largest producer of folding
cartons, offering the broadest range of converting capabilities, including web
and sheet litho, rotogravure and flexo printing and a full line of structural
and design graphics services. The Company's 18 folding carton plants convert
recycled boxboard and SBS, including approximately 49% of the boxboard and SBS
produced by the Company, into folding cartons. Folding cartons are used
primarily to protect customers' products while providing point of purchase
advertising. The Company makes folding cartons for a wide variety of
applications, including food and fast foods, detergents, paper products,
beverages, health and beauty aids and other consumer products. Customers range
from small local accounts to large national and multinational accounts. The
Company's folding carton plants are located nationwide, generally in or near
large metropolitan areas. The Company's sales of folding cartons in 1993 were
$648.2 million (including $2.2 million of intracompany sales). Folding carton
sales volumes for 1991, 1992 and 1993 were 482,000, 487,000 and 475,000 tons,
respectively.
The Company has focused its capital expenditures in these operations and
its marketing activities to support a strategy of enhancing product quality as
it relates to packaging graphics, increasing flexibility while reducing customer
response time and assisting customers in innovating package designs.
The Company provides marketing consultation and research activities, a key
competitive factor within the folding carton industry, through its Design and
Market Research (DMR) Laboratory. It provides customers with graphic and product
design tailored to the specific technical requirements of lithographic,
rotogravure and flexographic printing, as well as photography for packaging,
sales promotion concepts, and point of purchase displays.
52
<PAGE>
Recycled Cylinderboard and Industrial Packaging. The Company's recycled
cylinderboard and industrial packaging operations are also integrated. Tons of
recycled cylinderboard produced and converted for the last three years were:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Recycled Cylinderboard
Production.................................................................... 196 213 206
Consumption................................................................... 102 120 123
</TABLE>
The Company's recycled cylinderboard mills are located in: Tacoma,
Washington, Monroe, Michigan (2 mills), Lafayette, Indiana, and Cedartown,
Georgia. In 1993, total sales of recycled cylinderboard were $61.8 million
(including $17.9 million of intracompany sales).
The Company's 16 industrial packaging plants convert recycled
cylinderboard, including a portion of the recycled cylinderboard produced by the
Company, into papertubes and cores. Papertubes and cores are used primarily for
paper, film and foil, yarn carriers and other textile products and furniture
components. The Company also produces solid fibre partitions for the
pharmaceutical, electronics, cosmetics and plastics industries. In addition, the
Company produces a patented self-locking partition especially suited for
automated packaging and product protection. The Company believes it is the
nation's third largest producer of tubes and cores. The Company's industrial
packaging sales in 1993 were $88.1 million (including $1.6 million in
intracompany sales).
Consumer Packaging. The Company manufactures a wide variety of consumer
packaging products, which are generally non-cyclical. These products include
flexible packaging, printed paper labels, foil labels, and labels that are heat
transferred to plastic containers for a wide range of industrial and consumer
product applications. The contract packaging plants provide cartoning, bagging,
liquid- or powder-filling, high-speed overwrapping and fragranced advertising
products. The Company produces high-quality rotogravure cylinders and has a
full-service organization highly experienced in the production of color
separations and lithographic film for the commercial printing, advertising and
packaging industries. The Company also designs, manufactures and sells custom
machinery including specialized machines that apply labels to customers'
packaging. The Company currently has 14 facilities including the engineering
service center referred to below and has improved their competitiveness by
installing state-of-the-art production equipment.
In addition, the Company has an engineering services center, specializing
in automated production systems and highly specialized machinery, providing
expert consultation, design and equipment fabrication for consumer and
industrial products manufacturers, primarily from the food, beverage and medical
products industries.
In 1993, total sales of consumer packaging products and services were
$179.8 million (including $15.1 million of intracompany sales).
Reclamation Operations; Fibre Resources and Timber Products. The raw
materials essential to the Company's business are reclaimed fibre from
wastepaper and wood, in the form of logs or chips. The Brewton, Circleville,
Jacksonville and Fernandina mills use primarily wood fibres, while the other
paperboard mills use reclaimed fibre exclusively. The newsprint mills use
approximately 45% wood fibre and 55% reclaimed fibre.
The Company believes it is the nation's largest processor of wastepaper.
The use of recycled products in the Company's operations begins with its
reclamation division which operates 26 facilities that collect, sort, grade and
bale wastepaper, as well as collect aluminum and glass. The reclamation division
provides valuable fibre resources to both the paperboard and newsprint segments
of the Company as well as to other producers. Many of the reclamation facilities
are located in close proximity to the Company's recycled paperboard and
newsprint mills, assuring availability of supply, when needed, with minimal
shipping costs. In 1993, the Company processed 3.9 million tons of wastepaper,
which the Company believes is approximately twice the amount of wastepaper
processed by its closest competitor. The amount of wastepaper collected and the
proportions sold internally and externally by the Company's reclamation division
for the last three years were:
53
<PAGE>
<TABLE>
<CAPTION>
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C>
Wastepaper collected by Reclamation Division......................... 3,666 3,846 3,907
Percent sold internally......................................... 49.7% 49.7% 48.8%
Percent sold to third parties................................... 50.3% 50.3% 51.2%
</TABLE>
The reclamation division also operates a nationwide brokerage system
whereby it purchases and resells wastepaper (including wastepaper for use in its
recycled fibre mills) on a regional and national contract basis. Such contracts
provide bulk purchasing, resulting in lower prices and cleaner wastepaper. Total
sales of recycled materials for 1993 were $242.9 million (including $120.8
million of intracompany sales).
During 1993, the wastepaper which was reclaimed by the Company's
reclamation plants and brokerage operations satisfied all of the Company's mill
requirements for reclaimed fibre.
The Company's timber division manages approximately one million acres of
owned and leased timberland. In 1993, approximately 53% of the timber harvested
by the Company was used in its Jacksonville, Fernandina and Brewton Mills. The
Company harvested 808,000 cords of timber which would satisfy approximately 32%
of the Company's requirements for woodfibres. The Company's woodfibre
requirements not satisfied internally are purchased on the open market or under
long-term contracts. In the past, the Company has not experienced difficulty
obtaining an adequate supply of wood through its own operations or open market
purchases. The Company is not aware of any circumstances that would adversely
affect its ability to satisfy its wood requirements in the foreseeable future.
In recent years, a shortage of wood fibre in the spotted owl regions in the
Northwest has resulted in increases in the cost of virgin wood fibre. However,
the Company's use of reclaimed fibre in its newsprint mills has mitigated the
effect of this in significant part.
In 1993, the Company's total sales of timber products were $227.8 million
(including $185.1 million of intracompany sales).
NEWSPRINT SEGMENT
Newsprint Mills. The Company believes it is one of the largest producers of
recycled newsprint and the fourth largest producer overall of newsprint in the
United States. The Company's newsprint mills are located in Newberg and Oregon
City, Oregon. During 1991, 1992 and 1993, the Company produced 614,000, 615,000
and 615,000 tons of newsprint, respectively. In 1993, total sales of newsprint
were $219.5 million (none of which were intracompany sales).
For the past three years, an average of approximately 56% of the Company's
newsprint production has been sold to The Times Mirror Company ('Times Mirror')
pursuant to a long-term newsprint agreement (the 'Newsprint Agreement') entered
into in connection with the Company's acquisition of SNC stock in February 1986.
Under the terms of the Newsprint Agreement, the Company supplies newsprint to
Times Mirror generally at prevailing West Coast market prices. Sales of
newsprint to Times Mirror in 1993 amounted to $115.2 million.
Cladwood'r'. Cladwood'r' is a wood composite panel used by the housing
industry, manufactured from sawmill shavings and other wood residuals and
overlayed with recycled newsprint. The Company has two Cladwood'r' plants
located in Oregon. Total sales for Cladwood'r' in 1993 were $29.1 million ($.5
million of which were intracompany sales).
MARKETING
The marketing strategy for the Company's mills is to maximize sales of
products to manufacturers located within an economical shipping area. The
strategy in the converting plants focuses on both specialty products tailored to
fit customers' needs and high volume sales of commodity products. The Company
also seeks to broaden the customer base for each of its segments rather than to
concentrate on only a few accounts for each plant. These objectives have led to
decentralization of marketing efforts, such that each plant has its own sales
force, and many have product design engineers, who are in close contact with
customers to respond to their specific needs. National sales offices are also
54
<PAGE>
maintained for customers who purchase through a centralized purchasing office.
National account business may be allocated to more than one plant because of
production capacity and equipment requirements.
COMPETITION
The paperboard and packaging products markets are highly competitive and
are comprised of many participants. Although no single company is dominant, the
Company does face significant competitors in each of its businesses. The
Company's competitors include large vertically integrated companies as well as
numerous smaller companies. The industries in which the Company competes are
particularly sensitive to price fluctuations as well as other competitive
factors including design, quality and service, with varying emphasis on these
factors depending on product line. The market for the Newsprint segment is also
highly competitive.
BACKLOG
Demand for the Company's major product lines is relatively constant
throughout the year and seasonal fluctuations in marketing, production,
shipments and inventories are not significant. The Company does not have a
significant backlog of orders, as most orders are placed for delivery within 30
days.
RESEARCH AND DEVELOPMENT
The Company's research and development center works with its manufacturing
and sales operations, providing state-of-the-art technology, from raw materials
supply through finished packaging performance. Research programs have provided
improvements in coatings and barriers, stiffeners, inks and printing. The
technical staff conducts basic, applied and diagnostic research, develops
processes and products and provides a wide range of other technical services.
The Company actively pursues applications for patents on new inventions and
designs and attempts to protect its patents against infringement. Nevertheless,
the Company believes that its success and growth are dependent on the quality of
its products and its relationships with its customers, rather than on the extent
of its patent protection. The Company holds or is licensed to use certain
patents, but does not consider that the successful continuation of any important
phase of its business is dependent upon such patents.
EMPLOYEES
Subsequent to closure in early 1994 of three container plants, two folding
carton plants and one recycled boxboard mill, the Company had approximately
16,600 employees at March 1, 1994, of which approximately 11,300 employees
(68%), are represented by collective bargaining units. The expiration date of
union contracts for the Company's major facilities are as follows: the Alton
mill, expiring June 1994; the Newberg mill, expiring March 1995; the Oregon City
mill, expiring March 1997; the Brewton mill, expiring October 1997; the
Fernandina mill, expiring June 1998; a group of 12 properties, including 4 paper
mills and 8 corrugated container plants, expiring June 1998; and the
Jacksonville mill, expiring June 1999. The Company believes that its employee
relations are generally good and is currently in the process of bargaining with
unions representing production employees at a number of its other operations.
However, as of the date hereof, the Company had not reached agreement on a new
labor contract for the Alton Mill.
55
<PAGE>
PROPERTIES
The Company's properties at December 31, 1993 are summarized in the table
below. The table reflects the previously mentioned closure in early 1994 of
three container plants, two folding carton plants and one recycled boxboard
mill, but does not reflect the additional closures contemplated by the
Restructuring Program. Approximately 62% of the Company's investment in
property, plant and equipment is represented by its paperboard and newsprint
mills.
<TABLE>
<CAPTION>
NUMBER OF STATE
FACILITIES LOCATIONS
---------- ---------
<S> <C> <C>
Paperboard mills:
Containerboard mills................................................................... 7 6
Boxboard mills......................................................................... 4 4
Cylinderboard mills.................................................................... 5 4
Newsprint mills............................................................................. 2 1
Reclamation plants.......................................................................... 26 12
Converting facilities:
Corrugated container plants............................................................ 52 22
Folding carton plants.................................................................. 18 10
Industrial packaging plants............................................................ 16 11
Consumer packaging plants................................................................... 14 9
Cladwood'r' plants.......................................................................... 2 1
Wood product plants......................................................................... 1 1
---
Total............................................................................. 147 28
--- --
--- --
</TABLE>
In addition to its manufacturing facilities, the Company owns and leases
approximately 758,000 acres and 226,000 acres of timberland, respectively, and
also operates wood harvesting facilities.
LITIGATION
In May 1993, CCA received a notice of default on behalf of Otis B. Ingram,
as executor of the estate of Naomi M. Ingram, and Ingram-LeGrand Lumber Company
with respect to certain timber purchase agreements and timber management
agreements between CCA and such parties dated November 22, 1967 pertaining to
approximately 30,000 acres of property in Georgia (the 'Agreements'). In June
1993, CCA filed suit against such parties in the United States District Court,
Middle District of Georgia, seeking declaratory and injunctive relief and
damages in excess of $3 million arising out of the defendants' alleged breach
and anticipatory repudiation of the Agreements. The defendants have filed an
answer and counterclaim seeking damages in excess of $14 million based on
allegations that CCA breached the Agreements and failed to pay for timber
allegedly stolen or otherwise removed from the property by CCA or third parties.
The alleged thefts of timber are being investigated by the Georgia Bureau of
Investigation, which has advised CCA that it is not presently a target of this
investigation. CCA has filed a third-party complaint against Keadle Lumber
Enterprises, Inc. seeking indemnification with respect to such alleged thefts
and has filed a reply to the defendants' counterclaims denying the allegations
and any liability to the defendants. Management does not believe that the
outcome of this litigation will have a material adverse effect on the Company's
financial condition or operations.
The Company is a defendant in a number of other lawsuits that have arisen
in the normal course of business. While any litigation has an element of
uncertainty, the management of the Company believes that the outcome of such
suits will not have a material adverse effect on its financial condition or
operations.
56
<PAGE>
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
The Company employs processes in the manufacture of pulp, paperboard and other
products, resulting in various discharges and emissions that are subject to
numerous federal, state and local environmental control statutes, regulations
and ordinances. The Company operates and expects to operate under permits and
similar authorizations from various governmental authorities that regulate such
discharges and emissions.
Occasional violations of permit terms have occurred from time to time at
the Company's facilities, resulting in administrative actions, legal proceedings
or consent decrees and similar arrangements. Pending proceedings include the
following:
In March 1992, JSC entered into an administrative consent order with
the Florida Department of Environmental Regulation to carry out any
necessary assessment and remediation of JSC-owned property in Duval County,
Florida that was formerly the site of a sawmill that dipped lumber into a
chemical solution. Assessment is on-going, but initial data indicates soil
and groundwater contamination that may require nonroutine remediation.
Management believes that the probable costs of this site, taken alone or
with potential costs at other Company-owned properties where some
contamination has been found, will not have a material adverse effect on
its financial condition or operations.
In February 1994, JSC entered into a consent decree with the State of
Ohio in full satisfaction of all liability for alleged violations of
applicable standards for particulate and opacity emissions with respect to
two coal-fired boilers at its Lockland, Ohio recycled boxboard mill (which
has been permanently closed as part of the Company's restructuring
program), and has paid $122,000 in penalties and enforcement costs pursuant
to such consent decree. The United States Environmental Protection Agency
has also issued a notice of violation with respect to such emissions, but
has informally advised JSC's counsel that no Federal enforcement is likely
to be commenced in light of the settlement with the State of Ohio.
The Company also faces potential liability as a result of releases, or
threatened releases, of hazardous substances into the environment from various
sites owned and operated by third parties at which Company-generated wastes have
allegedly been deposited. Generators of hazardous substances sent to off-site
disposal locations at which environmental problems exist, as well as the owners
of those sites and certain other classes of persons (generally referred to as
'potentially responsible parties' or 'PRPs'), are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA') and analogous state laws, regardless
of fault or the legality of the original disposal. The Company has received
notice that it is or may be a PRP at a number of federal and/or state sites
where remedial action may be required, and as a result may have joint and
several liability for cleanup costs at such sites. However, liability of CERCLA
sites is typically shared with the other PRPs and costs are commonly allocated
according to relative amounts of waste deposited. Because the Company's relative
percentage of waste deposited at the majority of these sites is quite small,
management of the Company believes that its probable liability under CERCLA,
taken on a case by case basis or in the aggregate, will not have a material
adverse effect on its financial condition or operations. Pending CERCLA
proceedings include the following:
In January 1990, CCA filed a motion for leave to intervene and for
modification of the consent decree in United States v. General Refuse
Services, a case pending in the United States District Court for the
Southern District of Ohio. CCA contends that it should be allowed to
participate in the proposed consent decree, which provides for remediation
of alleged releases or threatened releases of hazardous substances at a
site in Miami County, near Troy, Ohio, according to a plan approved by the
United States Environmental Protection Agency, Region V (the 'Agency'). The
Court granted CCA's motion to intervene in this litigation, but denied
CCA's motion for an order denying entry of the consent decree.
Consequently, the consent decree has been entered without CCA's being
included as a party to the decree, meaning that CCA may have some exposure
to potential claims for contribution to remediation costs incurred by other
participants and for non-reimbursed response costs incurred by the Agency,
which costs are reported by the Agency as $3.4
57
<PAGE>
million as of February 1994. CCA's appeal of the Court's decision to the
Sixth Circuit Court of Appeals is pending.
In December 1991, the United States filed a civil action against CCA
in United States District Court, Southern District of Ohio, to recover its
unreimbursed costs at the Miami County site, and CCA subsequently filed a
third-party complaint against certain entities that had joined the original
consent decree. The Court has granted in part and denied in part the
third-party defendants' motion for summary judgment, but has allowed CCA to
file an amended third-party complaint against these entities at a later
date. In October 1993, the United States filed an additional suit against
CCA in the same court seeking injunctive relief and damages up to $25,000
per day from March 27, 1989 to the present, based on CCA's alleged failure
to properly respond to the Agency's document and information requests in
connection with this site. In July 1993, counsel for CCA was advised by the
Office of the United States Attorney, Northern District of Illinois that a
criminal inquiry is also underway relating to CCA's responses to the
Agency's document and information requests. CCA is investigating the
circumstances regarding its responses, and is pursuing settlement with
respect to all matters relating to the Miami County site.
CCA has paid approximately $768,000 pursuant to two partial consent
decrees entered into in 1990 and 1991 with respect to clean-up obligations
at the Operating Industries site in Monterey Park, California. It is
anticipated that there will be further remedial measures beyond those
covered by these partial settlements.
JSC and CCA have entered into a settlement with the United States, the
State of Indiana and certain other parties pursuant to which their
obligations in connection with a superfund site in Griffin, Indiana will be
satisfied in exchange for aggregate payments of approximately $588,000,
which will most likely be made in the fourth quarter of 1994. CCA also paid
$258,000 and agreed to pay an additional amount of approximately $50,000 in
full settlement of its obligations in connection with a superfund site in
Kankakee County, Illinois.
In addition to other Federal and State laws regarding hazardous substance
contamination at sites owned or operated by the Company, the New Jersey
Industrial Site Recovery Act ('ISRA') requires that a 'Negative Declaration' or
a 'Cleanup Plan' be filed and approved by the New Jersey Department of
Environmental Protection and Energy ('DEPE') as a precondition to the 'transfer'
of an 'industrial establishment'. The ISRA regulations provide that a transferor
may close a transaction prior to the DEPE's approval of a negative declaration
if the transferor enters into an administrative consent order with the DEPE. The
Company is currently a signatory to administrative consent orders with respect
to two formerly leased or owned industrial establishments and has recently
closed a facility and received a negative declaration with respect thereto.
Management believes that any requirements that may be imposed by the DEPE with
respect to these sites will not have a materially adverse effect on the
financial condition or operations of the Company.
The Company's paperboard and newsprint mills are large consumers of energy,
using either natural gas or coal. Approximately 67% of the Company's total
paperboard tonnage is produced by mills which have coal-fired boilers. The cost
of energy is dependent, in part, on environmental regulations concerning sulfur
dioxide and particulate emissions.
Because various pollution control standards are subject to change, it is
not possible at this time to predict the amount of capital expenditures that
will ultimately be required to comply with future standards. In particular, the
United States Environmental Protection Agency has proposed a comprehensive rule
governing the pulp, paper and paperboard industry, which could require
substantial compliance expenditures on the part of the Company. For the past
three years, the Company has spent an average of approximately $10 million
annually on capital expenditures for environmental purposes. Further sums may be
required in the future, although, in the opinion of management, such
expenditures will not have a material effect on its financial condition or
results of operations. The amount budgeted for such expenditures for fiscal 1994
is approximately $10 million. Since the Company's competitors are, or will be,
subject to comparable pollution control standards, including the proposed rule
discussed above, if implemented, management is of the opinion that compliance
with future pollution standards will not adversely affect the Company's
competitive position.
58
<PAGE>
MANAGEMENT
DIRECTORS
The following table sets forth the names and ages of the directors of each
of JSC and CCA.
<TABLE>
<CAPTION>
NAME AGE
- --------------------------------- ---
<S> <C>
Michael W.J. Smurfit............. 58
Howard E. Kilroy................. 58
James E. Terrill................. 60
James R. Thompson................ 58
Donald P. Brennan................ 53
Alan E. Goldberg................. 40
David R. Ramsay.................. 30
</TABLE>
The Company's Board of Directors includes one additional directorship which
is presently vacant. Pursuant to the Stockholders Agreement (as described
below), such additional directorship will be filled by a director, designated
by, but not affiliated with MSLEF II.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the executive officers
of each of JSC and CCA and the positions they hold.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Michael W.J. Smurfit............. 58 Chairman of the Board and Director
James E. Terrill................. 60 President, Chief Executive Officer and Director
Howard E. Kilroy................. 58 Senior Vice President and Director
Richard W. Graham................ 59 Senior Vice President and General Manager -- Folding Carton
and Boxboard Mill Division
C. Larry Bradford................ 58 Vice President -- Sales and Marketing
Raymond G. Duffy................. 52 Vice President -- Planning
Michael C. Farrar................ 53 Vice President -- Environmental and Governmental Affairs
John R. Funke.................... 52 Vice President and Chief Financial Officer
Richard J. Golden................ 52 Vice President -- Purchasing
Michael F. Harrington............ 54 Vice President -- Personnel and Human Resources
Alan W. Larson................... 55 Vice President and General Manager -- Consumer Packaging
Division
Edward F. McCallum............... 60 Vice President and General Manager -- Container Division
Lyle L. Meyer.................... 58 Vice President
Patrick J. Moore................. 39 Vice President and Treasurer
David C. Stevens................. 60 Vice President and General Manager -- Smurfit Recycling
Company
Truman L. Sturdevant............. 59 President of SNC
Michael E. Tierney............... 46 Vice President, General Counsel and Secretary
Richard K. Volland............... 56 Vice President -- Physical Distribution
William N. Wandmacher............ 51 Vice President and General Manager -- Containerboard Mill
Division
Gary L. West..................... 52 Vice President and General Manager -- Industrial Packaging
Division
</TABLE>
59
<PAGE>
BIOGRAPHIES
C. Larry Bradford has been Vice President -- Sales and Marketing since
January 1993. He served as Vice President and General Manager -- Container
Division from February 1991 until October 1992. Prior to that time, he was Vice
President and General Manager of the Folding Carton and Boxboard Mill Division
from January 1983 to February 1991.
Donald P. Brennan joined MS&Co. in 1982 and has been a Managing Director
since 1984. He is responsible for MS&Co.'s Merchant Banking Division and is
Chairman and President of Morgan Stanley Leveraged Equity Fund II, Inc. ('MSLEF
II, Inc.') and Chairman of Morgan Stanley Capital Partners III, Inc. ('MSCP III,
Inc.'). Mr. Brennan serves as Director of Agricultural Minerals and Chemicals
Inc., Agricultural Minerals Corporation, Coltec Industries Inc, Fort Howard
Corporation, Hamilton Services Limited, PSF Finance Holdings, Inc., Shuttleway,
A/S Bulkhandling and Stanklav Holdings, Inc. Mr. Brennan is also Deputy Chairman
and Director of Waterford Wedgwood plc.
Raymond G. Duffy has been Vice President -- Planning since July 1983 and
served as Director of Corporate Planning from 1980 to 1983.
Michael C. Farrar was appointed Vice President-Environmental and
Governmental Affairs in March 1992. Prior to joining JSC, he was Vice President
of the American Paper Institute and the National Forest Products Association for
more than 5 years.
John R. Funke has been Vice President and Chief Financial Officer since
April 1989 and was Corporate Controller and Secretary from 1982 to April 1989.
Richard J. Golden has been Vice President -- Purchasing since January 1985
and was Director of Corporate Purchasing from October 1981 to January 1985. In
January 1994, he was assigned responsibility for world-wide purchasing for JS
Group.
Alan E. Goldberg joined MS&Co. in 1979 and has been a member of MS&Co.'s
Merchant Banking Division since its formation in 1985 and a Managing Director of
MS&Co. since 1988. Mr. Goldberg is a member of the Finance Committee of MS&Co.
Mr. Goldberg is Chairman and President of Morgan Stanley Leveraged Equity Fund,
Inc., a Delaware corporation, is a Director of MSLEF II, Inc. and is a Vice
Chairman and a Director of MSCP III, Inc. Mr. Goldberg also serves as a Director
of Agricultural Minerals and Chemicals Inc., Agricultural Minerals Corporation,
Amerin Guaranty Corporation, CIMIC Holdings Limited, Centre Cat Limited and
Hamilton Services Limited.
Richard W. Graham was appointed Senior Vice President and General
Manager -- Folding Carton and Boxboard Mill Division in February 1994. He served
as Vice President and General Manager -- Folding Carton and Boxboard Mill
Division from February 1991 to January 1994. Mr. Graham was Vice President and
General Manager -- Folding Carton Division from October 1986 to February 1991.
Mr. Graham joined CCA in 1959 and has served in various management positions,
becoming Group Vice President of Administration for CCA in 1984.
Michael F. Harrington was appointed Vice President-Personnel and Human
Resources in January 1992. Prior to joining JSC, he was Corporate Director of
Labor Relations/Safety and Health with Boise Cascade Corporation for more than 5
years.
Howard E. Kilroy has been Chief Operations Director of JS Group since 1978
and President of JS Group since October 1986. Mr. Kilroy was a member of the
Supervisory Board of SIBV from January 1978 to January 1992. He has been a
Director of JSC since 1979 and Senior Vice President for over 5 years. In
addition, he is Governor (Chairman) of Bank of Ireland and a Director of Aran
Energy plc.
Alan W. Larson has been Vice President and General Manager -- Consumer
Packaging Division since October 1988. Prior to joining JSC in 1988, he was
Executive Vice President of The Black and Decker Corporation.
Edward F. McCallum has been Vice President and General Manager -- Container
Division since October 1992. He served as Vice President and General Manager of
the Industrial Packaging Division from January 1991 to October 1992. Prior to
that time, he served in various positions in the Container Division since
joining JSC in 1971.
60
<PAGE>
Lyle L. Meyer has been Vice President since April 1989. He has also been
President of Smurfit Pension and Insurance Services Company since 1982.
Patrick J. Moore has been Vice President and Treasurer since February 1993.
He was Treasurer from October 1990 to February 1993. Prior to joining JSC in
1987 as Assistant Treasurer, Mr. Moore was with Continental Bank in Chicago
where he served in various corporate lending, international banking and
administrative capacities.
David R. Ramsay is a Vice President of MS&Co.'s Merchant Banking Division
where he has worked since his graduation from business school in 1989. Mr.
Ramsay also serves as a Director of Agricultural Minerals and Chemicals Inc.,
Agricultural Minerals Corporation, ARM Financial Group Inc., Hamilton Services
Limited, A/S Bulkhandling and Stanklav Holdings, Inc. and is President and a
Director of PSF Finance Holdings, Inc.
Michael W.J. Smurfit has been Chairman and Chief Executive Officer of JS
Group since 1977. Dr. Smurfit has been a Director of JSC since 1979 and Chairman
of the Board since September 1983. He was Chief Executive Officer from September
1983 to July 1990.
David C. Stevens has been Vice President and General Manager -- Smurfit
Recycling Company since January 1993. He joined JSC in 1987 as General Sales
Manager and was named Vice President later that year. He held various management
positions with International Paper and was President of Mead Container Division
prior to joining JSC.
Truman L. Sturdevant has been President of SNC since February 1993. He was
Vice President and General Manager of SNC from August 1990 to February 1993. Mr.
Sturdevant joined the Company in 1984 as Vice President and General Manager of
the Oregon City newsprint mill.
James E. Terrill was named a Director and President and Chief Executive
Officer in February 1994. He served as Executive Vice President -- Operations
from August 1990 to February 1994. He also served as Executive Vice President of
SNC from February 1993 to February 1994. He was President of SNC from February
1986 to February 1993. He served as Vice President and General Manager --
Industrial Packaging Division of JSC from 1979 to February 1986.
James R. Thompson was elected to the Board of Directors in July 1994. He
served as Governor of the State of Illinois from 1977 to 1991, and is currently
the Chairman of Winston & Strawn, a law firm that regularly represents the
Company on numerous matters. Governor Thompson also serves as a Director of FMC
Corporation, the Chicago Board of Trade, the Chicago North Western Holdings
Corp., United Fidelity Inc., the International Advisory Council of the Bank of
Montreal, Prime Retail, Inc., Pechiney International, Wakenhut Corrections
Corporation and American Publishing Corporation.
Michael E. Tierney has been Vice President, General Counsel and Secretary
since January 1993. He served as Senior Counsel and Assistant Secretary since
joining JSC in 1987.
Richard K. Volland has been Vice President -- Physical Distribution since
1978.
William N. Wandmacher has been Vice President and General
Manager -- Containerboard Mill Division since January 1993. He served as
Division Vice President -- Medium Mills from October 1986 to January 1993. Since
joining the Company in 1966, he has held increasingly responsible positions in
production, plant management and planning, both domestic and foreign.
Gary L. West has been Vice President and General Manager -- Industrial
Packaging Division since October 1992. He served as Vice President -- Converting
and Marketing for the Industrial Packaging Division from January 1991 to October
1992. Prior to that time, he held various management positions in the Container
and Consumer Packaging divisions since joining JSC in 1980.
PROVISIONS OF STOCKHOLDERS AGREEMENT PERTAINING TO MANAGEMENT
The Stockholders Agreement provides that SIBV and the MS Holders (as
defined in the Stockholders Agreement and which term includes the MSLEF II
Associated Entities and, with respect to certain of their shares, includes the
Direct Investors (as defined below)) shall vote their shares of Holdings Common
Stock subject to the Stockholders Agreement to elect as directors of Holdings
(a) four individuals selected by SIBV (each, an 'SIBV Nominee') one of whom
shall be the Chief
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Executive Officer and one of whom shall not be affiliated with SIBV, Holdings,
JSC or CCA (an 'SIBV Unaffiliated Director') and (b) four individuals selected
by MSLEF II (each, a 'MSLEF II Nominee'), one of whom shall not be affiliated
with MSLEF II, Holdings, JSC or CCA (a 'MSLEF II Unaffiliated Director'), if (i)
the MS Holders collectively own more than 10% of the outstanding Holdings Common
Stock or SIBV owns less than 25% of the outstanding Holdings Common Stock and
certain of the MS Holders shall not have collectively received, without
duplication, the Initial Return (as defined below) ('Tier 1') or (ii) the MS
Holders collectively own 30% or more of the outstanding Holdings Common Stock or
the MS Holders collectively own a greater number of voting shares than SIBV and
certain of the MS Holders shall have collectively received the Initial Return
('Tier 2'); provided, however, that in the event that the MS Holders
collectively own 7 1/2% or more and less than 30% of the outstanding Holdings
Common Stock and certain of them shall have collectively received the Initial
Return, then SIBV shall not be required to have one of its nominees be an SIBV
Unaffiliated Director and the four MSLEF II Nominees shall include two MSLEF II
Unaffiliated Directors; provided, further, that in the event that the MS Holders
collectively own 6% or more but less than 7 1/2% of the outstanding Holdings
Common Stock and certain of them shall have collectively received the Initial
Return, then SIBV shall nominate four SIBV Nominees (one of whom shall be the
Chief Executive Officer), MSLEF II shall nominate two MSLEF II Nominees and
Holdings' Board of Directors shall nominate two persons to the Board of
Directors who shall not be affiliated with SIBV or MSLEF II and who shall be
reasonably acceptable to MSLEF II and SIBV. Unless MSLEF II determines
otherwise, MSLEF II Nominees, except MSLEF II Unaffiliated Directors, shall be
Managing Directors, Principals or Vice Presidents of MS&Co. The Stockholders
Agreement defines 'Initial Return' to mean the receipt, as dividends or as a
result of sales of shares of Holdings Common Stock, of $320 million in cash or
certain other property (or a combination thereof) collectively by the MSLEF II
Associated Entities and their affiliates. The Initial Return shall include
amounts received by partners of MSLEF II and Equity Investors (as defined
below), whether or not such partners are MS Holders, by reason of distributions
in respect of, or repurchases of all or a portion of, partnership interests in
such partnerships (and shares which MSLEF II or Equity Investors distributes to
its partners will be deemed to have been sold at the closing sales price per
share for the last trading day prior to the date such distribution is made).
Calculations made for purposes of the foregoing shall not give effect to shares
of Holdings Common Stock purchased after the date of the closing of the 1994
Offerings (other than shares of Common Stock acquired by MS Holders or by SIBV
in certain limited circumstances, including shares acquired by the MSLEF II
Associated Entities upon distributions in respect of, or repurchases of all or a
portion of, partnership interests in MSLEF II or Equity Investors and shares
acquired by SIBV pursuant to the preemptive rights set forth in the Subscription
Agreement). In addition, notwithstanding the termination of the Stockholders
Agreement, upon the MS Holders ceasing to own six percent or more of the
Holdings Common Stock, so long as MSLEF II and MSLEF II, Inc. and its affiliates
own Holdings Common Stock with a market value of at least $25 million, MSLEF II
shall be entitled to designate, and SIBV shall, upon request, vote its shares of
Holdings Common Stock subject to the Stockholders Agreement for the election of,
one nominee to the Board of Directors of Holdings (who need not be a MSLEF II
Unaffiliated Director).
Pursuant to the terms of the Stockholders Agreement, SIBV and MSLEF II each
became entitled to designate four nominees to Holdings' Board of Directors upon
the consummation of the Recapitalization Plan (excluding the Subordinated Debt
Refinancing). Such designees include, in the case of SIBV, Michael W. J.
Smurfit, Howard E. Kilroy, James E. Terrill and James R. Thompson and, in the
case of MSLEF II, Donald P. Brennan, Alan E. Goldberg and David R. Ramsay. The
MSLEF II Unaffiliated Director has not yet been named as of the date of this
Prospectus. See ' -- Directors'. Pursuant to the Stockholders Agreement, SIBV
and MSLEF II have agreed to ensure the Board of Directors will consist of only
eight directors (unless they otherwise agree). In addition, the Investors (as
defined in the Stockholders Agreement and which term includes SIBV, the MSLEF II
Associated Entities and the Direct Investors) have agreed pursuant to the
Stockholders Agreement to use their best efforts to cause their respective
nominees to resign from Holdings' Board of Directors and to cause the remaining
Directors, subject to their fiduciary duties, to fill the resulting vacancies,
if and to the extent changes in directors are necessary in order to reflect the
Board representation contemplated by the Stockholders Agreement.
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Pursuant to the Stockholders Agreement, the Board of Directors of Holdings
has all powers and duties and the full discretion to manage and conduct the
business and affairs of Holdings as may be conferred or imposed upon a board of
directors pursuant to Section 141 of the Delaware General Corporation Law;
provided, however, that if the MS Holders' collective ownership of Holdings
Common Stock shall be in Tier 1 or Tier 2, approval of certain specified actions
shall require approval of (a) the sum of one and a majority of the entire Board
of Directors of the Company present at a meeting of the Board of Directors (the
'Required Majority') and (b) two directors who are SIBV Nominees and two
directors who are MSLEF II Nominees. Without limiting the foregoing, unless the
MS Holders collectively own 6% or more but less than 7 1/2% of the Holdings
Common Stock during any period when Holdings' Board of Directors does not
consist of eight members (or such greater number of members as may be agreed to
by SIBV, MSLEF II and Holdings) then all actions of the Board of Directors shall
require approval of at least one director who is an SIBV Nominee and one
director who is a MSLEF II Nominee. The specified corporate actions that must be
approved by a Required Majority include the amendment of the certificate of
incorporation or by-laws of Holdings or any of its subsidiaries (except as
contemplated by this Prospectus); the issuance, sale, purchase or redemption of
securities of Holdings or any of its subsidiaries (other than, in the case of
any issuance or sale, to Holdings or any direct or indirect wholly owned
subsidiary of Holdings and other than pursuant to the Subscription Agreement);
the establishment of and appointments to the Audit Committee of Holdings' Board
of Directors; sales of assets or investments in, or certain transactions with,
JS Group or its affiliates in excess of a specified amount or any other person
in excess of other specified amounts, in each case subject to certain limited
exceptions; certain mergers, consolidations, dissolutions or liquidations of
Holdings or any of its subsidiaries; the filing of a petition in bankruptcy; the
setting aside, declaration or making of any payment or distribution by way of
dividend or otherwise to the stockholders of Holdings or any of its
subsidiaries, except for any such payments or distributions made or to be made
to Holdings or any of its direct or indirect wholly owned subsidiaries; the
incurrence of certain new indebtedness, the creation of certain liens or
guarantees, the institution, termination or settlement of material litigation,
the surrender of property or rights, making certain investments, commitments,
capital expenditures or donations, in each case in excess of certain specified
amounts; entering into any lease (other than a capitalized lease) of any assets
of Holdings located in any one place having a book value in excess of a
specified amount; the entering into any agreement or material transaction
between Holdings and a director or officer of Holdings, JSC, JS Group, CCA, SIBV
or MSLEF II or their affiliates; the replacement of the independent accountants
for Holdings or any of its subsidiaries or modification of significant
accounting methods; the amendment or termination of Holdings' 1992 Stock Option
Plan (except as contemplated by this Prospectus); except as provided in the
Stockholders Agreement, the election or removal of directors and officers of
each of JSC and CCA; the increase or decrease of the number of directors
comprising Holdings' Board of Directors; and any decision regarding registration
of any securities, except as provided in the Registration Rights Agreement.
Upon consummation of the 1994 Offerings, the Board of Directors of Holdings
was divided into three classes of directors serving staggered three-year terms.
