<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1994
REGISTRATION NO. 33-52383
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONTAINER CORPORATION OF AMERICA
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 36-2659288
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
JEFFERSON SMURFIT CENTRE JOHN R. FUNKE
8182 MARYLAND AVENUE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ST. LOUIS, MISSOURI 63105 8182 MARYLAND AVENUE
(314) 746-1100 ST. LOUIS, MISSOURI 63105
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA (314) 746-1100
CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
JEFFERSON SMURFIT CORPORATION
(TO BE RENAMED JEFFERSON SMURFIT CORPORATION (U.S.))
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 36-2931273
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
JEFFERSON SMURFIT CENTRE JOHN R. FUNKE
8182 MARYLAND AVENUE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ST. LOUIS, MISSOURI 63105 8182 MARYLAND AVENUE
(314) 746-1100 ST. LOUIS, MISSOURI 63105
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA (314) 746-1100
CODE, OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
LOU R. KLING, ESQ. FRED H. COHEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933
check the following box. [x]
If either of the co-registrants elects to deliver its latest annual report
to security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this Form, check the following box. [ ]
------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to the offering
by Container Corporation of America (the 'Debt Offerings') of its % Series
A Senior Notes due 2004 and its % Series B Senior Notes due 2002
(collectively, the 'Senior Notes'), guaranteed on a senior basis by Jefferson
Smurfit Corporation, together with separate Prospectus pages relating to certain
market-making transactions in the Senior Notes. The complete Prospectus for the
Debt Offerings follows immediately after this Explanatory Note. Following such
Prospectus are certain pages of the Prospectus relating to the market-making
transactions (each labeled 'Alternate'), which include an alternate cover page,
alternate pages 2 and 3, a new paragraph captioned 'Trading Market for the
Senior Notes' to be inserted in the section captioned 'Risk Factors', in lieu of
the paragraph captioned 'Absence of Public Market', a section entitled
'Market-Making Activities of MS&Co.' to be inserted in lieu of the 'The
Underwriter' section and an alternate 'Legal Matters' section. All other
sections of the Prospectus for the initial sale of the Senior Notes other than
the section entitled 'Use of Proceeds' (including in the Summary) are to be used
in the Prospectus relating to the market-making transactions.
Prior to the date on which this Registration Statement is declared
effective by the Securities and Exchange Commission, one of the Co-Registrants,
Jefferson Smurfit Corporation, intends to change its name to 'Jefferson Smurfit
Corporation (U.S.)' and its parent, SIBV/MS Holdings, Inc., intends to change
its name to 'Jefferson Smurfit Corporation'. All references in the Prospectus to
the 'Company' refer to the corporation currently named Jefferson Smurfit
Corporation and, when the context requires, its consolidated subsidiaries,
including CCA; all references in the Prospectus to 'Holdings' refer to the
corporation currently named SIBV/MS Holdings, Inc.
<PAGE>
CONTAINER CORPORATION OF AMERICA
JEFFERSON SMURFIT CORPORATION (U.S.)
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-2 PART I ITEM PROSPECTUS LOCATION OR CAPTION
- --------------------------------------------------------------------- ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page; Additional
Information
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors; Selected
Historical Financial Data; Pro Forma
Financial Data
4. Use of Proceeds................................................ Recapitalization Plan; Use of Proceeds
5. Determination of Offering Price................................ *
6. Dilution....................................................... *
7. Selling Security Holders....................................... *
8. Plan of Distribution........................................... Cover Page; The Underwriter
9. Description of Securities to be Registered..................... Prospectus Summary; Description of the
Senior Notes
10. Interests of Named Experts and Counsel......................... Legal Matters; Experts
11. Information with Respect to the Co-Registrants................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; Recapitalization
Plan; Use of Proceeds; Capitalization;
Selected Historical Financial Data; Pro
Forma Financial Data; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business; Management; Security Ownership
of Certain Beneficial Owners; Certain
Transactions; Description of Certain
Indebtedness; Description of the Senior
Notes; Index to Financial Statements
12. Incorporation of Certain Information by Reference.............. Incorporation of Certain Documents by
Reference; Additional Information
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... *
</TABLE>
- ------------
* Not applicable.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 28, 1994
$400,000,000
[LOGO]
CONTAINER CORPORATION OF AMERICA
$300,000,000 % SERIES A SENIOR NOTES DUE 2004
$100,000,000 % SERIES B SENIOR NOTES DUE 2002
- ----------------------------------------------------------
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
JEFFERSON SMURFIT CORPORATION (U.S.)
- ----------------------------------------------------------
INTEREST ON THE SERIES A SENIOR NOTES PAYABLE AND
INTEREST ON THE SERIES B SENIOR NOTES PAYABLE AND
- ----------------------------------------------------------
THE SERIES A SENIOR NOTES WILL BE REDEEMABLE AT THE OPTION OF CCA, IN WHOLE OR
IN PART, AT ANY TIME ON OR AFTER , 1999, INITIALLY AT % OF THEIR
PRINCIPAL AMOUNT, PLUS ACCRUED INTEREST, DECLINING TO 100% OF THEIR
PRINCIPAL AMOUNT, PLUS ACCRUED INTEREST, ON OR AFTER . IN ADDITION,
CCA MAY REDEEM, AT ANY TIME PRIOR TO , 1997, UP TO $100
MILLION AGGREGATE PRINCIPAL AMOUNT OF THE SERIES A SENIOR NOTES,
AT A REDEMPTION PRICE OF % OF THEIR PRINCIPAL AMOUNT, PLUS
ACCRUED INTEREST, WITH THE NET CASH PROCEEDS FROM AN
ISSUANCE OF CAPITAL STOCK OF CCA OR JSC OR ANY PARENT OF
CCA TO THE EXTENT THAT SUCH PROCEEDS ARE CONTRIBUTED TO
CCA. THE SERIES B SENIOR NOTES WILL NOT BE
REDEEMABLE PRIOR TO MATURITY.
- ----------------------------------------------------------
THE SERIES A SENIOR NOTES AND THE SERIES B SENIOR NOTES WILL BE SENIOR UNSECURED
OBLIGATIONS OF CCA AND THE GUARANTEES OF THE SERIES A SENIOR NOTES AND THE
SERIES B SENIOR NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF JSC.
- ----------------------------------------------------------
SEE 'RISK FACTORS' FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
- ----------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------
SERIES A SENIOR NOTES -- PRICE % AND ACCRUED INTEREST
SERIES B SENIOR NOTES -- PRICE % AND ACCRUED INTEREST
- ----------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Per Series A Senior Note..................... % % %
Total................................... $ $ $
Per Series B Senior Note..................... % % %
Total................................... $ $ $
</TABLE>
- ------------
(1) Plus accrued interest from , 1994.
(2) CCA has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by CCA estimated at $ .
- ----------------------------------------------------------
The Series A Senior Notes and the Series B Senior Notes are offered,
subject to prior sale, when, as and if accepted by the Underwriter and subject
to approval of certain legal matters by Shearman & Sterling, counsel for the
Underwriter. It is expected that delivery of the Series A Senior Notes and the
Series B Senior Notes will be made on or about April , 1994, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in New York funds.
- ----------------------------------------------------------
MORGAN STANLEY & CO.
INCORPORATED
April , 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
ADDITIONAL INFORMATION
Container Corporation of America ('CCA') and Jefferson Smurfit Corporation
(U.S.) ('JSC') have filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement (which term shall encompass any amendment
thereto) on Form S-2 under the Securities Act of 1933 (the 'Securities Act'),
with respect to the Series A Senior Notes and the Series B Senior Notes 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 (as defined below).
The respective indentures pursuant to which the Series A Senior Notes and
Series B Senior Notes will be issued require JSC to file with the Commission
annual reports containing consolidated financial statements and the related
report of independent public accountants and quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year for so long as any Series A Senior Notes or Series
B Senior Notes, as the case may be, are outstanding.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission 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, 1992, filed with the Commission on March 30, 1993; and JSC's
Amendment to Annual Report on Form 8, filed with the Commission on April
28, 1993;
(2) JSC's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1993, June 30, 1993 and September 30, 1993 filed with the
Commission on May 5, 1993, August 12, 1993 and November 15, 1993,
respectively;
(3) JSC's Current Reports on Form 8-K, filed with the Commission on
February 25, 1993, October 14, 1993 and March 3, 1994; and
2
<PAGE>
(4) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1992.
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.
No action has been or will be taken in any jurisdiction by CCA, JSC or the
Underwriter that would permit a public offering of the Series A Senior Notes and
the Series B Senior Notes or possession or distribution of this Prospectus in
any jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are required
by CCA, JSC and the Underwriter to inform themselves about and to observe any
restrictions as to the offering of the Series A Senior Notes and the Series B
Senior Notes and the distribution of this Prospectus.
In this Prospectus, references to 'dollar' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons.
- ----------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 5
Risk Factors................................... 13
Recapitalization Plan.......................... 20
Use of Proceeds................................ 25
Capitalization................................. 26
Selected Historical Financial Data............. 27
Pro Forma Financial Data....................... 28
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business....................................... 40
Management..................................... 57
Security Ownership of Certain Beneficial
Owners....................................... 66
Certain Transactions........................... 68
Description of Certain Indebtedness............ 73
Description of the Senior Notes................ 81
The Underwriter................................ 109
Legal Matters.................................. 110
Experts........................................ 110
Index to Financial Statements.................. F-1
</TABLE>
------------------------
The principal executive offices of the Company are located at 8182 Maryland
Avenue, St. Louis, Missouri 63105, and the Company's telephone number is (314)
746-1100. The Company was incorporated in Delaware in 1989.
- ----------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A SENIOR
NOTES AND SERIES B SENIOR NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 Series A Senior Notes and the Series B Senior Notes
(collectively, the 'Senior Notes') are obligations of CCA, unconditionally
guaranteed on a senior basis by JSC. Unless otherwise indicated, (i) all
references in this Prospectus to per share amounts and numbers and percentages
of shares outstanding reflect the Reclassification (as defined below) which will
occur immediately prior to the consummation of the Debt Offerings (as defined
below) and assume that there is no exercise of the overallotment option granted
in connection with the Equity Offerings (as defined below), (ii) references to
the 'Company' refer to JSC and its consolidated subsidiaries, including CCA and
(iii) 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
5
<PAGE>
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 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 Debt Offerings and the substantially
concurrent Equity Offerings, 50% of the common stock of Holdings was owned by
direct and indirect subsidiaries of Smurfit International B.V. ('SIBV'), an
indirect wholly-owned subsidiary of JS Group, a public corporation organized
under the laws of the Republic of Ireland, 39.7% was beneficially owned by The
Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership
investment fund formed to make investments in industrial and other companies
('MSLEF II'), and the other MSLEF II Associated Entities (as defined 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 will beneficially
own approximately 44.4%, MSLEF II and the other MSLEF II Associated Entities
will beneficially own in the aggregate approximately 30.8%, and all other
stockholders (including public stockholders) will beneficially own approximately
24.8% of the outstanding shares of common stock of Holdings (after giving effect
to the Reclassification, the '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 REPRESENTATION of the corporate structure and principal assets and
indebtedness of Jefferson Smurfit Corporation* ('Holdings'), Jefferson
Smurfit Corporation (U.S.) * ('JSC' and, including its 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 Senior 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 Senior Notes), other indebtedness and Subordinated Obligations (None***).
The asterisks relate to the four footnotes following the graphic
representation.]
- ------------
* Prior to the consummation of the Offerings, 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.
For the year ended December 31, 1993, the Recapitalization Plan would, on a pro
forma basis, have resulted in $71.2 million of aggregate savings in interest
expense, of which $57.2 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 by CCA pursuant to this Prospectus of $300
million aggregate principal amount of % Series A Senior Notes
due 2004 and $100 million aggregate principal amount of %
Series B Senior Notes due 2002 (the 'Debt Offerings');
(b) The offering by Holdings of 17,250,000 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 'Offerings';
(c) The purchase by SIBV (or a corporate affiliate of SIBV)
of shares of Holdings Common Stock for an aggregate purchase price
of $100 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) 13 1/2% Senior Subordinated Notes due 1999 (the 'Senior
Subordinated Notes'), (b) 14% Subordinated Debentures due 2001 (the
'Subordinated Debentures') and (c) 15 1/2% Junior Subordinated Accrual
Debentures due 2004 (the 'Junior Accrual Debentures' and, together with the
Senior Subordinated Notes and the Subordinated Debentures, the
'Subordinated Debt'). Such redemption, including the payment of accrued and
unpaid interest on the Junior Accrual Debentures as of December 1, 1994, is
herein referred to as the 'Subordinated Debt Refinancing'. 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 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)............................................................... 300
SIBV Investment....................................................................... 100
New Revolving Credit Facility(b)...................................................... 33
New Term Loans........................................................................ 1,200
------------
Total............................................................................ $2,033
------------
------------
Uses of Funds
Prepayment of debt under Old Bank Facilities.......................................... $ 810
Prepayment of Secured Notes........................................................... 271
Redemption of Subordinated Debt(c).................................................... 844
Fees and expenses(d).................................................................. 108
------------
Total............................................................................ $2,033
------------
------------
</TABLE>
- ------------
(a) Assuming an initial public offering price of $17.50 per share of Holdings
Common Stock (which is equal to the midpoint of the range of the
anticipated high and low per share public offering prices set forth on the
cover of the Prospectus relating to the Equity Offerings) and 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. See 'Use of Proceeds'.
(b) The amount shown is net of available cash. The maximum amount available
under such facility will be $450 million, with up to $150 million of such
amount being available for letters of credit. It is anticipated that
immediately following the Offerings, borrowings of $65 million and letters
of credit of approximately $90 million will be 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 June 1 and 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 aggregate amount of funds necessary immediately following the Offerings
to consummate the Recapitalization Plan (excluding the Subordinated Debt
Refinancing) is approximately $1,189 million. The sources of funds for such
amount are set forth in the above table. Prior to consummation of the Offerings,
however, the Company may determine to change the size of the various components
of the Recapitalization Plan and, accordingly, among other things may change the
size of the Debt Offerings and/or the Equity Offerings which could, in turn,
affect the size of the Initial Term Loan and/or the Delayed Term Loan.
In order to consummate the Recapitalization Plan, the Company must obtain
certain consents and waivers, consisting, among others, of the consent of (i)
the holders of a majority in aggregate principal amount of CCA's 9 3/4% Senior
Notes due 2003 (the '1993 Notes') outstanding, (ii) 60% of the holders of the
outstanding aggregate principal amount of Secured Notes and (iii) certain
parties under JSC's and CCA's trade receivables securitization (the
'Securitization') (collectively, the 'Consents and Waivers'). The Company
expects that, prior to entering into the Underwriting Agreement (as defined
below), it shall have obtained the Consents and Waivers. For more information
concerning the Consents and Waivers, see 'Recapitalization Plan -- Consents and
Waivers'.
All of the transactions contemplated by the Recapitalization Plan (other
than the Subordinated Debt Refinancing) are expected to occur substantially
contemporaneously. Consummation of the Debt Offerings is conditioned on the
substantially concurrent consummation of the other components of the
Recapitalization Plan (other than the Subordinated Debt Refinancing), including,
among other things, consummation of (i) the Equity Offerings, (ii) the SIBV
Investment and (iii) the Bank Debt Refinan-
cing. In addition, consummation of the Debt Offerings is conditioned on the
Company obtaining the Consents and Waivers.
For more information concerning the Recapitalization Plan, see
'Recapitalization Plan'.
9
<PAGE>
THE OFFERINGS
<TABLE>
<CAPTION>
<S> <C>
Issuer.................................... Container Corporation of America.
Securities Offered........................ $300,000,000 aggregate principal amount of % Series A Senior Notes
due 2004 (the 'Series A Senior Notes') and $100,000,000 aggregate
principal amount of % Series B Senior Notes due 2002 (the 'Series B
Senior Notes', and collectively with the Series A Senior Notes, the
'Senior Notes').
Interest Payment Dates.................... and , commencing , 1994.
Maturity.................................. , 2004 for the Series A Senior Notes and , 2002 for
the Series B Senior Notes.
Redemption................................ The Series A Senior Notes may be redeemed at the option of CCA, in
whole or in part, at any time on or after , 1999,
initially at % of their principal amount at maturity and declining
to 100% of such principal amount at maturity on or after
, in each case plus accrued interest. In addition, at
the option of CCA at any time prior to , 1997, CCA may
redeem up to $100 million aggregate principal amount at maturity of
the Series A Senior Notes with the Net Cash Proceeds from the
issuance of Capital Stock (other than Redeemable Stock) of CCA or JSC
or any parent of CCA to the extent that the proceeds are contributed
to CCA or used to acquire Capital Stock of CCA (other than Redeemable
Stock) in a single transaction or a series of related transactions
(other than the Equity Offerings or an issuance to a Subsidiary), at
a redemption price of % of the principal amount thereof, plus
accrued interest.
The Series B Senior Notes will not be redeemable prior to maturity.
Ranking................................... The Senior Notes will be senior unsecured obligations of CCA, will
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 will be senior in right of payment to the
Subordinated Debt. CCA's obligations under the New Credit Agreement,
but not the Senior Notes, 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. After giving pro forma
effect to the Recapitalization Plan and the Recapitalization Plan
(excluding the Subordinated Debt Refinancing), as of December 31,
1993, CCA would have had outstanding approximately $2,132.2 million
and approximately $1,384.9 million, respectively, of senior
indebtedness (excluding intercompany indebtedness), of which
approximately $1,288.8 million and approximately $481.5 million,
respectively, would have been senior secured indebtedness. The
secured indebtedness will have priority over the Senior Notes with
respect to the assets securing such indebtedness. See 'Risk
Factors -- Effect of Secured Indebtedness on the Senior Notes;
Ranking'.