Pursuant to the Stockholders Agreement, SIBV and MSLEF II shall use their best
efforts to cause their respective designees to Holdings' Board of Directors to
elect directors to the Boards of Directors of JSC and CCA in an analogous manner
unless they otherwise agree. The directors of Holdings, JSC and CCA are the same
individuals.
COMMITTEES
Since the consummation of the 1994 Offerings, there have been three
committees of the Board of Directors of Holdings: the Compensation Committee,
(comprised of Donald P. Brennan, Alan E. Goldberg and David R. Ramsay) the Audit
Committee (comprised of James R. Thompson, Howard E. Kilroy and Alan E.
Goldberg) and the Appointment Committee (comprised of Michael W.J. Smurfit,
Howard E. Kilroy, James E. Terrill and Alan E. Goldberg). The Stockholders
Agreement provides that the Investors will use their best efforts to cause their
respective designees on the Holdings Board of Directors, subject to their
fiduciary duties, to (i) insure that MSLEF II Nominees (other than, unless MSLEF
II consents, any MSLEF II Unaffiliated Directors) constitute a majority of the
members on the Compensation Committee and any other committees which administer
any option or incentive plan of
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Holdings and the Company; provided, however, that if the MS Holders' ownership
of Holdings Common Stock shall not be in Tier 1, Tier 2 or Tier 3 (as defined in
the Stockholders Agreement), the members of the compensation committee of
Holdings shall consist of directors of Holdings who shall be appointed to such
committee by the Holdings Board of Directors; provided, however, that no officer
of Holdings, JSC or CCA shall serve on the Compensation Committee and (ii)
subject to certain limitations (including limitations based on the percentage
stock ownership of the MS Holders and/or SIBV), insure that (a) SIBV Nominees
(other than, unless SIBV consents, the SIBV Unaffiliated Director) constitute a
majority of the members, and a MSLEF II Nominee (other than, unless MSLEF II
consents, the MSLEF II Unaffiliated Director) is a member, of the Appointment
Committee and (b) nominees of the SIBV Nominees on the Appointment Committee for
officers of Holdings, JSC and CCA (other than Chief Financial Officer), and a
nominee of the MSLEF II Nominee for Chief Financial Officer of Holdings, JSC and
CCA, are appointed or elected to such positions, whether by the Appointment
Committee or the Board of Directors.
In addition, the Investors shall use their best efforts to cause their
respective designees on Holdings' Board of Directors, subject to their fiduciary
duties, to cause the officers of Holdings to be the respective officers of each
of JSC and CCA, unless the Investors otherwise agree.
The Compensation Committee of Holdings' Board of Directors has the duty to
review at least once each fiscal year and to establish compensation (including
fringe benefits) for the Chief Financial Officer and for all other officers or
employees of Holdings and its subsidiaries (including JSC and CCA) (i) who are
directors of Holdings (other than the Chief Executive Officer) or (ii) who are
officers of or employed by (or a significant portion of whose time is spent as a
consultant to) JS Group or any of its affiliates (other than Holdings and its
subsidiaries) and whose primary employment is not with Holdings and its
subsidiaries. The Appointment Committee has the duty to review at least once
each fiscal year and to establish compensation (including fringe benefits) for
all other officers of Holdings and its subsidiaries. The Compensation Committee
and the Board of Directors shall both approve the adoption of an amendment to
all bonus and incentive plans (other than those involving stock and options) but
the Board of Directors alone shall approve the allocation of awards thereunder.
The Board of Directors shall make all decisions with respect to the adoption of
or amendents to (i) stock compensation, stock option and stock incentive plans
and (ii) pension and profit sharing plans. The Compensation Committee shall make
all decisions under Holdings' stock compensation, stock option and stock
incentive plans; provided, however, that the Board of Directors shall make all
decisions with respect to grants or awards under such plans except, under
certain circumstances, the Stock Option Committee, if any, or the Compensation
Committee shall make such grants or awards.
The Chief Executive Officer, if a director, shall be on the Appointment
Committee, but for purposes of the Stockholders Agreement shall not be the MSLEF
II Nominee thereon.
DIRECTOR COMPENSATION
Prior to the completion of the 1994 Offerings, no directors of Holdings,
JSC and CCA received any fees for their services as directors; however, the
directors were reimbursed for their travel expenses in connection with their
attendance at board meetings. Following the completion of the 1994 Offerings,
each of Holdings, JSC and CCA intends to reimburse all its directors for their
travel expenses in connection with their attendance at board meetings and to pay
all its directors who are not officers an annual fee of $35,000 plus $2,000 for
attendance at each meeting which is in excess of four meetings per year.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company (the 'Named Executive Officers') during 1993.
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<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION($)
NAME AND PRINCIPAL POSITION YEAR SALARY($)(a) BONUS($) COMPENSATION($) OPTIONS(#)(b) (c)(d)(e)
- -------------------------------------- ---- ------------ -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael W.J. Smurfit, Chairman of the
Board............................... 1993 $832,369 $ 0 $30,000 0 $16,775
1992 793,273 526,605 0 1,026,000 15,764
1991 705,033 0 0 0 14,042
James E. Terrill, President and Chief
Executive Officer, formerly
Executive Vice
President -- Operations(f).......... 1993 440,000 0 17,318 0 19,545
1992 367,500 243,477 944 181,000 16,346
1991 326,667 0 555 0 18,554
Alan W. Larson, Vice President and
General Manager -- Consumer
Packaging Division.................. 1993 292,600 121,558 0 0 8,068
1992 280,000 121,238 1,881 45,000 7,658
1991 236,133 95,634 2,054 0 3,500
C. Larry Bradford, Vice President --
Sales and Marketing................. 1993 369,000 0 18,209 0 15,085
1992 353,000 3,644 1,361 121,000 13,658
1991 299,600 23,370 2,408 0 3,500
James B. Malloy, former President,
Chief Executive Officer and Chief
Operating Officer(f)................ 1993 992,000 0 17,867 0 21,902
1992 945,000 626,082 8,003 724,000 23,294
1991 840,000 0 7,955 0 20,909
</TABLE>
(a) The salary amounts for 1991 reflect a 10% salary reduction for each
officer, implemented during 1991 to help offset the impact of the
recession. The salary reductions were in place for the period of April 1,
1991 to December 15, 1991.
(b) Gives effect to the ten-for-one stock split which occurred pursuant to the
Reclassification.
(c) 1993 totals consist of a $3,500 Company contribution to the Company's
Savings Plan (the 'Savings Plan') for each Named Executive Officer (other
than Dr. Smurfit) and Company-paid split-dollar term life insurance
premiums for Dr. Smurfit ($16,775) and Messrs. Malloy ($12,061), Terrill
($16,045), Larson ($4,568) and Bradford ($11,585). Mr. Malloy also had
reportable (above 120% of the applicable federal long-term rate) earnings
equal to $6,341 credited to his account under the Company's Deferred
Compensation Capital Enhancement Plan (the 'Deferred Compensation Plan').
(d) 1992 totals consist of a $3,500 Company contribution to the Savings Plan
for each Named Executive Officer (other than Dr. Smurfit) and Company-paid
split-dollar term life insurance premiums for Dr. Smurfit ($15,764) and
Messrs. Malloy ($13,255), Terrill ($12,846), Larson ($4,158) and Bradford
($10,158). Mr. Malloy also had reportable earnings of $6,539 credited to
his account under the Deferred Compensation Plan.
(e) 1991 totals consist of a $3,500 Company contribution to the Savings Plan
for each Named Executive Officer (other than Dr. Smurfit) and Company-paid
split-dollar term life insurance premiums for Dr. Smurfit ($14,042) and
Messrs. Malloy ($11,373), Terrill ($10,493), Larson ($3,665) and Bradford
($8,081). Mr. Malloy also had reportable earnings of $6,036 credited to his
account under the Deferred Compensation Plan. Mr. Terrill received a moving
allowance of $4,561.
(f) As of February 1, 1994, James B. Malloy retired as President, Chief
Executive Officer and Chief Operating Officer, and James E. Terrill
succeeded to Mr. Malloy's positions as President and Chief Executive
Officer. Previously, Mr. Terrill was the Executive Vice
President -- Operations.
Upon consummation of the 1994 Offerings, the Company paid aggregate cash
bonuses of $7.62 million to a number of its and its affiliates' officers,
including approximately $1,964,000, $347,000, $87,000, $231,000 and $1,386,000
to Messrs. Smurfit, Terrill, Larson, Bradford and Malloy, respectively, and
$1.77 million to officers of JS Group and its affiliates (other than Michael
W.J. Smurfit). In addition, the Company paid approximately $2.9 million of
bonuses to other employees of the Company in 1992.
1994 LONG-TERM INCENTIVE PLAN
Prior to consummation of the Equity Offerings, JSC adopted the Jefferson
Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (the 'Incentive Plan').
Pursuant to the Incentive Plan, participants will be granted awards, payable in
cash on April 30, 1997 (the 'Payment Date') (or earlier in the event of
termination of employment, including upon death or disability) if and to the
extent vested. A participant's award will vest on the Payment Date if he is
still employed by JSC or any of its subsidiaries at such time; provided that
such award shall vest in full if the participant dies or becomes disabled; shall
vest proportionately if the participant retires at age 65 prior to the Payment
Date; and shall vest 20% on April 30, 1995, and an additional 20% on April 30,
1996 if the participant is employed on such date and is thereafter terminated,
prior to April 30, 1997, by the Company without cause. Awards and earnings
therein which are forfeited in whole or in part shall be reallocated to then
current participants. The aggregate amount of awards under the Incentive Plan is
$5 million. The awards granted to Messrs. Terrill, Larson and Bradford were
$1,000,000, $200,000 and $75,000, respectively.
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Aggregate and individual awards will be increased (decreased) by earnings
(losses) accrued thereon during the period beginning as soon as practicable
after the consummation of the Equity Offerings and ending on the Payment Date or
earlier date of payment. Each participant may direct the investment of his award
in investment funds selected and managed by a fund manager appointed by the
administrative committee of the Incentive Plan.
1992 STOCK OPTION PLAN
OPTION PLAN
Under Holdings' 1992 Stock Option Plan, the Named Executive Officers and
certain other eligible employees have been granted options to purchase shares of
stock of Holdings. The options become vested over a ten year period and vest in
their entirety upon the death, disability or retirement of the optionee.
Non-vested options are forfeited upon any other termination of employment.
Options may not be exercised unless they are both exercisable and vested. Upon
the earliest to occur of (i) MSLEF II's transfer of all of its Holdings Common
Stock or, if MSLEF II distributes its Holdings Common Stock to its partners
pursuant to its dissolution, the transfer by such partners of at least 50% of
the aggregate Holdings Common Stock received from MSLEF II pursuant to its
dissolution, (ii) the 11th anniversary of the grant date of the options, and
(iii) a public offering of Holdings common stock (including the Equity
Offerings), all vested options shall become exercisable and all options which
vest subsequently shall become exercisable upon vesting; provided, however, that
if a public offering occurs prior to the Threshold Date (defined below) all
vested options and all options which vest subsequent to the public offering but
prior to the Threshold Date shall be exercisable in an amount (as of periodic
determination dates) equal to the product of (a) the number of shares of
Holdings Common Stock vested pursuant to the option (whether previously
exercised or not) and (b) the Morgan Percentage (as defined below) as of such
date; provided further that in any event a holder's options shall become
exercisable from time to time in an amount equal to the percentage that the
number of shares sold or distributed to its partners by MSLEF II represents of
its aggregate ownership of shares (with vested options becoming exercisable up
to such number before any non-vested options become so exercisable) less the
number of options, if any, which have become exercisable on January 1, 1995 as
set forth below. The Threshold Date is the earlier of (x) the date the members
of the MSLEF II Group (as defined in the 1992 Stock Option Plan) shall have
received collectively $200,000,000 in cash and/or other property as a return of
their investment in Holdings (as a result of sales of shares of Holdings' common
equity) and (y) the date that the members of the MSLEF II Group shall have
transferred an aggregate of at least 30% of Holdings' common equity owned by the
MSLEF II Group as of August 26, 1992. The Morgan Percentage as of any date is
the percentage determined from the quotient of (a) the number of shares of
Holdings' common equity held as of August 26, 1992, that were transferred by the
MSLEF II Group as of the determination date and (b) the number of shares of
Holdings' common equity outstanding as of such date. The Plan Committee, with
the consent of the Board of Directors of Holdings, may accelerate the
exercisability of options at such times and circumstances as it deems
appropriate in its discretion. The option exercise price is not adjustable other
than pursuant to an antidilution provision. Ten percent of stock options granted
prior to 1993 become exercisable on January 1, 1995. Already owned shares and
shares otherwise issuable upon exercise may be used to pay the exercise price of
options and any tax withholding liability. The foregoing describes the terms of
the 1992 Stock Option Plan, as it was amended prior to the consummation of the
Equity Offerings.
OPTION GRANTS
No option grants were made during 1993 to any Named Executive Officers.
Effective as of February 15, 1994 options with an exercise price of $12.50 were
granted to a number of officers and employees including Messrs. Terrill and
Larson who were granted options for 319,000, and 5,000 shares of Holdings Common
Stock, respectively (such dollar amount and numbers have been adjusted to
reflect the ten-for-one stock split which occurred pursuant to the
Reclassification). Such options vest over the period ending on January 1, 2001.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes the exercise of options relating to shares
of Holdings Common Stock by the Named Executive Officers during 1993 and the
value of options held by such officers as of
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the end of 1993. No stock appreciation rights have been granted to any Named
Executive Officers. In addition, options to purchase 767,000 shares (as adjusted
for the ten-for-one stock split) have been granted to officers of JS Group and
its affiliates (other than Michael W. J. Smurfit and James B. Malloy).
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUE
-------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT DECEMBER 31, 1993 OPTIONS AT DECEMBER 31, 1993
ACQUIRED ON VALUE ----------------------------------- ----------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#)(a) EXERCISABLE($) UNEXERCISABLE($)
- ------------------------------ ----------- ----------- -------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. J. Smurfit......... 0 N/A 0 1,026,000 $ 0 $ 0
James E. Terrill.............. 0 N/A 0 181,000 0 0
Alan W. Larson................ 0 N/A 0 45,000 0 0
C. Larry Bradford............. 0 N/A 0 121,000 0 0
James B. Malloy............... 0 N/A 0 724,000 0 0
</TABLE>
- ------------
(a) Gives effect to the ten-for-one stock split which occurred pursuant to the
Reclassification, but does not give effect to options granted in 1994.
PENSION PLANS
SALARIED EMPLOYEES' PENSION PLAN AND SUPPLEMENTAL INCOME PENSION PLANS
The Company and its subsidiaries maintain a non-contributory pension plan
for salaried employees (the 'Pension Plan') and non-contributory supplemental
income pension plans (the 'SIP Plans') for certain key executive officers. The
Pension Plan provides monthly benefits at age 65 equal to 1.5% of a
participant's final average earnings minus 1.2% of such participant's primary
social security benefit, multiplied by the number of years of credited service.
Final average earnings equals the average of the highest five consecutive years
of the participant's last 10 years of service, including overtime and certain
bonuses, but excluding bonus payments under the Management Incentive Plan,
deferred or acquisition bonuses, fringe benefits and certain other compensation.
Employees' pension rights vest after five years of service. Benefits are also
available under the Pension Plan upon early or deferred retirement. The pension
benefits for the Named Executive Officers can be calculated pursuant to the
following table, which shows the total estimated single life annuity payments
that would be payable to the Named Executive Officers participating in the
Pension Plan and one of the SIP Plans after various years of service at selected
compensation levels. A limit of 20 and 22.5 years of service can be credited for
SIP I and SIP II, respectively. Payments under the SIP Plans are an unsecured
liability of the Company.
In order to participate in the SIP Plans, an executive must be selected by
the Board of Directors. SIP Plan I provides annual benefits at normal retirement
age (65) equal to 2.5% of a participant's final average earnings multiplied by
the number of years of credited service (with a limit of 20 years or 50% of
final average earnings), less such participant's regular Pension Plan benefit
and a certain portion of the social security benefit, whereas SIP Plan II uses a
2% multiplier (with a limit of 22.5 years or 45% of final average earnings).
Final average earnings equals the participant's average earnings, including
bonus payments made under the Management Incentive Plan, for the five
consecutive highest-paid calendar years out of the last 10 years of service.
Participants may elect to receive benefits in the form of either a life annuity,
a life annuity with ten years certain or a designated survivor annuity.
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<TABLE>
<CAPTION>
SIP I PARTICIPANTS
----------------------------------------------
ANNUAL BENEFITS (SINGLE LIFE ANNUITY)
UPON FINAL RETIREMENT WITH FINAL
YEARS OF SERVICE INDICATED
FINAL (PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY)
AVERAGE ----------------------------------------------
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS
- ----------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 200,000............................................ $ 25,000 $ 50,000 $ 75,000 $ 100,000
400,000........................................... 50,000 100,000 150,000 200,000
600,000........................................... 75,000 150,000 225,000 300,000
800,000........................................... 100,000 200,000 300,000 400,000
1,000,000........................................... 125,000 250,000 375,000 500,000
1,200,000........................................... 150,000 300,000 450,000 600,000
1,400,000........................................... 175,000 350,000 525,000 700,000
1,600,000........................................... 200,000 400,000 600,000 800,000
1,800,000........................................... 225,000 450,000 675,000 900,000
2,000,000........................................... 250,000 500,000 750,000 1,000,000
</TABLE>
<TABLE>
<CAPTION>
SIP II PARTICIPANTS
---------------------------------------------------------
ANNUAL BENEFITS (SINGLE LIFE ANNUITY)
UPON FINAL RETIREMENT WITH FINAL
YEARS OF SERVICE INDICATED
(PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY)
FINAL ---------------------------------------------------------
AVERAGE 22.5
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS YEARS
- ------------------------------------------ ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000................................. $20,000 $ 40,000 $ 60,000 $ 80,000 $ 90,000
400,000................................ 40,000 80,000 120,000 160,000 180,000
600,000................................ 60,000 120,000 180,000 240,000 270,000
800,000................................ 80,000 160,000 240,000 320,000 360,000
1,000,000................................ 100,000 200,000 300,000 400,000 450,000
1,200,000................................ 120,000 240,000 360,000 480,000 540,000
1,400,000................................ 140,000 280,000 420,000 560,000 630,000
1,600,000................................ 160,000 320,000 480,000 640,000 720,000
1,800,000................................ 180,000 360,000 540,000 720,000 810,000
2,000,000................................ 200,000 400,000 600,000 800,000 900,000
</TABLE>
Dr. Smurfit and Mr. Malloy participate in SIP Plan I and have 21 and 15
years of credited service, respectively. SIP Plan II became effective January 1,
1993, and Mr. Terrill, Mr. Larson and Mr. Bradford participate in such plan and
have 22, 5 and 11 years of credited service, respectively. Estimated final
average earnings for each of the the Named Executive Officers are as follows:
Mr. Malloy ($1,185,000); Dr. Smurfit ($1,040,000); Mr. Terrill ($532,000); Mr.
Larson ($366,000); and Mr. Bradford ($461,000).
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL
ARRANGEMENTS
The Company and its subsidiaries maintain a severance pay plan for all
salaried employees who have at least one year of credited service (the
'Severance Plan'). Upon a covered termination, the Severance Plan provides for
the payment of one week's salary for each full year of service, payable in
accordance with payroll practices.
Mr. Malloy has a deferred compensation agreement with JSC, pursuant to
which he became entitled upon his retirement to lifetime payments of $70,000
annually in addition to his accrued benefits under SIP Plan I.
DEFERRED COMPENSATION CAPITAL ENHANCEMENT PLAN
The Company's Deferred Compensation Capital Enhancement Plan (the 'DCC')
allows for the deferral of compensation of key full-time salaried employees of
the Company and its subsidiaries. Participants may defer a portion of their
compensation and their employer may defer discretionary bonuses (together the
'Deferred Compensation Amount'). Deferrals occur in 18 month cycles. A
participant becomes vested with respect to amounts deferred during a particular
cycle if he continues to be employed by the Company or its subsidiaries for
seven years from the beginning of the cycle, retires
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at age 65 or leaves employment for reasons of death or disability. Upon Normal
Retirement (as defined in the DCC) benefits are distributed under the DCC.
Certain participants will receive preretirement distributions from the DCC,
beginning in the eighth year of each cycle. The amounts distributed upon Normal
Retirement for each cycle are determined with reference to the age of the
participant at the beginning of the cycle and the participant's Deferred
Compensation Amount with respect to the cycle. If a participant is younger than
45 years old at the beginning of a cycle, he will receive upon Normal Retirement
a total of fifteen annual payments, each totalling one and one-half times his
Deferred Compensation Amount. If at the beginning of a cycle a participant is
between the ages of 45 and 55 years old, at Normal Retirement he will receive a
total of fifteen annual payments that, in the aggregate, equal his Deferred
Compensation Amount with respect to the cycle plus appreciation credited
annually at 100% of the Moody's Rate (as defined in the DCC). If at the
beginning of a cycle a participant is at least 55 years old, his Normal
Retirement benefit will be a total of fifteen annual payments that, in the
aggregate, equal his Deferred Compensation Amount with respect to the cycle plus
appreciation credited annually at 150% of the Moody's Rate. If at the beginning
of a cycle a participant is age 65 or older, the number of such annual payments
shall be five. If a participant dies prior to retirement, the value of his death
benefit may be more or less than his Normal Retirement benefits, depending on
his age at the beginning of the cycle. Benefits may be reduced by the employer
if a former participant is engaged in a competing business within two years of
termination from the Company or its subsidiaries. Participants may receive early
distributions in the event that they experience unforeseen financial
emergencies. Benefits otherwise payable to the participant are then actuarially
reduced to reflect such early distributions. The benefits payable under the DCC
are funded by the Company through life insurance policies. There have been no
deferrals under the DCC since 1986. Deferrals made by the Named Executive
Officers during 1985 and 1986 and their ages at the time of such deferrals were:
Mr. Malloy ($30,000 at 57, $50,000 at 58), Dr. Smurfit ($30,000 at 48), Mr.
Terrill ($15,000 at 51, $25,000 at 52), Mr. Bradford ($15,000 at 49, $25,000 at
50) and Mr. Larson ($0). In 1993, the Company made the first preretirement
distribution to certain participants, totaling $195,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the consummation of the Offering, the Company did not maintain a
formal compensation committee. Dr. Smurfit, Mr. Malloy and Mr. Kilroy, executive
officers of the Company, participated in deliberations of the Board of Directors
on executive compensation matters during 1993. Since the consummation of the
1994 Offerings, JSC and CCA have maintained a Compensation Committee of the
Board of Directors. See ' -- Committees'.
Dr. Smurfit and Mr. Kilroy are both directors and executive officers of JS
Group, Holdings, JSC and CCA, and Mr. Malloy is a director of JS Group and a
former director and executive officer of Holdings, JSC and CCA.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding the beneficial
ownership of Holdings' capital stock as of May 1, 1994, and as adjusted to give
effect to the Reclassification and the Equity Offerings, by (i) each person who
is known to the Company to be the beneficial owner of more than 5% of any class
of Holdings' voting stock, together with such person's address, (ii) each of the
Named Executive Officers, (iii) each of the directors of JSC and CCA and (iv)
all directors and executive officers of JSC and CCA as a group. Except as set
forth below, the stockholders named below have sole voting and investment power
with respect to all shares of stock shown as being beneficially owned by them.
69
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER EQUITY
BENEFICIAL OWNERSHIP OFFERINGS
PRIOR TO EQUITY -------------------------
BENEFICIAL OWNERS OFFERINGS NUMBER OF
- ----------------------------------------------------------- ----------------------------------------- SHARES OF PERCENT OF
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS, DIRECTORS AND NUMBER PERCENT PERCENT COMMON COMMON
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP OF SHARES(a) CLASS OF CLASS OF STOCK STOCK(a) STOCK
- ----------------------------------------------------------- ------------ ------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SIBV ...................................................... 18,400,000 A 100.0% 50.0% 51,638,462(b) 46.5%
Smurfit International B.V. 21,700,000 D 100.0%
Strawinskylaan 2001 Total ...... 40,100,000
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services B.V.
MSLEF II Associated Entities .............................. 18,400,000 B 100.0% 39.7% 31,800,000 28.7%
c/o Morgan Stanley & Co. Incorporated 13,400,000 C 61.8%
1251 Avenue of the Americas Total ....... 31,800,000
New York, NY 10020
Attention: Donald P. Brennan
First Plaza Group Trust(c) ................................ 5,000,000 C 23.0% 6.2% 5,000,000 4.5%
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, NY 10020
Attention: Donald P. Brennan
Michael W.J. Smurfit(d)(e) ................................ 0 0
Howard E. Kilroy(d)(e) .................................... 0 0
James E. Terrill(d) ....................................... 0 0
James B. Malloy(d) ........................................ 0 0
Alan W. Larson(d) ......................................... 0 0
C. Larry Bradford(d) ...................................... 0 0
James R. Thompson ......................................... 0 0
Donald P. Brennan ......................................... 0 0
Alan E. Goldberg .......................................... 0 0
David R. Ramsay ........................................... 0 0
All directors and executive officers as a group (24
persons)(d) . 0 0
</TABLE>
- ------------
(a) Gives effect to the Reclassification pursuant to which, immediately prior
to the consummation of the Equity Offerings, Holdings' five classes of
common stock were converted into one class, on a basis of ten shares of
Holdings Common Stock for each share of stock of each of the old classes.
Following the Reclassification, Holdings' only class of common stock was
Holdings Common Stock.
(b) Includes 11,538,462 shares of Holdings Common Stock which were purchased by
SIBV from Holdings pursuant to the SIBV Investment.
(c) Amounts shown exclude shares of Holdings Common Stock owned by MSLEF II, of
which each of First Plaza Group Trust and State Street Bank & Trust Company
is a limited partner. If MSLEF II were to distribute its shares of Holdings
Common Stock to its partners, each of First Plaza Group Trust and State
Street Bank & Trust Company would receive a number of shares based on its
pro rata ownership of MSLEF II. State Street Bank & Trust Company currently
owns (excluding shares owned by MSLEF II as described in the preceding
sentence) 3,000,000 shares of Holdings Common Stock (after giving effect to
the ten-for-one stock split contemplated by the Reclassification), which
represents 2.7% of the outstanding Holdings Common Stock.
(d) Amounts shown exclude shares of Holdings Common Stock that have been
reserved for sale to certain directors, officers and other employees of the
Company and its affiliates; the actual amounts of such shares to be
purchased by the individuals listed in the foregoing table and by all
directors and executive officers as a group are undetermined. Messrs.
Malloy, Smurfit, Terrill, Larson, Bradford and Kilroy and all directors and
executive officers as a group own options to purchase 724,000, 1,026,000,
500,000, 50,000, 121,000, 423,000 and 3,126,000 shares of Holdings Common
Stock, respectively. None of such options are currently exercisable.
However, a portion of options hereafter vested will become exercisable,
based upon the number of shares of Holdings Common Stock transferred by the
MSLEF II Group (as defined in the 1992 Stock Option Plan) following the
Equity Offerings. See 'Management -- Executive Compensation -- 1992 Stock
Option Plan'. Prior to the Recapitalization, the holder of an option
granted under the 1992 Stock Option Plan had the right to acquire Holdings'
Class E Stock. Subsequent to the Recapitalization, the holder of an option
has the right to acquire Holdings Common Stock.
(e) Amounts exclude shares of Holdings Common Stock owned by SIBV as to which
such persons disclaim beneficial ownership.
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<PAGE>
CERTAIN TRANSACTIONS
Set forth below is a summary of certain agreements and arrangements entered
into by the Company and related parties in connection with the 1989 Transaction
and the 1992 Transaction (each as defined below), as well as other transactions
between the Company and related parties which have taken place during the
Company's most recently completed three fiscal years.
GENERAL
As a result of certain transactions which occurred in December 1989 (the
'1989 Transaction'), JSC became a wholly-owned subsidiary of Holdings and CCA
became an indirect wholly-owned subsidiary of JSC. As part of the 1989
Transaction, Holdings issued (i) 1,510,000 shares of Holdings' Class A common
stock ('Class A Stock') and 500,000 shares of Holdings' Class D common stock
('Class D Stock') to SIBV for $150 million and $50 million, respectively, (ii)
1,510,000 shares of Holdings' Class B common stock ('Class B Stock') to MSLEF II
for $150 million, (iii) 100,000 shares of Holdings' Class C common stock ('Class
C Stock') to MSLEF II, Inc. (the general partner of MSLEF II) and 400,000 shares
of Class C Stock to the Direct Investors (as defined below) for $10 million and
$40 million, respectively (the Direct Investors also purchased Junior Accrual
Debentures and Subordinated Debentures in aggregate principal amounts of $129.2
million and $30.8 million, respectively), and (iv) its preferred stock ('Old
Preferred Stock') to SIBV for $100 million. SIBV subsequently transferred all of
such common and preferred stock to Smurfit Packaging Corporation, an indirect
wholly-owned subsidiary of SIBV ('Smurfit Packaging').
In addition to the issuances of capital stock by Holdings described above,
the financing for the 1989 Transaction was provided by (i) the issuance by CCA
of the Secured Notes and the Subordinated Debt, and (ii) the incurrence of term
debt and revolving credit indebtedness pursuant to the 1989 Credit Agreement.
As a result of certain transactions among Holdings and CCA and certain of
their securityholders which occurred in August 1992 (the '1992 Transaction'),
(i) MSLEF II acquired an additional 330,000 and 1,212,788 shares of Class B
Stock and Class C Stock, respectively, and certain holders of Class C Stock
acquired 457,212 additional shares of Class C Stock, for an aggregate of $200
million, (ii) Smurfit Holdings, B.V., a subsidiary of SIBV, acquired 330,000
shares of Class A Stock for $33 million (such shares were transferred to SIBV in
1994), (iii) Smurfit Packaging agreed that its Old Preferred Stock (including
shares issued since the 1989 Transaction as a dividend) would convert into
1,670,000 shares of Class D Stock on December 31, 1993, (iv) proceeds from the
issuances of shares described in clauses (i) and (ii) above were used to
acquire, at a purchase price of $1,100 per $1,000 accreted value, an aggregate
of $129.2 million principal amount ($193.5 million accreted value) of Junior
Accrual Debentures from the Direct Investors, (v) CCA borrowed approximately
$400 million under the 1992 Credit Agreement, and used the proceeds to prepay
approximately $400 million of scheduled installments relating to term loan
indebtedness under the 1989 Credit Agreement, (vi) various provisions of the
1989 Credit Agreement and the Secured Note Purchase Agreement were amended and
restated, and (vii) MSLEF II and SIBV amended a number of the provisions
contained in the Organization Agreement, agreed to the terms of the Stockholders
Agreement (which replaced the Organization Agreement upon the closing of the
Equity Offerings) and entered into a registration rights agreement (which
agreement was terminated upon consummation of the 1994 Offerings).
Prior to the consummation of the 1994 Offerings, SIBV and Smurfit
Packaging, through their ownership of all of the outstanding Class A Stock, and
MSLEF II, through its ownership of all of the outstanding Class B Stock, each
owned 50% of the voting common stock of Holdings. MSLEF II, MSLEF II, Inc., a
Delaware corporation that is a wholly-owned subsidiary of Morgan Stanley Group
Inc. ('Morgan Stanley Group') and the general partner of MSLEF II, SIBV/MS
Equity Investors, L.P., a Delaware limited partnership the general partner of
which is a wholly-owned subsidiary of Morgan Stanley Group ('Equity Investors'
and, together with MSLEF II and MSLEF II, Inc., the 'MSLEF II Associated
Entities'), First Plaza Group Trust, as trustee for certain pension plans
('First Plaza'), Leeway & Co., as nominee for State Street Bank and Trust
Company, as trustee for a master pension trust ('Leeway' and, together with
First Plaza, the 'Direct Investors'), certain other investors and Smurfit
Packaging owned all of the non-voting stock of Holdings. On December 31, 1993,
all of the Old
71
<PAGE>
Preferred Stock owned by Smurfit Packaging was converted into 1,670,000 shares
of Class D Stock. Subsequent to such conversion of Old Preferred Stock, but
prior to the consummation of the 1994 Offerings Smurfit Packaging, on the one
hand, and the MSLEF II Associated Entities, the Direct Investors and such other
investors, on the other, owned, through their ownership of Class D Stock and
Class C Stock, respectively, 50% of the non-voting common stock of Holdings.
Prior to the consummation of the 1994 Offerings, Holdings' capital stock
consisted of Class A Stock, Class B Stock, Class C Stock, Class D Stock and
Class E common stock (the 'Class E Stock' and, together with the Class A, Class
B, Class C and Class D Stock, the 'Old Common Stock'). The classes of stock
comprising the Old Common Stock were identical in all respects except with
respect to certain voting rights, and certain exchange provisions that did not
affect the percentage of Holdings owned by SIBV and MSLEF II. Holdings' Class E
Stock was non-voting stock reserved for issuance pursuant to the 1992 Stock
Option Plan. In the Reclassification, the Old Common Stock, which consist of
five classes of stock, was converted into one class, on a basis of ten shares of
Common Stock for each share of the Old Common Stock. Following the
Reclassification, Holdings' only class of common stock became Holdings Common
Stock. Immediately prior to the consummation of the Equity Offerings, 80,200,000
shares of Holdings Common Stock were outstanding and such stock was owned by
Holdings' stockholders in proportion to their ownership of the Old Common Stock
as described in the two preceding paragraphs. Substantially concurrently with
the consummation of the Equity Offerings, SIBV purchased 11,538,462 shares of
Holdings Common Stock from Holdings pursuant to the SIBV Investment.
Accordingly, following the consummation of the Equity Offerings and the SIBV
Investment, MSLEF II Associated Entities and SIBV, directly and through its
subsidiaries, beneficially owned 28.7% and 46.5%, respectively, of the shares of
Holdings Common Stock then outstanding. See 'Security Ownership of Certain
Beneficial Owners'.
The relationships among JSC, CCA, Holdings and its stockholders are set
forth in a number of agreements described below. The summary descriptions herein
of the terms of such agreements do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of such agreements, which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Capitalized terms not otherwise
defined below or elsewhere in this Prospectus have the meanings given to them in
such agreements. Any reference to either SIBV or MSLEF II in the following
descriptions of the Organization Agreement and the Stockholders Agreement or in
references to the terms of those agreements set forth in this Prospectus shall
be deemed to include their permitted transferees, unless the context indicates
otherwise.
THE ORGANIZATION AGREEMENT
Subsequent to the 1989 Transaction, but prior to the consummation of the
1994 Offerings, the Company was operated pursuant to the terms of the
Organization Agreement, which had been amended on various occasions. The
Organization Agreement, among other things, provided generally for the election
of directors, the selection of officers and the day-to-day management of the
Company. The Organization Agreement provided that one-half of the directors of
each of Holdings, CCA and JSC be elected by the holders of the Class A Stock
(SIBV and Smurfit Packaging) and one-half by the holders of the Class B Stock
(MSLEF II) and that officers of such companies be designated by the designees of
SIBV and Smurfit Packaging on the respective boards, except that the Chief
Financial Officer of the Company be designated by the holders of the Class B
Stock (MSLEF II). The Organization Agreement also contained certain tag along
rights, rights of first refusal and call and put provisions and provisions
relating to a sale of Holdings as an entirety, as well as provisions relating to
transactions between Holdings, the Company and its affiliates, on the one hand,
and SIBV or MSLEF II, as the case may be, and their respective affiliates, on
the other. These latter provisions are similar to those contained in the
Stockholders Agreement described below.
In connection with the Recapitalization Plan, the Organization Agreement
was terminated upon the closing of the Equity Offerings and, at such time, the
Stockholders Agreement became effective among Holdings, SIBV, the MSLEF II
Associated Entities and certain other entities .
The Organization Agreement also contained provisions whereby each of SIBV,
MSLEF II, MSLEF II, Inc., Holdings, JSC, CCA and the holders of Class C Stock
indemnify each other and related parties
72
<PAGE>
with respect to certain matters arising under the Organization Agreement or the
transactions contemplated thereby, including losses resulting from a breach of
the Organization Agreement. In addition, Holdings, JSC and CCA had also agreed
to indemnify SIBV, MSLEF II, MSLEF II, Inc. and the holders of Class C Stock and
related parties against losses arising out of (i) the conduct and operation of
the business of Holdings, JSC or CCA, (ii) any action or failure to act by
Holdings, JSC or CCA, (iii) the 1989 Transaction and the 1992 Transaction or
(iv) the financing for the 1989 Transaction. Further, SIBV had agreed to
indemnify Holdings, JSC, CCA and each of their subsidiaries against all
liability for taxes, charges, fees, levies or other assessments imposed on such
entities as a result of their not having withheld tax upon the issuance or
payment of a specified note to SIBV and the transfer of certain assets to SIBV
in connection with the 1989 Transaction. The foregoing indemnification
provisions survived the termination of the Organization Agreement in connection
with the Recapitalization Plan.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement became effective upon the consummation of the
Equity Offerings by Holdings, SIBV, the MSLEF II Associated Entities and certain
other entities.
DIRECTORS AND MANAGEMENT
For a description of certain provisions of the Stockholders Agreement which
relate to the management of the Company (including the election of directors of
the Company), see 'Management -- Provision of Stockholders Agreement Pertaining
to Management'.
TRANSACTIONS WITH AFFILIATES; OTHER BUSINESSES
The Stockholders Agreement specifically permits the Investors (and their
affiliates) to engage in transactions with Holdings, JSC and CCA in addition to
certain specific transactions contemplated by the Stockholders Agreement,
provided such transactions (except for (i) transactions between any of Holdings,
JSC and CCA, (ii) the transactions contemplated by the Stockholders Agreement or
by the Organization Agreement, (iii) the transactions contemplated by the
Operating Agreement, dated as of April 30, 1992, as amended, between CCA and
Smurfit Paperboard, Inc. ('SPI'), or in the Rights Agreement, dated as of April
30, 1992, as amended, between CCA, SPI and Chemical Bank as collateral agent and
assignee of Bankers Trust Company, (iv) the transactions contemplated by the
Registration Rights Agreement or by the Subscription Agreement, and (v) the
provisions of certain other specified agreements) are fully and fairly
disclosed, have fair and equitable terms, are reasonably necessary and are
treated as a commercial arms-length transaction with an unrelated third party.
No Investor is prohibited from owning, operating or investing in any
business, regardless of whether such business is competitive with Holdings, JSC
or CCA, nor is any Investor required to disclose its intention to make any such
investment to the other Investors or to advise Holdings, JSC or CCA of the
opportunity presented by any such prospective investment.
TRANSFER AND ACQUISITION OF OWNERSHIP
In general, transfers of Holdings Common Stock to entities affiliated with
SIBV or any MS Holder are not restricted. The Stockholders Agreement provides MS
Holders the right to 'tag along' pro rata upon the transfer by SIBV of any
Holdings Common Stock, other than transfers to affiliates and sales pursuant to
a public offering registered under the Securities Act or pursuant to Rule 144
under the Securities Act.
No MS Holder may, without SIBV's prior written consent, transfer shares of
Holdings Common Stock to any non-affiliated person or group which, when taken
together with all other shares of Holdings Common Stock then owned by such
person or group, represent more than ten percent of the Holdings Common Stock
then outstanding. Transfers by MS Holders other than to affiliates,
distributions to partners, or to such ten percent holders are subject to certain
rights of first offer and rights of first refusal in favor of SIBV. Such
transfers by MS Holders which are subject to SIBV's right of first refusal may
not be made to any competitor of SIBV or Holdings or their subsidiaries. SIBV
and
73
<PAGE>
its affiliates have the right, exercisable on or after August 26, 2002, to
purchase all, but not less than all, of the Holdings Common Stock then owned by
the MS Holders at a price equal to the Fair Market Value (as defined in the
Stockholders Agreement).
The terms of the Stockholders Agreement do not restrict the ability of
MSLEF II or Equity Investors to distribute, upon dissolution or otherwise,
shares of Common Stock to their respective partners. Following any such
distribution, the partners of MSLEF II or Equity Investors, as the case may be
(other than Morgan Stanley Group or any controlled affiliate thereof) will not
be subject to the Stockholders Agreement. In addition, following any such
distribution, MSLEF II may, on behalf of its partners or the partners of Equity
Investors, include in a registration requested by it under the Registration
Rights Agreement shares of Common Stock which have been distributed to its
partners. See ' -- Registration Rights Agreement'.
SIBV and its affiliates may not, without MSLEF II, Inc.'s prior written
consent, acquire beneficial ownership of more than 50% of Holdings' outstanding
Common Stock through November 15, 1999 and beneficial ownership of more than 70%
of Holdings' outstanding Common Stock from November 15, 1999 through November
15, 2001, except pursuant to the Stockholders Agreement, the Registration Rights
Agreement or the Subscription Agreement.
In general, if JS Group either does not, directly or indirectly, own a
majority of the voting stock of SIBV, or directly or indirectly, have the right
to appoint a majority of the directors and officers of SIBV, MSLEF II may, at
its option, terminate the Stockholders Agreement.
TERMINATION
The Stockholders Agreement shall terminate either upon mutual agreement of
Holdings, SIBV and MSLEF II, or at the option of SIBV or MSLEF II as the case
may be, upon either the MS Holders collectively or SIBV and its affiliates,
respectively, ceasing to own six percent or more of the outstanding Holdings
Common Stock. In addition, the provisions of the Stockholders Agreement which
restrict transfer of Holdings Common Stock may be terminated, at the option of
MSLEF II, upon SIBV and its affiliates, collectively, having disposed of an
aggregate number of shares of Holdings Common Stock which equals, as of the
consummation of the most recent disposition of Holdings Common Stock by SIBV or
any of its affiliates, at least 25% of the total shares of Holdings Common Stock
then outstanding, and all other provisions of the Stockholders Agreement may be
terminated, at the option of SIBV, if MSLEF II shall have exercised its option
to terminate certain provisions of the Stockholders Agreement as described in
this sentence.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, each of MSLEF II and SIBV
have certain rights, upon giving a notice as provided in the Registration Rights
Agreement, to cause Holdings to use its best efforts to register under the
Securities Act the shares of Holdings Common Stock owned by MSLEF II (including
its partners) and certain other entities (including their affiliates) and
certain shares of Holdings Common Stock owned by SIBV and its affiliates. See
' -- Stockholders Agreement -- Transfer of Ownership'. Upon consummation of the
Recapitalization Plan (other than the Subordinated Debt Refinancing), MSLEF II
became entitled to effect up to four such demand registrations pursuant to the
Registration Rights Agreement. SIBV is entitled to effect up to two such demand
registrations pursuant to the Registration Rights Agreement; provided, however,
that SIBV may not exercise such rights until the earlier of (i) such time as
MSLEF II shall have effected two such demand registrations and (ii) October 31,
1996. Neither MSLEF II nor SIBV may, however, exercise a demand right (i) until
the conclusion of any Holdings Registration Process, MSLEF II Registration
Process or SIBV Registration Process (each, as defined in the Registration
Rights Agreement) or (ii) in certain other limited situations. In addition,
MSLEF II (including its partners) and certain other entities (including their
affiliates) and, under certain circumstances, SIBV and its affiliates are
entitled, subject to certain limitations, to register certain of their shares of
Holdings Common Stock in connection with a registration statement prepared by
Holdings to register Holdings Common Stock or any equity securities exercisable
for, convertible into, or exchangeable for Holdings Common Stock. In the event
74
<PAGE>
that there is a public trading market for the Holdings Common Stock, MSLEF II
and certain other entities (including their affiliates) may not effect a sale of
Holdings Common Stock pursuant to the demand registration rights granted in the
Registration Rights Agreement without first offering the shares proposed to be
sold to SIBV for purchase.
Under the terms of the Registration Rights Agreement, Holdings may not
effect a common stock registration for its own account until the earlier of (i)
such time as MSLEF II shall have effected two demand registrations and (ii) July
31, 1996. In addition, Holdings is generally prohibited from 'piggybacking' and
selling stock for its own account in demand registrations except in the case of
any registration requested by SIBV and except in the case of any registration
requested by MSLEF II after the second completed registration for MSLEF II, in
which event SIBV or MSLEF II, as the case may be may require that any such
securities which are 'piggybacked' be offered and sold on the same terms as the
securities offered by SIBV or MSLEF II, as the case may be.
Holdings will pay all registration expenses (other than underwriting
discounts and commissions) in connection with MSLEF II's first two completed
demand registrations, SIBV's two completed demand registrations and all
registrations made in connection with a Holdings registration. The Registration
Rights Agreement also contains customary terms and provisions with respect to,
among other things, registration procedures and certain rights to
indemnification and contribution granted by parties thereunder in connection
with the registration of Holdings Common Stock subject to such agreement.
FINANCIAL ADVISORY SERVICES AGREEMENT
Under a financial advisory services agreement (the 'Financial Advisory
Services Agreement'), MS&Co. agreed to act as Holdings' and the Company's
financial advisor and provided certain services and earned certain fees in
connection with its roles in the 1989 Transaction, with an expectation that for
the term of the Organization Agreement, the Company would retain MS&Co. to
render it investment banking services at market rates to be negotiated. The
Financial Advisory Services Agreement was terminated upon the consummation of
the 1994 Offerings.
OTHER TRANSACTIONS
In the 1989 Transaction, (i) Holdings acquired the entire equity interest
in JSC, (ii) JSC (through its ownership of JSC Enterprises) acquired the entire
equity interest in CCA, (iii) The Morgan Stanley Leveraged Equity Fund, L.P., a
Delaware limited partnership ('MSLEF I'), and certain other private investors,
including MS&Co. and certain limited partners of MSLEF I investing in their
individual capacity (collectively, the 'MSLEF I Group') received $500 million in
respect of their shares of CCA common stock and (iv) SIBV received $41.75 per
share, or an aggregate of approximately $1.25 billion, in respect of its shares
of JSC stock, and the public stockholders received $43 per share of JSC stock.
Certain assets of JSC and CCA were also transferred to SIBV or one of its
affiliates (the 'Designated Assets'). Pursuant to a tender offer and consent
solicitation for certain debentures of CCA which were outstanding prior to the
consummation of the 1989 Transaction, MS&Co. received an aggregate of $3.7
million in consideration. MS&Co. also received $29.5 million for serving in its
capacity as financial advisor to the Company in connection with the 1989
Transaction. In addition, MS&Co. as underwriter of the Subordinated Debt
received aggregate net discounts and commissions of $34.6 million. In connection
with the sale of the Secured Notes to Morgan Stanley International, MS&Co.
received a placement fee of $7.5 million from CCA; in addition, CCA agreed to
indemnify MS&Co. against certain liabilities in connection therewith, including
liabilities under the Securities Act.
In connection with the issuance of the 1993 Notes, the Company entered into
an agreement with SIBV whereby SIBV committed to purchase up to $200 million
aggregate principal amount of 11 1/2% Junior Subordinated Notes maturing 2005 to
be issued by the Company. Pursuant to the terms of such agreement, the Company
could, from time to time until December 31, 1994, at its option, issue the
Junior Subordinated Notes, the proceeds of which had to be used to repurchase or
otherwise retire the Securities. The Company was obligated to pay SIBV for
letter of credit fees incurred by SIBV in connection with this commitment in
addition to an annual commitment fee of 1.375% on the undrawn principal amount.
The amount payable for such commitment for 1993 was $2.9 million. The above
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commitments were terminated upon the consummation of the 1994 Offerings. In
addition, the Company agreed to pay certain costs of SIBV associated with such
commitments and the termination thereof up to a maximum of $900,000.
Net sales by JSC to JS Group, its subsidiaries and affiliates were $18.4
million, $22.8 million and $21.0 million for the years ended December 31, 1993,
1992 and 1991, respectively. Net sales by JS Group, its subsidiaries and
affiliates to JSC were $49.3 million, $60.1 million and $11.8 million for the
years ended December 31, 1993, 1992 and 1991, respectively. Product sales to and
purchases from JS Group, its subsidiaries and affiliates were consummated on
terms generally similar to those prevailing with unrelated parties.
JSC provides certain subsidiaries and affiliates of JS Group with general
management and elective management services under separate management services
agreements. The services provided include, but are not limited to, management
information services, accounting, tax and internal auditing services, financial
management and treasury services, manufacturing and engineering services,
research and development services, employee benefit plan and management
services, purchasing services, transportation services and marketing services.
In consideration of general management services, JSC is paid a fee up to 2% of
the subsidiaries' or affiliates' gross sales, which fee amounted to $2.3
million, $2.4 million and $2.5 million for 1993, 1992 and 1991, respectively. In
consideration for elective services, JSC received approximately $3.5 million,
$3.2 million and $2.9 million in 1993, 1992 and 1991, respectively, for its cost
of providing such services. In addition, JSC paid JS Group and its affiliates
$0.4 million in 1993, $0.3 million in 1992 and $0.7 million in 1991 for
management services and certain other services.
In October 1991, an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by it, located in CCA's Fernandina Beach, Florida
paperboard mill (the 'Fernandina Mill'). Pursuant to the Fernandina Operating
Agreement, CCA operates and manages the machine, which is owned by a subsidiary
of SIBV. As compensation to CCA for its services, the affiliate of JS Group
agreed to reimburse CCA for production and manufacturing costs directly
attributable to the No. 2 paperboard machine and to pay CCA a portion of the
indirect manufacturing, selling and administrative costs incurred by CCA for the
entire Fernandina Mill. The compensation is determined by applying various
formulas and agreed upon amounts to the subject costs. The amounts reimbursed to
CCA totaled $62.2 million, $54.7 million and $10.9 million in 1993, 1992 and
1991, respectively.
CCA, JS Group and MSLEF II have had discussions from time to time regarding
the purchase of the No. 2 paperboard machine in the Fernandina Mill by the
Company from JS Group in exchange for cash or Holdings Common Stock. No
agreement has been reached as to any such transaction. The Company expects,
however, that it may in the future reach an agreement with regard to such
acquisition from JS Group but cannot predict when and on what terms such
acquisition would be consummated. Such acquisition will occur only if it is
approved by the Board of Directors of the Company and is determined by the Board
of Directors to be on terms no less favorable than a sale made to a third party
in an arm's length transaction.
During 1990, certain assets of CCA comprising the business unit performing
management services for the foreign subsidiaries previously owned by CCA were
sold to a subsidiary of JS Group at a price equal to their net book value of
approximately $5.2 million. Net sales and income from operations related to
these assets were not material. Payment for the assets was received in February
1991.
The Company has agreed to reimburse SIBV for legal fees incurred by SIBV in
connection with the Recapitalization Plan.
On February 21, 1986, JSC purchased from Times Mirror 80% of the issued and
outstanding capital stock of SNC for approximately $132 million, including a
promissory note to National Westminster Bank plc in the amount of $42 million
(the 'Subordinated Note'). The Subordinated Note was guaranteed by JS Group. In
the 1992 Transaction, the Company prepaid $19.1 million aggregate principal
amount on the Subordinated Note. The remaining amount of $22.9 million was due
and paid on February 22, 1993. In connection with the purchase of the SNC
capital stock, JSC and Times Mirror entered into a shareholders agreement dated
as of February 21, 1986. Pursuant to the terms of such shareholders agreement,
as amended, Times Mirror has the right to purchase all capital stock of SNC held
by JSC upon the occurrence of certain events, including a change in control of
JSC or JS Group. A
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change of control of JSC includes, subject to certain exceptions, (i) JS Group
and its affiliates ceasing to own shares of Holdings having at least 30% of
voting control of Holdings and (ii) a person or group other than MSLEF II and
certain related entities acquiring shares of Holdings having more than 25%
voting control of Holdings and exercising operating control of Holdings. A
change of control of JS Group includes, subject to certain exceptions, a person
or group (other than members of the Smurfit family) acquiring shares of JS Group
having more than 30% voting control of JS Group and exercising operating control
of JS Group.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a brief discussion of the basic terms of and the
instruments governing certain indebtedness of the Company. The following
discussion does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the instruments governing the respective
indebtedness, which instruments are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
THE NEW CREDIT AGREEMENT
GENERAL
Pursuant to the New Credit Agreement, the New Bank Facilities consist of
(i) the New Term Loans, consisting of two senior secured term loan facilities to
be provided to CCA in an aggregate principal amount of $1,200 million, to be
allocated between the Delayed Term Loan in an aggregate principal amount of $900
million and the Initial Term Loan in an aggregate principal amount of $300
million and (ii) the New Revolving Credit Facility consisting of a seven year
senior secured revolving credit facility available to JSC and CCA in an
aggregate principal amount of $450 million, of which up to $150 million will be
available as a letter of credit facility (the 'Letter of Credit Facility').
JSC and CCA have agreed, jointly and severally, to pay certain fees to
Chemical in its capacity as the administrative agent (in such capacity, the
'Agent') for its own account and for the account of the other Lenders (as
defined below) in connection with the New Bank Facilities, payable as follows:
(i) a commitment fee of 1/2 of 1% per annum on the undrawn amount of the Initial
Term Loan and the New Revolving Credit Facility, accruing, with respect to each
Lender, on the date of acceptance of such Lender's commitment and (ii) with
respect to each Lender which has a commitment under the Delayed Term Loan, (A)
1/2 of 1% per annum on the amount of such commitment accruing for the period
from and including the date of acceptance of such Lender's commitment to but
excluding May 11, 1994 the date of the initial funding of the New Bank
Facilities (the 'Closing Date') or the earlier termination of such Lender's
commitment and (B) 3/4 of 1% per annum on the undrawn amount of such Lender's
commitment, accruing from and including the Closing Date. All such commitment
fees were paid on the Closing Date and, thereafter, in arrears at the end of
each quarter and upon termination of any commitment. The fees payable in respect
of letters of credit provided under the New Revolving Credit Facility are in an
amount equal to the greater of (a) the margin in excess of the Adjusted LIBOR
Rate applicable to the New Revolving Credit Facility at such time minus 1/2 of
1% and (b) 1%. In addition, a separate fronting fee shall be payable by JSC and
CCA to the bank issuing the letters of credit for its own account in an amount
to be agreed. All letter of credit fees shall be payable on the aggregate amount
available under outstanding letters of credit under the New Revolving Credit
Facility, and shall be payable in arrears at the end of each quarter and upon
the termination of the New Revolving Credit Facility. Chemical Securities Inc.
('CSI'), BT Securities Corporation ('BTSC') and the Lenders shall receive such
other fees as have been separately agreed upon with CSI, BTSC, Chemical Bank
('Chemical') and Bankers Trust Company ('Bankers Trust'). (CSI and BTSC acted as
arrangers for the New Bank Facilities).
Pursuant to the amended and restated commitment letter dated February 10,
1994 (the 'Commitment Letter') among Chemical, CSI, Bankers Trust, BTSC, JSC and
CCA, JSC and CCA agreed, regardless of whether the financing agreements relating
to the New Bank Facilities are executed or the commitments to provide the New
Bank Facilities are terminated, to reimburse Chemical, Bankers Trust, CSI and
BTSC for, among other things, all of their respective out-of-pocket costs and
expenses incurred or sustained by such entities in connection with the
transactions contemplated by the
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Commitment Letter and to indemnify Chemical, Bankers Trust, CSI and BTSC, and
each director, officer, employee and affiliate thereof against certain claims,
damages, liabilities and expenses incurred or asserted in connection with the
transactions contemplated by the Commitment Letter. In addition to the indemnity
provided in the Commitment Letter, JSC and CCA agreed, pursuant to the New
Credit Agreement, to indemnify, jointly and severally, the Lenders, and each
director, officer, employee and agent thereof, against certain claims, damages,
liabilities and expenses incurred or asserted in connection with the
transactions contemplated by the New Credit Agreement.
THE NEW BANK FACILITIES
The New Bank Facilities are provided pursuant to the terms and conditions
of the New Credit Agreement among Holdings, JSC, CCA, the financial institutions
party thereto (the 'Lenders'), the managing agents named therein, Chemical and
Bankers Trust, as Senior managing agents, Bankers Trust and the other Lenders
named therein as Fronting banks and Chemical as administrative agent and
collateral agent.
Borrowings under the Initial Term Loan and under the Delayed Term Loan on
the Closing Date were used, together with the proceeds of the Equity Offerings
and the SIBV Investment, borrowings under the New Revolving Credit Facility, and
a portion of the proceeds of the Debt Offerings, to consummate the Bank Debt
Refinancing. Borrowings under the Delayed Term Loan after the Closing Date must
be made on or before December 15, 1994 and will be used to redeem or repurchase
the Subordinated Debt and pay accrued interest and the applicable redemption
premiums thereon, to repay amounts drawn under the New Revolving Credit Facility
prior to December 15, 1994 for the purpose of repurchasing Subordinated Debt and
to pay the related fees and expenses in connection with such repurchase or
redemption, and to repay other amounts outstanding under the New Revolving
Credit Facility after or simultaneously with the redemption of all the
Subordinated Debt. Borrowings under the New Revolving Credit Facility are to be
used for the sole purpose of providing working capital for JSC, CCA and their
subsidiaries and for other general corporate purposes including to fund open
market or privately negotiated purchases of Subordinated Debt prior to December
15, 1994.
The obligations under the New Credit Agreement are unconditionally
guaranteed by Holdings, JSC, CCA, JSC Enterprises, CCA Enterprises, SNC (but
only to the extent permitted under the shareholders agreement between JSC and
Times Mirror) and certain other existing and subsequently acquired or organized
material subsidiaries of Holdings, JSC and CCA (each such entity providing such
a guaranty, a 'Guarantor'). The obligations of JSC and CCA, and such guarantees,
under the New Credit Agreement (including all guarantee obligations of JSC and
CCA in respect thereof) will be secured, among other things, by a security
interest in substantially all of the assets of JSC, CCA and their material
subsidiaries, with the exception of trade receivables of JSC, CCA and their
material subsidiaries sold to JSFC, by a pledge of all the capital stock of JSC,
CCA and each material subsidiary of Holdings, JSC and CCA and by the
intercompany notes referred to in the following paragraph.
As of December 31, 1993, under intercompany notes bearing interest at a
rate of 12.65%, JSC and CCA had indebtedness to CCA Enterprises of $1,262
million and $829 million, respectively, and JSC had $262 million of such
indebtedness to CCA. CCA Enterprises is a guarantor of indebtedness under the
New Credit Agreement, but is not a guarantor of the 1994 Notes. To the extent
that it or any other holder of existing or future intercompany notes (other than
CCA or JSC) receives proceeds from payments on any of such intercompany notes,
such proceeds will be available to meet obligations under the New Credit
Agreement but will be available to make payments under the 1994 Notes only to
the extent that such proceeds are transferred to CCA or JSC. In this regard,
however, JSC is obligated to pay amounts due under the intercompany notes to CCA
rather than CCA Enterprises (and CCA is prohibited from paying amounts under its
intercompany notes to CCA Enterprises) if an event of default has occurred (or
with notice or lapse of time or both would occur) under the terms of the New
Credit Agreement or if an event of default has occurred under the 1993 Notes or
the Securities. The Company expects that the New Credit Agreement will require
that proceeds received by CCA Enterprises from intercompany notes be loaned or
advanced by it to CCA not later than the following business day and the Company
intends to cause CCA Enterprises to do so. The anticipated mergers of CCA
Enterprises into CCA and JSC Enterprises into JSC, which are expected to occur
sometime
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following the consummation of the Recapitalization Plan, will result in the
elimination of the intercompany notes held by CCA Enterprises and JSC
Enterprises, respectively. See 'Recapitalization Plan -- Reclassification and
Related Transactions'.
The Delayed Term Loan and the New Revolving Credit Facility will each
mature on April 30, 2001. The Initial Term Loan will mature on April 30, 2002.
The outstanding principal amount of the New Term Loans is repayable as follows,
such repayments to be made at the end of each six month period on each October
31 and April 30 after the Closing Date as follows:
<TABLE>
<CAPTION>
SEMI-ANNUAL TOTAL
PERIOD AFTER DELAYED TERM LOAN INITIAL TERM LOAN SEMI-ANNUAL
CLOSING DATE SEMI-ANNUAL AMOUNT SEMI-ANNUAL AMOUNT AMOUNT
- ------------------------------------------------------- ------------------ ------------------ --------------
<S> <C> <C> <C>
First.................................................. $ 0 $ 0 $ 0
Second................................................. 0 0 0
Third.................................................. 45,000,000 1,000,000 46,000,000
Fourth................................................. 45,000,000 1,000,000 46,000,000
Fifth.................................................. 70,000,000 1,000,000 71,000,000
Sixth.................................................. 70,000,000 1,000,000 71,000,000
Seventh................................................ 80,000,000 1,000,000 81,000,000
Eighth................................................. 80,000,000 1,000,000 81,000,000
Ninth.................................................. 80,000,000 1,000,000 81,000,000
Tenth.................................................. 80,000,000 1,000,000 81,000,000
Eleventh............................................... 80,000,000 11,000,000 91,000,000
Twelfth................................................ 80,000,000 11,000,000 91,000,000
Thirteenth............................................. 95,000,000 15,000,000 110,000,000
Fourteenth............................................. 95,000,000 15,000,000 110,000,000
Fifteenth.............................................. -- 120,000,000 120,000,000
Sixteenth.............................................. -- 120,000,000 120,000,000
------------------ ------------------ --------------
$900,000,000 $300,000,000 $1,200,000,000
------------------ ------------------ --------------
------------------ ------------------ --------------
</TABLE>
The New Term Loans and the New Revolving Credit Facility may be prepaid at
any time, in whole or in part, at the option of the borrowers. Voluntary
reductions of the unutilized portion of the New Revolving Credit Facility are
permitted at any time. Pursuant to the New Credit Agreement, required
prepayments on the New Bank Facilities are to be made in an amount equal to (i)
75% of Excess Cash Flow (as defined in the New Credit Agreement), reducing to
50% of Excess Cash Flow upon the satisfaction of certain performance tests to be
agreed, (ii) 100% of the net proceeds of the issuance or incurrence of certain
indebtedness (not including the Debt Offerings), (iii) 100% of the net proceeds
of certain non-ordinary course asset sales, (iv) 100% of the net proceeds of
certain condemnation or insurance proceeds, and (v) 25% of the net proceeds of
the issuance of any other equity securities (other than the Equity Offerings and
the exercise of management stock options). Required prepayments will be
allocated pro rata between the Delayed Term Loan and the Initial Term Loan, and
will be applied pro rata against the remaining scheduled amortization payments
under each of the New Term Loans (and, if the Delayed Term Loan has not then
been drawn, the amount allocable thereto will permanently reduce the commitments
thereunder) or, if the New Term Loans have been fully repaid, to permanently
reduce the then existing commitments under the New Revolving Credit Facility.
Interest on indebtedness outstanding under the Delayed Term Loan and the
New Revolving Credit Facility, from and including the Closing Date to but
excluding the first anniversary of the Closing Date, will be payable at a rate
per annum, selected at the option of the borrower, equal to the ABR Rate (as
defined below) plus 1.5% per annum or the Adjusted LIBOR Rate plus 2.5% per
annum. From and including the first anniversary of the Closing Date and
thereafter, the margin in excess of the ABR Rate or the Adjusted LIBOR Rate
applicable to such New Bank Facilities will be determined by reference to
certain financial tests. Interest on indebtedness outstanding under the Initial
Term Loan will be payable at a rate per annum, selected at the option of CCA,
equal to the ABR Rate plus 2% per annum or the Adjusted LIBOR Rate plus 3% per
annum. Notwithstanding the foregoing, for the first 90 days following the
Closing Date, all such borrowings may only be made with reference to the ABR
Rate or the Adjusted LIBOR Rate for one month borrowings. All overdue
installments of principal and, to the extent permitted by law, interest on
borrowings accruing interest based on the ABR Rate or the
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Adjusted LIBOR Rate shall bear interest at a rate per annum equal to 2% in
excess of the interest rate then borne by such borrowings. The borrowers shall
have the option of selecting the type of borrowing and the length of the
interest period applicable thereto.
'ABR Rate' shall mean the higher of (a) the rate at which Chemical
announces from time to time as its prime lending rate, (b) 1/2 of 1% in excess
of the Federal Funds Rate and (c) 1% in excess of the base certificate of
deposit rate (defined as the secondary market rate for three month certificates
of deposit, as adjusted for assessments and statutory reserves).
'Adjusted LIBOR Rate' shall mean the London Interbank Offered Rate,
adjusted for statutory reserves at all times.
Interest based on the ABR Rate and the Adjusted LIBOR Rate shall be
determined based on the number of days elapsed over a 360 day year. Interest
based on the (i) ABR Rate shall be payable quarterly and (ii) Adjusted LIBOR
Rate shall be payable at the end of the applicable interest period but in any
event not less often than quarterly.
The New Credit Agreement contains certain representations and warranties,
certain negative, affirmative and financial covenants, certain conditions and
certain events of default which are customarily required for similar financings,
in addition to other representations, warranties, covenants, conditions and
events of default appropriate to the specific transactions contemplated thereby.
Such covenants include restrictions and limitations of dividends, redemptions
and repurchases of capital stock, the incurrence of debt, liens, leases,
sale-leaseback transactions, capital expenditures, the issuance of stock,
transactions with affiliates, the making of loans, investments and certain
payments, and on mergers, acquisitions and asset sales, in each case subject to
exceptions to be agreed upon. Furthermore, the Company is required to maintain
compliance with certain financial covenants, such as minimum levels of
consolidated earnings before depreciation, interest, taxes and amortization, and
minimum interest coverage ratios.
Events of default under the New Credit Agreement include, among other
things, (i) failure to pay principal, interest, fees or other amounts when due;
(ii) violation of covenants; (iii) failure of any representation or warranty
made by the Company to the Lenders to be true in all material aspects; (iv)
cross default and cross acceleration with certain other indebtedness; (v)
'change of control'; (vi) certain events of bankruptcy; (vii) certain material
judgments; (viii) certain ERISA events; and (ix) the invalidity of the
guarantees of the indebtedness under the New Credit Agreement or of the security
interests granted to the Lenders, in certain cases with appropriate agreed upon
grace periods.
The conditions to the borrowing of the Delayed Term Loan are set forth
above. See 'Recapitalization Plan -- Subordinated Debt Refinancing'.
The foregoing summary of the New Credit Agreement is qualified in its
entirety by reference to such agreement, a copy of which has been filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement
of which this Prospectus forms a part.
SECURITIZATION
In 1991, JSC and CCA entered into the Securitization in order to reduce
their borrowings under the 1989 Credit Agreement. The Securitization involved
the sale of Receivables to JSFC, a special purpose subsidiary of JSC. Under the
Securitization, JSFC has borrowings of $201.5 million outstanding at June 30,
1994 from EFC, a third-party owned corporation not affiliated with JSC, and has
pledged its interest in such Receivables to EFC. EFC issued CP Notes and Term
Notes. EFC also entered into a liquidity facility with the Liquidity Banks and a
subordinated loan agreement with the Subordinated Lender to provide additional
sources of funding. EFC pledged its interest in the Receivables assigned to it
by JSFC to secure EFC's obligations to the Liquidity Banks, the Subordinated
Lender, and the holders of the CP Notes and the Term Notes. Neither the Company
nor JSFC is a guarantor of CP Notes, the Term Notes or borrowings under the
liquidity facility. See Note 5 to the Company's consolidated financial
statements and 'Recapitalization Plan -- Consents and
Waivers -- Securitization'.
TERMS OF 1993 NOTES
In April 1993, CCA issued $500 million aggregate principal amount of 1993
Notes. The 1993 Notes are unsecured senior obligations of CCA and will mature
April 1, 2003. The 1993 Notes bear interest at
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9.75% per annum. Interest is payable semiannually on April 1 and October 1 of
each year. The 1993 Notes are not redeemable prior to maturity.
The 1993 Notes are senior unsecured obligations of CCA, which rank pari
passu with the other senior indebtedness of CCA, including, without limitation,
CCA's obligations under the New Credit Agreement and the 1994 Notes, and are
senior in right to payment to the Securities. CCA's obligations under the New
Credit Agreement, but not the 1993 Notes, will be secured by liens on
substantially all the assets of CCA and its subsidiaries with the exception of
cash and cash equivalents and trade receivables. The secured indebtedness will
have priority over the 1993 Notes with respect to the assets securing such
indebtedness.
The 1993 Note Indenture contains certain covenants that, among other
things, limit the ability of JSC and its subsidiaries (including CCA) to incur
indebtedness, pay dividends, engage in transactions with stockholders and
affiliates, issue capital stock, create liens, sell assets, enter into
sale-leaseback transactions, engage in mergers and consolidations and make
investments in unrestricted subsidiaries. The limitations imposed by the
covenants on JSC and its subsidiaries (including CCA) are subject to certain
exceptions.
Upon a Change of Control (as defined below), CCA is required to make an
offer to purchase the 1993 Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest. Certain transactions with
affiliates of the Company may not constitute a Change of Control. 'Change of
Control' is defined to mean such time as (i)(a) a person or group, other than
MSLEF II, Morgan Stanley Group, SIBV, JS Group and any affiliate thereof,
(collectively, the 'Original Stockholders'), becomes the beneficial owner of
more than 35% of the total voting power of the then outstanding voting stock of
Holdings or a parent of Holdings and (b) the Original Stockholders beneficially
own, directly or indirectly, less than the then outstanding voting stock of
Holdings or a parent of Holdings beneficially owned by such person or group;
(ii)(a) a person or group, other than the Original Stockholders, becomes the
beneficial owner of more than 35% of the total voting power of the then
outstanding voting stock of JSC, (b) the Original Stockholders beneficially own,
directly or indirectly, less than the then outstanding voting stock of JSC
beneficially owned by such person or group and (c) CCA is a subsidiary of JSC at
the time that the later of (a) and (b) above occurs; or (iii) individuals who at
the beginning of any period of two consecutive calendar years constituted the
Board of Directors of JSC (together with any new directors whose election by the
Board of Directors or whose nomination for election by JSC's shareholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors of JSC then still in office who either were members of the Board of
Directors of JSC at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors of JSC then in office.
Pursuant to the Proposed 1993 Note Amendment, the Company and JSC eliminated
clause (iii) above.
The payment of principal and interest on the 1993 Notes is unconditionally
guaranteed on a senior basis by JSC. Such guarantee ranks pari passu with the
other senior indebtedness of JSC, including, without limitation, JSC's
obligations under the New Credit Agreement (including its guarantees of CCA's
obligations thereunder) and JSC's guarantee of CCA's obligations under the 1994
Notes, and is senior in right of payment to JSC's guarantees of the Subordinated
Debt. JSC's obligations under the New Credit Agreement, but not its guarantees
of the 1993 Notes, will be secured by liens on substantially all the assets of
JSC and its subsidiaries with the exception of cash and cash equivalents and
trade receivables, and guaranteed by CCA and certain subsidiaries of JSC and
CCA. The secured indebtedness will have priority over JSC's guarantees of the
1993 Notes with respect to the assets securing such indebtedness. In the event
that (i) a purchaser of capital stock of CCA acquires a majority of the voting
rights thereunder or (ii) there occurs a merger or consolidation of CCA that
results in CCA having a parent other than JSC and, at the time of and after
giving effect to such transaction, such purchaser or parent satisfies certain
minimum net worth and cash flow requirements, JSC will be released from its
guarantee of the 1993 Notes. Such sale, merger or consolidation will be
prohibited unless certain other requirements are met, including that the
purchaser or the entity surviving such a merger or consolidation expressly
assumes JSC's or CCA's obligations, as the case may be, and that no Event of
Default (as defined in the 1993 Note Indenture) occur or be continuing.
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In connection with implementing the Recapitalization Plan, JSC and CCA have
amended the terms of the 1993 Note Indenture. Among other things, the Proposed
1993 Note Amendment modified the provisions of the 1993 Note Indenture which
limited the ability of Holdings, JSC and CCA to incur indebtedness and to make
certain restricted payments. See 'Recapitalization Plan -- Consents and
Waivers'.
The net proceeds from the offering of the 1993 Notes were used to repay
certain revolving credit indebtedness and term loan indebtedness outstanding
under the Old Bank Facilities. The Company has also entered into reverse
interest rate swap agreements which hedge a portion of the 1993 Note issue.
MS&Co. acted as underwriter in connection with the original offering of the
1993 Notes and received an underwriting discount of $12.5 million in connection
therewith.
TERMS OF 1994 NOTES
Concurrently with the Equity Offerings, CCA offered $300 million aggregate
principal amount of 11 1/4% Series A Senior Notes due May 1, 2004 and $100
million aggregate principal amount of 10 3/4% Series B Senior Notes due May 1,
2002 in the Debt Offerings. The 1994 Notes are unsecured senior obligations of
CCA with interest payable semiannually on May 1 and November 1 of each year.
The 1994 Notes are senior unsecured obligations of CCA, which rank pari
passu with the other senior indebtedness of CCA, including, without limitation,
CCA's obligations under the New Credit Agreement and the 1993 Notes, and are
senior in right to payment to the Securities. CCA's obligations under the New
Credit Agreement, but not the 1994 Notes, are secured by liens on substantially
all the assets of CCA and its subsidiaries with the exception of cash and cash
equivalents and trade receivables. The secured indebtedness has priority over
the 1994 Notes with respect to the assets securing such indebtedness.
The Series A Senior Notes are redeemable in whole or in part at the option
of CCA, at any time on or after May 1, 1999, at the following redemption prices
(expressed as percentages of principal amount) together with accrued and unpaid
interest to the redemption date, if redeemed during the 12-month period
commencing:
<TABLE>
<CAPTION>
REDEMPTION
MAY 1, PRICES
- --------------------------------------------------------------------------------- ----------
<S> <C>
1999............................................................................. 105.625%
2000............................................................................. 102.813
</TABLE>
and on or after May 1, 2001, at 100% of principal amount. In addition, up to
$100 million aggregate principal amount of Series A Senior Notes are redeemable
at 110% of the principal amount thereof prior to May 1, 1997 in connection with
certain common stock issuances. The Series B Senior Notes are not redeemable
prior to maturity.
The indentures relating to the 1994 Notes (the '1994 Note Indentures')
contain certain covenants that, among other things, limit the ability of JSC and
its subsidiaries (including CCA) to incur indebtedness, pay dividends, engage in
transactions with stockholders and affiliates, issue capital stock, create
liens, sell assets, engage in mergers and consolidations and make investments in
unrestricted subsidiaries. The limitations imposed by the covenants on JSC and
its subsidiaries (including CCA) are subject to certain exceptions.
Upon a Change of Control, CCA is required to make an offer to purchase the
1994 Notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest. Certain transactions with affiliates of the Company may
not constitute a Change of Control. 'Change of Control' is defined to mean such
time as (i)(a) a person or group, other than the Original Stockholders, becomes
the beneficial owner of more than 35% of the total voting power of the then
outstanding voting stock of the Company or a parent of the Company and (b) the
Original Stockholders beneficially own, directly or indirectly, less than the
outstanding voting stock of the Company or a parent of the Company beneficially
owned by such person or group; or (ii)(a) a person or group, other than the
Original Stockholders, becomes the beneficial owner of more than 35% of the
total voting power of the then outstanding voting stock of JSC, (b) the Original
Stockholders beneficially own, directly or indirectly, less than the then
outstanding voting stock of JSC beneficially owned by such person or group and
(c) CCA is a subsidiary of JSC at the time that the later of (a) and (b) above
occurs.
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The payment of principal and interest on the 1994 Notes is unconditionally
guaranteed on a senior basis by JSC. Such guarantee ranks pari passu with the
other senior indebtedness of JSC, including, without limitation, JSC's
obligations under the New Credit Agreement (including its guarantees of CCA's
obligations thereunder) and JSC's guarantee of CCA's obligations under the 1993
Notes, and its senior in right of payment to JSC's guarantees of the Securities.