Covenants................................. The indentures pursuant to which the Senior Notes will be issued (the
'Indentures') will contain certain covenants that, among other
things, will limit the ability of JSC and its subsidiaries (including
CCA) to incur indebtedness, pay dividends and make other restricted
payments, engage in transactions with shareholders and affiliates,
issue capital stock, create liens, sell assets, engage in
sale-leaseback transactions, allow the imposition of restrictions on
the ability of Restricted Subsidiaries to pay dividends to CCA,
engage in mergers and consolidations and make investments in Un-
restricted Subsidiaries. The limitations imposed by the covenants on
JSC and its subsidiaries (including CCA) are subject to certain
exceptions. See 'Description of the Senior Notes -- Covenants'.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Put Option................................ Upon a Change of Control, CCA will make an offer to purchase the
Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest. Certain transactions with
affiliates of the Company may not constitute a Change of Control. See
'Description of the Senior Notes -- Covenants -- Repurchase of Senior
Notes upon Change of Control'.
Guarantees................................ The payment of principal and interest on the Senior Notes is
unconditionally guaranteed on a senior unsecured basis by JSC. Such
guarantee will rank 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 will be senior in right of payment to JSC's guarantees of
the Subordinated Debt. JSC's obligations under the New Credit
Agreement 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 are guaranteed by CCA and certain
subsidiaries of JSC and CCA. After giving pro forma effect to the
Recapitalization Plan and the Recapitalization Plan (excluding the
Subordinated Debt Refinancing), as of December 31, 1993, JSC would
have had outstanding approximately $2,381.4 million and approximately
$1,634.1 million, respectively, of senior indebtedness (including
indebtedness of CCA and JSC's other consolidated subsidiaries but
excluding intercompany indebtedness), of which approximately $1,474.0
million and approximately $726.7 million, respectively, would have
been senior secured indebtedness. The secured indebtedness will have
priority over JSC's guarantees of the Senior Notes with respect to
the assets securing such indebtedness. See 'Risk Factors -- Effect of
Secured Indebtedness on the Senior Notes; Ranking'. In the event that
(i) a purchaser of capital stock of 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 transactions,
such purchaser or parent satisfies certain minimum net worth and cash
flow requirements, JSC will be released from its guarantee of the
Senior Notes. Such sale, merger or consolidation will be prohibited
unless certain other requirements are met, including that the
purchaser or the entity surviving such a merger or consolidation
expressly assumes JSC's or CCA's obligations, as the case may be, and
that no Event of Default (as defined below) occur or be continuing.
See 'Description of the Senior Notes -- Consolidation, Merger and
Sale of Assets'.
Use of Proceeds........................... The net proceeds to the Company from the Debt Offerings, together
with the net proceeds from the Equity Offerings and the SIBV
Investment will be used to effect certain of the transactions
contemplated by the Recapitalization Plan. See 'Recapitalization
Plan'.
</TABLE>
For more complete information regarding the Senior Notes, see 'Description
of the Senior Notes'.
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Senior Notes, see 'Risk Factors'.
11
<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 (the '1993 Note Offering') and the Recapitalization
Plan as if such transactions had occurred as of January 1, 1993, in the case of
operating results. The pro forma balance sheet data is as if the
Recapitalization Plan occurred at December 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
----------------
HISTORICAL AS ADJUSTED FOR
----------------------------------- THE
RECAPITALIZATION
YEAR ENDED DECEMBER 31, PLAN AND
----------------------------------- 1993 NOTE
1991 1992 1993 OFFERING(a)
-------- -------- -------- ----------------
(IN MILLIONS, EXCEPT RATIOS AND
STATISTICAL DATA)
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales........................................................... $2,940.1 $2,998.4 $2,947.6 $2,947.6
Restructuring and environmental and other charges................... 150.0 150.0
Income (loss) from operations....................................... 305.5 267.7 (14.7) (14.7)
Interest expense.................................................... (335.2) (300.1) (254.2) (183.0)
Loss before extraordinary item and cumulative effect of accounting
changes(b)........................................................ (77.1) (34.0) (174.6) (128.3)
Extraordinary item -- (loss) from early extinguishment of debt, net
of income tax benefit............................................. (49.8) (37.8) (97.4)
Cumulative effect of accounting changes............................. (16.5) (16.5)
Net loss............................................................ (77.1) (83.8) (228.9) (242.2)
Ratio of earnings to fixed charges (c).............................. (d) (d) (d) (d)
OTHER DATA:
Gross profit margin(e).............................................. 18.1% 16.6% 12.7% 12.7%
Selling and administrative expenses as a percent of net sales....... 7.7 7.7 8.1 8.1
EBITDA(f)........................................................... $ 440.9 $ 407.8 $ 274.2 $ 274.2
Ratio of EBITDA to interest expense................................. 1.32x 1.36x 1.08x 1.50x
Property and timberland additions................................... $ 118.9 $ 97.9 $ 117.4 $ 117.4
Depreciation, depletion and amortization............................ 130.0 134.9 130.8 130.8
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital..................................................... $ 76.9 $ 105.7 $ 40.0 $ 41.3
Total assets........................................................ 2,460.1 2,436.4 2,597.1 2,632.4
Long-term debt (excluding current maturities)....................... 2,650.4 2,503.0 2,619.1 2,371.1
Stockholders' deficit............................................... (976.9) (828.9) (1,057.8) (743.6)
STATISTICAL DATA:
Containerboard production (thousand tons)........................... 1,830 1,918 1,840
Boxboard production (thousand tons)................................. 826 832 829
Newsprint production (thousand tons)................................ 614 615 615
Corrugated shipping containers sold (thousand tons)................. 1,768 1,871 1,936
Folding cartons sold (thousand tons)................................ 482 487 475
Fibre reclaimed and brokered (thousand tons)........................ 3,666 3,846 3,907
Timberland owned or leased (thousand acres)......................... 978 978 984
</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 years ended December 31, 1991, 1992 and 1993, earnings were
inadequate to cover fixed charges by $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 $193.0 million as adjusted for the
1993 Note Offering and 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.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the securities offered by this Prospectus.
SUBSTANTIAL LEVERAGE
The Company has, and following the consummation of the Recapitalization
Plan will continue to have, on a consolidated basis a substantial amount of
debt. The Company's long-term debt at December 31, 1993 was $2,619.1 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 $2,371.1 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 year
ended December 31, 1993, the Company's earnings were inadequate to cover fixed
charges by $264.2 million and, on a pro forma basis, after giving effect to the
Recapitalization Plan and to the Recapitalization Plan (excluding the
Subordinated Debt Refinancing), would have been inadequate to cover fixed
charges by $193.0 million and $254.2 million, respectively. 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 Offerings and the
consummation of the other transactions contemplated by the Recapitalization Plan
(other than the Subordinated Debt Refinancing), the Company expects to have 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 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 Senior 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
13
<PAGE>
shareholders agreement between the Company and The Times Mirror Company. See
'Certain 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
December 31, 1993, the Company's stockholder's deficit was $1,057.8 million and,
on a pro forma basis, after giving effect to the Recapitalization Plan, there
would have been a stockholder's deficit of $743.6 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 stockholders' equity. See 'Pro Forma Financial Data'.
14
<PAGE>
EFFECT OF SECURED INDEBTEDNESS ON THE SENIOR NOTES; RANKING
The secured indebtedness will have priority over the Senior Notes with
respect to the assets securing such indebtedness. Although the Senior Notes (and
JSC's guarantees thereof) rank pari passu with indebtedness outstanding under
the New Credit Agreement (and the 1993 Notes), such bank debt (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 JSC and CCA) held by CCA Enterprises, Inc., a wholly-owned subsidiary of CCA
('CCA Enterprises'). See 'Description of Certain Indebtedness -- Terms of New
Credit Agreement'. The Senior Notes 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 Senior Notes, notwithstanding
the existence of an event of default with respect thereto. Accordingly, in such
an event the Company's assets would first be used to repay in full amounts
outstanding under the New Credit Agreement, resulting in a portion of the
Company's assets being unavailable to satisfy the claims of holders of Senior
Notes and other pari passu, unsecured indebtedness (including the 1993 Notes).
After giving pro forma effect to the Recapitalization Plan and the
Recapitalization Plan (excluding the Subordinated Debt Refinancing) as of
December 31, 1993, the Company would have had outstanding approximately $1,474.0
million and approximately $726.7 million, respectively, of secured indebtedness,
including indebtedness under the New Credit Agreement.
In addition, CCA Enterprises, JSC Enterprises, Inc., a wholly-owned
subsidiary of JSC ('JSC Enterprises'), and SNC, an 80% owned subsidiary of JSC,
will guarantee amounts owing under the New Credit Agreement but not the Senior
Notes. Additional subsidiaries of JSC or CCA may also in the future own assets,
incur indebtedness and liabilities or guarantee senior indebtedness other than
the Senior Notes provided that, if the aggregate amount of indebtedness
guaranteed by any Restricted Subsidiary (as defined in the indenture relating to
the Senior Notes) of JSC (other than CCA, CCA Enterprises, JSC Enterprises and
SNC) exceeds $50 million, then the indentures relating to the Senior Notes and
the 1993 Notes require such subsidiaries to also guarantee the Senior Notes and
the 1993 Notes. Such guarantees will, however, be unsecured, whereas the
guarantees of the indebtedness under the New Credit Agreement will be secured.
Consequently, the Senior Notes to the extent not so guaranteed will be
effectively subordinated to claims of creditors of such subsidiaries, including,
in the case of CCA Enterprises, JSC Enterprises and SNC and, subject to the
foregoing proviso, other subsidiary guarantors, the banks that are parties to
the New Credit Agreement. As a result of the foregoing, in an event of default,
holders of Senior Notes may recover less, ratably, than the banks that are
parties to the New Credit Agreement and other secured creditors of CCA or JSC or
their respective subsidiaries.
PAYMENTS DUE ON COMPANY INDEBTEDNESS PRIOR TO MATURITY OF SENIOR NOTES;
REFINANCING RISKS
The Securitization matures in April 1996, at which time the Company expects
to refinance it. After giving effect to the Subordinated Debt Refinancing, an
aggregate of approximately $2,077.8 million and $1,461.3 million of senior
indebtedness (excluding intercompany indebtedness) matures prior to the Series A
Senior Notes and the Series B Senior Notes, respectively. Without giving effect
to the Subordinated Debt Refinancing, an aggregate of approximately $1,330.5
million and $714.0 million of senior indebtedness (excluding intercompany
indebtedness) matures prior to the Series A Senior Notes and Series B Senior
Notes, respectively, and an aggregate of $713.1 million and $698.9 million of
Subordinated Debt matures prior to the Series A Senior Notes and Series B Senior
Notes, respectively. Accordingly, the Company will have to refinance or
otherwise generate sufficient cash to repay a substantial amount of indebtedness
prior to the time the Senior Notes mature. The Company's ability to do this will
depend, in part, on the Company's financial condition at the time and the
covenants and other provisions in its debt agreements. In this regard, it should
be noted that the Company's ability to incur new indebtedness will be quite
limited by the terms of its outstanding indebtedness and, in
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<PAGE>
particular, unless and until the Subordinated Debt Refinancing is consummated,
the indentures governing the Subordinated Debt.
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
recent reductions in prices 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. Although the
Company believes that containerboard pricing will be improved in 1994, there can
be no assurance that price increases will hold or that the Company's
containerboard prices will not decline from current levels. 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. Although market demand has improved in the
fourth quarter of 1993, the Company does not expect significant improvement in
prices before the second quarter 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 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
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<PAGE>
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 -- Restructuring and
Other Charges' 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 Subordinated
Debt, debt under the 1989 Credit Agreement and the Secured Notes, 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 Senior 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 Senior Notes or such other
indebtedness (including under the 1993 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 Senior Notes or such other indebtedness (including under
the 1993 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 Senior
Notes or such other indebtedness (including under the 1993 Notes and the New
Credit Agreement) will not constitute fraudulent transfers. These beliefs were
(and are) based on management's analysis of, among other things, (i) internal
cash flow projections, (ii) the Company's historical financial information and
(iii) valuations of assets and liabilities of the Company. There can be no
assurance, however, that a court passing on such questions would agree with the
Company's analysis.
17
<PAGE>
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 will, by reason of their ownership of Holdings Common Stock, be
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 will, at or prior to completion of the
Equity Offerings, enter into a Stockholders Agreement (the 'Stockholders
Agreement') 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 will 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 through two wholly-owned
subsidiaries, 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.
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
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<PAGE>
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 was 5.42% for April 1994.
Although the Company does not believe that Holdings will experience an
ownership change upon consummation of the Equity Offerings, it is possible that
following the Equity Offerings, future events that 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 $17.50 per share (the midpoint of the
range of the anticipated high and low per share public offering prices set forth
on the cover of the Prospectus relating to the Equity Offerings), the Section
382 Limitation would be at least $63 million using a 'long-term tax exempt rate'
of 5.42%. 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 following the Equity Offerings,
prospective purchasers of Senior Notes should not assume the unrestricted
availability of currently existing or future NOL carryforwards in making their
investment decisions.
ABSENCE OF PUBLIC MARKET
There is currently no established trading market for the Senior Notes and
the Company does not intend to have the Senior Notes listed for trading on any
securities exchange or on any automated dealer quotation system. Although the
Underwriter has advised the Company that it will make a market in the Senior
Notes, there can be no assurance that an active public market for the Senior
Notes will develop. The Underwriter is not obligated to make a market for the
Senior Notes and may discontinue or suspend such market-making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of,
or trading market for, the Senior Notes. Further, the liquidity of, and trading
market for, the Senior Notes may be adversely affected by declines and
volatility on the market for high yield securities generally as well as by any
changes in the Company's financial performance or prospects.
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<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
has determined to implement the Recapitalization Plan at this time to take
advantage of favorable conditions in the capital markets and in anticipation of
refinancing its Subordinated Debt with lower cost indebtedness in December 1994
(when such Subordinated Debt 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 year ended December 31, 1993, the Recapitalization Plan would, on a
pro forma basis, have resulted in $71.2 million of aggregate savings in interest
expense, of which $57.2 million represents cash interest expense savings (in
each case on a pre-tax basis). See 'Pro Forma Financial Data'.
SOURCES AND USES
The following table sets forth the anticipated sources and uses of funds to
be used to effect the Recapitalization Plan:
<TABLE>
<CAPTION>
($ MILLIONS)
<S> <C>
Sources of Funds
The Debt Offerings(a)............................................................. $ 400
The Equity Offerings(a)........................................................... 300
SIBV Investment................................................................... 100
New Revolving Credit Facility(b).................................................. 33
Initial Term Loan................................................................. 300
Delayed Term Loan(c).............................................................. 900
-------
Total........................................................................ $2,033
-------
-------
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).............................................................. 108
-------
Total........................................................................ $2,033
-------
-------
</TABLE>
- ------------
(a) Assuming an initial public offering price of $17.50 per share of Holdings
Common Stock (which is equal to the midpoint of the range of the
anticipated high and low per share offering prices set forth on the cover
of the Prospectus relating to the Equity Offerings) and 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. See 'Use of Proceeds'.
(b) The amount shown is net of available cash. The maximum amount available
under such facility will be $450 million, with up to $150 million of such
amount being available for letters of credit. It is anticipated that
immediately following the Offerings, borrowings of $65 million and letters
of credit of approximately $90 million will be outstanding under such
facility. See also footnotes (a) and (d).
(c) It is anticipated that immediately following the Offerings, borrowings of
$100 million will be 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. The Company
expects that accrued and unpaid interest at June 1 and 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.
(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 are no underwriting discounts or commissions on the sale of Holdings
Common Stock pursuant to the SIBV Investment.
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<PAGE>
The aggregate amount of funds necessary immediately following the Offerings
to consummate the Recapitalization Plan (excluding the Subordinated Debt
Refinancing) is approximately $1,189 million. The sources of funds for such
amount are set forth in the above table. Prior to consummation of the Offerings,
however, the Company may determine to change the size of the various components
of the Recapitalization Plan and, accordingly, among other things may change the
size of the Debt Offerings and/or the Equity Offerings which could, in turn,
affect the size of the Initial Term Loan and/or the Delayed Term Loan. If
necessary as a result of any such change, the Company will use borrowings under
the New Revolving Credit Facility or cash on hand, in addition to available
borrowings under the Delayed Term Loan, to effect the Subordinated Debt
Refinancing.
DEBT OFFERINGS
Concurrently with the Equity Offerings, CCA is offering Senior Notes in the
Debt Offerings. The closings of the Debt Offerings and the Equity Offerings are
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.
The Senior Notes will be general unsecured obligations of CCA, guaranteed
by JSC, and will rank pari passu in right of payment with all other senior
indebtedness of CCA. For a description of certain terms of the Senior Notes see
'Description of the Senior Notes'.