JSC's obligations under the New Credit Agreement, but not its guarantees of the
1994 Notes, are secured by liens on substantially all the assets of JSC and its
subsidiaries with the exception of cash and cash equivalents and trade
receivables, and guaranteed by CCA and certain subsidiaries of JSC and CCA. The
secured indebtedness has priority over JSC's guarantees of the 1994 Notes with
respect to the assets securing such indebtedness. In the event that (i) a
purchaser of capital stock of CCA acquires a majority of the voting rights
thereunder or (ii) there occurs a merger or consolidation of CCA that results in
CCA having a parent other than JSC and, at the time of and after giving effect
to such transaction, such purchaser or parent satisfies certain minimum net
worth and cash flow requirements, JSC will be released from its guarantee of the
1994 Notes. Such sale, merger or consolidation is prohibited unless certain
other requirements are met, including that the purchaser or the entity surviving
such a merger or consolidation expressly assumes JSC's or CCA's obligations, as
the case may be, and that no Event of Default (as defined in the 1994 Note
Indenture) occur or be continuing.
MS&Co. acted as underwriter in connection with the offering of the 1994
Notes and received an underwriting discount of $10.0 million in connection
therewith.
SUBSTITUTION TRANSACTION
JSC is currently the guarantor of all of CCA's outstanding public
indebtedness consisting of the 1993 Notes, the three classes of the Securities
and the 1994 Notes. Holdings intends to organize a new subsidiary ('Smurfit
Interco'), all the outstanding capital stock of which will be owned by Holdings
and which will own all of the outstanding capital stock of JSC, but which will
have no other significant assets (other than possibly intercompany note
receivables) and, except for guarantees of indebtedness of CCA, no indebtedness
for borrowed money. Holdings intends (i) to cause Smurfit Interco to replace JSC
as guarantor under the indentures relating to CCA's public indebtedness (and
under the New Credit Agreement) and to assume JSC's other obligations
thereunder, (ii) to amend such indentures so that references to JSC therein and
in the securities issued thereunder shall be changed to be Smurfit Interco and
(iii) to cause JSC to merge into CCA, which shall succeed to all of JSC's assets
and liabilities (except that any guaranty of obligations of CCA by JSC shall be
extinguished) (collectively, the 'Substitution Transaction'). The purpose of the
Substitution Transaction is to maximize operating efficiencies by combining
Holdings' two key operating subsidiaries into one entity and achieve cost
savings.
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<PAGE>
DESCRIPTION OF THE SECURITIES
The Senior Subordinated Notes were issued under an Indenture dated as of
December 14, 1989 (the 'Senior Subordinated Note Indenture'), among CCA, JSC and
Ameritrust Company National Association, Trustee (the 'Senior Subordinated Note
Trustee'). The Subordinated Debentures were issued under an Indenture dated as
of December 14, 1989 (the 'Subordinated Debenture Indenture'), among CCA, JSC
and United States Trust Company of New York, as Trustee (the 'Subordinated
Debenture Trustee'). The Junior Accrual Debentures were issued under an
Indenture dated as of December 14, 1989 (the 'Junior Accrual Debenture
Indenture'), among CCA, JSC and Maryland National Bank, as Trustee (the 'Junior
Accrual Debenture Trustee'). The Senior Subordinated Note Indenture, the
Subordinated Debenture Indenture and the Junior Accrual Debenture Indenture are
hereinafter referred to collectively as the 'Indentures' in this section. The
Senior Subordinated Note Trustee, the Subordinated Debenture Trustee and the
Junior Accrual Debenture Trustee are sometimes hereinafter referred to
collectively as the 'Trustees' in this section. Any reference to a 'Trustee'
means the Senior Subordinated Note Trustee, the Subordinated Debenture Trustee
or the Junior Accrual Debenture Trustee, as the context may require.
A copy of the form of each Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and is available as
described under 'Additional Information'. The following summaries of certain
provisions of the Indentures hereunder do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of each of the Indentures, including the definitions of certain terms
included therein. Wherever particular sections or defined terms of the
Indentures are referred to herein, such sections or defined terms shall be
incorporated herein by reference. Unless the context otherwise requires,
references to sections and defined terms refer to sections and defined terms of
each Indenture.
For Federal income tax purposes, holders of Junior Accrual Debentures will
be required to recognize interest income in respect of those debentures in
advance of the receipt of cash payments attributable to interest income which
accrues on such debentures during the first five years after issuance. See
'Certain Federal Income Tax Considerations' for important information concerning
the Federal income tax considerations associated with the Junior Accrual
Debentures.
Principal of, premium, if any, and interest on the Senior Subordinated
Notes, the Subordinated Debentures and the Junior Accrual Debentures will be
payable, and the Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures are exchangeable and transferable, at the office or
agency of CCA (which, for the Senior Subordinated Notes initially is the
corporate trust office of the Senior Subordinated Note Trustee at Ameritrust
Company of New York, 5 Hanover Square, New York, New York 10004, for the
Subordinated Debentures initially is the corporate trust office of the
Subordinated Debenture Trustee at 45 Wall Street, New York, New York 10005 and
for the Junior Accrual Debentures initially will be the corporate trust office
of the Junior Accrual Debenture Trustee at 2 North Charles Street, Baltimore,
Maryland 21201); provided, however, that payment of interest may be made at the
option of CCA by check mailed to the Person entitled thereto as shown on the
registers for the Senior Subordinated Notes, the Subordinated Debentures or the
Junior Accrual Debentures, as the case may be. The Senior Subordinated Notes,
the Subordinated Debentures and the Junior Accrual Debentures were issued only
in fully registered form without coupons, in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer or exchange of Senior Subordinated Notes, Subordinated Debentures or
Junior Accrual Debentures, except for any tax or other governmental charge that
may be imposed in connection therewith. The Indentures and the Senior
Subordinated Notes, Subordinated Debentures and Junior Accrual Debentures are
and will be governed by and construed in accordance with the laws of the State
of New York except as may otherwise be required by mandatory provisions of laws.
TERMS OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes are unsecured senior subordinated obligations
of CCA, limited to $350 million aggregate principal amount, and will mature on
December 1, 1999. The Senior Subordinated Notes bear interest at the rate shown
on the front cover of this Prospectus from the date
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of their issuance or from the most recent Interest Payment Date to which
interest has been paid or duly provided for. Interest is payable semiannually
(to Holders of record at the close of business on the May 15 or November 15
immediately preceding the Interest Payment Date), on June 1 and December 1 of
each year.
Optional Redemption. The Senior Subordinated Notes will be redeemable in
whole or in part, at the option of CCA, at any time on or after December 1,
1994, upon not less than 30 nor more than 60 days' prior notice mailed first
class to a Holder's last address, as it shall appear upon the registry book, at
the following redemption prices (expressed in percentages of principal amount)
together with accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period commencing
<TABLE>
<CAPTION>
REDEMPTION
DECEMBER 1 PRICES
- ------------------------------------------------------------- ----------
<S> <C>
1994......................................................... 106.750%
1995......................................................... 103.375
1996 and thereafter.......................................... 100.000
</TABLE>
In the case of a partial redemption, selection of the Senior Subordinated
Notes for redemption will be made pro rata, by lot or by such other method as
the Senior Subordinated Note Trustee in its sole discretion shall deem
appropriate and fair. If any Senior Subordinated Note is to be redeemed in part
only, the notice of redemption that relates to such Senior Subordinated Note
shall state the portion of the principal amount to be redeemed. A new Senior
Subordinated Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Senior Subordinated Note.
The New Credit Agreement contains a provision prohibiting the optional
redemption of the Senior Subordinated Notes other than pursuant to repurchases
in open market or privately negotiated transactions so long as the purchase
price (including any related costs) thereof does not exceed 113% of the
aggregate principal amount so purchased (such permitted repurchase, a 'Permitted
Redemption').
TERMS OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures are unsecured subordinated obligations of CCA,
limited to $300 million aggregate principal amount, and will mature on December
1, 2001. The Subordinated Debentures bear interest at the rate shown on the
front cover of this Prospectus from the date of issuance of the Subordinated
Debentures or from the most recent Interest Payment Date to which interest has
been paid or duly provided for. Interest is payable semiannually (to Holders of
record at the close of business on the May 15 or November 15 immediately
preceding the Interest Payment Date), on June 1 and December 1 of each year.
Optional Redemption. The Subordinated Debentures will be redeemable in
whole or in part, at the option of CCA, at any time on or after December 1,
1994, upon not less than 30 nor more than 60 days' prior notice mailed first
class to a Holder's last address, as it shall appear upon the registry book, at
the following redemption prices (expressed in percentages of principal amount)
together with accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period commencing
<TABLE>
<CAPTION>
REDEMPTION
DECEMBER 1 PRICES
- ------------------------------------------------------------- ----------
<S> <C>
1994......................................................... 107.000%
1995......................................................... 103.500
1996 and thereafter.......................................... 100.000
</TABLE>
In the case of a partial redemption, selection of the Subordinated
Debentures for redemption will be made pro rata, by lot or by such other method
as the Subordinated Debenture Trustee in its sole discretion shall deem
appropriate and fair. If any Subordinated Debenture is to be redeemed in part
only, the notice of redemption that relates to such Subordinated Debenture shall
state the portion of the principal amount to be redeemed. A new Subordinated
Debenture in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Subordinated Debenture.
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The New Credit Agreement contains a provision prohibiting the optional
redemption of the Subordinated Debentures other than pursuant to a Permitted
Redemption.
Sinking Fund. The Subordinated Debenture Indenture requires CCA to provide
for retirement, by redemption, of 33 1/3% of the original aggregate principal
amount of the Subordinated Debentures on each of December 15, 1999 and December
15, 2000 at a redemption price of 100% of the principal amount thereof, plus
accrued interest to the redemption date. Such sinking fund payments are
calculated to retire 66 2/3% of the principal amount of the Subordinated
Debentures originally issued under the Subordinated Debenture Indenture prior to
maturity. CCA may, at its option, receive credit against sinking fund payments
for the principal amount of Subordinated Debentures acquired by CCA and
surrendered for cancellation or redeemed otherwise than through operation of the
sinking fund.
TERMS OF THE JUNIOR ACCRUAL DEBENTURES
The Junior Accrual Debentures are unsecured junior subordinated obligations
of CCA, limited to $200 million aggregate principal amount, and will mature on
December 1, 2004. The Junior Accrual Debentures bear interest at the rate shown
on the front cover of this Prospectus from the date of issuance. Although for
Federal income tax purposes a significant amount of original issue discount,
taxable as ordinary income, will be recognized by a Holder of Junior Accrual
Debentures as such discount accrues from their issue date, no interest will be
paid on the Junior Accrual Debentures prior to December 1, 1994. On December 1,
1994 all interest accrued from the date of issuance of the Junior Accrual
Debentures to and including November 30, 1994 will be paid in one lump sum (to
Holders of record at the close of business on November 15, 1994). From and after
December 1, 1994 interest on the Junior Accrual Debentures will be payable
semiannually (to Holders of record at the close of business on the May 15 or
November 15 immediately preceding the Interest Payment Date), on each June 1 and
December 1, commencing June 1, 1995.
Optional Redemption. The Junior Accrual Debentures will be redeemable, in
whole or in part, at the option of CCA, at any time on or after December 1,
1994, upon not less than 30 nor more than 60 days' prior notice mailed by first
class mail to a Holder's last address as it shall appear upon the registry book,
at 100% of the principal amount thereof, together with accrued and unpaid
interest to the redemption date.
In the case of a partial redemption, selection of the Junior Accrual
Debentures for redemption will be made pro rata, by lot or by such other method
as the Junior Accrual Debenture Trustee in its sole discretion shall deem
appropriate and fair. If any Junior Accrual Debenture is to be redeemed in part
only, the notice of redemption that relates to such Junior Accrual Debenture
shall state the portion of the principal amount to be redeemed. A new Junior
Accrual Debenture in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Junior Accrual Debenture.
The New Credit Agreement contains a provision prohibiting the optional
redemption of the Junior Accrual Debentures other than pursuant to a Permitted
Redemption.
Sinking Fund. The Junior Accrual Debenture Indenture requires CCA to
provide for retirement, by redemption, of 33 1/3% of the original aggregate
principal amount of the Junior Accrual Debentures on each of December 1, 2002
and December 1, 2003 at a redemption price of 100% of the principal amount
thereof, plus accrued interest to the redemption date. Such sinking fund
payments are calculated to retire 66 2/3% of the principal amount of the Junior
Accrual Debentures originally issued under the Junior Accrual Debenture
Indenture prior to maturity. CCA may, at its option, receive credit against
sinking fund payments for the principal amount of Junior Accrual Debentures
acquired by CCA and surrendered for cancellation or redeemed otherwise than
through operation of the sinking fund.
SUBORDINATION
Upon any payment or distribution of assets or securities of CCA, as the
case may be, of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total or partial liquidation or
reorganization of CCA, whether voluntary or involuntary or in bankruptcy,
insolvency,
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<PAGE>
receivership or other proceedings, all amounts due or to become due upon all
Senior Debt (including any interest accruing subsequent to an event of
bankruptcy to the extent that such interest is an allowed claim enforceable
against the debtor under the United States bankruptcy code) shall first be paid
in full in cash or cash equivalents, or payment provided for in cash or cash
equivalents, before the Holders or any of the Trustees on behalf of the Holders
shall be entitled to receive any payment by CCA of the principal of, premium, if
any, or interest on the Senior Subordinated Notes, the Subordinated Debentures
or the Junior Accrual Debentures, as the case may be, or any payment to acquire
any of the Senior Subordinated Notes, the Subordinated Debentures or the Junior
Accrual Debentures, as the case may be, for cash, property or securities, or any
distribution with respect to the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures, as the case may be, of any cash,
property or securities. Before any payment may be made by, or on behalf of, CCA
of the principal of, premium, if any, or interest on the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, upon any such dissolution or winding up or liquidation or
reorganization, any payment or distribution of assets or securities of CCA of
any kind or character, whether in cash, property or securities, to which the
Holders of the Senior Subordinated Notes, the Subordinated Debentures or the
Junior Accrual Debentures, as the case may be, or any of the Trustees on their
behalf would be entitled, but for the subordination provisions of the respective
Indentures, shall be made by CCA or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holders of the Senior Subordinated Notes, the Subordinated Debentures
or the Junior Accrual Debentures or by any of the Trustees if received by them
or it, directly to the holders of the Senior Debt (pro rata to such holders on
the basis of the respective amounts of Senior Debt held by such holders) or
their representatives or to the trustee or trustees under any indenture pursuant
to which any such Senior Debt may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior Debt in
full in cash or cash equivalents after giving effect to any concurrent payment,
distribution or provision therefor, to or for the holders of such Senior Debt.
No direct or indirect payment by or on behalf of CCA of principal of,
premium, if any, or interest on the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures, as the case may be, whether
pursuant to the terms of the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures or upon acceleration or otherwise,
shall be made if, at the time of such payment, there exists a default in the
payment of all or any portion of the obligations on any Senior Debt (and the
Trustee therefor has received written notice thereof), and such default shall
not have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Senior Debt. In addition, during the continuance
of any other event of default with respect to (i) the Bank Credit Agreement and
the Senior Notes pursuant to which the maturity thereof may be accelerated upon
the occurrence of, (a) receipt by the respective Trustees of written notice from
the Agent or other authorized representative of the Requisite Lenders (as
defined in the Senior Notes) or (b) if such event of default results from the
acceleration of the Senior Subordinated Notes, the Subordinated Debentures or
the Junior Accrual Debentures, as the case may be, from and after the date of
such acceleration, no such payment may be made by or on behalf of CCA upon or in
respect of the Senior Subordinated Notes, the Subordinated Debentures or the
Junior Accrual Debentures, as the case may be, for a period ('Payment Blockage
Period') commencing on the earlier of the date of receipt of such notice or the
date of such acceleration and ending 159 days thereafter (unless such Payment
Blockage Period shall be terminated by written notice to the Trustee from the
Agent), or (ii) any other Designated Senior Debt, upon receipt by the Trustee of
written notice from the trustee or other representative for the holders of such
other Designated Senior Debt (or the holders of at least a majority in principal
amount of such other Designated Senior Debt then outstanding), no such payment
may be made by or on behalf of CCA upon or in respect of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, for a Payment Blockage Period commencing on the date of receipt of such
notice and ending 119 days thereafter (unless, in each case, such event of
default shall have been cured or waived or the benefits of this sentence waived
by or on behalf of the holders of such Designated Senior Debt). Notwithstanding
anything herein to the contrary, in no event will a Payment Blockage Period
extend beyond 159 days from the date the payment on the applicable Securities
was due. Not more than one Payment Blockage
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Period may be commenced with respect to the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures during any period of
360 consecutive days; provided that the commencement of a Payment Blockage
Period by the representatives for, or the holders of, Designated Senior Debt
other than under the Bank Credit Agreement and the Senior Notes shall not bar
the commencement of another Payment Blockage Period by the Agent or other
authorized representative of the Requisite Lenders within such period of 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Debt initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by the
representative for, or the holders of, such Designated Senior Debt whether or
not within a period of 360 consecutive days unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
As defined in the Senior Subordinated Note Indenture, 'Senior Debt' means,
with respect to CCA, the following obligations of CCA: (i) all Debt and other
monetary obligations of CCA under the Bank Credit Agreement (including the
Additional Bank Credit Amount (as defined below), the Senior Notes (including
any agreement pursuant to which the Senior Notes were issued), and any Interest
Rate Agreement or any Currency Agreement, (ii) all Debt of CCA (other than the
Senior Subordinated Notes), including principal and interest on such Debt,
unless such Debt, by its terms or the terms of the instrument creating or
evidencing it, is subordinate in right of payment to, or pari passu with, the
Senior Subordinated Notes and (iii) all fees, expenses and indemnities payable
in connection with the Bank Credit Agreement, the Senior Notes (including any
agreement pursuant to which the Senior Notes were issued), and if applicable,
Currency Agreements and Interest Rate Agreements; provided that the term Senior
Debt shall not include (a) any Non-Recourse Debt, (b) any Debt of CCA to a
Subsidiary of CCA (other than any Debt Incurred after the closing of the
Transaction pledged to secure Debt under the Bank Credit Agreement or the
Additional Bank Credit Amount or the Senior Notes), (c) any Debt of CCA of the
type described in clause (ii) above (other than such Debt also described in
clause (i) above) and not permitted by the 'Limitation on JSC and Subsidiary
Debt' covenant described below, (d) Debt to any employee of CCA or any of its
Subsidiaries, (e) any liability for federal, state, local or other taxes owed or
owing by CCA, (f) Debt under the indenture relating to 12 3/8% Senior
Subordinated Debentures due September 30, 1998 of CCA and Debt under the
indenture relating to 16 3/4% Subordinated Discount Debentures due September 30,
2006 of CCA, each of which shall be pari passu with the Senior Subordinated
Notes and (g) Trade Payables.
As defined in the Subordinated Debenture Indenture, 'Senior Debt' shall,
with respect to CCA, have the identical meaning as set forth above, except that
Senior Debt shall also include the Senior Subordinated Notes.
As defined in the Junior Accrual Debenture Indenture, 'Senior Debt' shall,
with respect to CCA, have the identical meaning as set forth above, except that
Senior Debt shall also include the Senior Subordinated Notes and the
Subordinated Debentures.
As defined in each Indenture, 'Designated Senior Debt' means, with respect
to CCA, (i) Debt under the Bank Credit Agreement (including the Additional Bank
Credit Amount) (ii) Debt under the Senior Notes and (iii) any other Debt
constituting Senior Debt which, at the time of determination, has an aggregate
principal amount of at least $40 million and is specifically designated in the
instrument evidencing such Senior Debt as 'Designated Senior Debt' by CCA. The
definition of 'Designated Senior Debt', with respect to CCA, (i) in the
Subordinated Debenture Indenture includes the Senior Subordinated Notes and (ii)
in the Junior Accrual Debenture Indenture includes the Senior Subordinated Notes
and the Subordinated Debentures.
By reason of the subordination provisions described above, in the event of
insolvency, funds which would otherwise be payable to Holders of the Senior
Subordinated Notes, the Subordinated Debentures or the Junior Accrual Debentures
will be paid to the holders of Senior Debt (which, in the case of the
Subordinated Debentures, includes the Senior Subordinated Notes and, in the case
of the Junior Accrual Debentures, includes the Senior Subordinated Notes and the
Subordinated Debentures) to the extent necessary to pay the Senior Debt in full,
and CCA and JSC may be unable to fully meet their obligations with respect to
the Senior Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures.
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At June 30, 1994 there was outstanding approximately $1,388.0 million of
Senior Debt senior to the Senior Subordinated Notes, approximately $1,738.0
million of Senior Debt senior to the Subordinated Debentures and approximately
2,038.0 million of Senior Debt senior to the Junior Accrual Debentures. Subject
to the restrictions set forth in the New Credit Agreement, the 1993 Note
Indenture, the 1994 Note Indenture and the Indentures, in the future, CCA may
issue additional Senior Debt to finance acquisitions, to refinance existing
indebtedness or for other corporate purposes.
GUARANTEES
CCA's obligations under the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures are unconditionally Guaranteed by
JSC. Such Guarantees of JSC are subordinated to the prior payment in full of all
Senior Debt of JSC (as defined below). Accordingly, each Guarantee is
subordinated to the obligations of JSC under the Bank Credit Agreement and its
guarantee of the Senior Notes as well as to all other Senior Debt of JSC on the
same basis as the Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures are subordinated to the Senior Debt of CCA.
As defined in the Senior Subordinated Note Indenture, 'Senior Debt' means,
with respect to JSC, (i) all Debt and other monetary obligations of JSC under
the Bank Credit Agreement (including the Additional Bank Credit Amount), any
Interest Rate Agreement or any Currency Agreement and JSC's Guarantee of any
Debt or other monetary obligations of any Subsidiary of JSC under the Bank
Credit Agreement (including the Additional Bank Credit Amount), (ii) all Debt of
JSC, including principal and interest on such Debt, unless such Debt, by its
terms or the terms of the instrument creating or evidencing it, is subordinate
in right of payment to, or pari passu with, JSC's Guarantee of the Senior
Subordinated Notes and (iii) all fees, expenses and indemnities payable in
connection with the Bank Credit Agreement, the Senior Notes (including any
agreement pursuant to which the Senior Notes were issued) and, if applicable,
Currency Agreements and Interest Rate Agreements; provided that the term Senior
Debt shall not include (a) any Non-Recourse Debt, (b) any Debt of JSC to a
Subsidiary of JSC (other than any Debt incurred after the closing of the 1989
Transaction pledged to secure Debt under the Bank Credit Agreement or the Senior
Notes), (c) any Debt of JSC of the type described in clause (ii) above (other
than such Debt also described in clause (i) above) and not permitted by the
'Limitation on JSC and Subsidiary Debt' covenant described below, (d) Debt to
any employee of JSC or any of its Subsidiaries, (e) any liability for federal,
state, local or other taxes owed or owing by JSC and (f) Trade Payables.
As defined in the Subordinated Debenture Indenture, 'Senior Debt' shall,
with respect to JSC, have the identical meaning as set forth above except that
Senior Debt shall also include JSC's Guarantee of the Senior Subordinated Notes.
As defined in the Junior Accrual Debenture Indenture, 'Senior Debt' shall,
with respect to JSC, have the identical meaning as set forth above except that
Senior Debt shall also include JSC's Guarantees of the Senior Subordinated Notes
and the Subordinated Debentures.
As defined in each Indenture, 'Designated Senior Debt' means, with respect
to JSC, (i) Debt under the Bank Credit Agreement (including the Additional Bank
Credit Amount) (ii) Debt under JSC's Guarantee of the Senior Notes and (iii) any
other Debt constituting Senior Debt which, at the time of determination, has an
aggregate principal amount of at least $40 million and is specifically
designated in the instrument evidencing such Senior Debt as 'Designated Senior
Debt' by JSC. The definition of 'Designated Senior Debt', with respect to JSC,
(i) in the Subordinated Debenture Indenture includes JSC's Guarantee of the
Senior Subordinated Notes and (ii) in the Junior Accrual Debenture Indenture
includes JSC's Guarantees of the Senior Subordinated Notes and the Subordinated
Debentures.
At June 30, 1994, there was outstanding approximately $1,653.2 million of
Senior Debt senior to JSC's Guarantee of the Senior Subordinated Notes,
approximately $2,003.2 million of Senior Debt senior to JSC's Guarantee of the
Subordinated Debentures and approximately $2,303.2 million of Senior Debt senior
to JSC's Guarantee of the Junior Accrual Debentures. Subject to the restrictions
set forth in the New Credit Agreement, the 1993 Note Indenture, the 1994 Note
Indenture and the
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Indentures, in the future, JSC may issue additional Senior Debt to finance
acquisitions, to refinance existing indebtedness or for other corporate
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Indentures for the full definition of all
terms as well as any other capitalized terms used herein for which no definition
is provided.
'Acquisition Debt' means (i) any Debt Incurred in connection with the
acquisition of a Subsidiary or the acquisition of $25 million (calculated on the
basis of the fair market value of the consideration paid, as determined by the
Board of Directors) or more of assets outside the ordinary course of business
and (ii) Debt of a Person existing at the time such Person becomes a Subsidiary,
except to the extent such Debt is to be paid or discharged in connection with
the acquisition of such Subsidiary.
'Additional Bank Credit Amount' has the meaning specified in clause (i) of
the definition of Permitted Debt.
'Adjusted Consolidated Net Worth' of any Person means, as of any date, the
Consolidated Net Worth of such Person less any amount attributable to Preferred
Stock or any other Capital Stock of such Person (other than Redeemable Stock,
which is not included in Consolidated Net Worth) which is exchangeable or
convertible into a debt security of such Person or any of its Subsidiaries at
the option of such Person or any of its Subsidiaries.
'Affiliate,' as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, 'control' (including, with
correlative meanings, the terms 'controlling,' 'controlled by' and 'under common
control with'), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
'Agent' means Bankers Trust Company as agent for the Banks pursuant to the
Bank Credit Agreement, and any successor thereto.
'Asset Sale' means the sale or other disposition in one transaction or
series of related transactions by JSC or any of its Subsidiaries to any Person
other than JSC or one of its Subsidiaries of (i) more than 15% of the Capital
Stock of any of JSC's Subsidiaries if the fair market value (as determined by
the Board of Directors) of the consideration received on such sale is at least
$35 million or (ii) at least $35 million (calculated on the basis of the fair
market value of the consideration received, as determined by the Board of
Directors) of any other assets of JSC or any of its Subsidiaries outside the
ordinary course of business.
'Average Life' means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from the date of determination to the dates of each
successive scheduled principal payment of such debt security multiplied by (b)
the amount of such principal payment by (ii) the sum of all such principal
payments.
'Bank Credit Agreement' means the Credit Agreement dated as of November 9,
1989 among JSC, CCA, Holdings, JSC Acquisition, the banks listed therein and the
Agent, together with the related documents thereof, including without limitation
any security documents, in each case as such agreements may be amended,
restated, supplemented or otherwise modified from time to time, including the
addition, deletion and substitution of banks, and includes any agreement
extending the maturity of, refinancing or restructuring (including, but not
limited to, the inclusion of additional borrowers thereunder that are
Subsidiaries of CCA or JSC and whose obligations are Guaranteed by CCA or JSC
thereunder) all or any portion of, the Debt under such Agreement or any
successor agreements; provided that, with respect to any agreement providing for
the refinancing of Debt under the Bank Credit Agreement, such agreement shall
only be the Bank Credit Agreement under the Indentures if a notice to that
effect is delivered by CCA to the respective Trustees, and there shall be at any
time only one debt instrument which is the Bank Credit Agreement under the
Indentures. (See 'Description of Certain Indebtedness_--_The New Bank
Facilities' for a description of the New Credit Agreement which provided for the
refinancing of Debt under the 1989 Credit Agreement.)
'Banks' means the banks who are from time to time parties to the Bank
Credit Agreement.
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'Board of Directors' means the Board of Directors for JSC or CCA, as the
case may be, or any committee of such Board duly authorized to act under the
Indentures.
'Business Day' means 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 respective Trustees are authorized by law to close.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the date of the
Indentures, including, without limitation, all Common Stock and Preferred Stock.
'Capitalized Lease' means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person and
'Capitalized Lease Obligation' means the rental obligations, as aforesaid, under
such lease.
'Change of Control' means the failure of the Original Stockholders in the
aggregate to have the right to vote (through direct or indirect ownership of
Capital Stock, contract or otherwise) a majority of the total voting power
entitled to vote generally in the election of directors, managers or trustees of
JSC; provided, that a Change of Control shall not occur if one or more of the
Original Stockholders shall have the right to vote (through ownership of Capital
Stock, contract or otherwise) a majority of the total voting power entitled to
vote generally in the election of directors, managers or trustees of any Person
of which JSC is a Subsidiary. For purposes of this definition only, JSC shall
mean, in the case of a consolidation or merger or a transfer of all or
substantially all of the assets of JSC in one transaction or a series of related
transactions to any Person and the assumption by such Person of the obligations
hereunder in accordance with the merger provisions described below, the Person
formed by such consolidation or the Person into which JSC was merged or the
Person to which such assets were transferred.
'Code' means the Internal Revenue Code of 1986, as amended.
'Common Stock' means, with respect to any Person, any and all shares,
interests, participations and 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 Indentures, and includes, without limitation, all
series and classes of such common stock.
'Consolidated Capital Expenditures' means (i) expenditures (whether paid in
cash or accrued as liabilities and including Capitalized Lease Obligations) of
JSC and its Subsidiaries that, in conformity with GAAP, are included in the
property, plant or equipment reflected in the consolidated balance sheet of JSC
and its Subsidiaries; (ii) expenditures permitted or required to be made
pursuant to the Times Mirror Agreement, as the same may at any time be amended,
modified or supplemented; and (iii) expenditures in connection with tax-exempt
financings meeting the requirements of Section 103 of the Code (or any successor
thereto) and the regulations thereunder, incurred after the date of the
Indenture.
'Consolidated Cash Flow Available for Fixed Charges' means, for any period,
the sum of the amounts for such period of (i) Consolidated Net Operating Income,
(ii) Consolidated Interest Expense, (iii) provisions for taxes based on income,
(iv) depreciation expense, (v) amortization expenses and (vi) all other non-cash
items reducing Consolidated Net Operating Income, minus all non-cash items
increasing Consolidated Net Operating Income, all as determined on a
consolidated basis for any Person and its Subsidiaries in conformity with GAAP.
'Consolidated Cash Flow Ratio' means the ratio, on a pro forma basis,
giving effect to any Debt Incurred subsequent to the end of the
four-fiscal-quarter period referred to in clause (i) below and prior to the
Transaction Date, any Debt Incurred during such period to the extent such Debt
is outstanding at the Transaction Date, and the Debt to be Incurred on the
Transaction Date, in each case as if such Debt had been Incurred on the first
day of such four-fiscal-quarter period, of (i) the aggregate amount of
Consolidated Cash Flow Available for Fixed Charges of any Person for the four
fiscal quarters for which financial information in respect thereof is available
immediately prior to the Transaction Date to (ii) the aggregate Consolidated
Fixed Charges of such Person during such four fiscal quarters; provided that (A)
in making such computation, (x) Consolidated Interest Expense attributable to
interest on any Debt
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(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
Debt if such Interest Rate Agreement has a remaining term in excess of 12
months) had been the applicable rate for the entire period, and (y) there shall
be excluded from Consolidated Interest Expense any Interest Expense related to
any amount of Debt which was outstanding during such four-fiscal-quarter period
or thereafter but which is not outstanding on the Transaction Date, except for
Interest Expense actually Incurred (as adjusted pursuant to clause (x)) under a
revolving credit or similar arrangement to the extent the commitment thereunder
remains in effect on the Transaction Date, (B) in making any calculation of the
Consolidated Cash Flow Ratio for any period commencing prior to the Transaction,
the Transaction and the financing thereof (including any bridge financing, any
bank financing, any equity financing, the sale of the Senior Notes, the Senior
Subordinated Notes, the Subordinated Debentures and the Junior Accrual
Debentures) shall be deemed to have taken place on the first day of such period,
(C) if any Debt (including Debt to be Incurred and Debt Incurred during such
four-fiscal-quarter period or thereafter and prior to the Transaction Date) is
Acquisition Debt, Consolidated Cash Flow Available for Fixed Charges shall be
determined giving pro forma effect to the Consolidated Cash Flow Available for
Fixed Charges of the Person or assets in respect of which such Acquisition Debt
is (or was) Incurred, and Consolidated Fixed Charges shall be determined giving
pro forma effect to such Acquisition Debt and (D) if such Person or any of its
Subsidiaries shall have made any Asset Sale during such four-fiscal-quarter
period or thereafter and prior to or on the Transaction Date, Consolidated Cash
Flow Available for Fixed Charges shall be reduced by an amount equal to the
Consolidated Cash Flow Available for Fixed Charges (if positive) directly
attributable to the assets the subject of such Asset Sale or increased by the
amount equal to the Consolidated Cash Flow Available for Fixed Charges (if
negative) directly attributable thereto for such period, and Consolidated Fixed
Charges shall be reduced by the amount equal to the Consolidated Fixed Charges
directly attributable to the assets the subject of such Asset Sale.
'Consolidated Fixed Charges' of any Person means, for any period,
Consolidated Interest Expense.
'Consolidated Interest Expense' of any Person means, for any period, the
aggregate Interest Expense of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
'Consolidated Net Income' means, for any period taken as one accounting
period, the net income (or loss) of any Person and its Subsidiaries on a
consolidated basis for such period determined in conformity with GAAP; provided
that there shall be excluded (i) the income (or loss) of any Person (other than
a Subsidiary of such Person) in which any other Person (other than such Person
or any of its Subsidiaries) has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid to such Person or any
of its Subsidiaries by such other Person during such period, (ii) the income of
any Subsidiary (other than CCA) to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, other than the Bank Credit Agreement, the Senior
Notes and any agreements relating thereto unless and to the extent such income
is available for the payment of Consolidated Fixed Charges of such Subsidiary
and its Subsidiaries, (iii) any gains or losses (on an after-tax basis)
attributable to Asset Sales, (iv) solely for purposes of calculating the amount
of Restricted Payments which may be made pursuant to clause (b) of the
'Limitation on Restricted Payments' covenant described below and except to the
extent includible pursuant to the foregoing clause (i) above, the income (or
loss) of any Person accrued prior to the date it becomes a Subsidiary of such
Person or is merged into or consolidated with such Person or any of its
Subsidiaries or that Person's assets are acquired by such Person or any of its
Subsidiaries, (v) amounts paid as dividends in cash on Preferred Stock of such
Person and (vi) amounts (including non-cash charges) reducing Consolidated Net
Income resulting from payments made to holders of stock options or stock
appreciation rights.
'Consolidated Net Operating Income' of any Person means, for any period
taken as one accounting period, the aggregate Consolidated Net Income of such
Person and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, adjusted by excluding (to the extent not otherwise
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excluded in calculating Consolidated Net Income) any net extraordinary gain or
net extraordinary loss, as the case may be, during such period except that no
adjustment shall be made for extraordinary items consisting of income tax
effects associated with net operating losses incurred by such Person after the
date of the Indentures and prior to any reporting of positive consolidated net
income (on a federal income tax reporting basis).
'Consolidated Net Worth' of any Person means, as at any date of
determination, the sum of the Capital Stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of such Person and its
Subsidiaries on a consolidated basis, less amounts attributable to Redeemable
Stock or any equity security exchangeable or convertible into Debt, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement No.
52).
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect JSC or
any of its Subsidiaries against fluctuations in currency values to or under
which JSC or any of its Subsidiaries is a party or a beneficiary on the date
hereof or becomes a party or a beneficiary hereafter.
'Debt' of any Person means at any date, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments (other
than, in the case of JSC or its Subsidiaries, any non-negotiable notes of JSC or
its Subsidiaries issued to its insurance carriers in lieu of maintenance of
policy reserves in connection with its workers' compensation and liability
insurance programs), (iii) all obligations of such Person in respect of letters
of credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables, (v) all obligations of such Person as lessee under Capitalized Leases,
(vi) all Debt of others secured by a Lien on any asset of such Person, whether
or not such Debt is assumed by such Person, (vii) all Debt of others Guaranteed
by such Person to the extent such Debt is Guaranteed by such Person, (viii) all
obligations in respect of money borrowed under the Bank Credit Agreement, the
Senior Notes (and agreements relating to the issuance thereof) and any
Guarantees thereof and (ix) to the extent not otherwise included, net
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Debt of any Person at any date shall be the outstanding balance at such date
of all unconditional obligations as described above and the amount of such
Person's liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date as determined by such
Person's Board of Directors as reasonably likely to occur; provided that Debt
shall not include any liability for Federal, State, provincial, local or other
taxes owed or owing by such Person. The amount outstanding, at any time, of any
Debt issued with original issue discount is the face amount of such Debt less
the remaining unamortized portion of the original issue discount of such Debt at
such time as determined in accordance with GAAP.
'Financing' means the financing of the Transaction.
'GAAP' means generally accepted accounting principles in the United States
as in effect as of the date of the Indentures, 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; provided that all ratios and computations based on GAAP
contained in the Indentures shall be computed in accordance with GAAP except
that calculations made for the purpose of determining compliance with the terms
of the covenants set forth below, the merger provisions and other provisions of
the Indentures shall be made, except as otherwise provided herein, without
giving effect to adjustments in component amounts required or permitted by
Accounting Principles Board Opinions Nos. 16 and 17 as a result of the
Transaction and for the amortization of any expenses incurred in connection with
the Transaction or the Financing.
'Guarantee' by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt 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
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(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation of such other Person (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other legally enforceable manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term 'Guarantee' used as a verb has a corresponding meaning.
'Holder', 'holder of Securities', 'Security holder' or other similar terms
mean the registered holder of any Senior Subordinated Note, Subordinated
Debenture or Junior Accrual Debenture.
'Holding Company Transaction' means a transaction in which any Person (i)
fifty percent or more of the outstanding voting interest of which is
beneficially owned or controlled by one or more Persons who individually or
together beneficially own or control fifty percent or more of the outstanding
voting interest of Holdings on the date of the Indentures and (ii) that
beneficially owns or controls fifty percent or more of the outstanding voting
interest of JSC at such time, issues any debt securities or Redeemable Stock the
proceeds of which are used to make a dividend or distribution on, or to
purchase, any of the Capital Stock of such Person, or the Capital Stock of any
other Person of which JSC is a direct or indirect Subsidiary, at a time when and
under circumstances in which such dividend or purchase, if made by JSC or its
Subsidiaries, would not be permitted by the terms of the Indentures; provided
that this definition shall not apply to (x) the issuance of junior subordinated
exchange debentures of Holdings in exchange for Holdings Preferred Stock
pursuant to Holdings' Certificate of Incorporation as in effect on the date of
the Indentures and (y) issuances of debt securities or Redeemable Stock by MSLEF
II (including any general partner thereof), Morgan Stanley Group or SIBV or by
any Person or Persons which directly or indirectly beneficially own or control
50% or more of the outstanding voting interests of MSLEF II (including any
general partner thereof), Morgan Stanley Group or SIBV.
'Holdings Parent' means any entity of which Holdings is a direct or
indirect Subsidiary.
'Incur' means, with respect to any Debt, 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 Debt; 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 Debt.
'Interest Expense' of any Person means, for any period taken as one
accounting period, the aggregate amount of interest in respect of Debt
(including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and the net costs
associated with Interest Rate Agreements) and all but the principal component of
rentals in respect of Capitalized Lease Obligations, paid or accrued by such
Person during such period, excluding, however, fees and expenses payable or
amortized in connection with the Financing, all as determined in accordance with
GAAP.
'Interest Rate Agreement' means 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 JSC or any of its Subsidiaries against fluctuations in interest
rates, to or under which JSC or any of its Subsidiaries is a party or a
beneficiary on the date of the Indentures or becomes a party or a beneficiary
thereafter.
'Investment' means all loans, advances (other than advances to customers in
the ordinary course of business, whether or not secured, which are recorded as
accounts receivable on the balance sheet of JSC or its Subsidiaries), capital
contributions and transfers of assets (except for transfers for cash and/or
other property in an amount or having a fair value, in the opinion of the Board
of Directors of JSC, equal to the fair value of the assets transferred), and all
purchases and other acquisitions for consideration by JSC or any of its
Subsidiaries of evidences of indebtedness, Capital Stock or other securities;
provided, however, that in computing any Investment in any Person: (i) all
expenditures for such Investment shall be taken into account at the actual
amounts thereof in the case of expenditures of cash and at the fair value
thereof (as determined by the Board of Directors of JSC) or net book value
thereof (in accordance with GAAP), whichever is greater, in the case of
expenditures of property; (ii)
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undistributed earnings of and interest accrued but unpaid in respect of Debt
owing by such Person shall not be included; (iii) there shall not be deducted
from amounts invested in any such Person any amounts received as loans from such
Person; (iv) there shall be deducted from the amounts invested in such Person
any amounts received as earnings (in the form of dividends or interest or
otherwise) on the Investment in such Person or any return of such Investment;
(v) increases or decreases in value, or write-ups, write-downs or write-offs, of
Investments in such Person shall be disregarded (except to the extent that any
loss realized on an Investment has been deducted from the gross revenues of JSC
or a Subsidiary of JSC in computing Consolidated Net Income); (vi) there shall
be included all notes and accounts receivable from such Person, other than notes
or accounts receivable payable in U.S. or Canadian dollars and not outstanding
more than 90 days, arising from sales to such Person as a customer in the
ordinary course of business; (vii) a Guarantee or other contingent liability in
respect of any Debt of such Person shall be deemed an Investment equal to the
principal amount of such Debt; and (viii) except as specified in the preceding
clause (vii), a transfer of property to such Person for less than the fair value
thereof (as determined by the Board of Directors of JSC) shall be deemed an
Investment equal to the amount of the deficiency.
'Joint Venture' means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form, in which the
relevant Person holds an equity interest of at least 10 percent; provided that,
as to any such arrangement in corporate form, such corporation shall not, as to
any Person of which such corporation is a Subsidiary, be considered to be a
Joint Venture to which such Person is a party.
'Lien' means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of the Indentures, JSC or any Subsidiary of JSC shall be deemed to
own subject to a Lien any asset which JSC or any such Subsidiary, as the case
may be, has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
'Major Asset Sale' means any Asset Sale, by JSC or any of its Subsidiaries
to any Person other than JSC or any of its Subsidiaries, that is not governed by
the provisions in the Indentures applicable to mergers, consolidations and
transfers of all or substantially all of JSC's or CCA's assets; provided, that
sales or other dispositions of inventory, receivables and other current assets
shall be disregarded and provided, further, that the transfer of the Designated
Assets (as defined in the SIBV Agreement) shall not constitute a Major Asset
Sale.
'Material Subsidiary' means each and any Subsidiary of JSC or CCA, as the
case may be, which, together with its Subsidiaries, (i) for the most recent
fiscal year of JSC or CCA, as the case may be, accounted for more than 10% of
the consolidated revenues of JSC or CCA, as the case may be, or (ii) as of the
end of such fiscal year, was the owner of more than 10% of the consolidated
assets of JSC or CCA, as the case may be, all as shown on the consolidated
financial statements of JSC or CCA, as the case may be, for such fiscal year.
'NatWest Note' means the 13.95% Subordinated Note due 1993 of JSC held by
International Westminster Bank plc in an aggregate principal amount of $42
million, as the same may be amended, modified, supplemented or refinanced;
provided that no such amendment, modification, supplement or refinancing shall
increase the principal amount thereof to exceed the principal amount plus
accrued and unpaid interest thereon immediately prior to such amendment,
modification, supplement or refinancing.
'Net Cash Proceeds' means, with respect to any Major Asset Sale, the
proceeds therefrom 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 JSC or any Subsidiary thereof) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Major Asset Sale, (ii) provisions for all taxes payable as a result of such
Major Asset Sale, (iii) payments made to repay Debt or any other obligation
outstanding at the time of such Major Asset Sale that either (A) is secured by a
Lien on the property or assets sold or (B) is required to be paid as a result of
such sale, and (iv) appropriate amounts to be provided by JSC or any Subsidiary
thereof, as the case may be, as a reserve in accordance with GAAP, against any
liabilities associated with such Major Asset Sale, including, without
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limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Major Asset Sale.
'Non-Recourse Debt' means Debt of a Person to the extent that, if such
Person fails to pay such Debt when due and the holder thereof obtains a judgment
with respect thereto, the holder may not collect by levy of execution against
any general assets of such Person but instead has recourse only to certain
specified assets of such Person, none of which constitutes assets other than
assets securing such Debt; provided, however, that Debt Incurred in connection
with any financing which by the terms of such Debt would constitute Non-Recourse
Debt but for provisions customary in financings of such type giving recourse to
the general assets of such Person upon the happening of certain events,
including fraud, intentional misrepresentation, regulatory non-compliance or
violation of law, shall, notwithstanding such provisions, be deemed Non-Recourse
Debt; and provided, further, however, that such Debt shall not be deemed to not
be Non-Recourse Debt by reason of any rights the holder thereof may have under
bankruptcy, insolvency, receivership or other proceedings, including under
Section 1111(b) of the Federal Bankruptcy Code.
'Operating Lease' means, as applied to any Person, any lease of any
property (whether real, personal or mixed) which is not a Capitalized Lease.
'Organization Agreement' means the Amended and Restated Organization
Agreement dated as of December 1, 1989 among SIBV, MSLEF II, Holdings, JSC, CCA
and MSLEF II, Inc. as the same may be amended from time to time, including to
add or change parties thereto.
'Original Stockholders' means, collectively, MSLEF II, Morgan Stanley
Group, SIBV, JS Group and any Affiliate of any such Person.
'Permitted Debt' means (i) Debt under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed the sum of
(A) $2,050 million, less (x) the amount of Debt outstanding (other than accrued
interest) from time to time under the Senior Notes, (y) any mandatory principal
payments made by JSC or CCA pursuant to the Bank Credit Agreement other than
mandatory principal payments expressly required to be made from excess cash
flow, asset sales or from the proceeds of issuances of Debt or Capital Stock;
provided that to the extent any mandatory principal payments expressly required
to be made from excess cash flow, asset sales or from the proceeds of issuances
of Debt or Capital Stock reduce any other mandatory principal payment obligation
of CCA, then at the time such other mandatory principal payment is made (or
would have been made but for the earlier payment in full from excess cash flow,
asset sales or from the proceeds of issuances of Debt or Capital Stock), less
the full amount of such mandatory principal payment obligation as if such amount
had not been reduced by such mandatory principal payment from excess cash flow,
asset sales or from the proceeds of issuances of Debt or Capital Stock and (z)
any amounts by which the revolving credit facility commitments are permanently
reduced, (B) an amount (the 'Additional Bank Credit Amount') equal to $350
million, and (C) an amount equal to Debt, arising by virtue of letters of credit
or other facilities, permitted by clause (vii) of this definition of Permitted
Debt; (ii) (A) Debt outstanding on the date of the Indentures, (B) (1) Debt
evidenced by the Senior Notes and Debt which refinances Senior Notes with an
aggregate principal amount not in excess of the aggregate principal amount of
Senior Notes refinanced with such Debt together with accrued and unpaid interest
thereon (plus expenses and premium, if any) and (2) other Debt the proceeds of
which are used to refinance Senior Debt outstanding on the date of the
Indentures (other than Debt under the Bank Credit Agreement) in a principal
amount not to exceed the principal amount refinanced together with accrued and
unpaid interest thereon (plus expenses and premium, if any) (provided that in
this clause (B) references to the principal amount of such refinancing Debt
shall be to the original issue price thereof if the amount due and payable upon
an acceleration thereof is less than the principal amount thereof) and (C) the
Senior Subordinated Notes, the Subordinated Debentures and the Junior Accrual
Debentures, the Guarantee by JSC of the Senior Notes, the Guarantees by JSC of
the Senior Subordinated Notes, the Subordinated Debentures and the Junior
Accrual Debentures under the Indentures, the obligations of CCA and JSC under
the Indentures, and other Debt Incurred within the first five years after
issuance of the Junior Accrual Debentures to pay cash interest on the Junior
Accrual Debentures; (iii) Debt of JSC to any of its Subsidiaries, or of a
Subsidiary of JSC to JSC or to a Subsidiary of JSC; (iv) Debt up to $200 million
at any one time outstanding; provided that the proceeds (net of applicable taxes
and transaction costs) thereof are used to repay term Debt under the Bank
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Credit Agreement; (v) Debt under Currency Agreements and Interest Rate
Agreements; provided, that any such Currency Agreements do not increase the Debt
of JSC outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder; (vi) Debt represented by the obligations of JSC or CCA to repurchase
shares, or cancel or repurchase options to purchase shares, of Holdings', a
Holdings Parent's, JSC's or CCA's Common Stock held by employees of JSC or any
of its Subsidiaries as set forth in the form of agreements under which such
employees purchase or hold shares of Holdings', a Holdings Parent's, JSC's or
CCA's Common Stock; provided that such Debt is subordinated to the Senior
Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures, as the
case may be, or JSC's Guarantee of the Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, pursuant to terms
at least as subordinated as the Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, or JSC's Guarantee
of the Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be, are subordinated to Senior Debt and that the
scheduled maturity of all principal of such Debt is beyond the scheduled
maturity of the Senior Subordinated Notes, Subordinated Debentures or Junior
Accrual Debentures, as the case may be; (vii) Debt 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 of its Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or any Subsidiary of JSC, other than
Guarantees of Debt Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
(viii) Debt in respect of performance bonds and surety bonds provided by JSC or
any of its Subsidiaries in the ordinary course of business, and refinancings
thereof; (ix) Debt of JSC or any of its Subsidiaries in respect of letters of
credit, other than letters of credit issued under the Bank Credit Agreement, not
to exceed an aggregate amount of $125 million at any one time outstanding, less
the amount of any letters of credit outstanding under the Bank Credit Agreement;
(x) Debt secured (including pursuant to any Capitalized Lease) by property
(whether real, personal or mixed) held by JSC or any of its Subsidiaries
(including pursuant to any Capitalized Lease); provided that the proceeds (net
of applicable taxes, transaction costs and repayment of indebtedness secured by
the pledged property) of any issue of such Debt having a principal amount of at
least $50 million individually, or at least $75 million in the aggregate, are
used to repay or prepay Senior Debt; (xi) Debt Incurred to finance, directly or
indirectly, Consolidated Capital Expenditures in any fiscal year of JSC in
aggregate amount not to exceed the amount of JSC's Consolidated Capital
Expenditures for such year; provided that the amount of such Debt does not
exceed $150 million during such fiscal year, and any refinancing of such Debt
(including pursuant to any Capitalized Lease); (xii) Debt up to an aggregate
principal amount outstanding (or, if such Debt provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration of the entirety thereof, with an original issue price) of $350
million, less the outstanding Additional Bank Credit Amount; (xiii) Debt of JSC
and its Subsidiaries evidencing the obligation to make payments in respect of
rights to cut, harvest or otherwise acquire timber; provided, that the aggregate
principal amount of such Debt shall not exceed $10 million at any one time
outstanding; and (xiv) Restricted Debt.
'Permitted Liens' means (i) Liens (including extensions and renewals
thereof) upon real or tangible personal property acquired after the date of the
Indentures; provided that (a) any such Lien is created solely for the purpose of
securing Debt representing, or incurred to finance, refinance or refund, the
cost (including the cost of improvement or construction) of the item of property
subject thereto, (b) the principal amount of the Debt secured by such Lien does
not exceed 100% of such cost, (c) such Lien does not extend to or cover any
property other than such item of property and any improvements on such item and
(d) the Incurrence of such Debt is permitted by the 'Limitation on JSC and
Subsidiary Debt' covenant described below; (ii) Liens securing Debt under
Interest Rate Agreements and Currency Agreements; (iii) Liens encumbering
deposits made to secure obligations arising from statutory or regulatory
requirements of JSC or its Subsidiaries; (iv) any interest or title of a lessor
in the property subject to any Capitalized Lease Obligation or operating lease
and Liens arising from filing UCC financing statements regarding leases, (v)
Liens on the assets of any entity existing at the time such assets are acquired,
whether by merger, consolidation, purchase of assets or otherwise; provided
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that such Liens do not extend to any other assets of JSC or any of its
Subsidiaries and (vi) Liens securing reimbursement obligations with respect to
letters of credit which encumber documents and other property relating to such
letters of credit and the products and proceeds thereof.
'Permitted Transaction Payments' means (A) payments, distributions and
transfers used, directly or indirectly, (i) to acquire Capital Stock of JSC or
CCA pursuant to the JSC Merger Agreement, the CCA Merger Agreement or the SIBV
Agreement (including payments made at any time to holders of such Capital Stock
who exercise or settle appraisal rights relating thereto), (ii) in connection
with the refinancing of existing Debt in connection with the Transaction,
including payments pursuant to the Tender Offers and related consent
solicitations, (iii) to pay fees and expenses in connection with the Transaction
and the financing thereof, and (iv) to consummate the Transaction pursuant to
the Transaction Documents, if made within three months after the issuance and
sale of the Securities, and (B) payments, distributions and transfers of
Designated Assets (as such term is defined in the SIBV Agreement).
'Person' means 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' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indentures, and includes, without limitation, all classes and
series of preferred or preference stock.
'Redeemable Stock' means any class or series of Capital Stock that by its
terms or otherwise is required to be redeemed prior to the stated maturity of
the Senior Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be, or is redeemable at the option of the holder
thereof at any time prior to the stated maturity of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Subordinated Debentures, as the
case may be.
'Restricted Debt' means (A) Debt the proceeds of which are used to
refinance the Senior Subordinated Notes, the Subordinated Debentures, the Junior
Accrual Debentures or other Debt of CCA or Debt of JSC which is subordinated in
right of payment to the Senior Subordinated Notes, the Subordinated Debentures
or the Junior Accrual Debentures, as the case may be, or JSC's Guarantee
thereof, and which, (1) in case the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures, respectively, are refinanced in
part, is expressly made pari passu or subordinate in right of payment to the
remaining Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be, (2) in case the Debt to be refinanced is
subordinate in right of payment to the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures or JSC's Guarantee
thereof, as the case may be, is subordinated in right of payment to the Senior
Subordinated Notes, the Subordinated Debentures, the Junior Accrual Debentures
or JSC's Guarantee thereof, as the case may be, at least to the extent that the
Debt to be refinanced is subordinated to the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures or JSC's Guarantee
thereof, as the case may be, and (3) in case the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, respectively, are
refinanced in part or the Debt to be refinanced is subordinated in right of
payment to the Senior Subordinated Notes, the Subordinated Debentures, the
Junior Accrual Debentures or JSC's Guarantee thereof, as the case may be, does
not mature prior to the final scheduled maturity date of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, and which has an Average Life equal to or greater than the remaining
Average Life of the Senior Subordinated Notes, the Subordinated Debentures or
the Junior Accrual Debentures, as the case may be; provided, that in no event
may Debt of any Subsidiary of JSC (other than CCA) constitute Restricted Debt
and (B) Debt which by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued, (1) is subordinate in right of payment to
the Senior Subordinated Notes, the Subordinated Debentures, the Junior Accrual
Debentures or JSC's Guarantee thereof, as the case may be, at least to the
extent the Senior Subordinated Notes, the Subordinated Debentures, the Junior
Accrual Debentures or JSC's Guarantee thereof, as the case may be, are
subordinate to Senior Debt, and (2) provides that no payments of principal of
such Debt by way of sinking fund, mandatory redemption or otherwise (including
defeasance) may be made by JSC or CCA (including, without limitation, at the
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option of the holder thereof) at any time prior to the maturity of the Senior
Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be, if after giving effect to the Incurrence of such
Debt, the Consolidated Cash Flow Ratio of JSC would be at least 1.7 to 1 if such
determination is made on or prior to December 31, 1990 and 1.8 to 1 if such
determination is made thereafter.
'Senior Notes' means CCA's Senior Secured Notes due December 1, 1998,
including any such notes issued within 18 months after the consummation of the
Transaction. (The Senior Notes were refinanced pursuant to the Bank Debt
Refinancing. See 'Recapitalization Plan'.)
'SIBV' means Smurfit International B.V., a corporation organized under the
laws of The Netherlands.
'Subordinated Debt' means, with respect to CCA, any Debt which (i) is
subordinate in right of payment to the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be, at
least to the extent the Senior Subordinated Notes, the Subordinated Debentures
or the Junior Accrual Debentures, as the case may be, are subordinate to Senior
Debt, (ii) provides that no payments of principal of such Debt by way of sinking
fund, mandatory redemption or otherwise (including defeasance) are required to
be made (including, without limitation, at the option of the holder thereof) at
any time prior to the maturity of the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be,
and (iii) has an Average Life which is greater than the remaining Average Life
of the Senior Subordinated Notes, the Subordinated Debentures or the Junior
Accrual Debentures, as the case may be.
'Subordinated Debt' means, with respect to JSC, any Debt which (i) is
subordinate in right of payment to JSC's Guarantees of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, at least to the extent JSC's Guarantees of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, are subordinate to Senior Debt, (ii) provides that no payments of
principal of such Debt by way of sinking fund, mandatory redemption or otherwise
(including defeasance) are required to be made (including, without limitation,
at the option of the holder thereof) at any time prior to the maturity of the
Senior Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be, and (iii) has an Average Life which is greater
than the remaining Average Life of the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be.
'Subsidiary' means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
'Tender Offers' means the tender offers (and related consent solicitations)
for the 12 3/8% Senior Subordinated Debentures due September 30, 1998 of CCA and
the 16 3/4% Subordinated Discount Debentures due September 30, 2006 of CCA.
'Times Mirror Agreement' means the Shareholders Agreement, dated February
21, 1986 between JSC and the Times Mirror Company, as the same may at any time
be amended, modified or supplemented.
'Trade Payables' means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by JSC or any
Subsidiary of JSC in the ordinary course of business in connection with the
obtaining of materials or services or any Trade Payables of any Subsidiary or
Joint Venture of JSC Guaranteed by JSC or any Subsidiary of JSC.
'Transaction' means the transactions pursuant to which (i) Holdings will
acquire the entire equity interest in JSC, (ii) JSC will acquire the entire
equity interest in CCA, (iii) MSLEF I Group will receive $500 million in respect
of their shares of CCA Common Stock, (iv) SIBV will receive $41.75 per share in
respect of its shares of JSC, (v) certain assets of JSC and CCA will be
transferred to SIBV or its Affiliates and certain services will be rendered to
SIBV with respect to such assets and (vi) the Tender Offers will occur.
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'Transaction Date' means, with respect to the Incurrence of any Debt by JSC
or any of its Subsidiaries, the date such Debt is to be Incurred, and, with
respect to any Restricted Payment, the date such Restricted Payment is to be
made.
'Transaction Documents' means (i) the JSC Merger Agreement, (ii) the
documents, including the certificate of incorporation of Holdings, pursuant to
which Holdings will issue preferred stock to SIBV or its Affiliates (including
any certificate of designation relating thereto), (iii) the CCA Merger
Agreement, (iv) the documents pursuant to which the Tender Offers are effected
and (v) the Organization Agreement, in each case, as in effect from time to
time.
'Unrestricted Subsidiary' means (i) any Subsidiary of JSC designated as
such by the Board of Directors of JSC unless and until so redesignated to no
longer be an Unrestricted Subsidiary (as provided below) and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of JSC may designate any
Subsidiary of JSC (including any newly acquired or newly formed Subsidiary) to
be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock or
Debt of, or owns or holds any Lien on any property or assets of, JSC or any
Subsidiary of JSC (other than an Unrestricted Subsidiary); provided that (x)
immediately after giving effect to such designation, JSC could Incur $1.00 of
additional Debt pursuant to clauses (1) through (5) of the 'Limitation on JSC
and Subsidiary Debt' covenant and (y) such designation does not result in a
violation of the 'Limitation on Investments in Unrestricted Subsidiaries'
covenant. Subject to the 'Limitation on Investments in Unrestricted
Subsidiaries' covenant, the Board of Directors of JSC may designate any
Unrestricted Subsidiary to no longer be an Unrestricted Subsidiary; provided
that immediately after giving effect to such designation, JSC could Incur $1.00
of additional Debt pursuant to clauses (1) through (5) of the 'Limitation on JSC
and Subsidiary Debt' covenant. For purposes of the Indentures, an Unrestricted
Subsidiary shall not be considered a Subsidiary during any period it is
designated as such.
COVENANTS
The Indentures contain, among others, the following covenants.
Limitation on JSC and Subsidiary Debt. JSC shall not, and shall not permit
any of its Subsidiaries to, Incur any Debt other than Permitted Debt unless,
after giving effect to the Incurrence of such Debt and the receipt and
application of the proceeds thereof, the Consolidated Cash Flow Ratio of JSC
would be:
(1) greater than 2.0 to 1 if the Transaction Date is after the last
day of JSC's 1991 fiscal year and on or prior to the last day of JSC's 1992
fiscal year;
(2) greater than 2.2 to 1 if the Transaction Date is after the last
day of JSC's 1992 fiscal year and on or prior to the last day of JSC's 1993
fiscal year; and
(3) greater than 2.4 to 1 if the Transaction Date is after December
31, 1993.
For the year ended December 31, 1993, the Consolidated Cash Flow Ratio of
JSC and its Subsidiaries under the Indentures was 1.4 to 1. The Permanent
Facility contains a covenant generally prohibiting the incurrence of additional
indebtedness unless the proceeds therefrom are applied to prepay amounts
outstanding under the Permanent Facility or certain other conditions are met,
which conditions are narrower in scope and amount than those set forth above and
in the definition of Permitted Debt.
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For purposes of determining any particular amount of Debt under this
'Limitation on JSC and Subsidiary Debt' covenant, Guarantees of (or obligations
with respect to letters of credit supporting) Debt otherwise included in the
determination of such amount shall not be included. For the purpose of
determining compliance with this 'Limitation on JSC and Subsidiary Debt'
covenant, in the event that an item of Debt meets the criteria of more than one
of the types of Debt described in the above clauses or in one of the clauses of
the definitions of Permitted Debt or Restricted Debt, JSC, in its sole
discretion, shall classify such item of Debt and only be required to include the
amount and type of such Debt in one of such clauses. (Section 3.5)
Limitation on Preferred Stock of Subsidiaries and Subsidiary Distributions.
The Indentures provide that JSC will not permit any Subsidiary to, directly or
indirectly, issue or sell any Preferred Stock (other than to JSC or to a
Subsidiary of JSC). In addition, the Indentures provide that JSC will not permit
any Subsidiary to, directly or indirectly, (i) declare or pay any dividend or
make any distribution on the Capital Stock of such Subsidiary or to the holders
of such Subsidiary's Capital Stock in their capacity as such (other than
dividends or distributions payable in Common Stock or options, warrants or
rights to purchase Common Stock of such Subsidiary) or (ii) purchase, redeem or
otherwise acquire or retire for value, any such Capital Stock; provided that
this covenant shall not prevent (A) the payment by any Subsidiary of dividends
or other distributions to JSC or a wholly-owned Subsidiary of JSC or the
redemption, purchase, acquisition or retirement by any Subsidiary of any of its
Capital Stock owned by JSC or a wholly-owned Subsidiary of JSC; (B) the payment
of dividends to holders of interests in the Common Stock of a Subsidiary,
following an initial public offering of such Subsidiary's Common Stock, of up to
6% per annum of the net proceeds received by such Subsidiary in such public
offering; (C) the payment of pro rata dividends to holders of minority interests
in the Capital Stock of a Subsidiary of JSC; (D) the repurchase of shares of, or
options to purchase shares of, CCA's Common Stock from employees or from
employee benefit plans (or trusts maintained pursuant thereto) of CCA or any of
its Subsidiaries pursuant to the terms of agreements under which employees
purchase, or are granted the option to purchase or hold, shares of CCA's Common
Stock or the terms of such plans or trusts as in effect from time to time; and
(E) Permitted Transaction Payments; provided that, in the case of clauses (B)
and (C), no Event of Default or event or condition which through the giving of
notice or lapse of time or both would become an Event of Default shall have
occurred and be continuing or occur as a consequence thereof and provided,
further, that nothing contained in this covenant shall prevent any Subsidiary
from making any payment at any time up to the amount of Restricted Payments that
JSC could make at that time pursuant to the first paragraph of the 'Limitation
on Restricted Payments' covenant described below. (Section 3.6)
Limitation on Restricted Payments. The Indentures provide that JSC will not
directly or indirectly (i) declare or pay any dividend or make any distribution
on its Capital Stock or to the holders of its Capital Stock in their capacity as
such (other than dividends or distributions payable in its Common Stock, in
shares of Capital Stock other than Redeemable Stock or in options, warrants or
other rights to purchase Common Stock or such Capital Stock), (ii) purchase,
redeem or otherwise acquire or retire for value, or permit any Subsidiary of JSC
to, directly or indirectly, purchase, redeem or otherwise acquire or retire for
value, any such Capital Stock or any Capital Stock of Holdings or a Holdings
Parent (including options, warrants or other rights to acquire such Capital
Stock or any Capital Stock of Holdings or a Holdings Parent), or (iii) redeem,
repurchase, defease (including, but not limited to, in-substance or legal
defeasance) or otherwise acquire or retire for value, or permit any Subsidiary
of JSC to, directly or indirectly, redeem, repurchase, defease (including, but
not limited to, in-substance or legal defeasance) or otherwise acquire or retire
for value, except pursuant to any scheduled maturity, scheduled, required or
mandatory repayment, scheduled sinking fund payment or scheduled or required
acquisition for value, (A) Debt of Holdings or a Holdings Parent, (B) Debt of
CCA which is pari passu with or subordinate in right of payment to the Senior
Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be (except other Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures, as the case may be, and
CCA's 12 3/8% Senior Subordinated Debentures due September 30, 1998 and 16 3/4%
Subordinated Discount Debentures due September 30, 2006), and which was
scheduled to mature on or after the maturity date of the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, or (C) Debt of JSC which is pari passu with or subordinate in right of
payment to
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JSC's Guarantee of the Senior Subordinated Notes, the Subordinated Debentures or
the Junior Accrual Debentures, as the case may be, and which was scheduled to
mature on or after the maturity date of the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be
(other than Debt described in clauses (A), (B) and (C) above purchased in
anticipation of satisfying sinking fund, principal installments or final
maturity payments, in each case within one year of the date of such purchase)
(the foregoing actions set forth in clauses (i) through (iii) being referred to
as 'Restricted Payments'), if: (a) at the time of such Restricted Payment, or
after giving effect thereto, an Event of Default or an event or condition which
through the giving of notice or lapse of time or both would constitute an Event
of Default shall have occurred and be continuing; or (b) after giving effect to
such Restricted Payment, the aggregate amount expended for all Restricted
Payments (the amount so expended, if other than in cash, to be determined by the
Board of Directors, whose good faith determination shall be conclusive and
evidenced by a resolution of the Board of Directors certified by delivery of an
Officers' Certificate to the Trustee) subsequent to the last day of the quarter
immediately preceding the quarter in which the Determining Date (as defined
below) has occurred shall exceed the sum of (1) 50% of the aggregate
Consolidated Net Operating Income of JSC accrued on a cumulative basis for the
period from the last day of the quarter immediately preceding the quarter in
which the Determining Date has occurred, to the last day of the quarter
immediately preceding the quarter in which the Restricted Payment is proposed to
be made; provided that if Consolidated Net Operating Income for such period is a
loss, then 100% of such loss plus (2) the aggregate net proceeds, including the
fair market value of property other than cash (as determined by the Board of
Directors, whose good faith determination shall be conclusive) received by JSC
or any of its Subsidiaries from the issuance and sale (other than to JSC or a
Subsidiary of JSC) after the date of the Indentures of JSC's Capital Stock,
including the issuance or sale for cash after the date of the Indentures or upon
the conversion or exchange after the date of the Indentures of any Debt of JSC
or any of its Subsidiaries or from the exercise after the date of the Indentures
of any options, warrants or other rights to acquire Capital Stock of JSC or CCA,
plus (3) all amounts contributed to the capital of JSC by Holdings minus (4) the
aggregate amount of payments previously made by all Subsidiaries pursuant to the
third proviso of the 'Limitation on Preferred Stock of Subsidiaries and
Subsidiary Distributions' covenant, minus (5) the aggregate amount of
Investments in Unrestricted Subsidiaries previously made by JSC or any of its
Subsidiaries after the date of the Indentures pursuant to clause (ii) of the
'Limitation on Investments in Unrestricted Subsidiaries' covenant. 'Determining
Date' means the first date on which the Consolidated Cash Flow Ratio of JSC is
not less than 1.7 to 1; provided that if the Consolidated Cash Flow Ratio
decreases below 1.7 to 1 after the Determining Date, the original date on which
the Consolidated Cash Flow Ratio was not less than 1.7 to 1 (and not the next
date on which the Consolidated Cash Flow Ratio is not less than 1.7 to 1) shall
remain the Determining Date for the purpose of this covenant. For purposes of
any calculation pursuant to the preceding sentence which is required to be made
in respect of a dividend payment to be made within 60 days after the declaration
of such dividend by JSC, such dividend shall be deemed to be paid at the date of
declaration. For purposes of clause (2) above, the proceeds received by any
Person (x) from the issuance of its Capital Stock upon the conversion of, or
exchange for, Debt of such Person or any Subsidiary thereof shall be equal to
the aggregate principal amount of the Debt converted or exchanged and (y) upon
the conversion or exchange of other securities of such Person shall be equal to
the aggregate net proceeds of the original sale of the securities so converted
or exchanged (if such proceeds of such original sale were not previously
included in any calculation for the purposes of clause (2) above) plus any
additional sums payable upon conversion or exchange.
The foregoing provision 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 provision, (2)
redemptions, purchases or acquisitions of Preferred Stock of JSC or the
Subordinated Debentures (in the case of the Senior Subordinated Notes), the
Junior Accrual Debentures (in the case of the Senior Subordinated Notes and the
Subordinated Debentures) or other Debt of CCA which is pari passu or
subordinated in right of payment to the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, respectively, and
which was scheduled to mature on or after the maturity date of the Senior
Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, respectively; provided that no redemptions, purchases or
acquisitions
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may be effected pursuant to this clause (2) if, after giving effect to such
redemption, purchase or acquisition, the Consolidated Net Worth of JSC plus the
aggregate amount of Debt of CCA which is subordinated to the Senior Subordinated
Notes, the Subordinated Debentures or the Junior Accrual Debentures, as the case
may be, and which has an Average Life equal to or greater than the remaining
Average Life of the Senior Subordinated Notes, the Subordinated Debentures or
the Junior Accrual Debentures, as the case may be, then outstanding is less than
or equal to $(461) million in the case of the Senior Subordinated Notes, $(761)
million in the case of the Subordinated Debentures and $(961) million in the
case of the Junior Accrual Debentures, (3) the payment of dividends on JSC's
Common Stock, following an initial public offering of JSC's Common Stock, of up
to 6% per annum of the net proceeds received by JSC in such public offering, (4)
payments in respect of or the purchase of shares of, or options to purchase
shares of, Holdings' or a Holdings Parent's or JSC's Common Stock from employees
or from employee benefit plans (or trusts maintained pursuant thereto) of
Holdings, JSC or any Subsidiary of JSC pursuant to the terms of agreements under
which employees purchase, or are granted the option to purchase or hold, shares
of JSC's Common Stock or the terms of such plans or trusts as in effect from
time to time, or payments or distributions to Holdings to enable Holdings to
make any of the foregoing payments, (5) the acquisition, purchase or redemption
of Debt of Holdings or a Holdings Parent or JSC or any Subsidiary thereof or the
repurchase or redemption of Capital Stock of JSC or Holdings or a Holdings
Parent in exchange for, or with the proceeds from a substantially concurrent
sale of shares of Holdings' or a Holdings Parent's or JSC's Capital Stock;
provided that Common Stock of JSC may not be exchanged for or purchased or
redeemed with the proceeds of an issuance of Preferred Stock of JSC, (6) the
redemption, purchase or acquisition of Subordinated Debentures (in the case of
the Senior Subordinated Notes) or Junior Accrual Debentures (in the case of the
Senior Subordinated Notes and the Subordinated Debentures) with the proceeds of
or in exchange for Debt Incurred pursuant to clauses (1) through (5) of the
'Limitation on JSC and Subsidiary Debt' covenant or with the proceeds of
Restricted Debt, (7) distributions and payments required to be made pursuant to
the Times Mirror Agreement, and distributions or payments to Holdings which are
used by Holdings to make distributions or payments required to be made pursuant
to the Times Mirror Agreement, or to pay operating and other expenses and
liabilities (other than in respect of Capital Stock or any securities or
indebtedness for borrowed money) incurred by Holdings or any Holdings Parent
including tax liabilities (so long as Holdings and such Holdings Parent are not
engaged in any business other than holding the Capital Stock of JSC, Holdings or
a Holdings Parent which engages in no business other than holding Capital
Stock), (8) payments or dividends or distributions in connection with a merger,
consolidation or transfer permitted by the merger provisions, (9) Permitted
Transaction Payments, and (10) payments to JSC or any Subsidiary thereof in
respect of Debt of JSC or any Subsidiary thereof; provided that in the case of
clauses (2), (3), (4), (5), (6) and (8), no Event of Default or event or
condition which through the giving of notice or lapse of time or both would
constitute an Event of Default shall have occurred and be continuing or occur as
a consequence thereof. The Indentures contain additional provisions that specify
how certain transactions are to be characterized and quantified for purposes of
the foregoing provisions. (Section 3.7)
Limitation on Payment Restrictions Affecting Subsidiaries. The Indentures
provide that JSC will not, and will not permit any Subsidiary of JSC (other than
CCA) to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the right of any such Subsidiary to (i)
pay dividends or make any other distributions on such Subsidiary's Capital Stock
or pay any Debt owed to JSC or any Subsidiary of JSC, (ii) make any loans or
advances to JSC or any Subsidiary of JSC or (iii) transfer any of its property
or assets to JSC or any Subsidiary of JSC except: (a) any restrictions existing
on the date of the Indentures under, or in connection with, Debt or agreements
in effect, or entered into, on the date of the Indentures, or any amendments,
renewals, refinancings or extensions thereof; provided that the terms and
conditions of any such amendments, renewals, refinancings or extensions are no
less favorable in any material respect to Holders than the agreements being
renewed, refinanced or extended, (b) any restrictions existing under, or in
connection with, the Bank Credit Agreement or the Senior Notes or any agreement
which refinances the Bank Credit Agreement or the Senior Notes; provided that
any restrictions contained in any such refinancing are no less favorable in any
material respect to Holders than those contained in the Debt refinanced, (c) any
restrictions existing with respect to Debt of a Person at the time it becomes a
Subsidiary or any
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renewal, refinancing or extension of such Debt; provided that any restrictions
contained in any such refinancing are no less favorable in any material respect
to Holders than those contained in the Debt refinanced and (d) only with respect
to clause (iii) above, any restrictions (1) which are customary and which
restrict the subletting, assignment or transfer of any property or asset that
is, or is subject to, a lease, license, conveyance or contract or similar
property or asset, (2) which exist by reason of there being in effect any
agreement to transfer or lease, or any option or right with respect to any
property or asset, or (3) which arise in the ordinary course of business and
which do not in the aggregate detract from the value of the assets or property
subject thereto in any material respect. Nothing contained in this covenant
shall prevent JSC or a Subsidiary of JSC from entering into any agreement
providing for the incurrence of Liens otherwise permitted by the 'Limitation on
Liens' covenant described below. (Section 3.8)
Limitation on Liens. The Indentures provide that JSC will not, and will not
permit any Subsidiary of JSC to, create, incur, assume or suffer to exist any
Liens upon any of their respective assets securing Debt of JSC or any of its
Subsidiaries for money borrowed, unless the Senior Subordinated Notes, the
Subordinated Debentures and the Junior Accrual Debentures are equally and
ratably secured for so long as such Liens affect such assets, except for (i)
Liens existing as of or immediately after the date of the Indentures, including
Liens securing Debt Incurred as part of the Financing; (ii) Liens securing Debt,
fees, expenses or indemnities under the Bank Credit Agreement (including the
Additional Bank Credit Amount) or the Senior Notes; (iii) Liens created after
the date of the Indentures on any assets or Capital Stock of JSC or its
Subsidiaries created in favor of holders of Senior Subordinated Notes,
Subordinated Debentures and Junior Accrual Debentures and successor or
replacement facilities thereof; (iv)(A) Liens securing Debt permitted to be
Incurred, including any interest, fees, expenses or indemnities relating
thereto, under clauses (vii) and (x) of the definition of Permitted Debt and (B)
Liens securing (1) Non-Recourse Debt or (2) Debt permitted to be Incurred,
including any interest, fees, expenses or indemnities relating thereto, under
the 'Limitation on JSC and Subsidiary Debt' covenant, unless such Debt in the
case of clause (2), by its terms or by the terms of the instrument creating or
evidencing it, is subordinate in right of payment to, or pari passu with, the
Senior Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, respectively, or JSC's Guarantee thereof, as the case may be; (v)
Liens securing Acquisition Debt; provided that such Liens do not extend to or
cover any property or assets of JSC or any Subsidiary of JSC other than the
property or assets acquired; (vi) Permitted Liens; (vii) Liens to the extent the
collateral with respect thereto consists of inventory or receivables or
intangible assets or cash or cash equivalents, or the proceeds thereof and
(viii) Liens securing any Debt required to be secured equally and ratably with
any Debt secured by Liens permitted by clauses (i) through (vii) hereof.