EQUITY OFFERINGS
Concurrently with the Debt Offerings, Holdings is offering 13,800,000
shares of Holdings Common Stock initially in the United States and Canada and
3,450,000 shares of Holdings Common Stock initially outside the United States
and Canada. The closings of the Equity Offerings and the Debt Offerings are
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 has agreed to purchase, or to cause a corporate affiliate of SIBV to
purchase, from Holdings pursuant to the SIBV Investment 5,714,286 shares of
Holdings Common Stock for an aggregate purchase price of $100 million (assuming
a purchase price per share equal to the midpoint of the range of the anticipated
high and low per share public offering prices set forth on the cover of the
Prospects relating to the Equity Offerings). Holdings and SIBV intend to enter
into a subscription agreement (the 'Subscription Agreement') which, among other
things, will provide for the SIBV Investment. Such purchase by SIBV is
conditioned on the substantially concurrent consummation of the Offerings and
the other components of the Recapitalization Plan (other than the Subordinated
Debt Refinancing) and the satisfaction of certain other closing conditions
contained in the Subscription Agreement. Following the consummation of the
Equity Offerings and the SIBV Investment, SIBV, indirectly through its
subsidiaries, will beneficially own 44.4% of the outstanding shares of Holdings
Common Stock. See 'Security Ownership of Certain Beneficial Owners'. In
addition, the Subscription Agreement will provide 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 will enter into the New
Credit Agreement. Substantially concurrently with the consummation of the
Offerings, CCA will use 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 -- Terms of New Credit Agreement'.
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<PAGE>
RECLASSIFICATION AND RELATED TRANSACTIONS
The capital stock of Holdings currently consists 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. Currently, the only outstanding shares of voting stock of
Holdings are the shares of Class A common stock (all outstanding shares of which
are indirectly owned by SIBV) and Class B common stock (all outstanding shares
of which are owned by MSLEF II). Immediately prior to the consummation of the
Equity Offerings, the Reclassification will occur, pursuant to which Holdings'
five classes of common stock will be 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 will be the Holdings Common Stock, 80,200,000 shares of which will be
outstanding immediately prior to the Equity Offerings and the SIBV Investment.
The Company intends, following the consummation of the Recapitalization
Plan, to (i) merge CCA Enterprises into CCA, (ii) merge JSC Enterprises into JSC
and (iii) merge JSC into CCA pursuant to the Substitution Transaction (as
defined below). 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-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 consummate such transactions
prior to the consummation of the Recapitalization Plan, as well as the right to
abandon any or all of such transactions.
STOCKHOLDERS AGREEMENT; CHARTER AND BY-LAW AMENDMENTS
Since the 1989 Transaction, Holdings, JSC and CCA have been operated
pursuant to the terms of an organization agreement (the 'Organization
Agreement'), which, among other things, provides 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 will be terminated upon the closing of the Offerings and, at such
time, the Stockholders Agreement shall be entered into by Holdings, SIBV, the
MSLEF II Associated Entities and certain other entities and (ii) the
certificates of incorporation and by-laws of each of Holdings, JSC and CCA will,
at or prior to the closing of the Offerings, be 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 its Subordinated
Debt, will be terminated upon consummation of the 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 Subordinated Debt in open
market or privately negotiated transactions prior to such date. Such
acquisitions of Subordinated Debt 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 Subordinated Debt prohibit borrowings under
the New Credit Agreement to be used to acquire Subordinated Debt junior to such
class. See 'Description of Certain Indebtedness -- Terms of New Credit
Agreement' and ' -- Terms of Subordinated Debt'. This is likely to result in
only Senior Subordinated Notes being acquired prior to December 1, 1994. The
amount of
22
<PAGE>
Subordinated Debt 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, will be subject to the following and only the
following conditions: (a) no order, judgment or decree shall purport to enjoin
or restrain (x) borrowings under the Delayed Term Loan or (y) CCA from redeeming
the Subordinated Debt, (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 Senior 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 Subordinated Debt 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 Subordinated Debt to be so repurchased.
CONSENTS AND WAIVERS
As described below, the Company must 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 expects that, prior
to entering into the Underwriting Agreement, it shall have obtained the Consents
and Waivers.
1993 Notes. The terms of the 1993 Notes prohibit the Subordinated Debt
Refinancing because the indebtedness incurred to effect such refinancing would
be unsubordinated secured debt under the New Credit Agreement. The Company,
however, is soliciting the consent of the holders of the 1993 Notes to amend the
related indenture (the '1993 Note Indenture'), among other things, in order to
allow the Subordinated Debt Refinancing to be consummated without any violation
thereof (the 'Proposed 1993 Note Amendment'). In connection with such
solicitation, CCA will make certain consent payments, in cash, for each $1,000
principal amount of such securities for which consents have been validly
tendered (and not revoked) on or before the date a supplemental indenture has
been executed. CCA's obligation to make the consent payments with respect to the
1993 Notes is subject to the terms of the solicitation and is conditioned on the
execution of a supplemental indenture.
Pursuant to the Proposed 1993 Note Amendment (i) the covenant contained in
the 1993 Note Indenture which limits debt incurrence by JSC and CCA would be
modified, among other things, to allow Holdings, JSC or CCA to refinance the
existing Subordinated Debt (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 limits
certain payments by JSC and CCA would be 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' would be
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') would be permitted to occur and (v)
certain other technical amendments would be made to the 1993 Note Indenture.
23
<PAGE>
The 1993 Note Indenture requires a majority in principal amount of the
holders of the 1993 Notes to consent to the adoption of the Proposed 1993 Note
Amendment.
Secured Notes. Under the terms of the Secured Notes, the Bank Debt
Refinancing (which involves a prepayment of the Secured Notes) would require
that the holders of the Secured Notes be given a 30 day notice of prepayment.
The Company has requested that the holders of the Secured Notes waive such 30
day notice of prepayment. Such waiver requires the consent of the holders of 60%
of the outstanding principal amount of Secured Notes.
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 currently has
borrowings of $182.3 million outstanding at December 31, 1993 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 terms of the Master Agreement relating to the Securitization, the
completion of the Equity Offerings would result in the occurrence of a
'Liquidation Event' because JS Group and its affiliates would cease 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
constitute a 'Liquidation Event.' The effect of the occurrence of a Liquidation
Event which is not waived is that collections on receivables are no 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.
JSC is soliciting the consents necessary to amend the Securitization
documents to amend the definition of 'Liquidation Event' so that the
consummation of the Equity Offerings and of a subsequent merger of JSC into CCA
will not result in the occurrence of a Liquidation Event.
Such proposed Securitization amendment requires the unanimous consent of
all of the Liquidity Banks, the Subordinated Lender and all of the holders of
the Term Notes.
Other. The consent of The Times Mirror Company is 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 need 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. Such consents have been obtained or are anticipated to be
obtained prior to the execution of the Underwriting Agreement.
CERTAIN CONDITIONS
All of the transactions contemplated by the Recapitalization Plan (other
than the Subordinated Debt Refinancing) are expected to occur contemporaneously.
Consummation of the Debt Offerings is conditioned on the substantially
concurrent consummation of the other components of the Recapitalization Plan
(other than the Subordinated Debt Refinancing), including, among other things,
consummation of (i) the Equity Offerings (ii) the SIBV Investment, and (iii) the
Bank Debt Refinancing. In addition, consummation of the Debt Offerings is
conditioned on obtaining the Consents and Waivers and the execution, among other
things, of (i) a supplemental indenture providing for the Proposed 1993 Note
Amendment, (ii) a waiver to the Secured Note Purchase Agreement and (iii) an
amendment to the Securitization documents.
24
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company (after deducting estimated underwriting
discounts and commissions) from the sale of Senior Notes in the Debt Offerings
are estimated to be $391.0 million. The net proceeds to Holdings (after
deducting estimated underwriting discounts and commissions) from the sale of
shares of Holdings Common Stock in the Equity Offerings (at an assumed initial
public offering price of $17.50 per share of Common Stock, the midpoint of the
range of the anticipated high and low public offering prices per share set forth
on the cover of the Prospectus relating to the Equity Offerings) are estimated
to be $283.5 million ($326.0 million if the overallotment option is exercised in
full). The proceeds to Holdings from the sale of shares of Holdings Common Stock
to SIBV (or a corporate affiliate of SIBV) pursuant to the SIBV Investment will
be $100 million.
The Company intends to use 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 all
amounts under the 1989 and 1992 Credit Agreements and the Secured Notes.
Specifically, the Company will repay $196.5 million outstanding at December 31,
1993 under the revolving credit facility under the 1989 Credit Agreement (the
'Revolving Credit Facility'), which bears interest at the Adjusted Eurodollar
Rate (as defined therein) plus 2.25%; $412.3 million of term loan indebtedness
outstanding at December 31, 1993 under the 1989 Credit Agreement, which bears
interest at the Adjusted Eurodollar Rate (as defined therein) plus 2.25% (the
weighted average rate at December 31, 1993 on outstanding 1989 Credit Agreement
borrowings was 5.95%); $201.3 million of term loan indebtedness at December 31,
1993 under the 1992 Credit Agreement, which bears interest at the Adjusted
Eurodollar Rate (as defined therein) plus 3.00% (6.375% at December 31, 1993);
and $270.5 million of Secured Notes at December 31, 1993 bearing interest at the
three-month Adjusted Eurodollar Rate (as defined therein) plus 2.75% (6.25% at
December 31, 1993). The Company has interest rate swaps and other hedging
agreements with commercial banks which effectively fix (for remaining periods of
up to 3 years) the Company's interest rate on $215 million of such variable rate
borrowings at average all-in rates of approximately 9.10%. The Revolving Credit
Facility is scheduled to terminate on December 14, 1995, the term loan
indebtedness under the 1989 and 1992 Credit Agreements is scheduled to mature on
December 31, 1997 and the Secured Notes are scheduled to mature on December 1,
1998. Approximately $75 million of net proceeds of the Debt Offerings will be
used to fund a portion of the Company's 1994 capital expenditures or to pay
accrued and unpaid interest on the Junior 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.
If the overallotment option granted as part of the Equity Offerings is
exercised, proceeds from the sale of shares of Holdings Common Stock pursuant
thereto will be used by the Company for general corporate purposes.
The Company may enter into floating rate interest rate swap agreements with
respect to some or all of its obligations under the Senior Notes and, if it does
so, will be sensitive to prevailing interest rates for the term of such
agreements, which may range from one year to the maturity of the Senior Notes.
25
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of December 31, 1993 and as of December 31, 1993 as adjusted
for the Recapitalization Plan (at an assumed initial public offering price of
$17.50 per share of Common Stock, the midpoint of the range of the anticipated
high and low public offering prices per share set forth on the cover of the
Prospectus relating to the Equity Offerings, for the Equity Offerings and the
SIBV Investment). 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>
DECEMBER 31, 1993
------------------------------
AS ADJUSTED FOR
THE
RECAPITALIZATION
ACTUAL PLAN(a)
-------- ---------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt (represents current maturities of long-term debt)............... $ 10.3 $ 10.3
-------- ---------------
Long-term debt:
New Revolving Credit Facility(b)(c)........................................ $ -- $ 12.3
Initial Term Loan(b)....................................................... -- 300.0
Delayed Term Loan(b)....................................................... -- 900.0
Revolving Credit Facility(c)............................................... 196.5 --
1989 Term Loan Facility.................................................... 412.3 --
1992 Term Loan Facility.................................................... 201.3 --
Secured Notes.............................................................. 270.5 --
1993 Notes(d).............................................................. 500.0 500.0
Senior Notes(e)............................................................ -- 400.0
Securitization Loans....................................................... 182.3 182.3
Other senior indebtedness (excluding current maturities)................... 76.5 76.5
Senior Subordinated Notes(f)............................................... 350.0 --
Subordinated Debentures(f)................................................. 300.0 --
Junior Accrual Debentures(f)(g)............................................ 129.7 --
-------- ---------------
Total long-term debt....................................................... 2,619.1 2,371.1
-------- ---------------
Minority interest in subsidiary................................................. 18.0 18.0
-------- ---------------
Stockholder's deficit:
Additional paid-in capital and common stock................................ 731.8 1,101.0
Retained deficit(h)........................................................ (1,789.6) (1,844.6)
-------- ---------------
Total stockholder's deficit................................................ (1,057.8) (743.6)
-------- ---------------
Total capitalization.................................................. $1,579.3 $ 1,645.5
-------- ---------------
-------- ---------------
</TABLE>
- ------------
(a) Until the Subordinated Debt Refinancing occurs, or if it does not occur,
and assuming no open market or privately negotiated purchases of
Subordinated Debt prior to the Subordinated Debt Refinancing (see
'Description of Certain Indebtedness -- Terms of New Credit
Agreement -- The New Bank Facilities'), the Senior Subordinated Notes, the
Subordinated Debentures and the Junior Accrual Debentures will remain
outstanding and no borrowings (other than those made at the closing of the
Offerings) will be made under the Delayed Term Loan.
(b) For further information about the New Revolving Credit Facility, the
Initial Term Loan and the Delayed Term Loan, see 'Description of Certain
Indebtedness -- Terms of New Credit Agreement'. It is anticipated that
immediately following the Offerings, borrowings of $100 million will be
outstanding under the Delayed Term Loan.
(c) 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 anticipated to be 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. It is anticipated that
immediately following the Offerings, borrowings of $65 million and letters
of credit of approximately $90 million will be outstanding under the New
Revolving Credit Facility. The Company expects that accrued and unpaid
interest at June 1 and 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. See
also footnote (e) below.
(d) For further information about the 1993 Notes, see 'Description of Certain
Indebtedness -- Terms of 1993 Notes'.
(e) For further information about the Senior Notes, see 'Description of the
Senior 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.
(f) For further information about the Subordinated Debt, see 'Description of
Certain Indebtedness -- Terms of Subordinated Debt'.
(g) 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 $129.7 million
at December 31, 1993 and will be approximately $148.7 million at December
1, 1994.
(h) The change in retained earnings (deficit) as a result of the
Recapitalization Plan represents $55.0 million of after-tax cost related to
the extraordinary loss from early extinguishment of debt. The extraordinary
loss on a pre-tax basis includes a $34.1 million write-off of existing
deferred debt issuance costs, $44.6 million of call premiums, and a $5.9
million adjustment to reflect the result of marking-to-market the interest
rate swaps related to the long-term debt to be repaid with borrowings under
the New Credit Agreement and net proceeds of the Offerings and the SIBV
Investment. See 'Pro Forma Financial Data'.
- ----------------------------------------------------------
For information concerning possible changes in sources and uses of funds
pertaining to the Recapitalization Plan, see 'Recapitalization Plan -- Sources
and Uses'.
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 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 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1989 1990 1991 1992
--------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales................................................................ $ 2,936.3 $2,910.9 $2,940.1 $2,998.4
Cost of goods sold....................................................... 2,275.9 2,296.1 2,409.4 2,499.3
Selling and administrative expenses...................................... 254.9 218.8 225.2 231.4
Restructuring charge.....................................................
Environmental and other charges..........................................
--------- -------- -------- --------
Income (loss) from operations............................................ 405.5 396.0 305.5 267.7
Recapitalization expenses................................................ (139.2)
Interest expense......................................................... (119.1) (337.8) (335.2) (300.1)
Other, net............................................................... 8.4 6.5 5.4 5.2
--------- -------- -------- --------
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)
Provision for (benefit from) income taxes................................ 74.0 35.4 10.0 10.0
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)
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)
Extraordinary item:
Loss from early extinguishment of debt, net of income tax benefit...... (29.7) (49.8)
Cumulative effect of accounting changes:
Postretirement benefits................................................
Income taxes...........................................................
--------- -------- -------- --------
Net income (loss)........................................................ $ 35.8 $ 21.8 $ (77.1) $ (83.8)
--------- -------- -------- --------
--------- -------- -------- --------
Ratio of earnings to fixed charges(b).................................... 2.24 1.17 (c) (c)
--------- -------- -------- --------
--------- -------- -------- --------
OTHER DATA:
Gross profit margin(d)................................................... 22.5% 21.1% 18.1% 16.6%
Selling and administrative expenses as a percent of net sales............ 8.7 7.5 7.7 7.7
EBITDA(e)................................................................ $ 508.8 $ 525.1 $ 440.9 $ 407.8
Ratio of EBITDA to interest expense...................................... 4.27x 1.55x 1.32x 1.36x
Property and timberland additions........................................ $ 201.3 $ 192.0 $ 118.9 $ 97.9
Depreciation, depletion and amortization................................. 94.9 122.6 130.0 134.9
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................................................... $ 156.9 $ 60.8 $ 76.9 $ 105.7
Property, plant and equipment and timberland, net........................ 1,422.3 1,527.3 1,525.9 1,496.5
Total assets............................................................. 2,436.7 2,447.9 2,460.1 2,436.4
Long-term debt (excluding current maturities)............................ 2,684.4 2,636.7 2,650.4 2,503.0
Deferred income taxes (excluding current portion)........................ 145.5 168.6 158.3 159.8
Stockholders' deficit.................................................... (921.6) (899.4) (976.9) (828.9)
STATISTICAL DATA:
Containerboard production (thousand tons)................................ 1,792 1,797 1,830 1,918
Boxboard production (thousand tons)...................................... 816 809 826 832
Newsprint production (thousand tons)..................................... 582 623 614 615
Corrugated shipping containers sold (thousand tons)...................... 1,581 1,655 1,768 1,871
Folding cartons sold (thousand tons)..................................... 444 455 482 487
Fibre reclaimed and brokered (thousand tons)............................. 3,549 3,547 3,666 3,846
Timberland owned or leased (thousand acres).............................. 992 968 978 978
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993
--------
<S> <C>
OPERATING RESULTS:
Net sales................................................................ $2,947.6
Cost of goods sold....................................................... 2,573.1
Selling and administrative expenses...................................... 239.2
Restructuring charge..................................................... 96.0
Environmental and other charges.......................................... 54.0
--------
Income (loss) from operations............................................ (14.7)
Recapitalization expenses................................................