(Section 3.9)
Limitation on Transactions with Stockholders and Affiliates. The Indentures
provide that JSC will not, and will not permit any Subsidiary of JSC to,
directly or indirectly, enter into any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any holder of 5% or more of any class of Capital
Stock of Holdings or with any Affiliate of JSC or of any such holder, on terms
or for consideration (including without limitation cash, property or services)
that are less favorable to JSC or such Subsidiary, as the case may be, than
those which might be obtained at the time of such transaction from a Person who
is not such a holder or Affiliate; provided, however, that the purchase, sale or
lease of any property to any Person who is such a holder or Affiliate shall be
deemed to be on terms that are no less favorable to JSC or such Subsidiary, as
the case may be, than those obtainable at the time of the transaction from a
Person who is not such a holder or Affiliate if the Board of Directors of JSC,
if such transaction relates to JSC, or the Board of Directors of a Subsidiary of
JSC, if such transaction relates to such Subsidiary, or both of their respective
Boards of Directors, if such transaction relates to both of them, shall have
received a written opinion of a nationally recognized investment banking firm
(other than an Affiliate of JSC or CCA) stating that the transaction is fair
from a financial point of view to JSC, if such transaction relates to JSC, or
such Subsidiary, if such transaction relates to such Subsidiary, or both JSC and
such Subsidiary, if the transaction relates to both JSC and such Subsidiary and
provided, further, however, that this covenant shall not limit, or be applicable
to, (i) the payment of fees to MS&Co. and its Affiliates for financial and
consulting services (including without limitation any underwriting discounts and
commissions and placement agent fees), and the payment of financing points
pursuant to the Direct
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Investors Securities Purchase Agreement, (ii) transactions between JSC or any of
its Subsidiaries and any employee of JSC or any of its Subsidiaries that are
approved by the Board of Directors, (iii) the payment of reasonable and
customary regular fees to directors of JSC or CCA who are not employees of JSC
or CCA, (iv) any transaction between JSC and any of its wholly-owned
Subsidiaries or between any of its wholly-owned Subsidiaries, (v) payments to
employees of JSC or any Subsidiary of JSC pursuant to management incentive or
bonus programs, (vi) any payments or other transactions pursuant to any tax
sharing agreement between CCA and JSC or any other Person with which JSC is
required to, or is permitted to, file a consolidated tax return or with which
JSC is or could be part of a consolidated group for tax purposes, (vii) any
transaction involving an aggregate consideration of less than $1 million, (viii)
any transaction required by the Times Mirror Agreement, the Transaction or the
Transaction Documents (as the Transaction Documents are in effect on the first
date of issuance of Securities), including transactions with Holdings, (ix) the
providing by JSC and its Subsidiaries of management, financial and operational
services to Affiliates in which JSC or its Subsidiaries have Investments as to
which JSC has determined that the provision of such services is in the best
interests of JSC and its Subsidiaries and (x) any Restricted Payments not
prohibited by the 'Limitation on Restricted Payments' covenant. (Section 3.10)
Limitation on Investments in Unrestricted Subsidiaries. The Indentures
provide that JSC will not make, and will not permit any Subsidiary to make, any
Investment in any Unrestricted Subsidiary if, after giving effect thereto, the
aggregate amount of Investments in Unrestricted Subsidiaries outstanding at such
time would exceed the sum of (i) $25 million and (ii) the amount of Restricted
Payments which would be permitted by the first paragraph of the 'Limitation on
Restricted Payments' covenant. The amount of an Investment shall be calculated
as of the time the Investment is made. Unrestricted Subsidiaries shall not be
subject to the covenants contained in the Indentures, and shall be disregarded
for purposes of all ratios and computations calculated under the Indentures.
(Section 3.11)
Limitation on Senior Subordinated Debt. Pursuant to the Senior Subordinated
Note Indenture, neither JSC nor CCA may Incur any Debt that by its terms would
expressly rank senior in right of payment to JSC's Guarantee of the Senior
Subordinated Notes or the Senior Subordinated Notes, as the case may be, and
expressly rank subordinate in right of payment to any Senior Debt of JSC or any
Senior Debt of CCA, as the case may be; provided that the foregoing limitation
shall not apply to (x) the NatWest Note or (y) distinctions between categories
of Senior Debt which exist by reason of any liens or other encumbrances arising
or created in respect of some but not all Senior Debt or by reason of
intercreditor agreements between (i) the holders of the Secured Notes and the
Banks or (ii) the Banks or the holders of the Secured Notes, on the one hand,
and holders of or representatives for other Senior Debt, the proceeds of which
other Senior Debt are used to refinance Debt under the Bank Credit Agreement, on
the other hand. For purposes of this covenant, Debt will be deemed to be senior
in right of payment to such Guarantee or the Senior Subordinated Notes, as the
case may be, if such Debt, by its terms or by the terms of any agreement or
instrument pursuant to which such Debt is issued, is not by its terms expressly
subordinated in right of payment to all or any portion of Senior Debt of JSC or
all or any portion of Senior Debt of CCA, as the case may be, at least to the
same extent and on substantially the same terms as such Guarantee or the Senior
Subordinated Notes, as the case may be, are subordinated in right of payment to
Senior Debt pursuant to the Section titled 'Subordination'.
Repurchase upon Certain Holding Company Transactions. Upon the occurrence
of a Holding Company Transaction, unless within 30 days thereof MSLEF II
(including any general partner thereof), Morgan Stanley Group or SIBV shall
contribute or cause to be contributed to the capital of the Person making such
dividend, purchase or redemption, an amount in cash equal to the amount of such
dividend, purchase or redemption, then each Holder of any class of Securities
shall have the right to require the repurchase of all of such Holder's
Securities, or such portion of the aggregate principal amount of such Holder's
Securities as such Holder shall specify, of such class pursuant to the offer
described herein (the 'Holding Company Transaction Offer') at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase; provided, however, that no
Subordinated Debentures, Junior Accrual Debentures or other Debt subordinate in
right of payment to such class of Securities, as the case may be, may be
purchased under any Holding Company Transaction Offer applicable to such
securities unless CCA shall have purchased
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all Senior Subordinated Notes or all Subordinated Debentures or all Junior
Accrual Debentures, as the case may be, tendered pursuant to such offer. Prior
to the mailing of the notice to Holders provided for below but in any event
within 30 days following any Holding Company Transaction, CCA covenants to (i)
repay in full all Debt under the Bank Credit Agreement and the Senior Notes, or
offer to repay in full all such Debt and to repay the Debt of each Bank and each
holder of Senior Notes who has accepted such offer or (ii) obtain the requisite
consent under the Bank Credit Agreement and the Senior Notes to permit the
repurchase of the Securities as provided for below. CCA shall first comply with
the covenant in the preceding sentence before it shall be required to repurchase
Securities pursuant to this covenant.
Within 30 days following any Holding Company Transaction, CCA shall mail a
notice to each Holder stating: (i) that the Holding Company Transaction Offer is
being made pursuant to this covenant and that all Securities of each class
validly tendered will be accepted for payment; (ii) the purchase price and the
purchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the 'Holding Company Transaction Payment
Date'); (iii) that any Security accepted for payment pursuant to the Holding
Company Transaction Offer shall cease to accrue interest after the Holding
Company Transaction Payment Date; (iv) that Holders electing to have all or a
portion of a Security purchased pursuant to the Holding Company Transaction
Offer will be required to surrender the Security to the paying agent at the
address specified in the notice prior to the Holding Company Transaction Payment
Date; (v) that Holders will be entitled to withdraw their tender of Securities
on the terms and conditions set forth in such notice; and (vi) that Holders who
elect to have their Securities purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
On the Holding Company Transaction Payment Date, CCA shall (i) accept for
payment Securities, or portions thereof in the event that a Holder of Securities
tenders only part of such Securities, tendered pursuant to the Holding Company
Transaction Offer; provided that CCA shall not be required to purchase
Securities of any class unless holders of Securities evidencing at least 50% of
the outstanding principal amount of such class tender Securities representing at
least 50% of such class, (ii) deposit with the paying agent money sufficient to
pay the purchase price of all Securities, or portions thereof in the event that
a Holder of Securities tenders only part of such Securities, so tendered and
(iii) deliver or cause to be delivered to the applicable Trustee Securities so
accepted together with an Officers' Certificate stating the Securities, or
portions thereof in the event that a Holder of Securities tenders only part of
such Securities, tendered to CCA. The paying agent shall promptly mail to the
Holders of Securities so accepted, payment in amount equal to the purchase
price, and the applicable Trustee shall promptly authenticate and mail to such
Holders a new Security of the same class equal in principal amount to any
unpurchased portion of the Security surrendered. CCA will publicly announce the
results of the Holding Company Transaction Offer as soon as practicable after
the Holding Company Transaction Payment Date. For purposes of this covenant,
each Trustee shall act as the paying agent.
Repurchase upon Change of Control. Upon the occurrence of a Change of
Control (the 'Change of Control Date'), each Holder shall have the right to
require the repurchase of such Holder's Securities pursuant to the offer
described in the next paragraph (the 'Change of Control Offer') at a purchase
price equal to 101% of the aggregate principal amount plus accrued and unpaid
interest, if any, to the date of purchase; provided, however, that no
Subordinated Debentures or Junior Accrual Debentures or other Debt subordinate
in right of payment to such class of Securities, as the case may be, may be
purchased under any Change of Control Offer applicable to such securities unless
CCA shall have purchased all Senior Subordinated Notes or all Subordinated
Debentures or all Junior Accrual Debentures, as the case may be, tendered
pursuant to such offer. Prior to the mailing of the notice to Holders provided
for in the paragraph below but in any event within 30 days following any Change
of Control, CCA covenants to (i) repay in full all Debt under the Bank Credit
Agreement and the Senior Notes, or offer to repay in full all such Debt and to
repay the Debt of each Bank and each holder of Senior Notes who has accepted
such offer or (ii) obtain the requisite consent under the Bank Credit Agreement
and the Senior Notes to permit the repurchase of the Securities as provided for
in the paragraph below. CCA shall first comply with the covenant in the
preceding sentence before it shall be
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required to repurchase Securities pursuant to this covenant. The notice to
Holders shall contain all instructions and materials necessary to enable such
Holders to tender Securities.
Within 30 days following any Change of Control, CCA shall mail a notice to
each Holder stating: (i) that the Change of Control Offer is being made pursuant
to this covenant and that all Securities validly tendered will be accepted for
payment; (ii) the purchase price and the purchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the 'Change of Control Payment Date'); (iii) that any Security accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date; (iv) that Holders electing to have all
or a portion of a Security purchased pursuant to the Change of Control Offer
will be required to surrender the Security to the paying agent at the address
specified in the notice prior to the Change of Control Payment Date; (v) that
Holders will be entitled to withdraw their tender of Securities on the terms and
conditions set forth in such notice; and (vi) that Holders who elect to have
their Securities purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
On the Change of Control Payment Date, CCA shall (i) accept for payment
Securities, or portions thereof in the event that a Holder of Securities tenders
only part of such Securities, tendered pursuant to the Change of Control Offer,
(ii) deposit with the paying agent money sufficient to pay the purchase price of
all Securities, or portions thereof in the event that a Holder of Securities
tenders only part of such Securities, so tendered and (iii) deliver or cause to
be delivered to the applicable Trustee Securities so accepted together with an
Officers' Certificate stating the Securities or portions thereof tendered to
CCA. The paying agent shall promptly mail to the Holders of Securities so
accepted, payment in amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Security equal in principal
amount to any unpurchased portion of the Security surrendered. CCA will publicly
announce the results of the Change of Control Offer as soon as practicable after
the Change of Control Payment Date. For purposes of this covenant, the Trustee
for a particular class of Securities shall act as the paying agent for such
class.
Limitation on Use of Proceeds of Major Asset Sales. In the event and to the
extent that the Net Cash Proceeds received by JSC or any of its Subsidiaries
from one or more Major Asset Sales occurring on or after the first date of
issuance of Securities exceed $250 million in any period of twelve consecutive
months, then CCA shall, (x) within 180 days after the date Net Cash Proceeds so
received exceed $250 million, (i) apply an amount equal to such excess Net Cash
Proceeds to repay Senior Debt of CCA, make a dividend or distribution to JSC for
application by JSC to repay Senior Debt of JSC, or repay any Debt of a
Subsidiary of CCA or of JSC (other than CCA), in each case owing to a Person
other than JSC or any of its Subsidiaries or (ii) invest an equal amount or the
amount not so applied pursuant to clause (i) (or enter into a definitive
agreement committing to so invest within twelve months after the date of such
agreement) in properties or assets that (as determined by the Board of Directors
of CCA, whose determination shall be conclusive) will be used in the lines of
business of JSC and its Subsidiaries existing on the date thereof and (y) apply
such excess Net Cash Proceeds (to the extent not applied pursuant to clause (x))
as provided in the following paragraphs. The amount of such excess Net Cash
Proceeds required to be applied during such 180-day period as set forth in
clauses (i) or (ii) of the preceding sentence and not applied as so required 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 $50 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 Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be, on a pro rata basis among Securities of the same
class, an aggregate principal amount equal to the Excess Proceeds on such date
(rounded to the nearest $1,000), at a purchase price equal to 101% of the
principal amount of such Securities, plus, in each case, accrued and unpaid
interest to the date of purchase; provided, however, that no Excess Proceeds
Offer shall be required to be commenced with respect to the Subordinated
Debentures or Junior Accrual Debentures, as the case may be, until the Business
Day following the Excess Proceeds Payment Date (as defined below) with respect
to the Senior Subordinated Notes or Subordinated Debentures, as the
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case may be, and need not be so commenced if the Excess Proceeds remaining after
application to the Senior Subordinated Notes or Subordinated Debentures, as the
case may be, purchased in the Excess Proceeds Offer applicable thereto are less
than $50 million; provided further, however, that no Subordinated Debentures or
Junior Accrual Debentures or other Debt subordinate in right of payment to such
class of Securities, as the case may be, may be purchased under any Excess
Proceeds Offer applicable to such securities unless CCA shall have purchased all
Senior Subordinated Notes or all Subordinated Debentures or all Junior Accrual
Debentures, as the case may be, tendered pursuant to the Excess Proceeds Offer
applicable thereto.
Notwithstanding the foregoing, (x) to the extent that any or all of the Net
Cash Proceeds of any Major Asset Sale are prohibited or delayed by applicable
local law from being repatriated to the United States, the portion of such Net
Cash Proceeds so affected will not be required to be applied pursuant to this
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 (CCA and
JSC hereby agreeing to promptly take all reasonable actions required by the
applicable local law to permit such repatriation) and once such repatriation of
any of 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 covenant as if
such Major Asset Sale had occurred on the date of repatriation; and (y) to the
extent that the Board of Directors of CCA or JSC has determined in good faith
that repatriation of any or all of the Net Cash Proceeds would have a material
adverse tax consequence to CCA or JSC, the Net Cash Proceeds so affected may be
retained outside the United States for so long as such material adverse tax
consequence would continue.
CCA shall commence an Excess Proceeds Offer by mailing a notice to each
Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to
this covenant and that all Securities of each class validly tendered will be
accepted for payment on a pro rata basis (rounded to the nearest $1,000); (ii)
the purchase price and the purchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed) (the 'Excess
Proceeds Payment Date'); (iii) that any Security accepted for payment pursuant
to the Excess Proceeds Offer shall cease to accrue interest after the Excess
Proceeds Payment Date; (iv) that Holders electing to have a Security purchased
pursuant to the Excess Proceeds Offer will be required to surrender the Security
to the paying agent at the address specified in the notice prior to the Excess
Proceeds Payment Date; (v) that Holders will be entitled to withdraw their
tender of Securities on the terms and conditions set forth in such notice; and
(vi) that Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
On the Excess Proceeds Payment Date, CCA shall (i) accept for payment on a
pro rata basis Securities of the same class or portions thereof tendered
pursuant to the Excess Proceeds Offer, (ii) deposit with the paying agent money
sufficient to pay the purchase price of all Securities or portions thereof so
accepted and (iii) deliver or cause to be delivered to the applicable Trustee
Securities so accepted together with an Officers' Certificate specifying the
Securities or portions thereof accepted for payment by CCA. The paying agent
shall promptly mail to the Holders of Securities so accepted, payment in an
amount equal to the purchase price, and the applicable Trustee shall promptly
authenticate and mail to such Holders a new Security of the same class equal in
principal amount to any unpurchased portion of a Security surrendered. 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
covenant, each Trustee shall act as the paying agent.
For purposes of the covenants concerning the 'Repurchase upon Certain
Holding Company Transactions', 'Repurchase upon Change of Control' and
'Limitation on Use of Proceeds of Major Asset Sales', references to the
'principal amount' of any Junior Accrual Debenture subject to an offer to
purchase shall mean (i) prior to December 1, 1994, the sum of its original
principal amount plus accrued and unpaid interest, if any, to the last June 1 or
December 1 immediately preceding the date of purchase, and (ii) thereafter, its
original principal amount, and references to 'accrued and unpaid interest' shall
mean, in the case of clause (i), accrued and unpaid interest accruing subsequent
to the last June 1 or December 1 immediately preceding the date of purchase.
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MERGERS AND CONSOLIDATIONS
Each of the Indentures provides that neither JSC nor CCA may consolidate
with, merge with or into or transfer all or substantially all of its assets to
(in one transaction or a series of related transactions) and that JSC may not
transfer Capital Stock of CCA having a majority of the voting rights thereunder
to, any Person (except (i) the Banks pursuant to pledges under the Bank Credit
Agreement and the holders of the Secured Notes pursuant to pledges relating
thereto or (ii) JSC or a wholly-owned Subsidiary of JSC with a positive
Consolidated Net Worth) unless: (i) JSC or CCA, as the case may be, shall be the
continuing Person, or the Person (if other than JSC or CCA, as the case may be)
formed by such consolidation or into which JSC or CCA is merged or to which
properties and assets of JSC or CCA, or the Capital Stock of CCA, are
transferred shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
applicable Trustee, in form satisfactory to such Trustee, all of the obligations
under the Senior Subordinated Notes, the Subordinated Debentures or the Junior
Accrual Debentures, as the case may be, and the applicable Indenture of (a) JSC,
in the event JSC is so consolidated or merged, substantially all of JSC's assets
are transferred or JSC transfers Capital Stock of CCA having a majority of the
voting rights thereunder, or (b) CCA, in the event CCA is so consolidated or
merged, or substantially all of CCA's assets are transferred; (ii) immediately
before and immediately after giving effect to such transaction, no Event of
Default or event or condition which through the giving of notice or lapse of
time or both would become an Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Adjusted Consolidated Net Worth of the surviving, successor or
purchasing entity would be at least equal to the excess of (a) the Adjusted
Consolidated Net Worth of JSC or CCA, as the case may be, immediately prior to
such transaction over (b) the maximum amount of Restricted Payments permitted to
be made under the first paragraph of the 'Limitation on Restricted Payments'
covenant (although not made) immediately prior to such transaction; (iv)
immediately after giving effect to such transaction on a pro forma basis, the
Consolidated Cash Flow Ratio of the surviving, successor or purchasing entity
would be at least 1:1; provided that, if the Consolidated Cash Flow Ratio of JSC
or CCA, as the case may be, is within the range set forth in column (A) below,
then the pro forma Consolidated Cash Flow Ratio of the surviving entity shall be
at least equal to the percentage of the Consolidated Cash Flow Ratio of JSC or
CCA, as the case may be, set forth in column (B) below:
<TABLE>
<CAPTION>
(A) (B)
RANGE OF RATIO APPLICABLE PERCENTAGE
- --------------------------------------------------- ---------------------
<S> <C>
1.11:1 to 1.99:1................................... 90%
2.00:1 to 2.99:1................................... 80
3.00:1 to 3.99:1................................... 70
4.00:1 to 4.99:1................................... 60
5.00:1 or more..................................... 50
</TABLE>
and provided, further, that, if the pro forma Consolidated Cash Flow Ratio of
the surviving, successor or purchasing entity would be 3 to 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 (iv); and
(v) JSC or CCA, as the case may be, has delivered to the applicable Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iv)) and an Opinion of Counsel (which opinion shall
relate only to matters of law), each stating that such consolidation, merger or
transfer and such supplemental indenture comply with the Indentures and that all
conditions precedent provided for in the Indentures relating to such transaction
have been complied with. Clause (iii) above allows JSC to make payments in
connection with any such consolidation, merger or transfer of assets to the
extent such payment would have been permitted to be made under the 'Limitation
on Restricted Payments' covenant immediately prior to such transaction.
JSC shall be released from all of its obligations under its Guarantees and
the Indentures if the purchaser of Capital Stock of CCA having a majority of the
voting rights thereunder, or the parent of
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CCA (other than JSC) following a consolidation or merger of CCA, satisfies the
requirements of clauses (iii) and (iv) of the preceding sentence with respect to
JSC.
Notwithstanding the foregoing, nothing in clause (ii), (iii), (iv) or (v)
above shall prevent the occurrence of (i) a merger or consolidation of JSC and
CCA, or either of their respective successors, (ii) the sale of all or
substantially all of the assets of CCA to JSC, (iii) the sale of all or
substantially all of the assets of JSC to CCA or (iv) the assumption by JSC of
the Debt represented by the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures.
If, as a result of any such merger or consolidation, or upon any
conveyance, lease or transfer of the property of JSC or CCA substantially as an
entirety to any other corporation, any property or assets held by JSC or CCA, as
the case may be, prior to such event would thereupon become subject to any Lien,
then, unless such Lien could be created pursuant to the 'Limitation on Liens'
covenant without securing the Securities or a Guarantee thereof, as the case may
be, in the manner provided in such covenant, such Guarantee or such Securities
outstanding, as the case may be, shall be secured in the manner required in the
'Limitation on Liens' covenant pursuant to documentation providing that the
Holders (or the applicable Trustee on their behalf) are entitled to vote as
their interests appear in connection with the release of, or enforcement
against, any property or assets subject to such Lien. Liens on assets pledged to
secure Debt under the Bank Credit Agreement or other Senior Debt generally will
not trigger this obligation. However, in the event the Securities are required
to be secured pursuant to this paragraph, the Securities shall be secured by a
Lien on the assets on which the unpermitted Lien exists. If the Banks or other
holders of Senior Debt hold a Lien on such assets, then such Lien would take
priority over the Lien granted in favor of the Holders. At the time of a
decision regarding the release of, or enforcement against, any property or
assets subject to the Lien granted pursuant to this covenant, the Holders of a
class of Securities secured by such Lien and the other parties secured on an
equal and ratable basis would be entitled to vote in such decisions according to
the amount of outstanding debt held by each Holder and other secured parties.
(Sections 9.1 and 9.3)
EVENTS OF DEFAULT
The Indentures define an 'Event of Default' as being: (a) default in the
payment of any interest upon any of the Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, as and when the
same shall become due and payable, and continuance of such default for a period
of 30 days; or (b) default in the payment of all or any part of the principal
(including premium, if any) on any of the Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures, as the case may be, as and
when the same shall become due and payable, either at maturity, upon any
redemption, by declaration or otherwise; or (c) failure on the part of JSC or
CCA duly to observe or perform any other of the covenants or agreements on the
part of JSC or CCA contained in the Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, or their respective
Indentures for a period of 60 days after the date on which written notice
specifying such failure, stating that such notice is a 'Notice of Default' under
such Indenture and demanding that JSC or CCA, as the case may be, remedy the
same, shall have been given by registered or certified mail, return receipt
requested, to JSC or CCA, as the case may be, by the applicable Trustee or to
JSC or CCA, as the case may be, and the applicable Trustee by the holders of at
least a majority in aggregate principal amount of Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures, as the case may be, at the
time outstanding; or (d) there shall have occurred with respect to any issue or
issues of Debt of JSC, CCA and/or one or more Material Subsidiaries of JSC or
CCA 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 Debt now exists or shall hereafter be created, an event of
default which has caused the holder thereof to declare such Debt to be due and
payable prior to its stated maturity and such Debt has not been discharged in
full or such acceleration has not been rescinded or annulled within 60 days of
such acceleration; or (e) any final judgment or order (not covered by insurance)
for the payment of money shall be rendered against JSC or CCA or any Material
Subsidiary of JSC or CCA 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) that
shall not be discharged, and all such final judgments and orders remain
outstanding and there shall be any period of 60 consecutive days following entry
of the
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final judgment or order in excess of $50 million or the final judgment or order
which causes the aggregate amount described above 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; or (f) a court having
jurisdiction in the premises shall enter a decree or order for relief in respect
of JSC or CCA or any Material Subsidiary of JSC or CCA in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of JSC or CCA or any Material
Subsidiary of JSC or CCA or for all or substantially all of the property of JSC
or CCA or any Material Subsidiary of JSC or CCA or ordering the winding up or
liquidation of the affairs of JSC or CCA or any Material Subsidiary of JSC or
CCA, and such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or (g) JSC or CCA or any Material Subsidiary of JSC or
CCA shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any such law, or consent to the
appointment or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of JSC or CCA or any Material
Subsidiary of JSC or CCA or for all or substantially all of the property of JSC
or CCA or any Material Subsidiary of JSC or CCA, or JSC or CCA or any Material
Subsidiary of JSC or CCA shall make any general assignment for the benefit of
creditors; or (h) JSC or CCA and/or one or more Material Subsidiaries of JSC or
CCA shall have failed to make (l) at the final (but not any interim) fixed
maturity of any issue of Debt a principal payment of $50 million or more or (2)
at the final (but not any interim) fixed maturity of more than one issue of such
Debt principal payments aggregating $100 million or more, and in the case of
clause (1), such defaulted payment shall not have been made within 60 days of
the payment default and, in the case of clause (2), all such defaulted payments
shall not have been made within 60 days of the payment default which causes the
amount described in clause (2) to exceed $100 million. (Section 5.1)
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) with respect to JSC or CCA above) occurs and is continuing under the
Indentures, the respective Trustees thereunder or the Holders of 50% or more in
aggregate principal amount of the Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, then outstanding
with respect to Events of Default set forth in clauses (c), (d), (e) and (h)
above (and (f) and (g) above with respect to a Material Subsidiary of JSC other
than CCA) and 25% in aggregate principal amount of the Senior Subordinated
Notes, Subordinated Debentures or Junior Accrual Debentures, as the case may be,
then outstanding with respect to Events of Default set forth in clauses (a) and
(b) above, by notice in writing to CCA and to the respective Trustees (the
'Acceleration Notice'), may declare the entire principal amount of the Senior
Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be, and the interest accrued thereon to be due and
payable immediately, as specified below. Upon declaration of acceleration, such
principal, premium, if any, and accrued interest shall become immediately due
and payable; provided, that, so long as the Bank Credit Agreement is in effect
or any Secured Notes are outstanding, such declaration shall not become
effective until the earlier of (i) five Business Days after receipt of the
Acceleration Notice by the Agent, CCA and the agent for the holders of the
Secured Notes outstanding (which shall be the Agent unless and until the holders
of a majority in principal amount of Secured Notes designate another agent in
writing to CCA and the applicable Trustee) or (ii) acceleration of the Debt
under the Bank Credit Agreement or the Secured Notes; and provided, further,
that such acceleration shall automatically be rescinded and annulled without any
further action required on the part of the Holders in the event that any and all
defaults and Events of Default specified in the Acceleration Notice under the
respective Indenture shall have been cured, waived or otherwise remedied as
provided in the respective Indentures prior to the expiration of the period
referred to in the preceding clauses (i) and (ii). If an Event of Default
specified in clause (f) or (g) above occurs with respect to JSC or CCA, the
principal of and accrued interest on the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be,
shall become and be immediately due and payable without any declaration or other
act on the part of the respective Trustees or any Holder. The Holders of at
least a majority in principal amount of the respective outstanding Senior
Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures, by
written notice to CCA and to their respective Trustee, may waive all past
defaults and rescind and annul such declaration and its consequences if all
existing Events of Default, other than the
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nonpayment of the principal of and interest on such Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures which became due solely by
such declaration of acceleration, have been cured or waived. (Section 5.1)
The Holders of at least a majority in principal amount of the respective
outstanding Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures may direct the time, method and place of conducting any proceeding or
any remedy available to their respective Trustee or exercising any trust or
power conferred on such Trustee. However, the Trustee under each Indenture may
refuse to follow any direction that conflicts with law or such Indenture, or
that may involve the Trustee in personal liability. (Section 5.9) A Holder may
not pursue any remedy with respect to any of the respective Indentures unless:
(i) the Holder gives to its respective Trustee written notice of a continuing
Event of Default; (ii) the Holders of at least a majority in principal amount of
outstanding Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be, make a written request to their respective
Trustee to pursue the remedy; (iii) such Holder or Holders offer to their
respective Trustee indemnity satisfactory to such Trustee against any loss,
liability or expense; (iv) such Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity; and (v) during
such 60-day period the Holders of a majority in principal amount of the
outstanding Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be, do not give such Trustee a direction which is
inconsistent with the request. (Section 5.6)
The Indentures require certain officers of JSC and CCA to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of JSC and its Subsidiaries (other
than CCA) and of CCA and its Subsidiaries, respectively, and JSC's and its
Subsidiaries' (other than CCA) and CCA's and its Subsidiaries' performance under
such Indentures and that JSC 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. JSC and CCA will
also be obligated to notify the Trustees of any default or defaults in the
performance of any covenants or agreements under the Indentures.
AMENDMENTS AND SUPPLEMENTS
Each Indenture contains provisions permitting JSC and CCA and the
respective Trustee, with the consent of the Holders of not less than a majority
in aggregate principal amount of Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, at the time
outstanding, to enter into supplemental indentures to amend or supplement such
Indenture or any supplemental indenture or modify the rights of such Holders,
provided that no such supplemental indenture may, without the consent of each
such Holder affected thereby, (i) reduce the rate of or extend the time for
payment of interest on any Senior Subordinated Note, Subordinated Debenture or
Junior Accrual Debenture, as the case may be, reduce the principal amount of or
extend the final maturity of any Senior Subordinated Note, Subordinated
Debenture or Junior Accrual Debenture, as the case may be, reduce any amount
payable on redemption of Senior Subordinated Notes, Subordinated Debentures or
Junior Accrual Notes, as the case may be, or impair or affect the right of any
such Holder to institute suit for the payment thereof, (ii) modify the
subordination provisions of the Indentures in a manner adverse to the Holders or
(iii) reduce the percentage of Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, whose Holders must
consent to any amendment, supplement or waiver. (Section 8.2)
SATISFACTION AND DISCHARGE OF THE INDENTURES; COVENANT DEFEASANCE
Each Indenture will cease to be of further effect as to all outstanding
Senior Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures,
as the case may be (except as to (i) rights of registration of transfer and
exchange, and CCA's right of optional redemption, (ii) rights of Holders to
receive payments of principal of and interest on the Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures, as the case may be, and
any other rights of such Holders with respect to the amounts deposited with the
respective Trustee under the provisions referred to in this paragraph and (iii)
the rights, obligations and immunities of the respective Trustee under the
respective Indenture if (i) all outstanding Senior Subordinated Notes,
Subordinated Debentures or
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Junior Accrual Debentures, as the case may be (except lost, stolen or destroyed
Senior Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures
which have been replaced or paid), have been delivered to the respective Trustee
for cancellation or (ii) CCA or JSC shall have paid or caused to be paid the
principal of and interest on all outstanding Senior Subordinated Notes,
Subordinated Debentures or Junior Accrual Debentures, as the case may be, as and
when the same shall have become due and payable or (iii) (a) the Senior
Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures not
previously delivered to the respective Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year, or are to be called for redemption under arrangements satisfactory to
the respective Trustee for the giving of notice of redemption and (b) CCA or JSC
shall have irrevocably deposited or caused to be deposited with the respective
Trustee as trust funds the entire amount in cash sufficient to pay principal of
and interest on the outstanding Senior Subordinated Notes, Subordinated
Debentures or Junior Accrual Debentures, as the case may be, to maturity or
redemption, as the case may be. (Section 10.1)
Each Indenture also provides that CCA and JSC will be deemed to have paid
and discharged their entire indebtedness on all outstanding Senior Subordinated
Notes, Subordinated Debentures or Junior Accrual Debentures, as the case may be,
and that such Indenture will cease to be in effect (except as aforesaid) on the
91st day after the irrevocable deposit by CCA or JSC with the respective
Trustee, in trust for the benefit of the relevant Holders, of (i) money in an
amount, or (ii) U.S. Government Obligations which through the payment of
interest and principal will provide, not later than one day before the due dates
of payments in respect of the Senior Subordinated Notes, Subordinated Debentures
or Junior Accrual Debentures, as the case may be, money in an amount or (iii) a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the respective Trustee, to pay or discharge without consideration
of the reinvestment of interest and after payment of all federal, state and
local taxes or other charges and assessments in respect thereof payable by the
respective Trustee (x) the principal of and interest on the Senior Subordinated
Notes, the Subordinated Debentures or Junior Accrual Debentures, as the case may
be, then outstanding at the maturity date of such principal or interest and (y)
any mandatory sinking fund payments or analogous payments applicable to the
Senior Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures,
as the case may be; provided that the respective Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Senior Subordinated
Notes, Subordinated Debentures or Junior Accrual Debentures, as the case may be;
and provided, further, that upon the effectiveness of this provision, the money
or U.S. Government Obligations deposited shall not be subject to the rights of
Holders of Senior Debt pursuant to the provisions set out under the
subordination provisions of the relevant Indenture. Such a trust may only be
established if CCA or JSC, as the case may be, has delivered to the respective
Trustee (i) either (A) a ruling directed to such Trustee received from the
Internal Revenue Service to the effect that the Holders of the Senior
Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures, as the
case may be, will not recognize income, gain or loss for Federal income tax
purposes as a result of CCA's or JSC's exercise of its option to create such a
trust 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 option had
not been exercised or (B) an Opinion of Counsel to the same effect as the ruling
described in clause (A) accompanied by a ruling to that effect published by the
Internal Revenue Service and (ii) an Opinion of Counsel to the effect that, (A)
the trust funds will not be subject to any rights of holders of Senior Debt,
including without limitation those arising under the subordination provisions of
the relevant Indenture, and (B) after the passage of 91 days following the
deposit, the trust funds (except, with respect to any trust funds for the
account of any Securityholder who may be deemed to be an 'insider' for purposes
of the Federal Bankruptcy Code, one year) will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; provided that if a court was to rule under any such
law in any case or proceeding that the trust funds remained property of CCA or
JSC, as the case may be, no opinion is given as to the effect of such laws on
the trust funds except the following: (A) assuming such trust funds remained in
the respective Trustee's possession prior to such court ruling to the extent not
paid to Holders of the
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applicable Securities, the respective Trustee will hold, for the benefit of the
Holders of the applicable Securities, a valid and perfected security interest in
such trust funds that is not avoidable in bankruptcy or otherwise except for the
effect of Section 552(b) of Title 11 of the United States Code on interest on
the trust funds accruing after the commencement of a case under such Title, (B)
Holders of the applicable Securities will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds are used
and (C) no property, rights in property or other interests granted to the
respective Trustee or the Holders of the applicable Securities in exchange for
or with respect to any of such funds will be subject to any prior rights of
holders of Senior Debt, including without limitation those arising under the
subordination provisions of the relevant Indenture. The Indentures will not be
discharged if, among other things, (i) an Event of Default, or an event which
with notice or lapse of time or both would become an Event of Default, with
respect to the Senior Subordinated Notes, Subordinated Debentures or Junior
Accrual Debentures, as the case may be, shall have occurred and be continuing on
the date of such deposit or during the period ending on the 91st day after such
date, (ii) such deposit would cause the respective Trustee to have a conflicting
interest, as defined in the respective Indentures, and for purposes of the Trust
Indenture Act or (iii) such deposit would result in a breach or violation of, or
constitute a default under, the respective Indentures or any other agreement or
instrument to which JSC or CCA is a party or by which it is bound. In the event
of any such defeasance and discharge, affected Holders will thereafter be able
to look only to such trust fund for payment of principal and interest on the
Senior Subordinated Notes, Subordinated Debentures or Junior Accrual Debentures,
as the case may be. (Section 10.2)
Each Indenture provides that JSC and CCA may cease to comply with the
covenants set forth above under 'Covenants' if CCA or JSC irrevocably deposits
with the relevant Trustee as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the relevant Holders (i)
money in an amount, or (ii) U.S. Government Obligations, which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any payment
in respect of the Senior Subordinated Notes, the Subordinated Debentures or the
Junior Accrual Debentures, as the case may be, money in an amount or (iii) a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the respective Trustee, to pay and discharge without consideration
of the reinvestment of such interest and after payment of all Federal, state and
local taxes or other charges and assessments in respect thereof payable by the
respective Trustee (x) the principal of and interest on the outstanding Senior
Subordinated Notes, the Subordinated Debentures, or the Junior Accrual
Debentures, as the case may be, on the maturity date of such principal or
interest and (y) any mandatory sinking fund payments or analogous payments
applicable to the outstanding Senior Subordinated Notes, Subordinated Debentures
or Junior Accrual Debentures, as the case may be; provided that the respective
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to said payments with respect to
the Senior Subordinated Notes, Subordinated Debentures or Junior Accrual
Debentures, as the case may be. The obligations of JSC and CCA under each
Indenture other than with respect to the covenants referred to above shall
remain in full force and effect. Such a trust may only be established if CCA or
JSC, as the case may be, has delivered to the relevant Trustee an opinion of
counsel acceptable to such Trustee (who may be counsel to CCA) to the effect
that (i) the deposit and related covenant defeasance will not be deemed, or
result in, a taxable event with respect to the affected Holders, (ii) the
creation of the trust will not violate the Investment Company Act of 1940, (iii)
Holders of the Senior Subordinated Notes, the Subordinated Debentures or the
Junior Accrual Debentures will have a valid first-priority security interest in
the trust funds and (iv) after the 91st day following the deposit, the trust
funds (except, with respect to any trust funds for the account of any Security
holder who may be deemed to be an 'insider' for purposes of the Federal
Bankruptcy Code, one year) will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; provided that if a court was to rule under any such law in any
case or proceeding that the trust funds remained property of CCA or JSC, as the
case may be, no opinion is given as to the effect of such laws on the trust
funds except the following: (A) assuming such trust funds remained in the
respective Trustee's possession prior to such court ruling to the extent not
paid to Holders of the applicable Securities, the respective Trustee will hold,
for the benefit of the Holders of the applicable
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Securities, a valid and perfected security interest in such trust funds that is
not avoidable in bankruptcy or otherwise except for the effect of Section 552(b)
of Title 11 of the United States Code on interest on the trust funds accruing
after the commencement of a case under such Title, (B) Holders of the applicable
Securities will be entitled to receive adequate protection of their interests in
such trust funds if such trust funds are used and (C) no property, rights in
property or other interests granted to the respective Trustee or the Holders of
the applicable Securities in exchange for or with respect to any of such funds
will be subject to any prior rights of holders of Senior Debt, including without
limitation those arising under the subordination provisions of the relevant
Indenture. JSC and CCA must nevertheless continue to comply with the covenants
set forth above under 'Covenants' if, among other things, (i) an Event of
Default, or event which with notice or lapse of time or both would become an
Event of Default with respect to the applicable Securities shall have occurred
and be continuing on the date of such deposit, (ii) such deposit would cause the
respective Trustee to have a conflicting interest, as defined in the respective
Indentures, and for purposes of the Trust Indenture Act or (iii) such deposit
would result in a breach or violation of, or constitute a default under, the
respective Indentures or any other agreement or instrument to which JSC or CCA
is a party or by which it is bound. (Section 10.3)
In the event CCA takes the necessary action to enable it and JSC to omit to
comply with the covenants of the relevant Indenture as described above and the
Senior Subordinated Notes, the Subordinated Debentures or the Junior Accrual
Debentures, as the case may be, are declared due and payable because of the
occurrence of an Event of Default with respect thereto, the amount of money and
U.S. Government Obligations on deposit with the relevant Trustee will be
sufficient to pay amounts due on the Senior Subordinated Notes, the Subordinated
Debentures or the Junior Accrual Debentures, as the case may be, at the time of
their stated maturity and at the time of any required sinking fund payments but
may not be sufficient to pay amounts due on the Senior Subordinated Notes, the
Subordinated Debentures or the Junior Accrual Debentures, as the case may be, at
the time of the acceleration resulting from such Event of Default. In such
event, JSC and CCA will remain liable for such payments.
The Bank Credit Agreement and the Senior Notes contain provisions that
prohibit the defeasance of the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures.
THE TRUSTEES
Each of the Indentures provides that, except during the continuance of an
Event of Default with respect thereto, the Trustee thereunder will perform only
such duties as are specifically set forth in such Indenture. During the
existence of an Event of Default, the Trustee for such class will exercise such
rights and powers vested in it under the applicable Indenture and use the same
degree of care and skill in their exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indentures and the provisions of the Trust Indenture Act contain
limitations on the rights of the Trustee thereunder, should it become a creditor
of CCA, 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.
Each of the Trustees is permitted to engage in other transactions; provided,
that if it acquires any conflicting interest (as defined in the Indentures) it
must eliminate such conflict or resign. (Article Six)
REPORTS
So long as Senior Subordinated Notes, Subordinated Debentures or Junior
Accrual Debentures are outstanding, both JSC and CCA will furnish to the
relevant Holders quarterly and annual financial reports that they are required
to file with the Commission under the Exchange Act (or similar financial reports
in the event JSC or CCA is not at the time required to file such reports with
the Commission).
115
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the federal income tax
consequences expected to apply to purchasers of the Securities under currently
applicable law. The discussion does not cover all aspects of federal taxation
that may be relevant to, or the actual tax effect that any of the matters
described herein will have on particular purchasers, and does not address state,
local, foreign or other tax laws. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
taxpayers subject to the alternative minimum tax and foreign persons) may be
subject to special rules not discussed below. The description assumes that
purchasers of the Securities will hold the Securities as 'capital assets'
(generally, property held for investment purposes) within the meaning of Section
1221 of the Code. It is based on the Code, its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions, all as
currently in effect and all subject to change at any time, perhaps with
retroactive effect. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE SECURITIES.
THE SECURITIES
Interest Payments on the Securities. Interest on the Junior Accrual
Debentures accrues and compounds from the date of issuance (December 14, 1989),
but will not be paid until December 1, 1994, at which time all such accrued and
compounded interest will be paid in one lump sum. Interest on the Junior Accrual
Debentures will be includible in a holder's gross income as ordinary income for
federal income tax purposes in accordance with the rules set forth in 'Original
Issue Discount on the Junior Accrual Debentures' below. Interest on the Senior
Subordinated Notes and the Subordinated Debentures will be includible in a
holder's gross income as ordinary income for federal income tax purposes in
accordance with such holder's method of tax accounting. Upon a sale, exchange or
retirement of a Security, a holder will generally recognize as income any
accrued interest on such Security that was not previously included in income
pursuant to such holder's method of tax accounting.
Original Issue Discount on the Junior Accrual Debentures. The Junior
Accrual Debentures were issued with original issue discount for federal income
tax purposes. As a result, during the first five years of the term of the Junior
Accrual Debentures when interest accrues but is not paid, holders of the Junior
Accrual Debentures are required to recognize ordinary income in advance of the
receipt of cash payments attributable to such income. The total amount of
original issue discount with respect to a Junior Accrual Debenture will equal
the excess of the Junior Accrual Debenture's 'stated redemption price at
maturity' over its 'issue price'. The 'stated redemption price at maturity' of a
Junior Accrual Debenture is the sum of all payments, whether denominated as
principal or interest, required to be made on such Junior Accrual Debenture. The
'issue price' of a Junior Accrual Debenture generally is the initial offering
price to the public (not including bond houses, brokers, underwriters or other
wholesalers) at which price a substantial portion of the Junior Accrual
Debentures were sold. A holder of a Junior Accrual Debenture is required to
include in his income original issue discount on such Junior Accrual Debenture
as generally described in the next paragraph, but will not be required to
include in income any cash payments received with respect to such Junior Accrual
Debenture, including the lump sum cash payment to be received on December 1,
1994, even if the payment is denominated as interest.
Except as discussed below in 'Market Discount' and 'Acquisition Premium and
Amortizable Bond Premium', under Section 1272 of the Code, the amount of
original issue discount required to be included in a holder's income in any
taxable year will be determined by allocating to each day during the taxable
year in which such holder owns the Junior Accrual Debentures (excluding the date
of any disposition), a pro rata portion of the original issue discount on the
Junior Accrual Debenture attributable to the 'accrual period' (each six-month
period, or shorter period from the date of original issue, ending on June 1 or
December 1) in which such day is included. The amount of original issue discount
attributable to an accrual period will be the product of the 'adjusted issue
price' of the Junior Accrual Debenture at the beginning of the accrual period
(i.e., the issue price plus any original issue discount attributable to prior
accrual periods minus any payments made with respect to the Junior Accrual
Debenture in prior accrual periods) multiplied by the yield to maturity of the
Junior Accrual
116
<PAGE>
Debenture (as determined by semiannual compounding). A subsequent holder of a
Junior Accrual Debenture (i.e., a holder who purchases a Junior Accrual
Debenture subsequent to its original issuance) may be entitled to a reduction in
the amount of original issue discount required to be included in such holder's
income, depending on such holder's purchase price for the Junior Accrual
Debenture. See 'Acquisition Premium and Amortizable Bond Premium' below.
To the extent required by law, CCA will provide annual information
statements to holders of the Junior Accrual Debentures and to the Internal
Revenue Service stating the amount of original issue discount determined to be
attributable to the Junior Accrual Debentures for that year.
Tax Basis. A holder's adjusted tax basis in a Security will be equal to the
price paid for such Security by such holder, increased by the amounts of any
original issue discount (in the case of a Junior Accrual Debenture) and market
discount previously included in income by the holder and reduced by any
amortized acquisition premium and any cash payments received by such holder with
respect to the Security. See 'Market Discount' and 'Acquisition Premium and
Amortizable Bond Premium' below.
Absence of Original Issue Discount on the Senior Subordinated Notes and
Subordinated Debentures. Under Section 1273 of the Code, the Senior Subordinated
Notes and the Subordinated Debentures were not issued with original issue
discount.
Sale, Exchange or Retirement. Upon the sale, exchange or retirement of a
Security, a holder will generally recognize taxable gain or loss, if any, equal
to the difference between the amount realized on the sale, exchange or
retirement (excluding any amount attributable to accrued interest) and such
holder's adjusted tax basis in such Security. Such gain or loss will be a
capital gain or loss (except as discussed below in 'Market Discount' and
'Acquisition Premium and Amortizable Bond Premium'), and will be a long-term
capital gain or loss if the Security has been held for more than one year at the
time of such sale, exchange or retirement. Under current law, capital gain
income recognized by individuals, trusts and estates may in certain
circumstances be taxed at a lower rate than ordinary income. Limitations apply
to the deductibility by such persons and by corporations of capital losses
against ordinary income.
Market Discount. The federal income tax treatment of the Securities may be
affected by the market discount provisions of the Code. These rules generally
provide that a holder who purchases a Security subsequent to its original
issuance for an amount which (i) in the case of a Senior Subordinated Note or a
Subordinated Debenture, is less than the stated redemption price at maturity of
the Senior Subordinated Note or the Subordinated Debenture, and (ii) in the case
of a Junior Accrual Debenture is less than its 'revised issue price' (defined as
the sum of the issue price of the Junior Accrual Debenture and the aggregate
amount of original issue discount includible in the gross income of all previous
holders of the Junior Accrual Debenture, disregarding any reduction on account
of 'acquisition premium', as defined below, less any cash payments on such
Junior Accrual Debenture) will be considered to have purchased the Securities at
a 'market discount' equal to the amount of such difference. Such a holder will
generally be required to treat any gain realized upon the disposition (including
a disposition by gift) of such Security as ordinary income to the extent of the
market discount that is treated as having accrued during the period such holder
held such Security, unless the holder elects to include such market discount in
income on a current basis. A holder of a Security who has acquired the Security
at a market discount and who does not elect to include market discount in income
on a current basis may also be required to defer the deduction of a portion of
the interest on any indebtedness incurred or maintained to purchase or carry the
Security until such holder disposes of such Security in a taxable transaction.
Acquisition Premium and Amortizable Bond Premium. A holder who pays an
'acquisition premium' for a Junior Accrual Debenture may be entitled to a
reduction in the amount of original issue discount includible in such holder's
income. 'Acquisition premium' is any amount paid for a Junior Accrual Debenture
in excess of its revised issue price at the time of its acquisition.
If a holder purchases Securities for an amount that is greater than their
stated redemption price at maturity, such holder will be considered to have
purchased such Securities with 'amortizable bond premium' equal in amount to
such excess. Such a holder may elect (in accordance with applicable Code
117
<PAGE>
provisions) to amortize such premium, using a constant yield method over the
remaining term of the Securities, generally resulting in an offset of amounts
otherwise required to be included in income in respect of such Securities during
any taxable year by the amortized amount of such excess for such taxable year.
PROSPECTIVE PURCHASERS OF THE SECURITIES ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING
AND DISPOSING OF THE SECURITIES, INCLUDING THE APPLICATION OF FEDERAL, STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS, INCLUDING CHANGES IN SUCH TAX LAWS.
118
<PAGE>
MARKET-MAKING ACTIVITIES OF MS&CO.
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Securities in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market for the
Securities and may discontinue or suspend its market-making activities at any
time without notice.
MS&Co. acted as underwriter in connection with the original offering of the
Underwritten Securities and received an underwriting discount of $30.675 million
in connection therewith and $1.2 million in placement agent fees in connection
with the Direct Investor Securities Purchase Agreement.
Following the consummation of the Equity Offerings and the SIBV Investment,
affiliates of MS&Co. owned approximately 28.7% of the outstanding shares of
Holdings Common Stock. See 'Security Ownership of Certain Beneficial Owners'.
Donald P. Brennan, Alan E. Goldberg and David R. Ramsay, directors of Holdings,
JSC and CCA, are designees of MSLEF II. For a description of certain
transactions between Holdings, JSC, CCA, MSLEF II, MS&Co. and affiliates of
MS&Co., see 'Certain Transactions'.
LEGAL MATTERS
The validity of the Securities and the guarantees thereof have been passed
upon for CCA and JSC by Skadden, Arps, Slate, Meagher & Flom, New York, New
York. Certain legal matters have been passed upon for the Underwriter by
Shearman & Sterling, New York, New York. Skadden, Arps, Slate, Meagher & Flom
also represented MSLEF II and Holdings in connection with the 1989 Transaction,
the 1992 Transaction, the Recapitalization Plan and regularly represents MS&Co.
and MSLEF II on a variety of legal matters. Shearman & Sterling regularly
represents MSLEF II on a variety of legal matters.
EXPERTS
The consolidated financial statements and schedules of JSC at December 31,
1993 and 1992, and for each of the three years in the period ended December 31,
1993, appearing in this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of JSC appearing in JSC's Annual
Report (Form 10-K) for the year ended December 31, 1993, 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.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Jefferson Smurfit Corporation (U.S.):
Report of Independent Auditors................................................................. F-2
Consolidated Balance Sheets at December 31, 1993 and 1992...................................... F-3
For the Years Ended December 31, 1993, 1992 and 1991:
Consolidated Statements of Operations....................................................... F-4
Consolidated Statements of Stockholder's Deficit............................................ F-5
Consolidated Statements of Cash Flows....................................................... F-6
Notes to Consolidated Financial Statements..................................................... F-7
Consolidated Balance Sheet at June 30, 1994 (unaudited)........................................ F-22
Consolidated Statements of Operations for the Three Months ended March 31, 1994 and 1993, and
the Six Months ended June 30, 1994 and 1993 (unaudited)..................................... F-23
Consolidated Statements of Cash Flows for the Six Months ended June 30, 1994 and 1993
(unaudited)................................................................................. F-24
Notes to Consolidated Financial Statements (unaudited)......................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JEFFERSON SMURFIT CORPORATION (U.S.)
(formerly Jefferson Smurfit Corporation)
We have audited the accompanying consolidated balance sheets of Jefferson
Smurfit Corporation (U.S.) (formerly Jefferson Smurfit Corporation) as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, stockholder's deficit and cash flows for each of the three years in
the period ended December 31, 1993. Our audits also included the financial
statement schedules listed in the Index at Item 16(b) of the Registration
Statement. These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jefferson
Smurfit Corporation (U.S.) at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As described in Note 6 and Note 7 to the financial statements, in 1993, the
Company changed its method of accounting for income taxes and postretirement
benefits.
ERNST & YOUNG LLP
St. Louis, Missouri
January 28, 1994
F-2
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
--------- ---------
(IN MILLIONS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................................ $ 44.2 $ 45.0
Receivables, less allowances of $9.2 in 1993 and $7.8 in 1992............................ 243.2 243.7
Refundable income taxes.................................................................. .7 17.0
Inventories
Work-in-process and finished goods................................................... 96.1 91.4
Materials and supplies............................................................... 137.2 132.6
--------- ---------
233.3 224.0
Deferred income taxes.................................................................... 41.9 41.1
Prepaid expenses and other current assets................................................ 5.2 10.1
--------- ---------
Total current assets............................................................. 568.5 580.9
Property, plant and equipment
Land..................................................................................... 60.2 47.6
Buildings and leasehold improvements..................................................... 241.3 216.4
Machinery, fixtures and equipment........................................................ 1,601.1 1,477.8
--------- ---------
1,902.6 1,741.8
Less accumulated depreciation and amortization........................................... 563.2 525.0
--------- ---------
1,339.4 1,216.8
Construction in progress................................................................. 35.1 53.3
--------- ---------
Net property, plant and equipment.................................................... 1,374.5 1,270.1
Timberland, less timber depletion............................................................ 261.5 226.4
Deferred debt issuance costs, net............................................................ 52.3 67.0
Goodwill, less accumulated amortization of $27.6 in 1993 and $20.3 in 1992................... 261.4 226.0
Other assets................................................................................. 78.9 66.0
--------- ---------
$ 2,597.1 $ 2,436.4
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt..................................................... $ 10.3 $ 32.4
Accounts payable......................................................................... 270.6 267.8
Accrued compensation and payroll taxes................................................... 110.1 85.7
Interest payable......................................................................... 52.6 45.4
Other accrued liabilities................................................................ 84.9 43.9
--------- ---------
Total current liabilities........................................................ 528.5 475.2
Long-term debt, less current maturities
Nonsubordinated.......................................................................... 1,839.4 1,741.3
Subordinated............................................................................. 779.7 761.7
--------- ---------
Total long-term debt............................................................. 2,619.1 2,503.0
Other long-term liabilities.................................................................. 257.1 108.1
Deferred income taxes........................................................................ 232.2 159.8
Minority interest............................................................................ 18.0 19.2
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital............................................................... 731.8 731.8
Retained earnings (deficit)
At date of 1989 Recapitalization..................................................... (1,425.9) (1,425.9)
Subsequent to 1989 Recapitalization.................................................. (363.7) (134.8)
--------- ---------
(1,789.6) (1,560.7)
--------- ---------
Total stockholder's deficit...................................................... (1,057.8) (828.9)
--------- ---------
$ 2,597.1 $ 2,436.4
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales...................................................................... $2,947.6 $2,998.4 $2,940.1
Costs and expenses
Cost of goods sold........................................................ 2,573.1 2,499.3 2,409.4
Selling and administrative expenses....................................... 239.2 231.4 225.2
Restructuring charge...................................................... 96.0
Environmental and other charges........................................... 54.0
-------- -------- --------
Income (loss) from operations........................................ (14.7) 267.7 305.5
Other income (expense)
Interest expense.......................................................... (254.2) (300.1) (335.2)
Other, net................................................................ 8.1 5.2 5.4
-------- -------- --------
Loss before income taxes, equity in earnings (loss) of affiliates,
minority interests, extraordinary item and cumulative effect of
accounting changes................................................. (260.8) (27.2) (24.3)
Provision for (benefit from) income taxes...................................... (83.0) 10.0 10.0
-------- -------- --------
(177.8) (37.2) (34.3)
Equity in earnings (loss) of affiliates........................................ .5 (39.9)
Minority interest share of (income) loss....................................... 3.2 2.7 (2.9)
-------- -------- --------
Loss before extraordinary item and cumulative effect of accounting
changes............................................................ (174.6) (34.0) (77.1)
Extraordinary item
Loss from early extinguishments of debt, net of income tax benefits of
$21.7 in 1993 and $25.8 in 1992......................................... (37.8) (49.8)
Cumulative effect of accounting changes
Postretirement benefits, net of income tax benefit of $21.9............... (37.0)
Income taxes.............................................................. 20.5
-------- -------- --------
Net loss............................................................. $ (228.9) $ (83.8) $ (77.1)
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
AMOUNT NUMBER ADDITIONAL RETAINED
($.01 PAR OF PAID-IN EARNINGS
VALUE) SHARES CAPITAL (DEFICIT)
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1991........................................ 1,000 $500.0 $(1,399.8)
Net loss.......................................................... (77.1)
--------- -------- ---------- ---------
Balance at December 31, 1991...................................... 1,000 500.0 (1,476.9)
Net loss.......................................................... (83.8)
Capital contribution, net of related expenses..................... 231.8
--------- -------- ---------- ---------
Balance at December 31, 1992...................................... 1,000 731.8 (1,560.7)
Net loss.......................................................... (228.9)
--------- -------- ---------- ---------
Balance at December 31, 1993...................................... 1,000 $731.8 $(1,789.6)
--------- -------- ---------- ---------
--------- -------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss..................................................................... $(228.9) $ (83.8) $ (77.1)
Adjustments to reconcile net loss to net cash provided by operating
activities
Extraordinary loss from early extinguishment of debt.................... 59.5 75.6
Cumulative effect of accounting changes
Postretirement benefits............................................ 58.9
Income taxes....................................................... (20.5)
Restructuring charge.................................................... 96.0
Environmental and other charges......................................... 54.0
Depreciation, depletion and amortization................................ 130.8 134.9 130.0
Amortization of deferred debt issuance costs............................ 7.9 14.6 17.6
Deferred income taxes................................................... (156.9) .1 (6.3)
Equity in (earnings) loss of affiliates................................. (.5) 39.9
Non-cash interest....................................................... 18.0 33.6 37.8
Non-cash employee benefit expense....................................... (12.5) (18.8) (9.4)
Change in current assets and liabilities, net of effects from
acquisitions
Receivables........................................................ .7 12.9 (6.8)
Inventories........................................................ 14.2 (10.4) (20.8)
Prepaid expenses and other current assets.......................... 5.0 (2.9) 2.3
Accounts payable and accrued liabilities........................... 26.2 14.9 (30.8)
Interest payable................................................... 4.7 (4.9) 5.5
Income taxes....................................................... 16.2 (17.3) 13.4
Other, net.............................................................. 4.9 (2.3) 37.7
------- ------- -------
Net cash provided by operating activities.................................... 78.2 145.7 133.0
------- ------- -------
Cash flows from investing activities
Property additions........................................................... (97.2) (77.5) (102.0)
Timberland additions......................................................... (20.2) (20.4) (16.9)
Investments in affiliates and acquisitions................................... (.1) (5.8) (9.9)
Proceeds from property and timberland disposals and sale of businesses....... 24.5 1.8 6.1
------- ------- -------
Net cash used for investing activities....................................... (93.0) (101.9) (122.7)
------- ------- -------
Cash flows from financing activities
Borrowings under senior unsecured notes...................................... 500.0
Net borrowings (repayments) under accounts receivable securitization
program..................................................................... 6.4 (8.8) 184.7
Borrowings under bank credit facility........................................ 400.0
Other increases in long-term debt............................................ 12.0 56.8 55.8
Payments of long-term debt and, in 1992, related premiums.................... (479.2) (698.6) (203.3)
Deferred debt issuance costs................................................. (25.2) (40.4) (3.7)
Capital contribution, net of related expenses................................ 231.8
------- ------- -------
Net cash provided by (used for) financing activities......................... 14.0 (59.2) 33.5
------- ------- -------
Increase (decrease) in cash and cash equivalents.................................. (.8) (15.4) 43.8
Cash and cash equivalents
Beginning of year............................................................ 45.0 60.4 16.6
------- ------- -------
End of year.................................................................. $ 44.2 $ 45.0 $ 60.4
------- ------- -------
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
1. BASIS OF PRESENTATION
Jefferson Smurfit Corporation (U.S.) (formerly Jefferson Smurfit
Corporation) hereinafter referred to as the 'Company' is a wholly-owned
subsidiary of Jefferson Smurfit Corporation (formerly SIBV/MS Holdings, Inc.),
hereinafter referred to as 'Holdings'. Fifty percent of the voting stock of
Holdings is owned by Smurfit Packaging Corporation ('SPC') and Smurfit Holdings
B.V. ('SHBV'), indirect wholly-owned subsidiaries of Jefferson Smurfit Group plc
('JS Group'), a public corporation organized under the laws of the Republic of
Ireland. The remaining 50% is owned by The Morgan Stanley Leveraged Equity Fund
II, L.P. ('MSLEF II'). Holdings has no operations other than its investment in
JSC. In December 1989, pursuant to a series of transactions referred to
hereafter as the '1989 Recapitalization', Holdings acquired the entire equity
interest in JSC. Concurrently with Holdings' acquisition of JSC, Container
Corporation of America ('CCA') acquired its common equity interest not owned by
JSC. Prior to the 1989 Recapitalization, Smurfit International B.V. ('SIBV'), an
indirect wholly-owned subsidiary of JS Group, owned 78% of JSC's outstanding
common equity, the public owned the remaining common equity of JSC and JSC
indirectly owned 50% of the common stock and 100% of the preferred stock of CCA.
The remaining 50% of the common stock of CCA was owned by The Morgan Stanley
Leveraged Equity Fund, L.P. and other investors ('MSLEF I Group'). Both MSLEF II
and MSLEF I Group are affiliates of Morgan Stanley & Co. Incorporated
('MS&Co.').
For financial accounting purposes, the 1989 acquisition by CCA of its
common equity owned by MSLEF I Group and the purchase of the JSC common equity
owned by SIBV were accounted for as purchases of treasury stock, resulting in a
deficit balance in stockholder's equity in the accompanying consolidated
financial statements. The acquisition of JSC's minority interest, representing
approximately 22% of JSC's common equity, was accounted for as a purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. Significant
intercompany accounts and transactions are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. At
December 31, 1993 cash and cash equivalents of $42.9 million are maintained as
collateral for obligations under the accounts receivable securitization program
(see Note 5).
Revenue Recognition: Revenue is recognized at the time products are
shipped.
Inventories: Inventories are valued at the lower of cost or market,
principally under the last-in, first-out ('LIFO') method except for $50.6
million in 1993 and $51.9 million in 1992 which are valued at the lower of
average cost or market. First-in, first-out costs (which approximate replacement
costs) exceed the LIFO value by $44.7 million and $46.3 million at December 31,
1993 and 1992, respectively.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Provisions for depreciation and amortization are made using straight-line
rates over the estimated useful lives of the related assets and the terms of the
applicable leases for leasehold improvements.
Effective January 1, 1993, the Company changed its estimate of the useful
lives of certain machinery and equipment. Based upon historical experience and
comparable industry practice, the depreciable lives of the papermill machines
that previously ranged from 16 to 20 years were increased to an average of 23
years, while major converting equipment and folding carton presses that
previously averaged 12 years were increased to an average of 20 years. These
changes were made to better reflect the estimated periods during which such
assets will remain in service. These changes had the effect of reducing
depreciation expense by $17.8 million and decreasing net loss by $11.0 million
in 1993.
F-7
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
Timberland: The portion of the costs of timberland attributed to standing
timber is charged against income as timber is cut, at rates determined annually,
based on the relationship of unamortized timber costs to the estimated volume of
recoverable timber. The costs of seedlings and reforestation of timberland are
capitalized.
Deferred Debt Issuance Costs: Deferred debt issuance costs are amortized
over the terms of the respective debt obligations using the interest method.
Goodwill: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the straight-line
method over 40 years.
Income Taxes: The taxable income of the Company is included in the
consolidated federal income tax return filed by Holdings. The Company's income
tax provisions are computed on a separate return basis. State income tax returns
are filed on a separate return basis. Effective January 1, 1993, the Company
changed its method of accounting for income taxes from the deferred method to
the liability method required by Statement of Financial Accounting Standards
('SFAS') No. 109, 'Accounting for Income Taxes' (see Note 6).
Interest Rate Swap Agreements: The Company enters into interest rate swap
agreements which involve the exchange of fixed and floating rate interest
payments without the exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
Reclassifications: Certain reclassifications of prior year presentations
have been made to conform to the 1993 presentation.
3. INVESTMENTS
Equity in loss of affiliates of $39.9 million in 1991, which is net of
deferred income tax benefits of $18.5 million, includes the Company's (i)
write-off of its equity investment in Temboard, Inc., formerly Temboard and
Company Limited Partnership ('Temboard'), totalling $29.3 million, (ii)
write-off of its remaining equity investment in PCL Industries Limited ('PCL')
totaling $6.7 million, and (iii) proportionate share of the net loss of equity
affiliates, including PCL prior to the write-off of that investment, totaling
$3.9 million.
4. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH JS GROUP
Transactions with JS Group, its subsidiaries and affiliates were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Product sales..................................... $ 18.4 $ 22.8 $ 21.0
Product and raw material purchases................ 49.3 60.1 11.8
Management services income........................ 5.8 5.6 5.4
Charges from JS Group for services provided....... .4 .3 .7
Charges from JS Group for letter of credit and
commitment fees (see Note 5).................... 2.9
Charges to JS Group for costs pertaining to the
No. 2 paperboard machine........................ 62.2 54.7 10.9
Receivables at December 31........................ 1.7 3.3 2.4
Payables at December 31........................... 11.6 10.2 3.4
</TABLE>
F-8
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
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 affiliate's gross sales.
In consideration for elective services, the Company is reimbursed for its direct
cost of providing such services.
In October 1991 an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by the affiliate that is located in CCA's Fernandina
Beach, Florida paperboard mill (the 'Fernandina Mill'). Pursuant to an operating
agreement between CCA and the affiliate, the affiliate engaged CCA to operate
and manage the No. 2 paperboard machine. As compensation to CCA for its services
the affiliate reimburses CCA for production and manufacturing costs directly
attributable to the No. 2 paperboard machine and pays CCA a portion of the
indirect manufacturing, selling and administrative costs incurred by CCA for the
entire Fernandina Mill. The compensation is determined by applying various
formulas and agreed upon amounts to the subject costs. The amounts reimbursed to
CCA are reflected as reductions of cost of goods sold and selling and
administrative expenses in the accompanying consolidated statements of
operations.
TRANSACTIONS WITH TIMES MIRROR
Under the terms of a long-term agreement, Smurfit Newsprint Corporation
('SNC'), a majority-owned subsidiary of the Company, supplies newsprint to Times
Mirror, a minority shareholder of SNC, at amounts which approximate prevailing
market prices. The obligations of the Company and Times Mirror to supply and
purchase newsprint, respectively, are wholly or partially terminable upon the
occurrence of certain defined events. Sales to Times Mirror for 1993, 1992 and
1991 were $115.2 million, $114.0 million and $150.6 million, respectively.
F-9
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
5. LONG-TERM DEBT
Long-term debt at December 31 consists of:
<TABLE>
<CAPTION>
1993 1992
----------------------- -----------------------
CURRENT CURRENT
MATURITIES LONG-TERM MATURITIES LONG-TERM
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1992 term loan.......................................... $ $ 201.3 $ $ 392.3
1989 term loan.......................................... 412.3 608.8
Revolving loans......................................... 196.5 223.0
Senior secured notes.................................... 270.5 270.5
Accounts receivable securitization program loans........ 182.3 175.9
Senior unsecured notes.................................. 500.0
Other................................................... 10.3 76.5 9.5 70.8
---------- --------- ---------- ---------
Total non-subordinated........................ 10.3 1,839.4 9.5 1,741.3
13.95% Subordinated note, due 1993...................... 22.9
13.5% Senior subordinated notes, due 1999............... 350.0 350.0
14.0% Subordinated debentures, due 2001................. 300.0 300.0
15.5% Junior subordinated accrual debentures, due
2004.................................................. 129.7 111.7
---------- --------- ---------- ---------
Total subordinated............................ 779.7 22.9 761.7
---------- --------- ---------- ---------
$ 10.3 $2,619.1 $ 32.4 $2,503.0
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1993, for the
next five years are $10.3 million in 1994, $220.6 million in 1995, $379.8
million in 1996, $431.5 million in 1997, and $273.0 million in 1998. In
addition, approximately $77.7 million in accrued interest related to the Junior
Subordinated Accrual Debentures (the 'Junior Accrual Debentures') becomes due in
1994. Accrued interest of approximately $58.9 million is classified as long-term
debt in the accompanying financial statements because it is the Company's
intention to refinance the Junior Accrual Debentures in December 1994 with the
proceeds from its $200 million commitment from SIBV described below.
1992 TERM LOAN
In August 1992, the Company repurchased $193.5 million of Junior Accrual
Debentures, and repaid $19.1 million of the Subordinated Note and $400 million
of the 1989 term loan facility ('1989 Term Loan'). The proceeds from a $231.8
million capital contribution by Holdings and a $400 million senior secured term
loan ('1992 Term Loan') were used to repurchase the Junior Accrual Debentures
and repay the loans. Premiums paid in connection with this transaction, the
write-off of related deferred debt issuance costs, and losses on interest rate
swap agreements, totaling $49.8 million (net of income tax benefits of $25.8
million), are reflected in the accompanying 1992 consolidated statement of
operations as an extraordinary loss.
Outstanding loans under the 1992 Term Loan bear interest primarily at rates
for which Eurodollar deposits are offered plus 3% (6.375% at December 31, 1993).
The 1992 Term Loan, which matures on December 31, 1997, may require principal
prepayments before then as defined in the 1992 Term Loan.
1989 TERM LOAN AND REVOLVING CREDIT FACILITY
The 1989 Amended and Restated Credit Agreement ('1989 Credit Agreement')
consists of the 1989 Term Loan and a $400.0 million revolving credit facility
(which expires in 1995) of which up to $125.0 million may consist of letters of
credit. The 1989 Term Loan, which expires in 1997, requires
F-10
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
minimum annual principal reductions, subject to additional reductions if the
Company has excess cash flows or excess cash balances, as defined, or receives
proceeds from certain sales of assets, issuance of equity securities, permitted
indebtedness or any pension fund termination.
Outstanding loans under the 1989 Credit Agreement bear interest primarily
at rates for which Eurodollar deposits are offered plus 2.25%. The weighted
average interest rate at December 31, 1993 on outstanding Credit Agreement
borrowings was 5.95%. A commitment fee of 1/2 of 1% per annum is assessed on the
unused portion of the revolving credit facility. At December 31, 1993, the
unused portion of the revolving credit facility, after giving consideration to
outstanding letters of credit, was $112.1 million.
SENIOR SECURED NOTES
The Senior Secured Notes due in 1998 may be prepaid at any time. Mandatory
prepayment is required from a pro rata portion of net cash proceeds of certain
sales of assets or additional borrowings. The Senior Secured Notes bear interest
at rates for which three month Eurodollar deposits are offered plus 2.75% (6.25%
at December 31, 1993).
Obligations under the 1992 Term Loan, the 1989 Credit Agreement, and the
Senior Secured Notes Agreement share pro rata in certain mandatory prepayments
and the collateral and guarantees that secure these obligations. These
obligations are secured by the common stock of JSC and CCA and substantially all
of their assets, with the exception of cash and cash equivalents and trade
receivables, and are guaranteed by the Company. These agreements contain various
business and financial covenants including, among other things, (i) limitations
on the incurrence of indebtedness; (ii) limitations on capital expenditures;
(iii) restrictions on paying dividends, except for dividends paid by SNC; (iv)
maintenance of minimum interest coverage ratios; and (v) maintenance of
quarterly and annual cash flows, as defined.
In anticipation of violation of certain financial covenants at September
30, 1993, in connection with its 1992 Term Loan, 1989 Credit Agreement and the
Senior Secured Notes, the Company requested and received waivers from its lender
group. In addition, the Company's credit facilities were amended in December
1993, to modify financial covenants that had become too restrictive due to
continued pricing weakness in the paper industry. The Company complied with the
amended covenants at December 31, 1993.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM LOANS
The $230.0 million accounts receivable securitization program
('Securitization Program') provides for the sale of certain of the Company's
trade receivables to a wholly-owned, bankruptcy remote, limited purpose
subsidiary, Jefferson Smurfit Finance Corporation ('JS Finance'), which finances
its purchases of the receivables, through borrowings from a limited purpose
finance company (the 'Issuer') unaffiliated with the Company. The Issuer, which
is restricted to making loans to JS Finance, issued $95.0 million in fixed rate
term notes, issued $13.8 million under a subordinated loan, and may issue up to
$121.2 million in trade receivables backed commercial paper or obtain up to
$121.2 million under a revolving liquidity facility to fund loans to JS Finance.
At December 31, 1993, $47.1 million was available for additional borrowing.
Borrowings under the Securitization Program, which expires April 1996, 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.
At December 31, 1993, all assets of JS Finance, principally cash and cash
equivalents of $42.9 million and trade receivables of $173.8 million, are
pledged as collateral for obligations of JS Finance to the Issuer. Interest
rates on borrowings under this program are at a fixed rate of 9.56% for $95.0
million of the borrowings and at a variable rate on the remainder (3.94% at
December 31, 1993).
F-11
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
SENIOR UNSECURED NOTES
In April 1993, CCA issued $500.0 million of 9.75% Senior Unsecured Notes
due 2003 which are unconditionally guaranteed by JSC. Net proceeds from the
offering were used to repay: $100.0 million outstanding under the revolving
credit facility, $196.5 million outstanding under the 1989 Term Loan, and $191.0
million outstanding under the 1992 Term Loan. The write-off of related deferred
debt issuance costs and losses on interest rate swap agreements, totalling $37.8
million (net of income tax benefits of $21.7 million), are reflected in the
accompanying 1993 consolidated statement of operations as an extraordinary item.