Interest expense......................................................... (254.2)
Other, net............................................................... 8.1
--------
Income (loss) before income taxes, equity in earnings (loss) of
affiliates, minority interests, extraordinary item and cumulative
effect of accounting changes........................................... (260.8)
Provision for (benefit from) income taxes................................ (83.0)
Equity in earnings (loss) of affiliates(a)...............................
Minority interest share of income (loss) in:
Smurfit Newsprint Corporation.......................................... (3.2)
CCA, prior to acquisition..............................................
--------
Income (loss) before extraordinary item and cumulative effect of
accounting changes..................................................... (174.6)
Extraordinary item:
Loss from early extinguishment of debt, net of income tax benefit...... (37.8)
Cumulative effect of accounting changes:
Postretirement benefits................................................ (37.0)
Income taxes........................................................... 20.5
--------
Net income (loss)........................................................ $ (228.9)
--------
--------
Ratio of earnings to fixed charges(b).................................... (c)
--------
--------
OTHER DATA:
Gross profit margin(d)................................................... 12.7%
Selling and administrative expenses as a percent of net sales............ 8.1
EBITDA(e)................................................................ $ 274.2
Ratio of EBITDA to interest expense...................................... 1.08x
Property and timberland additions........................................ $ 117.4
Depreciation, depletion and amortization................................. 130.8
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................................................... $ 40.0
Property, plant and equipment and timberland, net........................ 1,636.0
Total assets............................................................. 2,597.1
Long-term debt (excluding current maturities)............................ 2,619.1
Deferred income taxes (excluding current portion)........................ 232.2
Stockholders' deficit.................................................... (1,057.8)
STATISTICAL DATA:
Containerboard production (thousand tons)................................ 1,840
Boxboard production (thousand tons)...................................... 829
Newsprint production (thousand tons)..................................... 615
Corrugated shipping containers sold (thousand tons)...................... 1,936
Folding cartons sold (thousand tons)..................................... 475
Fibre reclaimed and brokered (thousand tons)............................. 3,907
Timberland owned or leased (thousand acres).............................. 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 years ended December 31, 1991, 1992 and 1993, earnings were
inadequate to cover fixed charges by $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 year ended December 31, 1993 and the unaudited pro forma
condensed consolidated balance sheet as of 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 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 was
prepared as if the Recapitalization Plan (excluding the Subordinated Debt
Refinancing) and the Recapitalization Plan (including the Subordinated Debt
Refinancing) occurred as of December 31, 1993.
The pro forma financial data set forth below in giving effect to the
Recapitalization Plan assumes an initial public offering price of $17.50 per
share of Common Stock, the midpoint of the range of the anticipated high and low
public offering prices per share set forth on the cover of the Prospectus
relating to the Equity Offerings, for the Equity Offerings and the SIBV
Investment.
The estimated transaction fees and expenses included in the following pro
forma financial data are provided solely for purposes of presenting the pro
forma financial data set forth below. The actual transaction fees and expenses
may differ from the assumptions set forth below.
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.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED SUBORDINATED
JEFFERSON DEBT REFINANCING) DEBT REFINANCING)
SMURFIT ------------------------ ------------------------
CORPORATION (U.S.) PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------------------ ----------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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) 10.0 (244.2 ) 71.2 (183.0 )
Other -- net............................ 8.1 8.1 8.1
------------------ ----------- --------- ----------- ---------
Loss before income taxes, minority
interest, extraordinary item, and
cumulative effect of accounting
changes............................... (260.8) 10.0 (250.8 ) 71.2 (189.6 )
Provision for (benefit) from income
tax(b)................................ (83.0) 3.5 (79.5 ) 24.9 (58.1 )
------------------ ----------- --------- ----------- ---------
(177.8) 6.5 (171.3 ) 46.3 (131.5 )
Minority interest share of loss......... 3.2 3.2 3.2
------------------ ----------- --------- ----------- ---------
Loss before extraordinary item and
cumulative effect of accounting
changes(c)............................ $ (174.6) $ 6.5 $ (168.1 ) $46.3 $ (128.3 )
------------------ ----------- --------- ----------- ---------
------------------ ----------- --------- ----------- ---------
</TABLE>
28
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(a) Interest expense is based upon pro forma consolidated indebtedness following
consummation of the 1993 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
------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------------- -----------------------
(IN MILLIONS)
<S> <C> <C>
1993 Notes:
Net increase of interest expense, interest rate swap
payments and mark-to-market adjustment, and amortization
of related deferred debt issuance costs in connection
with the issuance of the 1993 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).......................................... 55.9 55.9
Net reduction of interest expense, interest rate swap
payments and amortization of related deferred debt
issuance costs on indebtedness assumed to be
retired(3)............................................... (76.7) (76.7)
Amortization of deferred debt issuance costs associated
with the above debt(4)................................... 5.5 5.5
------- -------
(15.3) (15.3)
Subordinated Debt Refinancing:
Interest expense related to Delayed Term Loan(5)........... 45.7
Net reduction of interest expense and amortization of
related deferred debt issuance costs on indebtedness
assumed to be retired(6)................................. (110.6)
Amortization of deferred debt issuance costs associated
with the above debt(4)................................... 3.7
-------
(61.2)
------- -------
Net decrease of interest expense................................ $ (10.0) $ (71.2)
------- -------
------- -------
</TABLE>
- ------------
(1) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, and 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 indebtedness under the 1989 Credit Agreement in
connection with the 1993 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 the pro forma statements of operations. 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%. Assumes the Debt Offerings are swapped to a
floating interest rate of LIBOR plus 3.45% (average rate of approximately
6.66% for the year ended December 31, 1993) for the Series B Senior Notes
and to a floating interest rate of LIBOR plus 3.94% (average rate of
approximately 7.15% for the year ended December 31, 1993) for the Series A
Senior Notes. A change in the interest rate of .25% would change interest
expense on the New Revolving Credit Facility, the Initial Term Loan and the
Debt Offerings by approximately $1.9 million for the year ended December 31,
1993.
(3) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, and cash payments under swap agreements during
the year ended December 31, 1993 on indebtedness assumed to be repaid with
the 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 statement 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 $2.3 million for the year ended
December 31, 1993.
(6) Represents the actual interest expense incurred and amortization of related
deferred debt issuance costs during the year ended December 31, 1993 on
indebtedness assumed to be retired by the Subordinated Debt Refinancing.
29
<PAGE>
(b) Tax expense related to reduction in the interest expense at an effective tax
rate of 35.0%.
(c) The preceding historical statement of operations for the year ended December
31, 1993 excludes an after tax extraordinary loss of $37.8 million resulting
from the early extinguishment of debt as a result of the 1993 Notes. The
following details the additional nonrecurring charges resulting from the
Recapitalization Plan including and excluding the Subordinated Debt
Refinancing. 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:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------------
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------------- ---------------------------
(IN MILLIONS)
<S> <C> <C>
1993 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 1993
Notes.................................... (2.4) (2.4)
------ ------
.2 .2
Recapitalization Plan:
Write-off of existing deferred debt
issuance costs related to indebtedness
assumed to be retired and consent fees... 7.7 7.7
Impact of marking-to-market the interest
rate swap agreements..................... 12.5 12.5
------ ------
20.2 20.2
Subordinated Debt Refinancing:
Write-off of deferred debt issuance costs
related to subordinated debt repaid or
retired.................................. 26.7
Premiums paid on subordinated debt
retired.................................. 44.6
------ ------
71.3
------ ------
20.4 91.7
Assumed tax benefit at 35%...................... 7.1 32.1
------ ------
Pro forma adjustment to extraordinary item...... 13.3 59.6
Extraordinary item, net of income tax benefit of
$21.7 million on a historical basis........... 37.8 37.8
------ ------
Pro forma extraordinary item, net of tax
benefit....................................... $51.1 $97.4
------ ------
------ ------
</TABLE>
30
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN
(EXCLUDING THE
JEFFERSON SUBORDINATED DEBT
SMURFIT REFINANCING)
CORPORATION --------------------------
(U.S.) PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 44.2 $ 77.0(a) $ 121.2
Receivables............................................. 243.2 243.2
Inventories............................................. 233.3 233.3
Refundable income taxes................................. .7 .7
Deferred income taxes................................... 41.9 41.9
Prepaid expenses and other current assets............... 5.2 5.2
----------- ----------- ---------
Total current assets............................... 568.5 77.0 645.5
Property, plant and equipment, net........................... 1,374.5 1,374.5
Timberland, net.............................................. 261.5 261.5
Deferred debt issuance costs................................. 52.3 58.6(b) 110.9
Goodwill, less accumulated amortization...................... 261.4 261.4
Other assets................................................. 78.9 78.9
----------- ----------- ---------
Total assets....................................... $ 2,597.1 $ 135.6 $2,732.7
----------- ----------- ---------
----------- ----------- ---------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt.................... $ 10.3 $ 10.3
Accounts payable........................................ 270.6 270.6
Other accrued expenses.................................. 247.6 $ (1.3)(a) 246.3
----------- ----------- ---------
Total current liabilities.......................... 528.5 (1.3) 527.2
Existing long-term debt, less current maturities:
Nonsubordinated......................................... 1,839.4 (1,080.6)(c) 758.8
Subordinated............................................ 779.7 779.7
New Revolving Credit Facility................................ 65.0(c) 65.0
Initial Term Loan............................................ 300.0(c) 300.0
Delayed Term Loan............................................ 100.0(c) 100.0
Debt Offerings............................................... 400.0(c) 400.0
Other long-term liabilities.................................. 257.1 257.1
Deferred income taxes........................................ 232.2 (5.9)(d) 226.3
Minority interests........................................... 18.0 18.0
Stockholder's deficit
Common stock and additional paid-in capital............. 731.8 369.2(e) 1,101.0
Retained deficit........................................ (1,789.6) (10.8)(f) (1,800.4)
----------- ----------- ---------
Total stockholder's deficit........................ (1,057.8) 358.4 699.4
----------- ----------- ---------
$ 2,597.1 $ 135.6 2,732.7
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN
(INCLUDING THE SUBORDINATED DEBT REFINANCING)
------------------------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
--------------------------- ---------------------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ $ 44.2
Receivables............................................. 243.2
Inventories............................................. 233.3
Refundable income taxes................................. .7
Deferred income taxes................................... 41.9
Prepaid expenses and other current assets............... 5.2
----------- -----------
Total current assets............................... 568.5
Property, plant and equipment, net........................... 1,374.5
Timberland, net.............................................. 261.5
Deferred debt issuance costs................................. 35.3(b) 87.6
Goodwill, less accumulated amortization...................... 261.4
Other assets................................................. 78.9
----------- -----------
Total assets....................................... $ 35.3 $ 2,632.4
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt.................... $ 10.3
Accounts payable........................................ 270.6
Other accrued expenses.................................. (1.3)(a) 246.3
----------- -----------
Total current liabilities.......................... (1.3) 527.2
Existing long-term debt, less current maturities:
Nonsubordinated......................................... (1,080.6)(c) 758.8
Subordinated............................................ (779.7)(c)
New Revolving Credit Facility................................ 12.3(c) 12.3
Initial Term Loan............................................ 300.0(c) 300.0
Delayed Term Loan............................................ 900.0(c) 900.0
Debt Offerings............................................... 400.0(c) 400.0
Other long-term liabilities.................................. 257.1
Deferred income taxes........................................ (29.6)(d) 202.6
Minority interests........................................... 18.0
Stockholder's deficit
Common stock and additional paid-in capital............. 369.2(e) 1,101.0
Retained deficit........................................ (55.0)(f) (1,844.6)
----------- -----------
Total stockholder's deficit........................ 314.2 (743.6)
----------- -----------
$ 35.3 $ 2,632.4
----------- -----------
----------- -----------
</TABLE>
31
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Represents increase in cash and net reduction in accrued expenses as a
result of the Recapitalization Plan. Assumes approximately $75 million of
net proceeds of the Debt Offerings will be used to pay interest on the
Junior Accrual Debentures.
(b) Net increase in deferred debt issuance is summarized as follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------------
DECEMBER 31, 1993
----------------------------------------------------------
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------------- ---------------------------
(IN MILLIONS)
<S> <C> <C>
Estimated costs and expenses associated with the
Recapitalization Plan which will be
capitalized and amortized over the term of the
Debt Offerings, Initial and Delayed Term Loan
and the New Revolving Credit Facility......... $68.2 $68.2
Reduction in deferred debt issuance costs
related to the existing long-term debt to be
repaid or retired............................. (9.6) (32.9)
------ ------
$58.6 $35.3
------ ------
------ ------
</TABLE>
(c) Represents repayment of existing nonsubordinated indebtedness and
subordinated indebtedness and issuance of new indebtedness under the Debt
Offerings, the New Revolving Credit Facility and the Initial and Delayed
Term Loans, including payments of fees and expenses of $77.2 million in
connection with the Recapitalization Plan including Subordinated Debt
Refinancing.
(d) Changes in deferred taxes related to the tax benefit of the extraordinary
loss from early extinguishment of debt.
(e) Issuance of $400 million common equity net of $30.8 million in fees and
expenses related to the Equity Offerings.
(f) Represents the after-tax costs related to the extraordinary loss from early
extinguishment of debt as a result of the Recapitalization Plan and
Subordinated Debt Refinancing. Summarized as follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------
DECEMBER 31, 1993
----------------------------------------------
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------- ---------------------
(IN MILLIONS)
<S> <C> <C>
Write-off of existing deferred debt issuance costs related
to long-term debt repaid or retired and write-off of
consent fees and miscellaneous expenses................... $10.8 $34.1
Adjustment to reflect the result of marking-to-market the
interest rate swaps related to long-term debt to be repaid
with the proceeds of the Recapitalization Plan............ 5.9 5.9
Call premiums on existing subordinated debt to be repaid or
retired................................................... 44.6
------ ------
16.7 84.6
Assumed tax benefit at 35.0%................................ (5.9) (29.6)
------ ------
$10.8 $55.0
------ ------
------ ------
</TABLE>
32
<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 $347 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. A further linerboard increase of $30 per ton was implemented by all
major integrated containerboard producers, including the Company, effective
March 1, 1994.
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.
Although market demand has improved in the fourth quarter of 1993, the Company
does not expect significant improvement in prices before the second quarter of
1994.
In addition, prices for many of the Company's other products, including
solid bleached sulfate, recycled boxboard, folding cartons and reclaimed fibre
weakened in 1993 and 1992. While the effect of the reclaimed fibre price
decreases is unfavorable to the reclamation products division, it is favorable
to the Company overall because of the reduction in fibre cost to the Company's
paper mills that use reclaimed fibre. 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.
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
33
<PAGE>
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 'Plan').
The 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 program 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
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 -- 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
34
<PAGE>
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. Further, the estimate takes into
consideration the number of other PRPs at each site, the identity, and financial
position of such parties, in light of the joint and several nature of the
liability, but does not take into account possible insurance coverage or other
similar reimbursement.
RESULTS OF OPERATIONS
The following tables present net sales on a segment basis 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>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Paperboard/Packaging Products........................................ $2,699.5 $2,751.0 $2,653.9
Newsprint............................................................ 248.1 247.4 286.2
-------- -------- --------
Total net sales................................................. $2,947.6 $2,998.4 $2,940.1
-------- -------- --------
-------- -------- --------
</TABLE>
NET SALES ANALYSIS
<TABLE>
<CAPTION>
1993 1992
COMPARED TO COMPARED TO
1992 1991
----------- -----------
<S> <C> <C>
Increase (decrease) due to:
Sales price and product mix
Paperboard/Packaging Products.................................... $ (91.2) $ .8
Newsprint........................................................ (3.0) (39.4)
----------- -----------
(94.2) (38.6)
Sales volume
Paperboard/Packaging Products.................................... 15.8 88.7
Newsprint........................................................ 3.7 .6
----------- -----------
19.5 89.3
Acquisitions and new facilities
Paperboard/Packaging Products.................................... 34.9 9.8
Plant closings and asset distributions
Paperboard/Packaging Products.................................... (11.0) (2.2)
----------- -----------
Total net sales increase (decrease)......................... $ (50.8) $ 58.3
----------- -----------
----------- -----------
</TABLE>
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.
35
<PAGE>
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 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.
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<PAGE>
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. 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 (as defined
below).
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.
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<PAGE>
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 April 1993, the Company issued $500 million aggregate principal amount
of the 1993 Notes. Proceeds of the 1993 Notes were used to refinance a
substantial portion of indebtedness in order to improve operating and financial
flexibility by extending maturities of indebtedness and improving liquidity. As
a result of the issuance of the 1993 Notes, there are no significant scheduled
payments due on bank term loans until June 1996 (assuming the Bank Debt
Refinancing is not consummated). In connection with the issuance of the 1993
Notes, SIBV committed to purchase up to $200 million aggregate principal amount
of 11 1/2% Junior Subordinated Notes maturing 2005, the proceeds of which must
be used to repurchase or otherwise retire Subordinated Debt. The above
commitment will be terminated upon the consummation of the Offerings.
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 (i) reducing the level and
overall cost of their debt, (ii) extending maturities of indebtedness, (iii)
increasing stockholders' equity and (iv) increasing their access to capital
markets. The Recapitalization Plan includes (i) the Debt Offerings, (ii) the
Equity Offerings, (iii) the SIBV Investment, and (iv) the New Credit Agreement
consisting of the New Revolving Credit Facility and the New Term Loans. Proceeds
of the Recapitalization Plan, exclusive of funds used to effect the Subordinated
Debt Refinancing (including the remaining borrowings under the Delayed Term Loan
and available proceeds of the Debt Offerings), will be used to refinance all of
the Company's indebtedness under the 1989 and 1992 Credit Agreements and the
Secured Notes. 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 shall be used to redeem or
repurchase the Subordinated Debt on approximately December 1, 1994. It is
anticipated that immediately following the Offerings, borrowings of $65 million
and letters of credit of approximately $90 million will be outstanding under the
New Revolving Credit Facility. After giving effect to the Recapitalization Plan
on a pro forma basis, at December 31, 1993 the Company would have had
approximately $2,371.1 million of total long-term debt outstanding, all of which
would have been senior debt, as compared to $2,619.1 million of long-term debt
actually outstanding. After completion of the Recapitalization Plan there will
be no significant scheduled payments due on bank debt (other than required
payments out of 'excess cash', if any) until 18 months following consummation of
the Offerings, at which time approximately $46.0 million will be payable.
Assuming consummation of the Recapitalization Plan (whether including or
excluding the Subordinated Debt Refinancing), the Company does not currently
anticipate that it will experience any liquidity problems which would cause it
to fail to make any scheduled payment on its bank debt. As discussed below, the
Company expects that liquidity will be provided by its operations and through
the utilization of unused borrowing capacity under the New Credit Agreement and
the Securitization.
The Company's earnings are significantly affected by the amount of interest
on its indebtedness. At December 31, 1993, the Company had $215 million of
variable rate debt which had been swapped to a weighted average fixed rate of
approximately 9.1%. The Company also had interest rate swap agreements related
to the Securitization that effectively converted $95 million of fixed rate
borrowings to a variable rate of 5.6% (at December 31, 1993) and converted $80
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 1993 Notes which convert $500 million of fixed rate borrowings to a
variable rate of 8.6% (at December 31, 1993).
Capital expenditures consist of property and timberland additions and
acquisitions of businesses. Capital expenditures for 1993, 1992 and 1991 were
$117.4 million, $97.9 million and $118.9 million, respectively. Financing
arrangements entered into in connection with the 1989 Transaction impose an
annual limit on future capital expenditures, as defined in the financing
arrangements, of approximately $125.0 million. The capital spending limit is
subject to increase in any year if the prior year's spending was less than the
maximum amount allowed. For 1993, such carryover from 1992 was $75 million.
Because the Company has invested heavily in its core businesses over the last
several years,
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management believes the annual limitation on capital expenditures should not
impair its plans for maintenance, expansion and continued modernization of its
facilities. It is expected that the New Credit Agreement will contain
limitations on capital expenditures substantially similar to those contained in
the financing arrangements entered into in connection with the 1989 Transaction.
The Company anticipates making capital expenditures of approximately $140
million in 1994.
Under the terms of the Old Bank Facilities, the Company is required to
comply with certain financial covenants, including maintenance of quarterly and
annual interest coverage ratios and earnings, as defined. In anticipation of
violating these financial covenants at September 30, 1993, the Company requested
and received waivers from its lender group, and in December, 1993 amended the
Old Bank Facilities to modify financial covenants. The Company was in compliance
with the amended covenants at December 31, 1993. The Company expects to have
similar covenants in the New Credit Agreement.
Operating activities have historically been the major source of cash for
the Company's working capital needs, capital expenditures and debt payments. For
1993 and 1992, net cash provided by operating activities was $78.2 million and
$145.7 million, respectively.
At December 31, 1993, the Company had $112.1 million in unused borrowing
capacity under the Revolving Credit Facility. Following the Offerings, the
Company anticipates having $295.0 million of unused borrowing capacity under the
New Revolving Credit Facility under the New Credit Agreement. The Company has
borrowing capacity of $230.0 million under the Securitization subject to the
Company's level of eligible accounts receivable. At December 31, 1993, the
Company had borrowed $182.3 million under the Securitization and the level of
eligible receivables did not permit any additional borrowings under the
Securitization at the date. 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 assurance can be given in this regard.
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.
39
<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
40
<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: fiber drums,
composite cans, spiral tubes, cores, gypsum wallboard liner and box partitions.
41
<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>
%
--------------------------------------------------
UNBLEACHED BLEACHED
END-USE PRODUCTION(1) % 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.
[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.]
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.
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<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. 1.4 million 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.
[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.]
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.
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<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.
[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.]
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
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<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 fiber.
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:
[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.]
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.
45
<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. Although market demand improved in the fourth quarter of 1993, the
Company does not expect significant improvement in prices before the second
quarter 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 Plan and the Restructuring Program.
The Plan is a systematic Company-wide effort designed to improve the cost
competitiveness of all the Company's operating facilities and staff functions.
The 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.
46
<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,
47
<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.
48
<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 stockholders' 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).
49
<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.
50
<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.
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:
51
<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
52
<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.
53
<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.
54
<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 is required to pay $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
55
<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. 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.
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.
56
<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............. 57
Howard E. Kilroy................. 58
James E. Terrill................. 60
Donald P. Brennan................ 53
Alan E. Goldberg................. 39
David R. Ramsay.................. 30
</TABLE>
Following completion of the Offerings and pursuant to the Stockholders
Agreement (as described below), JSC and CCA each intends to expand its Board of
Directors to include two additional directors, one of whom will be designated
by, but not affiliated with, SIBV and, one of whom will be designated by, but
not affiliated with, MSLEF II.
Upon consummation of the Offerings, the current Board of Directors of each
of JSC and CCA will be divided into three classes of directors serving staggered
three-year terms. The terms of office of Messrs. Terrill and Ramsay expire in
1995, of Messrs. Kilroy and Goldberg expire in 1996 and of Messrs. Smurfit and
Brennan expire in 1997. The terms of office of the additional unaffiliated
directors who are to be designated by MSLEF II and SIBV as described above shall
expire in 1995 and 1996, respectively. See 'Description of Capital
Stock -- Restated Certificate of Incorporation and By-laws'.
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 will hold immediately prior to the
consummation of the Offerings.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Michael W.J. Smurfit............. 57 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................ 57 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............ 53 Vice President -- Personnel and Human Resources
Alan W. Larson................... 55 Vice President and General Manager -- Consumer Packaging
Division
Edward F. McCallum............... 59 Vice President and General Manager -- Container Division
Lyle L. Meyer.................... 57 Vice President
Patrick J. Moore................. 39 Vice President and Treasurer
David C. Stevens................. 59 Vice President and General Manager -- Smurfit Recycling
Company
Truman L. Sturdevant............. 59 President of SNC
Michael E. Tierney............... 45 Vice President and General Counsel and Secretary
Richard K. Volland............... 55 Vice President -- Physical Distribution
William N. Wandmacher............ 51 Vice President and General Manager -- Containerboard Mill
Division
Gary L. West..................... 51 Vice President and General Manager -- Industrial Packaging
Division
</TABLE>
57
<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 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 I, 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.
58
<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.
Michael E. Tierney has been Vice President and 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 will provide 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, or grant an irrevocable proxy to MSLEF II to vote their shares of Common
Stock, to elect as directors of Holdings (a) four individuals selected by SIBV
(each, an 'SIBV Nominee') one of whom shall be the Chief Executive Officer and
one of whom shall not be affiliated with SIBV, 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 the MS Holders
shall not have received 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 the MS Holders shall have collectively received the Initial Return
('Tier 2'); provided,
59
<PAGE>
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 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 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 be reasonably acceptable to MSLEF II and SIBV. Unless MSLEF
II determines otherwise, MSLEF II, except MSLEF II Unaffiliated Directors,
Nominees 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 $400
million in cash or certain other property (or a combination thereof)
collectively by the MS Holders. For purposes of calculating the Initial Return,
shares which MSLEF II or Equity Investors (as defined below) distributes to its
partners will be deemed to have been sold at the closing sales price per share
as of the date such distribution is declared. 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 Offerings (other than shares of Common
Stock purchased by SIBV pursuant to the preemptive rights set forth in the
Stockholders 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 or 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 vote its shares
of Holdings Common Stock 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 will
each be 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 and James E. Terrill and, in the case of MSLEF II,
Donald P. Brennan, Alan E. Goldberg and David R. Ramsay. The MSLEF II
Unaffiliated Director and the SIBV Unaffiliated Director will be named following
completion of the Offerings. See ' -- Directors'. Pursuant to the Stockholders
Agreement, SIBV and MSLEF II have agreed to ensure the election of only eight
directors (unless they otherwise agree). In addition, the MS Holders and SIBV
have agreed pursuant to the Stockholders Agreement to use their best efforts to
cause their respective nominees to resign from the 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.
Pursuant to the Stockholders Agreement, the Board of Directors of Holdings
shall have 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 and
(b) two directors who are SIBV Nominees and two directors who are MSLEF II
Nominees (the 'Required Majority'. 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 a 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; the issuance, sale, purchase or
redemption of securities of Holdings or any of its subsidiaries; the
establishment of and appointments to the Audit Committee of Holdings' Board of
Directors; certain 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; certain mergers, consolidations,
dissolutions or
60
<PAGE>
liquidations of Holdings or any of its subsidiaries; the filing of a petition in
bankruptcy; the setting aside or making of any payment or distribution by way of
dividend or otherwise to the stockholders of Holdings or any of its
subsidiaries; the incurrence of new indebtedness, the creation of 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 provided in the Stockholders Agreement, the election or removal
of directors and officers of each of JSC and CCA; and any decision regarding
registration, except as provided in the Registration Rights Agreement.
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. It is currently anticipated that the directors of Holdings, JSC and CCA
will be the same individuals.
COMMITTEES
Following consummation of the Offerings, there will be four committees of
the Boards of Directors of each of Holdings, JSC and CCA: the Executive
Committee (comprised of ), the Compensation Committee
(comprised of ), the Audit Committee (comprised of
) and the Appointment Committee (comprised of
), which committee shall, among other things, select,
replace or remove officers. The Stockholders Agreement provides that SIBV and
MSLEF II 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 constitute a majority of the members on the Compensation
Committee and any other committees which administer any option or incentive plan
of Holdings and the Company 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 constitute a majority of the members, and a
MSLEF II Nominee is a member, of the Appointment Committee and (b) nominees of
the SIBV Nominees 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,
SIBV and MSLEF II 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 SIBV and MSLEF II otherwise agree.
DIRECTOR COMPENSATION
Prior to the completion of the 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 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 $2,000 for attendance at each
meeting which is in excess of four meetings per year.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company (the 'Named Executive Officers') during 1993.
61
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION($)
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 contemplated by 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.
Prior to consummation of the Offerings, the Company intends to pay
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 intends to adopt the
Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (the
'Incentive Plan'). Pursuant to the Plan, participants will be granted awards,
payable in cash on June 30, 1997 (the 'Payment Date') (or earlier in the event
of 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 and shall vest 20% on June 30, 1995, and an
additional 20% on June 30, 1996 if the participant is employed on such date and
is thereafter terminated, prior to June 30, 1997, by the Company without cause.
Notwithstanding the foregoing, no amounts shall be paid under the Incentive Plan
unless the Equity Offerings are consummated. The aggregate amount of awards
under the Incentive Plan is $5 million. The awards expected to be granted to
Messrs. Terrill, Larson and Bradford are $1,000,000, $200,000 and $75,000,
respectively. Aggregate
62
<PAGE>
and individual awards will be increased by earnings accrued thereon (by virtue
of the actual or deemed investment thereof, as determined by the Compensation
Committee) 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.
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 so long as the Equity
Offerings have been consummated. 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 intended to be 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 $20 per
share of Holdings Common Stock were granted to a number of officers and
employees including Messrs. Terrill and Larson who were granted options for
319,000, and 5,000 shares of Holdings Common Stock, respectively (such dollar
amount and numbers have been adjusted to reflect the ten-for-one stock split
contemplated by the Reclassification). Such options vest over the period ending
on December 31, 1999.
63
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes the exercise of options relating to shares
of Holdings Common Stock by the Named Executive Officers during 1993 and the
value of options held by such officers as of the end of 1993. No stock
appreciation rights have been granted to any Named Executive Officers. In
addition, options to purchase 755,000 shares (as adjusted for the ten-to-one
stock split) have been granted to officers and employees of JS Group and its
affiliates (other than Michael W. J. Smurfit).
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION
VALUE
-------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, 1993
ACQUIRED ON VALUE -------------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#)(a)
- -------------------------------------------------- ----------- ----------- -------------- -------------------
<S> <C> <C> <C> <C>
Michael W. J. Smurfit............................. 0 N/A 0 1,026,000
James E. Terrill.................................. 0 N/A 0 181,000
Alan W. Larson.................................... 0 N/A 0 45,000
C. Larry Bradford................................. 0 N/A 0 121,000
James B. Malloy................................... 0 N/A 0 724,000
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION
VALUE
-------------------------------------------------------------------
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1993
------------------------------------
NAME EXERCISABLE($) UNEXERCISABLE($)
- -------------------------------------------------- --------------- -----------------
<S> <C> <C>
Michael W. J. Smurfit............................. $ 0 $ 0
James E. Terrill.................................. 0 0
Alan W. Larson.................................... 0 0
C. Larry Bradford................................. 0 0
James B. Malloy................................... 0 0
</TABLE>
- ------------
(a) Gives effect to the ten-for-one stock split contemplated by 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.
64
<PAGE>
<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
JSC intends to pay to him, upon his retirement, 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
65
<PAGE>
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
The Company has not heretofore maintained 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. Following consummation of the Offerings, JSC
and CCA will maintain 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 March 28, 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.
66
<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(b)
- ----------------------------------------------------------- ------------ ------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SIBV ...................................................... 18,400,000 A 100.0% 50.0% 45,814,286(c) 44.4%
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 30.8%
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(d) ................................ 5,000,000 C 23.0% 6.2% 5,000,000 4.9%
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, NY 10020
Attention: Donald P. Brennan
Michael W.J. Smurfit(e)(f) ................................ 0 0
Howard E. Kilroy(e)(f) .................................... 0 0
James E. Terrill(e) ....................................... 0 0
James B. Malloy(e) ........................................ 0 0
Alan W. Larson(e) ......................................... 0 0
C. Larry Bradford(e) ...................................... 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 (23
persons)(e) . 0 0
</TABLE>
- ------------
(a) Gives effect to the ten-for-one stock split contemplated by the
Reclassification pursuant to which, immediately prior to the consummation
of the Equity Offerings, Holdings' five classes of common stock will be
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 will be the Holdings
Common Stock.
(b) Does not give effect to the exercise of the overallotment option granted to
the underwriters in the Equity Offerings.
(c) Includes 5,714,286 shares of Holdings Common Stock to be purchased by SIBV
(or a corporate affiliate of SIBV) from Holdings pursuant to the SIBV
Investment.
(d) 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 Co.
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 Co. would receive a number of shares based on
its pro rata ownership of MSLEF II. State Street Bank & Trust Co.
currently owns (excluding shares owned by MSLEF II as described in the
preceding sentence) 3,000,000 shares of Class C Stock of Holdings (after
giving effect to the ten-for-one stock split contemplated by the
Reclassification), which following the consummation of the Offerings will
be 2.9% of the outstanding Holdings Common Stock.
(e) 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 3,842,000 shares of
Holdings Common Stock, respectively. None of such options are currently or
will become exercisable within 60 days following consummation of the
Offerings. 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 has 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.
(f) Amounts exclude shares of Holdings Common Stock owned by SIBV as to which
such persons disclaim beneficial ownership.
67
<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 (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.
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, (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 a
Stockholders Agreement (which will replace the Organization Agreement upon the
closing of the Equity Offerings) and entered into the Registration Rights
Agreement.
Currently Smurfit Packaging and Smurfit Holdings, 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 own 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 Co., as trustee for a master pension trust ('Leeway'
and, together with First Plaza, the 'Direct Investors'), certain other investors
and Smurfit Packaging own all of the non-voting stock of Holdings. On December
31, 1993, all of the Old Preferred Stock owned by Smurfit Packaging was
converted into 1,670,000 shares of Class D Stock. Since such conversion of Old
Preferred Stock, Smurfit Packaging, on the one hand, and the MSLEF II Associated
Entities, the Direct
68
<PAGE>
Investors and such other investors, on the other, own, through their ownership
of Class D Stock and Class C Stock, respectively, 50% of the non-voting common
stock of Holdings.
Holdings' capital stock currently consists 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 are identical in
all respects except with respect to certain voting rights, and certain exchange
provisions that do not affect the percentage of Holdings owned by SIBV and MSLEF
II. Holdings' Class E Stock is non-voting stock reserved for issuance pursuant
to the 1992 Stock Option Plan. In the Reclassification, the Old Common Stock,
which consists of five classes of stock, will be 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 will be
Holdings Common Stock. Immediately prior to the consummation of the Equity
Offerings, 80,200,000 shares of Holdings Common Stock will be outstanding and
such stock will be 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
(or a corporate affiliate of SIBV) will purchase 5,714,286 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 through its subsidiaries will beneficially
own 30.8% and 44.4%, 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
Since the 1989 Transaction, the Company has been operated pursuant to the
terms of the Organization Agreement, which has been amended on various
occasions. The Organization Agreement, among other things, provides generally
for the election of directors, the selection of officers and the day-to-day
management of the Company. The Organization Agreement provides that one-half of
the directors of each of Holdings, CCA and JSC be elected by the holders of the
Class A Stock (Smurfit Holdings 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 Smurfit Holdings 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 contains 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
will be terminated upon the closing of the Offerings and, at such time, the
Stockholders Agreement shall become effective among the Company, SIBV, the MSLEF
II Associated Entities and certain other entities.
The Organization Agreement also contains 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 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 have also agreed to indemnify SIBV, MSLEF II,
MSLEF II, Inc. and
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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 has 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 survive a termination of the Organization Agreement,
including a termination in connection with the Recapitalization Plan.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement will be entered into at or prior to the
consummation of the 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 SIBV and MSLEF II (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, between CCA and Smurfit
Paperboard, Inc. ('SPI'), or in the Rights Agreement, dated as of April 30,
1992, between CCA, SPI and Bankers Trust Company, (iv) the transactions
contemplated by the Registration Rights Agreement, (v) the provision of services
pursuant to the Financial Advisory Services Agreement, dated as of September 12,
1989, by and among MS&Co., SIBV and Holdings, and (vi) 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.
Neither SIBV nor MSLEF II (or their affiliates) is prohibited from owning,
operating or investing in any business, regardless of whether such business is
competitive with Holdings, JSC or CCA, nor is either SIBV or MSLEF II required
to disclose its intention to make any such investment to the other or to advise
Holdings, JSC or CCA of the opportunity presented by any such prospective
investment.
TRANSFER 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 of ten percent or less in the
aggregate of the outstanding Holdings Common Stock are subject to certain rights
of first offer and rights of first refusal on the part 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 the Company. SIBV and its affiliates have the
right, exercisable on or after August 26, 2002, to purchase all, but not less
than all, of
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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 MSLEF II, Inc., its affiliates and, in respect of shares owned other
than as a result of any such distribution, the Direct Investors) 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 shares in a registration requested by it under the
Registration Rights Agreement of Common Stock which have been distributed to its
partners. See ' -- Registration Rights 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
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, respectively, ceasing to own six
percent or more of the outstanding Holdings Common Stock.
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 and certain shares of Holdings Common
Stock owned by SIBV. See ' -- Stockholders Agreement -- Transfer of Ownership'.
Upon consummation of the Recapitalization Plan (other than the Subordinated Debt
Refinancing), MSLEF II will be entitled to effect up to four such demand
registrations pursuant to the Registration Rights Agreement. SIBV will be
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 earler 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 and, under certain circumstances, SIBV are
entitled, subject to certain limitations, to register 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 that
there is a public trading market for the Holdings Common Stock, MSLEF II and
certain other entities 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 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.
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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 first completed demand registration 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 Stockholders Agreement, the Company would retain MS&Co. to
render it investment banking services at market rates to be negotiated.
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 I, 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. From time to time until December 31, 1994, the
Company, at its 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. The amount payable for such commitment
for 1993 was $2.9 million. The above commitments will be terminated upon the
consummation of the Offerings. The Company has 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, transporta-
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tion 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.
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.
TERMS OF NEW CREDIT AGREEMENT
GENERAL
Pursuant to an amended and restated commitment letter dated February 10,
1994 (the 'Commitment Letter') among Chemical Bank ('Chemical'), Chemical
Securities Inc. ('CSI'), Bankers Trust Company ('Bankers Trust'), BT Securities
Corporation ('BTSC'), JSC and CCA, Chemical has committed to provide $250
million of the New Bank Facilities (as defined below), Bankers Trust has
committed to provide $250 million of the New Bank Facilities and CSI and BTSC
have agreed to use their best efforts to assemble a syndicate of financial
institutions (the 'Lenders') to provide the balance of the remaining commitments
for the New Bank Facilities in a maximum aggregate principal amount of
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$1,650 million, all upon the terms and subject to the conditions set forth in
the Commitment Letter, including the execution of definitive financing
agreements.
Pursuant to the Commitment Letter, the New Bank Facilities are expected to
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').
The Commitment Letter provides that the commitments of Chemical and Bankers
Trust will terminate unless definitive financing agreements with respect thereto
shall have been executed and delivered on or prior to June 30, 1994.
In connection with the New Bank Facilities, Chemical will act as the
administrative agent (in such capacity, the 'Agent'), Chemical and Bankers Trust
will act as senior managing agents and CSI and BTSC will act as the arrangers
for the New Bank Facilities. The Commitment Letter also contemplates that
certain managing agents will be appointed for the New Bank Facilities.
JSC and CCA have agreed, jointly and severally, to pay certain fees to the
Agent for its own account and for the account of the other Lenders 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 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 will be payable 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 order 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. CSI, BTSC and the Lenders shall receive such other fees as have been
separately agreed upon with CSI, BTSC, Chemical and Bankers Trust.
Pursuant to the Commitment Letter, 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 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.
THE NEW BANK FACILITIES
The New Bank Facilities will be provided pursuant to the terms and
conditions of the New Credit Agreement.
Borrowings under the Initial Term Loan and under the Delayed Term Loan on
the Closing Date will be used, together with the proceeds of the Equity
Offerings borrowings under the New Revolving Credit Facility, and the SIBV
Investment 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
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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 will be 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 Senior 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 Senior 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 Subordinated Debt. 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;
whether or not the New Credit Agreement so requires, the Company intends to
cause CCA Enterprises to do so. The mergers of CCA Enterprises into CCA and JSC
Enterprises into JSC, which are expected to occur 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 the date which is seven years after the Closing Date. The Initial Term
Loan will mature on the date which is eight years after the Closing Date. 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 after the Closing Date
as follows:
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<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 Commitment Letter, required prepayments
on the New Bank Facilities are to be made in an amount equal to (i) 75% of
Excess Cash Flow (to be defined as the parties shall mutually agree), 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, (v) in the event the
gross proceeds from the Equity Offerings and any other equity infusion in
Holdings is less than $500 million (the amount by which $500 million exceeds
such gross proceeds, the 'Differential'), the lesser of (A) 100% of the net
proceeds to Holdings of the sale of Holdings Common Stock in connection with the
exercise of the underwriters' overallotment option, if any, in connection with
the Equity Offerings and (B) the amount of the Differential, and (vi) 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 Adjusted LIBOR Rate
shall bear interest at a rate per annum equal to 2% in excess of the interest
rate
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<PAGE>
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 will contain 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 will 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
will be 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 will 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' (the definition of which is to be mutually agreed upon);
(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 grace periods to be agreed
upon.
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 Commitment Letter is qualified in its entirety
by reference to the text of such letter, 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 its
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 currently has borrowings of $182.3 million outstanding 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'.
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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 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 Senior Notes, and are
senior in right to payment to the Subordinated Debt. 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 are seeking to
eliminate 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
Senior 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
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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.
In connection with implementing the Recapitalization Plan, JSC and CCA
intend to amend the terms of the 1993 Note Indenture. Among other things, the
Proposed 1993 Note Amendment will modify the provisions of the 1993 Note
Indenture which limit 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.
SUBSTITUTION TRANSACTION
JSC is currently the guarantor of all of CCA's outstanding public
indebtedness (consisting of the 1993 Notes and the three classes of Subordinated
Debt) and will similarly guarantee the Senior 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. Subject to obtaining
the consent of the holders of the 1993 Notes to the Proposed 1993 Note Amendment
and the consents necessary to amend the Securitization documents and any other
applicable consents, 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.
TERMS OF SUBORDINATED DEBT
Terms. 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
13 1/2% from the date 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 on June 1 and December 1 of each year.
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 14% 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 on June 1 and December 1 of each year.
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 15 1/2% from
the date of issuance. 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. From and after December 1, 1994 interest on
the Junior Accrual Debentures will be payable semiannually on each June 1 and
December 1, commencing June 1, 1995.
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<PAGE>
The indentures under which the Subordinated Debt is governed contain
certain restrictive covenants which impose limitations on JSC and CCA and
certain of their subsidiaries' ability to, among other things: (i) incur
additional indebtedness; (ii) pay dividends and make other distributions; (iii)
create liens; and (iv) use the proceeds of certain asset sales.
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, 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>
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, 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>
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, at 100% of the
principal amount thereof, together with accrued and unpaid interest to the
redemption date.
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.
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. The Subordinated Debt is subordinated in right of payment to
all Senior Debt (as defined in the indentures relating to the Subordinated Debt
(the 'Subordinated Debt Indentures') of CCA which includes CCA's obligations
under the New Credit Agreement, the 1993 Notes, the Senior Notes and certain
other indebtedness of CCA.
Guarantees. The payment of principal and interest on the Subordinated Debt
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, 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 the Senior Notes
and certain other borrowings of JSC.
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DESCRIPTION OF THE SENIOR NOTES
The Series A Senior Notes are to be issued under an Indenture (the 'Series
A Senior Note Indenture') among CCA, JSC and , as Trustee
(the 'Series A Senior Note Trustee'). The Series B Senior Notes are to be issued
under an Indenture (the 'Series B Senior Note Indenture', and together with the
Series A Senior Note Indenture, the 'Indentures') among CCA, JSC and
, as Trustee (the 'Series B Senior Note Trustee', and
together with the Series A Senior Note Trustee, the 'Trustees'). A copy of each
of the forms of the Series A Senior Note Indenture and the Series B Senior Note
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is available as described under 'Additional
Information'. Except as described under ' -- Optional Redemption' below or as
otherwise indicated, this description applies to both the Series A Senior Note
Indenture and the Series B Senior Note Indenture, and references to the 'Senior
Notes' shall be to the Series A Senior Notes or the Series B Senior Notes, as
the case may be, or, if the context requires, to both. The following summary of
certain provisions of the Indentures does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indentures, including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act of 1939, as amended.
Wherever particular sections or defined terms of the Indentures not otherwise
defined herein are referred to, such sections or defined terms shall be
incorporated herein by reference.
GENERAL
Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the Senior Notes may be exchanged or transferred, at the office or
agency of CCA in the Borough of Manhattan, The City of New York (which for the
Senior Notes initially shall be the corporate trust office of the Trustee, at
and, for the Senior Subordinated Notes, initially shall be
the corporate trust office of the Trustee at ); provided
that, at the option of CCA, payment of interest may be made by check mailed to
the address of the Holders as such address appears in the Senior Notes Register.
(Sections 2.01, 2.03 and 2.06)
The Senior Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 2.02) No service charge will be made for any registration of transfer
or exchange of Senior Notes, but CCA may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith. (Section 2.05) The Indentures 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 NOTES
The Senior Notes will be unsecured senior obligations of CCA, limited to
$300 million aggregate principal amount of Series A Senior Notes and $100
million aggregate principal amount of Series B Senior Notes, and will mature on
, 2004 and 2002, respectively. Each Senior Note
will bear interest at the rate per annum shown on the front cover of this
Prospectus from , 1994 or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semi-annually (to
the Holders of record at the close of business on the or
immediately preceding the Interest Payment Date) on and
of each year, commencing , 1994.
OPTIONAL REDEMPTION
CCA may not redeem the Series B Senior Notes prior to maturity.
The Series A Senior Notes will be redeemable, at CCA's option, in whole or
in part, at any time on or after , 1999 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by first class
mail to each Holder's last address as it appears in the Senior Notes Register,
at the following Redemption Prices (expressed as percentages of principal
amount), plus accrued interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the
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<PAGE>
Redemption Date), if redeemed during the 12-month period commencing on
of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- ----------
<S> <C>
1999................................................................... %
2000................................................................... %
2001................................................................... %
2002................................................................... %
2003................................................................... %
</TABLE>
and, on or after , 2004, at 100% of principal amount. (Sections
11.01 and 11.04)
Notwithstanding the foregoing, at any time prior to , 1997,
CCA may redeem up to $100 million in aggregate principal amount of the Series A
Senior Notes at a Redemption Price of % of the principal amount thereof
plus accrued interest to the Redemption Date, with the Net Cash Proceeds from
the issuance of Capital Stock (other than Redeemable Stock) of CCA (or any
entity of which it is a Subsidiary, including JSC and Holdings, to the extent
such Net Cash Proceeds are contributed to CCA or used to acquire Capital Stock
of CCA (other than Redeemable Stock)) in a single transaction or a series of
related transactions (other than the Equity Offerings or an issuance to a
Subsidiary).
Selection. In the case of any partial redemption, selection of the Series A
Senior Notes for redemption will be made by the Series A Senior Note Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Series A Senior Notes are listed or, if the Series A Senior
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such other method as the Series A Senior Note Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Series A
Senior Note of $1,000 in principal amount at maturity or less shall be redeemed
in part. If any Series A Senior Note is to be redeemed in part only, the notice
of redemption relating to such Series A Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Series A Senior Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Series A Senior
Note.
The Credit Agreement contains covenants prohibiting the optional redemption
of the Senior Notes. See 'Description of Certain Indebtedness -- Terms of New
Credit Agreement'.
RANKING
The Indebtedness evidenced by the Senior Notes will rank pari passu in
right of payment with all other senior Indebtedness of CCA, including, without
limitation, CCA's obligations under the Credit Agreement, the 1993 Notes and its
guarantee of JSC's obligations under the Credit Agreement. JSC's Guarantee of
the Senior Notes will rank pari passu in right of payment with all other
unsubordinated Indebtedness of JSC, including, without limitation, JSC's
obligations under the Credit Agreement, its guarantee of the 1993 Notes and its
guarantee of CCA's obligations under the Credit Agreement.
CCA's and JSC's obligations under the Credit Agreement are secured by
pledges of substantially all of the assets of JSC, CCA and their material
subsidiaries and are guaranteed by certain subsidiaries of CCA and JSC, and the
obligations of each such guaranteeing subsidiary are secured by certain assets
of such guaranteeing subsidiary. The Senior Notes and JSC's Guarantee of the
Senior Notes will be effectively subordinated to such security interests and
guarantees to the extent of such security interests and guarantees. After giving
pro forma effect to the Recapitalization Plan, including the Existing
Subordinated Debt Refinancing, as of December 31, 1993, CCA and its subsidiaries
would have had outstanding approximately $1,288.8 million of secured
Indebtedness and JSC and its subsidiaries (including CCA and its subsidiaries)
would have had outstanding approximately $1,474.0 million of secured
Indebtedness, including in each case, without limitation, Indebtedness under the
Credit Agreement. See 'Risk Factors -- Effect of Secured Indebtedness on the
Senior Notes', 'Capitalization' and 'Pro Forma Financial Data'.
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GUARANTEE
CCA's obligations under the Senior Notes are Guaranteed by JSC.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
'Acquired Indebtedness' is defined to mean Indebtedness of a Person
existing at the time such Person became a Subsidiary and not Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
'Adjusted Consolidated Net Income' is defined to mean, for any period, the
aggregate net income (or loss) of any Person and its consolidated Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication); (i) the net income (or loss) of such Person (other than net income
(or loss) attributable to a Subsidiary of such Person) in which any other Person
(other than such Person or any of its Subsidiaries) has a joint interest, except
to the extent of the amount of dividends or other distributions actually paid to
such Person or any of its Subsidiaries by such other Person during such period;
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
'Limitation on Restricted Payments' covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of such Person accrued prior to the date it becomes a Subsidiary of
any other Person or is merged into or consolidated with such other Person or any
of its Subsidiaries or all or substantially all of the property and assets of
such Person are acquired by such other Person or any of its Subsidiaries; (iii)
the net income (or loss) of any Subsidiary (other than CCA) of any Person to the
extent that the declaration or payment of dividends or similar distributions by
such Subsidiary of such net income is not at the time permitted by the operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(v) except for purposes of calculating the amount of Restricted Payments that
may be made pursuant to clause (C) of the first paragraph of the 'Limitation on
Restricted Payments' covenant described below, any amounts paid or accrued as
dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary
of such Person owned by Persons other than such Person and any of its
Subsidiaries; (vi) all extraordinary gains and extraordinary losses; and (vii)
all non-cash charges reducing net income of such Person that relate to stock
options or stock appreciation rights and all cash payments reducing net income
of such Person that relate to stock options or stock appreciation rights, to the
extent such cash payments are not made pursuant to clause (xi) of the
'Limitation on Restricted Payments' covenant; provided that, solely for the
purposes of calculating the Interest Coverage Ratio (and in such case, except to
the extent includable pursuant to clause (i) above), 'Adjusted Consolidated Net
Income' of JSC shall include the amount of all cash dividends received by JSC or
any Subsidiary of JSC from an Unrestricted Subsidiary.
'Adjusted Consolidated Net Tangible Assets' is defined to mean the total
amount of assets of JSC and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of JSC and its Subsidiaries (excluding intercompany items)
and (ii) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on the most
recently available consolidated balance sheet of JSC and its Subsidiaries,
prepared in conformity with GAAP.
'Affiliate' is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition 'control'
(including, with correlative meanings, the terms 'controlling', 'controlled by',
and 'under common control with'), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of
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such Person, whether through the ownership of voting securities, by contract or
otherwise. For purposes of this definition, no Bank nor any affiliate of any
Bank shall be deemed to be an Affiliate of JSC or any of its Subsidiaries nor
shall Morgan Stanley & Co. Incorporated (or any affiliate thereof) be deemed an
Affiliate of JSC or any of its Subsidiaries solely by reason of its ownership of
or right to vote any Indebtedness of JSC or any of its Subsidiaries.
'Asset Acquisition' is defined to mean (i) an investment by JSC or any of
its Subsidiaries in any other Person pursuant to which such Person shall become
a Subsidiary of JSC or any of its Subsidiaries or shall be merged into or
consolidated with JSC or any of its Subsidiaries or (ii) an acquisition by JSC
or any of its Subsidiaries of the assets of any Person other than JSC or any of
its Subsidiaries that constitute substantially all of a division or line of
business of such Person.
'Asset Disposition' is defined to mean the sale or other disposition by JSC
or any of its Subsidiaries (other than to JSC or another Subsidiary of JSC) of
(i) all or substantially all of the Capital Stock of any Subsidiary of JSC or
(ii) all or substantially all of the assets that constitute a division or line
of business of JSC or any of its Subsidiaries.
'Asset Sale' is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
JSC or any of its Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary of such Person (other than pursuant to a public offering of the
Capital Stock of CCA or JSC pursuant to which at least 15% of the total issued
and outstanding Capital Stock of CCA or JSC has been sold by means of an
effective registration statement under the Securities Act or sales, transfers or
other dispositions of Capital Stock of CCA or JSC substantially concurrently
with or following such a public offering), (ii) all or substantially all of the
property and assets of an operating unit or business of such Person or any of
its Subsidiaries or (iii) any other property and assets of such Person or any of
its Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to Mergers, Consolidations and Sales of Assets (it being
acknowledged that JSC and its Subsidiaries may dispose of equipment in the
ordinary course of their respective businesses); provided that sales or other
dispositions of inventory, receivables and other current assets shall not be
included within the meaning of 'Asset Sale.'
'Attributable Indebtedness' is defined to mean, when used in connection
with a sale-leaseback transaction referred to in the 'Limitation on
Sale-Leaseback Transactions' covenant at any date of determination, the product
of (i) the net proceeds from such sale-leaseback transaction and (ii) a
fraction, the numerator of which is the number of full years of the term of the
lease relating to the property involved in such sale-leaseback transaction
(without regard to any options to renew or extend such term) remaining at the
date of the making of such computation and the denominator of which is the
number of full years of the term of such lease (without regard to any options to
renew or extend such term) measured from the first day of such term.
'Average Life' is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (A) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(B) the amount of such principal payment by (ii) the sum of all such principal
payments.
'Banks' is defined to mean the lenders who are from time to time parties to
any Credit Agreement.
'Board of Directors' is defined to mean the Board of Directors of JSC or
CCA, as the case may be, or any committee of such Board of Directors duly
authorized to act under the Indenture.
'Business Day' is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the Trustee, are authorized by law to close.
'Capital Stock' is defined to mean, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
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'Capitalized Lease' is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and 'Capitalized Lease Obligation' is defined to mean the rental obligations, as
aforesaid, under such lease.
'Change of Control' is defined to mean such time as (i) (a) a 'person' or
'group' (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Original Stockholders, becomes the 'beneficial owner' (as defined
in Rule 13d-3 under the Exchange Act) of more than 35% of the total voting power
of the then outstanding Voting Stock of Holdings or a Holdings Parent and (b)
the Original Stockholders beneficially own, directly or indirectly, less than
the then outstanding Voting Stock of Holdings or a Holdings Parent beneficially
owned by such 'person' or 'group'; or (ii) (a) a 'person' or 'group' (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
Original Stockholders, becomes the 'beneficial owner' (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the then
outstanding Voting Stock of 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.
'Closing Date' is defined to mean the date on which the Senior Notes are
originally issued under the Indentures.
'Common Stock' is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
'Consolidated EBITDA' is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted Consolidated
Net Income, (ii) Consolidated Interest Expense, (iii) income taxes (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense,
(v) amortization expense and (vi) all other non-cash items reducing Adjusted
Consolidated Net Income, less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for such
Person and its Subsidiaries in conformity with GAAP; provided that, if a Person
has any Subsidiary that is not a Wholly Owned Subsidiary of such Person,
Consolidated EBITDA of such Person shall be reduced (to the extent not otherwise
reduced by GAAP) by an amount equal to (A) the Adjusted Consolidated Net Income
of such Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Subsidiary not owned on the last day of such
period by such Person or any Subsidiary of such Person divided by (2) the total
number of shares of outstanding Common Stock of such Subsidiary on the last day
of such period.
'Consolidated Interest Expense' is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by such
Person and its consolidated subsidiaries during such period; excluding, however,
(i) any amount of such interest of any Subsidiary of such Person if the net
income (or loss) of such Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income for such person pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income (or loss)
of such Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income for such Person pursuant to clause (iii) of the definition thereof) and
(ii) any premiums, fees and expenses (and any amortization thereof) payable in
connection with the 1989 Transaction, the 1992 Transaction, the 1993
Transaction, the issuance of the New Subordinated Notes and the Recapitalization
Plan, all as determined on a consolidated basis in conformity with GAAP.
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'Consolidated Net Worth' is defined to mean, at any date of determination,
shareholders' equity as set forth on the most recently available consolidated
balance sheet of JSC and its Subsidiaries (which shall be as of a date not more
than 60 days prior to the date of such computation), less any amounts
attributable to Redeemable Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
JSC or any Subsidiary of JSC, each item to be determined in accordance with GAAP
(excluding the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 52).
'Credit Agreement' is defined to mean the Credit Agreement, dated
approximately the Closing Date or the date of the Prospectus relating to the
sale of the Senior Notes, among JSC, CCA, the guarantors party thereto and the
Banks party thereto, together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith
(including, without limitation, any promissory notes, Guarantees and security
documents), in each case, as such agreements, instruments and documents may be
amended (including, without limitation, any amendment and restatement thereof),
supplemented, extended, renewed, replaced or otherwise modified from time to
time, including, without limitation, any agreement increasing the amount of,
extending the maturity of, refinancing or otherwise restructuring (including,
but not limited to, by the inclusion of additional borrowers or guarantors
thereunder that are Subsidiaries of JSC or by the requirement of additional
collateral or other credit enhancement to support the obligations thereunder)
all or any portion of the Indebtedness under such agreement or any successor
agreement or agreements; provided that, with respect to any agreement providing
for the refinancing of Indebtedness under any Credit Agreement, such agreement
shall be a Credit Agreement under the Indenture only if a notice to that effect
is delivered by JSC to the Trustee and there shall be at any time no more than
two instruments that are Credit Agreements under the Indenture.
'Currency Agreement' is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect 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 of the Indenture or becomes a party or a beneficiary thereafter.
'Default' is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
'Existing Subordinated Debt Refinancing' is defined to mean the refinancing
of any or all of the Indebtedness represented by the Junior Accrued Debentures,
Senior Subordinated Notes and the Subordinated Debentures, including pursuant to
the Credit Agreement.
'Foreign Subsidiary' is defined to mean any Subsidiary of JSC that (i)
derives more than 80% of its sales or net income from, or (ii) has more than 80%
of its assets located in, territories and jurisdictions outside the United
States of America (in each case determined on a consolidated basis in conformity
with GAAP).
'GAAP' is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the 1989 Transaction, the 1992 Transaction,
the 1993 Transaction, the issuance of the New Subordinated Notes and the
Recapitalization Plan, (ii) except as otherwise provided, the amortization of
any amounts required or permitted by Accounting Principles Board Opinion Nos. 16
and 17 and (iii) any charges associated with the adoption of Financial
Accounting Standard Nos. 106 and 109.
'Guarantee' is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting
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the generality of the foregoing, any obligation, direct or indirect, contingent
or otherwise, of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or other obligation of such
other Person (whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term 'Guarantee' shall
not include endorsements for collection or deposit in the ordinary course of
business. The term 'Guarantee' used as a verb has a corresponding meaning.
'Holder' or 'Noteholder' or 'Senior Notes Holder' is defined to mean the
registered holder of any Series A Senior Note or Series B Senior Note, as the
case may be.
'Holdings' is defined to mean SIBV/MS Holdings, Inc., a Delaware
corporation.
'Holdings Parent' is defined to mean any entity of which Holdings is a
direct or indirect Subsidiary.
'Incur' is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest (whether such
interest is payable in cash or kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
'Indebtedness' is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (other than, in the case of JSC
and 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
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person, (viii) all
obligations in respect of borrowed money under any Credit Agreement, the Secured
Notes and any Guarantees thereof and (ix) to the extent not otherwise included
in this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability determined by such Person's board of directors,
in good faith, as reasonably likely to occur, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date, provided that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and provided
further that Indebtedness shall not include (A) any liability for federal,
state, local or other taxes or (B) obligations of JSC or its Restricted
Subsidiaries pursuant to Receivables Programs.
'Interest Coverage Ratio' is defined to mean, with respect to any Person on
any Transaction Date, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(A) pro forma effect shall be given to (1) any Indebtedness Incurred subsequent
to the end of the four-fiscal-quarter period referred to in clause (i) and prior
to the Transaction Date (other than Indebtedness Incurred under a revolving
credit or similar
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arrangement to the extent of the commitment thereunder (or under any predecessor
revolving credit or similar arrangement) on the last day of such period), (2)
any Indebtedness Incurred during such period to the extent such Indebtedness is
outstanding at the Transaction Date and (3) any Indebtedness to be Incurred on
the Transaction Date, in each case as if such Indebtedness had been Incurred on
the first day of such four-fiscal-quarter period and after giving pro forma
effect to the application of the proceeds thereof as if such application had
occurred on such first day; (B) Consolidated Interest Expense attributable to
interest on any Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months) had been the applicable rate for the
entire period; (C) there shall be excluded from Consolidated Interest Expense
any Consolidated Interest Expense related to any amount of Indebtedness that was
outstanding during such four-fiscal-quarter period or thereafter but that is not
outstanding or is to be repaid on the Transaction Date, except for Consolidated
Interest Expense accrued (as adjusted pursuant to clause (B)) during such
four-fiscal-quarter period under a revolving credit or similar arrangement to
the extent of the commitment thereunder (or under any successor revolving credit
or similar arrangement) on the Transaction Date; (D) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving pro forma
effect to the application of proceeds of any Asset Disposition) that occur
during such four-fiscal-quarter period or thereafter and prior to the
Transaction Date as if they had occurred and such proceeds had been applied on
the first day of such four-fiscal-quarter period; (E) with respect to any such
four-fiscal-quarter period commencing prior to the Refinancing, the Refinancing
shall be deemed to have taken place on the first day of such period; and (F) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Subsidiary of
JSC or has been merged with or into JSC or any Subsidiary of JSC during the
four-fiscal-quarter period referred to above or subsequent to such period and
prior to the Transaction Date and that would have constituted Asset Dispositions
or Asset Acquisitions had such transactions occurred when such Person was a
Subsidiary of JSC as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day of such
period; provided that to the extent that clause (D) or (F) of this sentence
requires that pro forma effect be given to an Asset Acquisition or an asset
acquisition, such pro forma calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired for which financial
information is available.
'Interest Rate Agreement' is defined to mean any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect JSC or any of its Subsidiaries against
fluctuations in interest rates or obtain the benefits of floating interest rates
to or under which JSC or any of its Subsidiaries is a party or a beneficiary on
the date of the Indenture or becomes a party or a beneficiary thereafter.
'Investment' is defined to mean any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries)
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by
any other Person. For purposes of the definition of 'Unrestricted Subsidiary'
and the 'Limitation on Restricted Payments' covenant described below, (i)
'Investment' shall include the fair market value of the net assets of any
Subsidiary of JSC at the time that such Subsidiary of JSC is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of JSC and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
'Junior Accrual Debentures' is defined to mean CCA's 15 1/2% Junior
Subordinated Accrual Debentures due 2004.
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'Lien' is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
'Net Cash Proceeds' is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to JSC or any Subsidiary of JSC) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of JSC and its Subsidiaries, taken as
a whole, (iii) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a Lien
on the property or assets sold or (B) is required to be paid as a result of such
sale and (iv) appropriate amounts to be provided by JSC or any Subsidiary of JSC
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP.
'New Subordinated Notes' is defined to mean the 11 1/2% Junior Subordinated
Notes maturing 2005, in an aggregate amount not to exceed $200 million, of CCA
which SIBV had committed to purchase (which commitment will terminate on the
Closing Date without any of such notes having been issued).
'1989 Transaction' is defined to mean the transaction in which (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 MSLEF I
Group received $500 million in respect of its shares of CCA common stock, (iv)
SIBV received $41.75 per share, or an aggregate of approximately $1.25 billion,
in respect of its shares of JSC stock and (v) the public stockholders received
$43 per share of JSC stock.
'1993 Transaction' is defined to mean the issuance and sale of an aggregate
principal amount of $500 million of 9 3/4% Senior Notes Due 2003, the repayment
of Indebtedness with the proceeds of such sale and the amendments (and consent
payments in respect thereof) to certain debt instruments, and the agreements
related thereto, that were effected in April 1993.
'1992 Stock Option Plan' is defined to mean the Holdings 1992 Stock Option
Plan, as the same may be amended, supplemented or otherwise modified from time
to time.
'1992 Transaction' is defined to mean the purchase, in August 1992, by
certain stockholders of Holdings of $231.8 million of Common Stock of Holdings,
the contribution by Holdings of such $231.8 million to CCA and the application
by CCA of such $231.8 million to repurchase Junior Accrual Debentures and repay
other subordinated Indebtedness of CCA.
'Original Stockholders' is defined to mean, collectively, MSLEF II, Morgan
Stanley Group, SIBV, JS Group and any Affiliate of any such Person.
'Permitted Liens' is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory Liens of landlords
and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (iii) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations,
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bankers' acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of JSC or any of
its Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or tangible personal property acquired after the Closing Date; provided
that (a) such Lien is created solely for the purpose of securing Indebtedness
Incurred (1) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of JSC or any of
its Subsidiaries; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of JSC or any of its
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or Operating Lease;
provided that any sale-leaseback transaction related thereto complies with the
'Limitation on Sale-Leaseback Transactions' covenant; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xi) Liens
on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; (xii) Liens in favor of JSC or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against JSC
or any Subsidiary of JSC that does not give rise to an Event of Default; (xiv)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within the
general parameters customary in the industry and incurred in the ordinary course
of business or otherwise permitted under the terms of either of the Credit
Agreements, in each case securing Indebtedness under Interest Rate Agreements,
Currency Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed to protect JSC or any of
its Subsidiaries from fluctuations in the price of commodities; (xvii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by JSC or any of its
Subsidiaries in the ordinary course of business in accordance with the past
practices of JSC and its Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; and (xix) Liens securing any real property or other
assets of JSC or any Restricted Subsidiary in favor of the United States of
America or any State thereof, or any department, agency, instrumentality or
political subdivision thereof, in connection with the financing of industrial
revenue bond facilities or any equipment or other property designed primarily
for the purpose of air or water pollution control; provided that any such Lien
on such facilities, equipment or other property shall not apply to any other
assets of JSC or any Restricted Subsidiary.
'Person' is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
'Preferred Stock' is defined to mean, with respect to any Person, any and
all shares, interests, participation or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such preferred or preference
stock.
'Principal Property' is defined to mean any manufacturing or processing
plant, warehouse or other building used by JSC or any Restricted Subsidiary,
other than a plant, warehouse or other building that, in the good faith opinion
of the Board of Directors of JSC as reflected in a Board Resolution, is not of
material importance to the business conducted by JSC and its Restricted
Subsidiaries taken as a whole as of the date such Board Resolution is adopted.
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'Recapitalization Plan' means, collectively, the following transactions:
(i) the sale of the Senior Notes, (ii) the sale by Holdings of Holdings Common
Stock substantially concurrently with the transaction described in clause (i),
(iii) the SIBV Investment, (iv) the execution and delivery of the Credit
Agreement, (v) the application of the proceeds of the transactions described in
clauses (i) through (iv), (vi) the Existing Subordinated Debt Refinancing, (vii)
the obtaining of all consents and waivers necessary or determined by CCA, JSC or
Holdings to be appropriate in connection with the foregoing, (viii) all other
transactions related to, or entered into in connection with, the foregoing
unless CCA determines that any such transaction should not be considered part of
the Recapitalization Plan and (ix) the payment and accrual of all fees and
expenses related to the foregoing.
'Receivables Programs' means, with respect to any Person, obligations of
such Person or its Subsidiaries pursuant to accounts receivable securitization
programs, to the extent that the proceeds received pursuant to a pledge, sale or
other encumbrance of accounts receivable pursuant to such programs do not exceed
91% of the total book value of such accounts receivable (determined on a
consolidated basis in accordance with GAAP as of the end of the most recent
fiscal quarter for which financial information is available), and any extension,
renewal, modification or replacement of such programs, including, without
limitation, any agreement increasing the amount of, extending the maturity of,
refinancing or otherwise restructuring all or any portion of the obligations
under such programs or any successor agreement or agreements.
'Redeemable Stock' is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Senior Notes, (ii) redeemable at the option
of the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Senior Notes, or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Stated Maturity of the Senior Notes; provided
that any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an 'asset sale'
or 'change of control' occurring prior to the Stated Maturity of the Senior
Notes shall not constitute Redeemable Stock if the 'asset sale' or 'change of
control' provisions applicable to such Capital Stock are no more favorable
(except with respect to any premium payable) to the holders of such Capital
Stock than the provisions contained in 'Limitation on Asset Sales' and
'Repurchase of Senior Notes upon Change of Control' covenants described below
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provisions prior to such
Person's repurchase of such Senior Notes, as are required to be repurchased
pursuant to the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon
Change of Control' covenants described below.
'Restricted Subsidiary' is defined to mean any Subsidiary of JSC other than
an Unrestricted Subsidiary.
'Senior Subordinated Notes' is defined to mean CCA's 13 1/2% Senior
Subordinated Notes due 1999.
'SIBV Investment' is defined to mean the purchase by SIBV (or a corporate
affiliate thereof) of shares of Holdings Common Stock, substantially
concurrently with the sale by CCA of the Senior Notes.
'Significant Subsidiary' is defined to mean, at any date of determination,
any Subsidiary of JSC that, together with its Subsidiaries, (i) for the most
recent fiscal year of JSC, accounted for more than 10% of the consolidated
revenues of JSC or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of JSC, all as set forth on the most
recently available consolidated financial statements of JSC for such fiscal
year.
'Smurfit Newsprint' is defined to mean Smurfit Newsprint Corporation, a
Delaware corporation.
'Stated Maturity' is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
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'Subordinated Debentures' is defined to mean CCA's 14% Subordinated
Debentures due 2001.
'Subsidiary' is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by JSC or by one or
more other Subsidiaries of JSC, or by such Person and one or more other
Subsidiaries of such Person; provided that, except as the term 'Subsidiary' is
used in the definition of 'Unrestricted Subsidiary' set forth below, an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of JSC for
purposes of the Indenture.
'Times Mirror Agreement' is defined to mean 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' is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
'Transaction Date' is defined to mean, with respect to the Incurrence of
any Indebtedness by JSC or any of its Subsidiaries, the date such Indebtedness
is to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
'Unrestricted Subsidiary' is defined to mean (i) any Subsidiary of JSC that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors of JSC in the manner 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 of JSC) other than CCA to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, JSC or any other Subsidiary of JSC that is not a Subsidiary of the
Subsidiary to be so designated; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under the
'Limitation on Restricted Payments' covenant described below. The Board of
Directors of JSC may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of JSC; provided that immediately after giving effect to such
designation (x) JSC could Incur $1.00 of additional Indebtedness under the first
paragraph of the 'Limitation on Indebtedness' covenant described below and (y)
no Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors of JSC shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions. Any Subsidiary of JSC may be
designated as an Unrestricted Subsidiary (or not so designated) for purposes of
the Indenture without regard to whether such Subsidiary is so designated (or not
so designated) for purposes of any other agreement relating to Indebtedness of
JSC or any of its Subsidiaries.
'Voting Stock' is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors.
'Wholly Owned Subsidiary' is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Common Stock or other similar equity
ownership interests (but not including Preferred Stock) in such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly by such Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
Under the terms of the Indentures, JSC shall not, and shall not permit any
Restricted Subsidiary to, Incur any Indebtedness unless, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio of JSC would be greater than
<TABLE>
<S> <C>
(1) prior to July 1, 1994............................................................ 1.50:1,
(2) after June 30, 1994 and prior to July 1, 1995.................................... 1.75:1,
(3) after June 30, 1995.............................................................. 2.00:1.
</TABLE>
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Notwithstanding the foregoing, JSC and any Restricted Subsidiary (except as
expressly provided below) may Incur each and all of the following: (i)
Indebtedness (A) of JSC and CCA outstanding at any time in an aggregate
principal amount not to exceed the amount of outstanding Indebtedness and unused
commitments under the Credit Agreement on the Closing Date less any Indebtedness
Incurred pursuant to clause (iii) below to refinance or refund the Junior
Accrual Debentures, the Senior Subordinated Notes or the Subordinated
Debentures, (B) of JSC and CCA outstanding at any time in an aggregate principal
amount not to exceed $275 million, (C) of JSC Enterprises, CCA Enterprises and
Smurfit Newsprint under the Credit Agreement, (D) of Restricted Subsidiaries of
JSC (other than CCA) in an aggregate principal amount not to exceed $50 million
at any one time outstanding, and (E) consisting of Guarantees by Restricted
Subsidiaries of JSC (other than CCA) of Indebtedness of JSC and its Restricted
Subsidiaries under the Credit Agreement or any other Indebtedness of such
Persons for borrowed money; provided that any such Restricted Subsidiary that
Guarantees such Indebtedness under the Credit Agreement or any such other
indebtedness for borrowed money shall fully and unconditionally Guarantee the
Senior Notes on a senior basis (to the same extent and for only so long as such
Indebtedness under the Credit Agreement or such other Indebtedness for borrowed
money is Guaranteed by such Restricted Subsidiary); provided further that (x)
any such Guarantees of Indebtedness subordinated to the Senior Notes will be
subordinated to such Subsidiary's Guarantee of the Senior Notes, if any, in a
like manner and (y) a Guarantee by a Restricted Subsidiary shall not be deemed
to exist, and Indebtedness shall not be deemed to have been incurred by a
Restricted Subsidiary, solely by reason of one or more security interests in
assets of such Restricted Subsidiary having been granted to a Person; (ii)
Indebtedness (A) of JSC to any of its Restricted Subsidiaries that is a Wholly
Owned Subsidiary of JSC, or of a Restricted Subsidiary to JSC or to any other
Restricted Subsidiary that is a Wholly Owned Subsidiary of JSC, (B) of JSC or
any Restricted Subsidiary to Smurfit Newsprint or (C) of JSC or any Restricted
Subsidiary to any Foreign Subsidiary in an aggregate principal amount not to
exceed $20 million at any one time outstanding; (iii) Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund,
outstanding Indebtedness of JSC or any of its Restricted Subsidiaries, other
than Indebtedness Incurred under clauses (i)(A), (B) or (D), (ii)(C), (vi) or
(ix) of this paragraph and any refinancings thereof, in an amount (or, if such
new Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged, refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided that
Indebtedness issued in exchange for, or the proceeds of which are used to
refinance or refund, the Senior Notes or JSC's Guarantee thereof or other
Indebtedness of CCA or JSC that is pari passu with, or subordinated in right of
payment to, the Senior Notes or JSC's Guarantee thereof, as the case may be
(other than the Junior Accrual Debentures, Senior Subordinated Notes and the
Subordinated Debentures), shall only be permitted under this clause (iii) if (A)
in case the Indebtedness to be refinanced is subordinated in right of payment to
the Senior Notes or JSC's Guarantee thereof, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Senior Notes or JSC's Guarantee thereof, as the case may
be, at least to the extent that the Indebtedness to be refinanced is
subordinated to the Senior Notes or JSC's Guarantee thereof, as the case may be,
(B) in case the Senior Notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with, or subordinated in right of payment to, the
Senior Notes or JSC's Guarantee thereof, such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature prior to six
months after the Stated Maturity of the Indebtedness to be refinanced (or, if
earlier, six months after the Stated Maturity of the Senior Notes) and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced plus six months (or, if less, the
remaining Average Life of the Senior Notes plus six months), and (C) if the
Indebtedness to be refinanced is Indebtedness of JSC or CCA, such new
Indebtedness Incurred pursuant to this clause (iii) may not be Indebtedness of
any Restricted Subsidiary of JSC other than CCA; (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not increase the Indebtedness of JSC
or its Restricted Subsidiaries outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and
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compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of JSC or any Restricted Subsidiary of JSC pursuant to such
agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of JSC, other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of JSC for the purpose of financing
such acquisition; (v) Indebtedness in respect of letters of credit and bankers'
acceptances Incurred in the ordinary course of business consistent with past
practice; (vi) Indebtedness of JSC or CCA in an aggregate amount not to exceed
$100 million at any one time outstanding; provided that such Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued or remains outstanding, (A) is expressly made subordinate
in right of payment to the Senior Notes or JSC's Guarantee thereof, as the case
may be, (B) provides that no required payments of principal of such Indebtedness
by way of sinking fund, mandatory redemption or otherwise shall be made by JSC
or CCA (including, without limitation, at the option of the holder thereof other
than an option given to a holder pursuant to an 'asset sale' or 'change of
control' provision that is no more favorable (except with respect to any premium
payable) to the holders of such Indebtedness than the provisions contained in
the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon Change of
Control' covenants and such Indebtedness specifically provides that JSC and CCA
will not repurchase or redeem such Indebtedness pursuant to such provisions
prior to CCA's repurchase of the Senior Notes required to be repurchased by CCA
under the 'Limitation on Asset Sales' and 'Repurchase of Senior Notes upon
Change of Control' covenants) at any time prior to the Stated Maturity of the
Senior Notes and (C) after giving effect to the Incurrence of such Indebtedness
and the application of the proceeds therefrom, JSC's Interest Coverage Ratio
would be at least 1.25:1; (vii) Indebtedness of CCA or JSC Incurred on or before
December 1, 1994, the proceeds of which are used to pay cash interest on the
Junior Accrual Debentures; (viii) Acquired Indebtedness, provided that, at the
time of the Incurrence thereof, JSC could Incur at least $1.00 of Indebtedness
under the first paragraph of this 'Limitation on Indebtedness' covenant, and
refinancings thereof; provided that such refinancing Indebtedness may not be
Incurred by any Person other than JSC, CCA or the Restricted Subsidiary that is
the obligor on such Acquired Indebtedness; (ix) Indebtedness of JSC or CCA
Incurred to finance, directly or indirectly, capital expenditures of JSC and its
Restricted Subsidiaries in an aggregate principal amount not to exceed $75
million in each fiscal year of JSC, and any refinancing of such Indebtedness
(including pursuant to any Capitalized Lease); provided that the amount of
Indebtedness which may be Incurred in any fiscal year of JSC pursuant to this
clause (ix) shall be increased by the amount of Indebtedness (other than
refinancing Indebtedness) which could have been Incurred in the prior fiscal
year (including by reason of this proviso) of JSC pursuant to this clause (ix)
but which was not so Incurred; and (x) Indebtedness 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 Holdings, JSC or any of its Restricted Subsidiaries
as set forth in the agreements under which such employees purchase or hold
shares of Holdings', a Holdings Parent's, JSC's or CCA's Common Stock, as such
agreements may be amended; provided that such Indebtedness is subordinated to
the Senior Notes and JSC's Guarantee thereof, as the case may be, and that no
payment of principal of such Indebtedness may be made while any Senior Notes are
outstanding.
Notwithstanding any other provision of this 'Limitation on Indebtedness'
covenant, (i) the maximum amount of Indebtedness that JSC or any Restricted
Subsidiary may Incur pursuant to this 'Limitation on Indebtedness' covenant
shall not be deemed to be exceeded due solely to fluctuations in the exchange
rates of currencies, (ii) Indebtedness Incurred pursuant to the Credit Agreement
on the Closing Date (and after repaying the Indebtedness to be repaid pursuant
to the Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any overallotment
option granted in connection with sales of Holdings Common Stock pursuant to
clause (ii) of the definition of 'Recapitalization Plan' and the application of
any proceeds thereof) shall be treated as Incurred immediately after the Closing
Date pursuant to clause (i)(A) of the second paragraph of this 'Limitation on
Indebtedness' covenant, (iii) for purposes of calculating the amount of
Indebtedness outstanding at any time under clauses (i)(B) and (i)(D) of the
second paragraph of this
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'Limitation on Indebtedness' covenant, no amount of Indebtedness of JSC or any
Restricted Subsidiary outstanding on the Closing Date, including the Senior
Notes, shall be considered to be outstanding and (iv) neither JSC nor CCA may
Incur any Indebtedness that is expressly subordinated to any other Indebtedness
of JSC or CCA, as the case may be, unless such Indebtedness, by its terms or the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, is also expressly made subordinate to JSC's Guarantee of the Senior
Notes or the Senior Notes, as the case may be, at least to the extent that such
Indebtedness is subordinated to such other Indebtedness; provided that the
limitation in clause (iv) above shall not apply to distinctions between
categories of unsubordinated Indebtedness which exist by reason of (a) any liens
or other encumbrances arising or created in respect of some but not all
unsubordinated Indebtedness, (b) intercreditor agreements between holders of
different classes of unsubordinated Indebtedness or (c) different maturities or
prepayment provisions.
For purposes of determining any particular amount of Indebtedness under
this 'Limitation on Indebtedness' covenant, (1) Indebtedness resulting from
security interests granted with respect to Indebtedness of JSC or any Restricted
Subsidiary otherwise included in the determination of such particular amount,
and Guarantees (and security interests in respect thereof) of, or obligations
with respect to letters of credit supporting, Indebtedness otherwise included in
the determination of such particular amount shall not be included, (2) any Liens
granted pursuant to the equal and ratable provisions referred to in the first
paragraph or clause (i) of the second paragraph of the 'Limitation on Liens'
covenant shall not be treated as Indebtedness and (3) Indebtedness permitted
under this 'Limitation of Indebtedness' covenant need not be permitted solely by
reference to one provision permitting such Indebtedness but may be permitted in
part by reference to one such provision and in part by reference to one or more
other provisions of this covenant permitting such Indebtedness. For purposes of
determining compliance with this 'Limitation on Indebtedness' covenant, (x) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in the above clauses, JSC, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses and (y)
the amount of Indebtedness issued at a price that is less than the principal
amount thereof shall be equal to the amount of the liability in respect thereof
determined in conformity with GAAP. (Section 3.03)
LIMITATION ON RESTRICTED PAYMENTS
So long as any of the Senior Notes are outstanding, JSC will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on its Capital Stock (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) of the same class held
by such holders or in options, warrants or other rights to acquire such shares
of Capital Stock) held by Persons other than JSC or any Restricted Subsidiary
that is a Wholly Owned Subsidiary of JSC, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of Holdings, a Holdings
Parent, JSC or CCA (including options, warrants or other rights to acquire such
shares of Capital Stock) held by Persons other than JSC or any Restricted
Subsidiary that is a Wholly Owned Subsidiary of JSC, (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other voluntary acquisition or retirement for value, of (1)
Indebtedness of Holdings or a Holdings Parent, (2) Indebtedness of CCA that is
subordinated in right of payment to the Senior Notes (other than the Senior
Subordinated Notes, the Subordinated Debentures and the Junior Accrual
Debentures) or (3) Indebtedness of JSC that is subordinated in right of payment
to JSC's Guarantee of the Senior Notes (other than the Guarantees of JSC with
respect to the Senior Subordinated Notes, the Subordinated Debentures and the
Junior Accrual Debentures), or (iv) make any Investment in any Unrestricted
Subsidiary (such payments or any other actions described in clauses (i) through
(iv) being collectively 'Restricted Payments') if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) JSC could not Incur at least
$1.00 of Indebtedness under the first paragraph of the 'Limitation on
Indebtedness' covenant or (C) the aggregate amount expended for all Restricted
Payments (the amount so expended, if other than in cash, to be determined in
good faith by the Board of Directors of JSC, whose determination shall be
conclusive and evidenced by a Board Resolution) after the date of the Indenture
shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or,
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if the Adjusted Consolidated Net Income is a loss, minus 100% of such amount) of
JSC (determined by excluding income resulting from the transfers of assets
received by JSC or a Restricted Subsidiary from an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the month immediately following the Closing Date
and ending on the last day of the last fiscal quarter preceding the Transaction
Date plus (2) the aggregate net proceeds (including the fair market value of
noncash proceeds as determined in good faith by the Board of Directors of JSC)
received by JSC or CCA from the issuance and sale permitted by the Indenture of
the Capital Stock of JSC or CCA (other than Redeemable Stock) to a Person who is
not a Restricted Subsidiary of JSC or an Unrestricted Subsidiary of JSC,
including an issuance or sale permitted by the Indenture for cash or other
property upon the conversion of any Indebtedness of JSC or CCA subsequent to the
Closing Date, or from the issuance of any options, warrants or other rights to
acquire Capital Stock of JSC or CCA (in each case, exclusive of any Redeemable
Stock or any options, warrants or other rights that are redeemable at the option
of the holder, or are required to be redeemed, prior to the Stated Maturity of
the Senior Notes) plus all amounts contributed to the capital of JSC by Holdings
plus (3) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries (other than such Investments made pursuant to clause (v) of the
second paragraph of this 'Limitation on Restricted Payments' covenant) resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to JSC or any Restricted
Subsidiary from Unrestricted Subsidiaries, or from redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of 'Investments'), not to exceed in the case of any Unrestricted
Subsidiary the amount of Investments previously made by JSC or any Restricted
Subsidiary in such Unrestricted Subsidiary plus (4) $25 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of (A) Indebtedness of Holdings or
a Holdings Parent, (B) Indebtedness of CCA that is subordinated in right of
payment to the Senior Notes or (C) Indebtedness of JSC that is subordinated in
right of payment to JSC's Guarantee of the Senior Notes, including premium, if
any, and accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) or (vi) of the second paragraph of the
'Limitation on Indebtedness' covenant; (iii) the payment of dividends on the
Capital Stock of JSC or CCA, following any initial public offering of Capital
Stock of Holdings provided for in the Recapitalization Plan, of up to 6% per
annum of the net proceeds received by JSC or CCA, as the case may be, from
Holdings out of the proceeds of (a) such public offering and (b) the SIBV
Investment (net of underwriting discounts and commissions, if any, but without
deducting other fees or expenses therefrom); (iv) the repurchase, redemption or
other acquisition of Capital Stock of Holdings, a Holdings Parent, JSC or CCA in
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of Capital Stock (other than Redeemable Stock) of Holdings, a Holdings
Parent, JSC or CCA; (v) the making of Investments in Unrestricted Subsidiaries
in an aggregate amount not to exceed $25 million in each fiscal year of JSC;
(vi) the acquisition of (A) Indebtedness of Holdings or a Holdings Parent, (B)
Indebtedness of CCA which is subordinated in right of payment to the Senior
Notes or (C) Indebtedness of JSC that is subordinated in right of payment to
JSC's Guarantee of the Senior Notes in exchange for, or out of the proceeds of,
a substantially concurrent offering of, shares of the Capital Stock of Holdings,
a Holdings Parent, JSC or CCA (other than