In connection with the issuance of the Senior Unsecured Notes, the Company
entered into an agreement with SIBV whereby SIBV committed to purchase up to
$200 million of 11.5% Junior Subordinated Notes to be issued by the Company
maturing December 1, 2005. From time to time until December 31, 1994, the
Company, at their option, may issue the Junior Subordinated Notes, the proceeds
of which must be used to repurchase or otherwise retire subordinated debt. The
Company is obligated to pay SIBV for letter of credit fees incurred by SIBV in
connection with this commitment in addition to an annual commitment fee of
1.375% on the undrawn principal amount (See Note 4).
The Senior Unsecured Notes due April 1, 2003, which are not redeemable
prior to maturity, rank pari passu with the 1992 Term Loan, the 1989 Credit
Agreement and the Senior Secured Notes. The Senior Unsecured Note Agreement
contains business and financial covenants which are substantially less
restrictive than those contained in the 1992 Term Loan, the 1989 Credit
Agreement and the Senior Secured Notes Agreement.
OTHER NON-SUBORDINATED DEBT
Other non-subordinated long-term debt at December 31, 1993, is payable in
varying installments through the year 2004. Interest rates on these obligations
averaged approximately 9.76% at December 31, 1993.
SUBORDINATED DEBT
The Senior Subordinated Notes, Subordinated Debentures and Junior Accrual
Debentures are unsecured obligations of CCA and are unconditionally guaranteed
on a senior subordinated, subordinated and junior subordinated basis,
respectively, by JSC. Semi-annual interest payments are required on the Senior
Subordinated Notes, and Subordinated Debentures. Interest on the Junior Accrual
Debentures accrues and compounds on a semi-annual basis until December 1, 1994
at which time accrued interest is payable. Thereafter, interest on the Junior
Accrual Debentures will be payable semi-annually.
The Senior Subordinated Notes are redeemable at CCA's option beginning
December 1, 1994 with premiums of 6.75% and 3.375% of the principal amount if
redeemed during the 12-month periods commencing December 1, 1994 and 1995,
respectively. The payment of principal and interest is subordinated to the prior
payment, when due, of all senior indebtedness, as defined.
The Subordinated Debentures are redeemable at CCA's option beginning
December 1, 1994 with premiums of 7% and 3.5% of the principal amount if
redeemed during the 12-month periods commencing December 1, 1994 and 1995,
respectively. The payment of principal and interest is subordinated to the prior
payment, when due, of all senior indebtedness, as defined, and the Senior
Subordinated Notes. Sinking fund payments to retire 33 1/3% of the original
aggregate principal amount of the Subordinated Debentures are required on each
of December 15, 1999 and 2000.
The Junior Accrual Debentures are redeemable at CCA's option beginning
December 1, 1994 at 100% of the principal amount. The payment of principal and
interest is subordinated to the prior
F-12
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
payment, when due, of all senior indebtedness, as defined, the Senior
Subordinated Notes and the Subordinated Debentures. Sinking fund payments to
retire 33 1/3% of the original aggregate principal amount of the Junior Accrual
Debentures are required on each of December 1, 2002 and 2003.
Holders of the Senior Subordinated Notes, Subordinated Debentures, and
Junior Accrual Debentures have the right, subject to certain limitations, to
require the Company to repurchase their securities at 101% of the principal
amount plus accrued and unpaid interest, upon the occurrence of a change of
control or in certain events from proceeds of major asset sales, as defined. The
Senior Subordinated Notes, Subordinated Debentures and Junior Accrual Debentures
contain various business and financial covenants which are less restrictive than
those contained in the 1992 Term Loan, the 1989 Credit Agreement and the Senior
Secured Notes Agreement.
INTEREST RATE SWAPS
At December 31, 1993, the Company has interest rate swap and other hedging
agreements with commercial banks which effectively fix (for remaining periods up
to 3 years) the Company's interest rate on $215 million of variable rate
borrowings at average all-in rates of approximately 9.1%. At December 31, 1993,
the Company had $435 million of swap commitments outstanding which were marked
to market in April 1993. The Company also has outstanding interest rate swap
agreements related to the Securitization Program that effectively convert $95.0
million of fixed rate borrowings to a variable rate (5.6% at December 31, 1993)
through December 1995, and convert $80.0 million of variable rate borrowings to
a fixed rate of 7.2% through January 1996. In addition, the Company is party to
interest rate swap agreements related to the Senior Unsecured Notes which
effectively converts $500.0 million of fixed rate borrowings to a variable rate
(8.6% at December 31, 1993) maturing at various dates through May 1995. The
Company is exposed to credit loss in the event of non-performance by the other
parties to the interest rate swap agreements. However, the Company does not
anticipate non-performance by the counter parties.
Interest costs capitalized on construction projects in 1993, 1992 and 1991
totalled $3.4 million, $4.2 million and $2.4 million, respectively. Interest
payments on all debt instruments for 1993, 1992 and 1991 were $226.2 million,
$257.6 million and $273.1 million, respectively.
6. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, 'Accounting for Income Taxes'. As permitted under the new rules, prior
years' financial statements have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 was to
increase net income by $20.5 million. For 1993, application of SFAS No. 109
increased the pretax loss by $14.5 million because of increased depreciation
expense as a result of the requirement to report assets acquired in prior
business combinations at pretax amounts.
In adopting this new accounting principle, the Company (i) adjusted assets
acquired and liabilities assumed in prior business combinations from their
net-of-tax amounts to their pre-tax amounts and recognized the related deferred
tax assets and liabilities for those temporary differences, (ii) adjusted
deferred income tax assets and liabilities to statutory income tax rates and for
previously unrecognized tax benefits related to certain state net operating loss
carryforwards, and (iii) adjusted asset and liability accounts arising from the
1986 acquisition and the 1989 Recapitalization to recognize potential tax
liabilities related to those transactions. The net effect of these adjustments
on assets and liabilities was to increase inventory $23.0 million, increase
property, plant and equipment and timberlands $196.5 million, increase goodwill
$42.0 million, increase liabilities by $12.6 million, and increase deferred
income taxes by $228.4 million.
F-13
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
At December 31, 1993, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $308.6 million (expiring in the
years 2005 through 2008), none of which are available for utilization against
alternative minimum taxes.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1993 are as follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Depreciation and depletion.................................................. $354.5
Pensions.................................................................... 26.7
Other....................................................................... 104.0
------
Total deferred tax liabilities......................................... 485.2
------
Deferred tax assets:
Retiree medical............................................................. $ 44.6
Other employee benefit and insurance plans.................................. 70.3
Restructuring and other charges............................................. 49.3
NOL and tax credit carryforwards............................................ 108.4
Other....................................................................... 47.1
------
Total deferred tax assets.............................................. 319.7
Valuation allowance for deferred tax assets...................................... (24.8)
------
Net deferred tax assets..................................................... 294.9
------
Net deferred tax liabilities................................................ $190.3
------
------
</TABLE>
Provisions for (benefit from) income taxes before extraordinary item and
cumulative effect of accounting changes were as follows:
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- ----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
--------- --------------- ---------------
<S> <C> <C> <C>
Current
Federal............................................................ $ 28.1 $(2.2) $14.4
State and local.................................................... 2.2 2.1 1.9
--------- ------ ------
30.3 (.1) 16.3
Deferred
Federal............................................................ (53.5) 9.7 (7.1)
State and local.................................................... 6.0 .4 .8
Benefits of net operating loss carryforwards....................... (71.5)
--------- ------ ------
(119.0) 10.1 (6.3)
Adjustment of deferred tax assets and liabilities for enacted tax rate
change................................................................ 5.7
--------- ------ ------
$ (83.0) $10.0 $10.0
--------- ------ ------
--------- ------ ------
</TABLE>
The Company increased its deferred tax assets and liabilities in 1993 as a
result of legislation enacted during 1993 increasing the corporate federal
statutory tax rate from 34% to 35% effective January 1, 1993.
F-14
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
The Internal Revenue Service completed the examination of the Company's
consolidated federal income tax returns for 1987 and 1988. The provision for
current taxes includes settlement of the additional tax liabilities.
The components of the provision for (benefit from) deferred taxes were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1991
----------------------- -----------------------
<S> <C> <C>
Depreciation and depletion................................................ $ 15.2 $ 21.8
Alternative minimum tax................................................... 10.2 (7.5)
Tax loss carryforwards.................................................... (24.3) (9.7)
Equity in affiliates...................................................... 6.8 3.2
Other employee benefits................................................... 2.7 (10.7)
Other, net................................................................ (.5) (3.4)
------- -------
$ 10.1 $ (6.3)
------- -------
------- -------
</TABLE>
A reconciliation of the difference between the statutory Federal income tax
rate and the effective income tax rate as a percentage of loss before income
taxes, equity in earnings (loss) of affiliates, extraordinary item, and
cumulative effect of accounting changes is as follows:
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- ----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
--------- --------------- ---------------
<S> <C> <C> <C>
U.S. Federal statutory rate............................................. (35.0)% (34.0)% (34.0)%
Adjustment of deferred tax assets and liabilities for enacted tax rate
change................................................................ 2.2
State and local taxes, net of Federal tax benefit....................... (2.0) 5.8 7.3
Permanent differences from applying purchase accounting................. 3.5 62.7 65.4
Taxes on foreign distributions.......................................... .1 .8 4.5
Effect of valuation allowances on deferred tax assets, net of Federal
benefit............................................................... 1.2
Other, net.............................................................. (1.8) 1.5 (2.1)
--------- ------ ------
(31.8)% 36.8% 41.1%
--------- ------ ------
--------- ------ ------
</TABLE>
The Company made income tax payments of $33.0 million, $6.6 million, and
$5.9 million in 1993, 1992, and 1991, respectively.
7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees not covered by multi-employer plans. Plans that
cover salaried and management employees provide pension benefits that are based
on the employee's five highest consecutive calendar years' compensation during
the last ten years of service. Plans covering non-salaried employees generally
provide benefits of stated amounts for each year of service. These plans provide
reduced benefits for early retirement. The Company's funding policy is to make
minimum annual contributions required by applicable regulations. The Company
also participates in several multi-employer pension plans, which provide defined
benefits to certain union employees.
In order to minimize significant year-to-year fluctuations in pension cost
caused by financial market volatility, the Company changed, effective as of
January 1, 1993, the method of accounting used for
F-15
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
determining the market-related value of plan assets. The method changed from a
fair market value to a calculated value that recognizes all changes in a
systematic manner over a period of four years and eliminates the use of a
corridor approach for amoritizing gains and losses. The effect of this change on
1993 results of operations, including the cumulative effect of prior years, was
not material.
Assumptions used in the accounting for the defined benefit plans were:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Weighted average discount rates............................................ 7.6% 8.75% 9.0%
Rates of increase in compensation levels................................... 4.0% 5.5% 6.0%
Expected long-term rate of return on assets................................ 10.0% 10.0% 10.0%
</TABLE>
The components of net pension income for the defined benefit plans and the
total contributions charged to pension expense for the multi-employer plans
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the period........................ $12.7 $12.1 $11.3
Interest cost on projected benefit obligations........................ 54.0 50.1 47.6
Actual return on plan assets.......................................... (91.1 ) (26.4) (147.9)
Net amortization and deferral......................................... 8.8 (54.6) 80.3
Multi-employer plans....................................................... 2.2 2.1 1.5
------ ------ ------
Net pension income............................................... $(13.4) $(16.7) $(7.2 )
------ ------ ------
------ ------ ------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31 for the Company's and its
subsidiaries' defined benefit pension plans:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations...................................................... $616.7 $530.5
------ ------
Accumulated benefit obligations................................................. $664.3 $543.0
------ ------
Projected benefit obligations................................................... $716.0 $599.0
Plan assets at fair value............................................................ 778.1 729.2
------ ------
Plan assets in excess of projected benefit obligations............................... 62.1 130.2
Unrecognized net (gain) loss......................................................... 34.5 (45.2)
Unrecognized net asset at December 31, being recognized over 14 to 15 years.......... (29.2) (33.2)
------ ------
Net pension asset.......................................................... $ 67.4 $ 51.8
------ ------
------ ------
</TABLE>
Approximately 44% of plan assets at December 31, 1993 are invested in cash
equivalents or debt securities and 56% are invested in equity securities,
including common stock of JS Group having a market value of $87.7 million.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for
all salaried and certain hourly employees. The Company has various plans under
which the cost may be borne either by the Company, the employee or partially by
each party. The Company does not currently fund these plans. These benefits are
discretionary and are not a commitment to long-term benefit payments. The plans
F-16
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
were amended effective January 1, 1993 to allow employees who retire on or after
January 1, 1994 to become eligible for these benefits only if they retire after
age 60 while working for the Company.
Effective January 1, 1993, the Company adopted SFAS No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions', which requires
companies to accrue the expected cost of retiree benefit payments, other than
pensions, during employees' active service period. The Company elected to
immediately recognize the accumulated liability, measured as of January 1, 1993.
The cumulative effect of this change in accounting principle resulted in a
charge of $37.0 million (net of income tax benefits of $21.9 million). The
Company had previously recorded an obligation of $36.0 million in connection
with prior business combinations. The net periodic postretirement benefit cost
for 1993 was $9.8 million. In 1992 and 1991, the cost of the postretirement
benefits was recognized as claims were paid and was $6.4 million and $5.3
million, respectively.
The following table sets forth the accumulated postretirement benefit
obligation ('APBO') with respect to these benefits as of December 31, 1993:
<TABLE>
<S> <C>
Retirees................................................................... $ 58.3
Active employees........................................................... 51.8
------
Total accumulated postretirement benefit obligation........................ 110.1
Unrecognized net loss...................................................... (11.9)
------
Accrued postretirement benefit cost........................................ $ 98.2
------
------
</TABLE>
Net periodic postirement benefit cost for 1993 included the following
components:
<TABLE>
<S> <C>
Service cost of benefits earned............................................ $ 1.5
Interest cost on accumulated postretirement benefit obligation............. 8.3
------
Net periodic postretirement benefit cost................................... $ 9.8
------
------
</TABLE>
A weighted-average discount rate of 7.6% was used in determining the APBO
at December 31, 1993. The weighted-average annual assumed rate of increase in
the per capita cost of covered benefits ('healthcare cost trend rate') was 11%,
with an annual decline of 1% until the rate reaches 5%. The effect of a 1%
increase in the assumed healthcare cost trend rate would increase both APBO as
of December 31, 1993 by $5.7 million and the annual net periodic postretirement
benefit cost for 1993 by $.8 million.
1992 STOCK OPTION PLAN
Effective August 26, 1992, Holdings adopted the Holdings 1992 Stock Option
Plan (the 'Plan') which replaced the 1990 Long-Term Management Incentive Plan.
Under the Plan, selected employees of Holdings and its affiliates and
subsidiaries are granted non-qualified stock options, up to a maximum of 603,656
shares, to acquire shares of common stock of Holdings. The stock options are
exercisable at a price equal to the fair market value, as defined, of the common
stock of Holdings on the date of grant. The options vest pursuant to the
schedule set forth for each option and expire upon the earlier of twelve years
from the date of grant or termination of employment. The stock options become
exercisable upon the earlier of the occurrence of certain trigger dates, as
defined, or eleven years from the date of grant. Options for 494,215 and 502,645
shares were outstanding at December 31, 1993 and 1992, respectively, at an
exercise price of $100.00, none of which were exercisable.
8. LEASES
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum lease
payments at December 31, 1993, required
F-17
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year are $30.3 million in 1994, $22.5 million in 1995, $15.5
million in 1996, $11.3 million in 1997, $8.3 million in 1998 and $19.1 million
thereafter.
Net rental expense was $45.0 million, $42.2 million, and $38.7 million for
1993, 1992 and 1991, respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1993 1992
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.......................................... $ 44.2 $ 44.2 $ 45.0 $ 45.0
Long-term debt, including current maturities....................... 2,629.4 2,686.4 2,535.4 2,540.4
Loss on interest rate swap agreements.............................. (3.9) (35.5)
</TABLE>
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair value of the Company's
long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities. The fair value of the interest rate swap agreements
is the estimated amount the Company would pay, net of accrued interest expense,
to terminate the agreements at December 31, 1993, taking into account current
interest rates and the current credit worthiness of the swap counterparties.
10. RESTRUCTURING CHARGE
During 1993, the Company recorded a pre-tax charge of $96 million to
recognize the effects of a restructuring program designed to improve the
Company's long-term competitive position. The charge includes a provision for
direct expenses associated with plant closures, reductions in workforce,
realignment and consolidation of various manufacturing operations and
write-downs of nonproductive assets.
11. CONTINGENCIES
During 1993, the Company recorded a pre-tax charge of $54 million of which
$39 million represents asbestos and PCB removal, solid waste cleanup at existing
and former operating sites, and expenses for response costs at various sites
where the Company has received notice that it is a potentially responsible
party.
The Company 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 resolution of these matters will not have a material adverse
effect on its consolidated financial condition or results of operation.
12. BUSINESS SEGMENT INFORMATION
The Company's business segments are paperboard/packaging products and
newsprint. Substantially all the Company's operations are in the United States.
The Company's customers represent a diverse range of industries including
paperboard and paperboard packaging, consumer products, wholesale
F-18
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
trade, retailing agri-business, and newspaper publishing located throughout the
United States. Credit is extended based on an evaluation of the customer's
financial condition. The paperboard/packaging products segment includes the
manufacture and distribution of containerboard, boxboard and cylinderboard,
corrugated containers, folding cartons, fibre partitions, spiral cores and
tubes, labels and flexible packaging. A summary by business segment of net
sales, operating profit, identifiable assets, capital expenditures and
depreciation, depletion and amortization follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales
Paperboard/packaging products............................................. $2,699.5 $2,751.0 $2,653.9
Newsprint................................................................. 248.1 247.4 286.2
-------- -------- --------
$2,947.6 $2,998.4 $2,940.1
-------- -------- --------
-------- -------- --------
Operating profit (loss)
Paperboard/packaging products............................................. $ 13.3 $ 281.4 $ 273.0
Newsprint................................................................. (21.4) (10.3) 36.4
-------- -------- --------
Total operating profit (loss)........................................ (8.1) 271.1 309.4
Interest expense, net.......................................................... (252.7) (298.3) (333.7)
-------- -------- --------
Loss before income taxes, equity in earnings (loss) of affiliates,
minority interests, extraordinary item, and cumulative effect of
accounting changes...................................................... $ (260.8) $ (27.2) $ (24.3)
-------- -------- --------
-------- -------- --------
Identifiable assets
Paperboard/packaging products............................................. $2,153.4 $1,960.6 $1,971.6
Newsprint................................................................. 224.9 235.1 253.1
Corporate assets.......................................................... 218.8 240.7 235.4
-------- -------- --------
$2,597.1 $2,436.4 $2,460.1
-------- -------- --------
-------- -------- --------
Capital expenditures
Paperboard/packaging products............................................. $ 107.2 $ 91.6 $ 114.7
Newsprint................................................................. 10.2 6.3 4.2
-------- -------- --------
$ 117.4 $ 97.9 $ 118.9
-------- -------- --------
-------- -------- --------
Depreciation, depletion and amortization
Paperboard/packaging products............................................. $ 115.2 $ 121.2 $ 116.7
Newsprint................................................................. 15.6 13.7 13.3
-------- -------- --------
$ 130.8 $ 134.9 $ 130.0
-------- -------- --------
-------- -------- --------
</TABLE>
Sales and transfers between segments are not material. Export sales are
less than 10% of total sales. Corporate assets consist principally of cash and
cash equivalents, refundable and deferred income taxes, investments in
affiliates, deferred debt issuance costs and other assets which are not specific
to a segment.
F-19
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
13. SUMMARIZED FINANCIAL INFORMATION OF CCA
Summarized below is financial information for CCA which is the issuer of
the Senior Subordinated Notes, Senior Unsecured Notes, Subordinated Debentures
and Junior Accrual Debentures.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets............................................................................. $ 448.1 $ 365.7
Property and timberlands, net.............................................................. 1,073.5 944.5
Due from JSC............................................................................... 1,244.3 1,221.5
Deferred debt issuance costs............................................................... 50.5 64.8
Goodwill................................................................................... 93.7 54.2
Other assets............................................................................... 54.8 46.0
-------- --------
$2,964.9 $2,696.7
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities........................................................................ $ 264.4 $ 268.4
Long-term debt............................................................................. 2,378.4 2,273.4
Deferred income taxes and other liabilities................................................ 371.6 165.2
Stockholder's deficit...................................................................... (49.5) (10.3)
-------- --------
$2,964.9 $2,696.7
-------- --------
-------- --------
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales...................................................................... $1,931.6 $2,014.4 $1,947.6
Cost of goods sold............................................................. 1,647.4 1,655.3 1,587.4
Selling and administrative expenses............................................ 141.8 141.6 136.2
Other.......................................................................... 65.0
Interest expense............................................................... 237.4 277.3 313.6
Interest income from JSC....................................................... 173.2 160.1 159.6
Other income................................................................... .1 5.0 2.4
-------- -------- --------
Income before income taxes, extraordinary item, and cumulative effect of
accounting change....................................................... 13.3 105.3 72.4
Provision for income taxes..................................................... 10.0 51.0 39.0
-------- -------- --------
Income before extraordinary item and cumulative effect of accounting
change.................................................................. 3.3 54.3 33.4
Extraordinary item
Loss from early extinguishment of debt, net of income tax benefits of
$21.7 in 1993 and $25.5 in 1992......................................... (37.8) (49.1)
Cumulative effect of accounting change for postretirement benefits, net of
income tax benefits of $2.7 million.......................................... (4.7)
-------- -------- --------
Net income (loss)......................................................... $ (39.2) $ 5.2 $ 33.4
-------- -------- --------
-------- -------- --------
</TABLE>
F-20
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
Intercompany loans to the Company made in connection with the 1989
Recapitalization ($1,262.0 million at December 31, 1993) are classified as
long-term by CCA and are evidenced by a demand note which bears interest at
12.65%, which was the weighted average interest rate applicable to the bank
credit facilities and the various debt securities sold in connection with the
1989 Recapitalization. Term loans to the Company under the Securitization
Program ($262.5 million at December 31, 1993) are included in CCA's current
assets and bear interest at the average borrowing rate under the Securitization
Program (6.56% at December 31, 1993). Other amounts advanced to or from the
Company are non-interest bearing.
14. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1993
Net sales................................................... $735.9 $734.9 $745.7 $731.1
Gross profit................................................ 100.1 99.4 95.8 79.2
Income (loss) from operations(1)............................ 39.8 40.0 (111.6) 17.1
Loss before extraordinary item and cumulative effect of
accounting changes........................................ (15.5) (14.6) (116.7) (27.8)
Loss from early extinguishment of debt...................... (37.8)
Cumulative effect of changes in accounting principles
Postretirement benefits................................ (37.0)
Income taxes........................................... 20.5
Net loss.................................................... (32.0) (52.4) (116.7) (27.8)
1992
Net sales................................................... $741.9 $749.0 $773.0 $734.5
Gross profit................................................ 110.7 121.5 140.5 126.4
Income from operations...................................... 53.7 65.3 83.6 65.1
Income (loss) before extraordinary item..................... (19.9) (11.3) 1.6 (4.4)
Loss from early extinguishment of debt...................... (49.8)
Net loss.................................................... (19.9) (11.3) (48.2) (4.4)
</TABLE>
- ------------
(1) In the third quarter of 1993, the Company recorded a pre-tax charge of $96
million to recognize the effects of a restructuring program designed to
improve the Company's long term competitive position and recorded a pre-tax
charge of $54 million relating primarily to environmental matters.
F-21
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED BALANCE SHEETS
The information presented below for the interim periods is unaudited but,
in the opinion of management, such information reflects all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the financial data for the interim periods. The results for the interim
periods are not necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------------------------------ ------------------------------------
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......... $ 80.9 $ 44.2
Receivables, less allowances of
$8.9 in 1994 and $9.2 in 1993.... 289.9 243.2
Refundable income taxes............ .2 .7
Inventories
Work-in-process and finished
goods....................... 89.6 96.1
Materials and supplies........ 128.4 137.2
---------- ----------
218.0 233.3
Deferred income taxes.............. 41.8 41.9
Prepaid expenses and other current
assets........................... 3.3 5.2
---------- ----------
Total current assets..... 634.1 568.5
Property, plant and equipment........... 1,994.6 1,937.7
Less accumulated depreciation and
amortization..................... 612.8 563.2
---------- ----------
1,381.8 1,374.5
Timberland, less timber depletion....... 259.8 261.5
Deferred debt issuance costs............ 87.4 52.3
Goodwill, less accumulated amortization
of $31.3 in 1994 and $27.6 in 1993.... 258.6 261.4
Other assets............................ 98.3 78.9
---------- ----------
$2,720.0 $2,597.1
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term
debt............................. $ 8.1 $ 10.3
Accounts payable................... 324.4 270.6
Accrued compensation and payroll
taxes 118.8 110.1
Interest payable................... 45.2 52.6
Other accrued liabilities.......... 93.5 84.9
---------- ----------
Total current
liabilities............ 590.0 528.5
Long-term debt, less current maturities
Nonsubordinated.................... 1,645.3 1,839.4
Subordinated....................... 789.6 779.7
---------- ----------
Total long-term debt..... 2,434.9 2,619.1
Other long-term liabilities............. 230.6 257.1
Deferred income taxes................... 190.2 232.2
Minority interest....................... 17.3 18.0
Stockholders' deficit
Common stock, par value $.01 per
share; 1,000 shares authorized
and outstanding
Additional paid-in capital......... 1,118.3 731.8
Retained earnings (deficit)........ (1,861.3) (1,789.6)
---------- ----------
Total stockholders'
deficit................ (743.0) (1,057.8)
---------- ----------
$2,720.0 $2,597.1
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------- --------------------
1994 1993 1994 1993
------------------ ------------------ -------- --------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales............................... $765.9 $734.9 $1,493.6 $1,470.8
Costs and expenses
Cost of goods sold................. 654.9 634.4 1,284.1 1,268.8
Selling and administrative
expenses......................... 55.4 59.4 107.1 119.7
------- ------- -------- --------
710.3 693.8 1,391.2 1,388.5
Income from operations.................. 55.6 41.1 102.4 82.3
Other income (expense)
Interest expense................... (69.3) (62.5) (134.1) (127.7)
Other, net......................... 1.7 .8 3.1 2.3
------- ------- -------- --------
(67.6) (61.7) (131.0) (125.4)
Loss before income taxes, extraordinary
item and cumulative effect of
accounting changes.................... (12.0) (20.6) (28.6) (43.1)
Provision for (benefit from) income
taxes................................. (3.6) (6.0) (8.4) (13.0)
------- ------- -------- --------
Loss before extraordinary item and
cumulative effect of accounting
changes............................... (8.4) (14.6) (20.2) (30.1)
Extraordinary item
Loss from early extinguishment of
debt, net of income tax
benefits......................... (51.6) (37.8) (51.6) (37.8)
Cumulative effect of accounting changes
Post-retirement benefits........... (37.0)
Income taxes....................... 20.5
------- ------- -------- --------
Net loss...................... $(60.0) $(52.4) $ (71.8) $ (84.4)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1994 1993
-------- ------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities
Net loss................................................................................ $ (71.8) $(84.4)
Adjustments to reconcile net loss to net cash provided by operating activities
Extraordinary loss from early extinguishment of debt.................................... 83.2 59.5
Cumulative effect of accounting changes
Post-retirement benefits........................................................... 58.9
Income taxes....................................................................... (20.5)
Depreciation, depletion and amortization................................................ 65.6 63.1
Amortization of deferred debt issuance costs............................................ 4.4 4.5
Deferred income taxes................................................................... (42.0) (64.1)
Non-cash interest....................................................................... 10.0 8.6
Non-cash employee benefit expense....................................................... (3.9) (4.6)
Change in current assets and liabilities, net of effects from acquisitions
Receivables........................................................................ (57.6) (11.8)
Inventories........................................................................ 15.3 (9.3)
Prepaid expenses and other current assets.......................................... 2.1 3.2
Accounts payable and accrued liabilities........................................... 1.1 26.3
Interest payable................................................................... (6.4) (2.3)
Income taxes payable............................................................... .6 16.2
Other, net.............................................................................. (6.1) 1.1
-------- ------
Net cash provided by (used for) operating activities.................................... (5.5) 44.4
-------- ------
Cash flows from investing activities
Property additions...................................................................... (55.6) (47.4)
Timberland additions.................................................................... (9.4) (8.3)
Proceeds from property and timberland disposals......................................... 1.0 3.5
-------- ------
Net cash used for investing activities.................................................. (64.0) (52.2)
-------- ------
Cash flows from financing activities
Capital contribution.................................................................... 386.5
Proceeds from long-term borrowings...................................................... 928.4 513.9
Repayment of long-term debt............................................................. (1,131.8) (486.3)
Deferred debt issuance costs............................................................ (76.9) (19.9)
-------- ------
Net cash provided by (used for) financing activities.................................... 106.2 7.7
-------- ------
Increase (decrease) in cash and cash equivalents............................................. 36.7 (.1)
Cash and cash equivalents
Beginning of period..................................................................... 44.2 45.0
-------- ------
End of period........................................................................... $ 80.9 $ 44.9
-------- ------
-------- ------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Jefferson Smurfit
Corporation (U.S.) ('the Company' or 'JSC U.S.') have been prepared in
accordance with the instructions to Form 10-Q and reflect all adjustments which
management believes necessary (which include only normal recurring accruals) to
present fairly the financial position and results of operations. These
statements, however, do not include all information and footnotes necessary for
a complete presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. Interim
results may not necessarily be indicative of results which may be expected for
any other interim period or for the year as a whole. For further information
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, filed
on March 31, 1994 with the Securities and Exchange Commission (the 'JSC U.S.
1993 10-K').
As further explained in the JSC U.S. 1993 10-K, JSC U.S. is a wholly-owned
subsidiary of Jefferson Smurfit Corporation ('JSC'). Prior to May 4, 1994, 50%
of the voting stock of JSC was owned by Smurfit Packaging Corporation and
Smurfit Holdings B.V., indirect wholly-owned subsidiaries of Jefferson Smurfit
Group plc ('JS Group'), a public corporation organized under the laws of the
Republic of Ireland. As of such date, the remaining 50% was owned by the Morgan
Stanley Leveraged Equity Fund II, L.P. ('MSLEF II'). JSC has no operations other
than its investment in JSC U.S.
In May 1994, JSC completed the initial phase of a recapitalization plan
(the 'Recapitalization') to repay or refinance a substantial portion of its
indebtedness in order to improve operating and financial flexibility. In
connection with the Recapitalization, (i) JSC issued and sold 19,250,000 shares
of common stock pursuant to a registered public offering at an initial public
offering price of $13.00 per share, (ii) JS Group, through its wholly-owned
subsidiary Smurfit International B.V. ('SIBV'), purchased an additional
11,538,462 shares of common stock for $150 million, and (iii) Container
Corporation of America ('CCA') issued and sold $300 million aggregate principal
amount of 11.25% Series A Senior Notes due 2004 and $100 million aggregate
principal amount of 10.75% Series B Senior Notes due 2002 pursuant to a
registered public offering. The proceeds from the equity and debt offerings, the
sale to SIBV, and borrowings under a new bank facility, among other things, were
used to repay the Company's outstanding bank debt. The new bank facility
includes a delayed term loan which allows the Company to redeem its Subordinated
Debentures and pay related premiums on approximately December 1, 1994, as the
second phase of the Recapitalization. December 1, 1994 is the earliest date the
Subordinated Debentures may be redeemed.
In connection with the recapitalization as discussed above, in May 1994,
the Company changed its name to Jefferson Smurfit Corporation (U.S.) and
Holdings changed its name to Jefferson Smurfit Corporation.
2. SUMMARIZED FINANCIAL INFORMATION OF CONTAINER CORPORATION OF AMERICA
The following summarized financial information is presented for CCA, a
wholly-owned subsidiary of the Company. CCA is the issuer of the Senior
Subordinated Notes, the Subordinated Debentures and the Junior Subordinated
Accrual Debentures, as defined in the JSC U.S. 1993 10-K. These securities are
guaranteed by JSC.
F-25
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
(UNAUDITED)
Condensed consolidated balance sheets:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
Current assets..................................................... $ 620.9 $ 448.1
Property, plant and equipment and timberlands, net................. 1,081.1 1,073.5
Due from JSC....................................................... 1,260.2 1,244.3
Deferred debt issuance costs....................................... 86.0 50.5
Goodwill........................................................... 92.3 93.7
Other assets....................................................... 57.3 54.8
-------- --------
Total assets.................................................. $3,197.8 $2,964.9
-------- --------
-------- --------
Current liabilities................................................ $ 345.5 $ 264.4
Long-term debt..................................................... 2,176.2 2,378.4
Deferred income taxes and other liabilities........................ 361.9 371.6
Stockholder's equity (deficit)..................................... 314.2 (49.5)
-------- --------
Total liabilities and stockholder's deficit................... $3,197.8 $2,964.9
-------- --------
-------- --------
</TABLE>
Condensed consolidated statement of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------- ------------------------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales..................................... $516.8 $480.7 $1,003.4 $964.8
Costs and expenses............................ 477.8 444.6 928.8 888.8
Interest expense.............................. 64.2 58.6 124.6 119.2
Interest income from JSC...................... 45.5 42.5 89.5 85.3
Other income, net............................. 5.4 5.6 .1
------ ------ -------- ------
Income before income taxes, extraordinary item
and cumulative effect of accounting
change...................................... 25.7 20.0 45.1 42.2
Provision for income taxes.................... 9.1 8.3 16.3 17.0
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefits............. (51.6) (37.8) (51.6) (37.8)
Cumulative effect of change in accounting for
post-retirement benefits.................... (4.7)
------ ------ -------- ------
Net loss............................ $(35.0) $(26.1) $ (22.8) $(17.3)
------ ------ -------- ------
------ ------ -------- ------
</TABLE>
F-26
<PAGE>
[LOGO]
CONTAINER CORPORATION OF AMERICA
JEFFERSON SMURFIT CORPORATION (U.S.)
<PAGE>
APPENDIX
Graphic And Image Information
On page 7 of the paper format:
GRAPHIC REPRESENTATION of the corporate structure and principal assets and
indebtedness of Jefferson Smurfit Corporation* ('Holdings'), Jefferson
Smurfit Corporation (U.S.) * ('JSC' and, including its consolidated
subsidiaries, the 'Company') and Container Corporation of America ('CCA'),
illustrating that: (i) the principal assets of Holdings include 100% of
the stock of JSC, (ii) the principal assets of JSC include 100% of the
stock of CCA, 80% of the stock of Smurfit Newsprint Corporation, paper mills,
converting facilities and other operating assets, (iii) the principal
assets of CCA include paper mills, converting facilities, timberland and
other operating assets, (iv) JSC's indebtedness consists of Senior
Obligations** (New Revolving Credit Facility, Guarantees of CCA debt under New
Revolving Credit Facility, Initial Term Loan, Delayed Term Loan***, 1993 Notes
and 1994 Notes), other indebtedness **** and Subordinated Obligations (None***)
and (v) CCA's indebtedness consists of Senior Obligations** (New Revolving
Credit Facility, Initial Term Loan, Delayed Term Loan***, Guarantee of JSC
debt under New Revolving Credit Facility, 1993 Notes and 1994 Notes), other
indebtedness and Subordinated Obligations (None***). The asterisks relate
to the four footnotes following the graphic representation.
On page 44 of the paper format:
GRAPHIC REPRESENTATION of the relationship between the change in Gross Domestic
Product ('GDP') and the change in containerboard production from 1983 to 1993.
For each year during the period 1983-1993, the annual percentage change in GDP
was 3.9%, 6.2%, 3.2%, 2.9%, 3.1%, 3.9%, 2.5%, 1.2%, (0.7)%, 2.6% and 2.9%,
respectively. During this same period, the annual percentage change in
containerboard production was 10.2%, 7.1%, (3.7)%, 8.4%, 7.1%, 1.8%, 1.1%, 3.7%,
2.2%, 4.2% and 1.0%, respectively. The source of the containerboard production
data is the American Forest and Paper Association.
On page 45 of the paper format:
GRAPHIC REPRESENTATION of the relationship between the level of containerboard
capacity utilization and linerboard prices from 1983 to 1993. For each year
during the period 1983-1993, annual containerboard capacity utilization was
90.4%, 94.5%, 90.3%, 95.2%, 97.8%, 95.4%, 94.6%, 95.1%, 95.2%, 95.6% and 93.7%,
respectively. For each year during this same period, unbleached kraft linerboard
prices per short ton (42 lb., Eastern Market) were $290, $335, $274, $295, $361,
$403, $405, $378, $336, $345 and $316, respectively (1983-1984 prices are as of
December 31. 1985-1993 prices reflect the average of the four quarter-end
prices). The source of the containerboard capacity utilization data is the
American Forest and Paper Association. The source of the linerboard prices is
the Pulp and Paper North American Factbook.
On page 46 of the paper format:
GRAPHIC REPRESENTATION of the level of boxboard capacity utilization from 1983
to 1993. For each year during the period 1983-1993, annual boxboard capacity
utilization was 89.9%, 92.9%, 87.5%, 89.5%, 90.2%, 92.2%, 92.8%, 90.7%, 93.5%,
92.6% and 94.8%, respectively. The source of this data is the American Forest
and Paper Association.
On page 47 of the paper format:
GRAPHIC REPRESENTATION of the level of newsprint capacity utilization in the
United States and Canada from 1983 to 1993. For each year during the period
1983-1993, U.S. newsprint capacity utilization was 89.5%, 94.7%, 93.8%, 97.0%,
97.3%, 97.8%, 96.7%, 97.3%, 97.0%, 97.0% and 98.0%, respectively. For each year
during this same period, Canadian newsprint capacity utilization was 85.1%,
91.8%, 91.4%, 93.9%, 97.7%, 98.9%, 96.2%, 89.8%, 87.3%, 88.6% and 95.7%,
respectively. The source of these figures is the American Forest and Paper
Association.
<PAGE>
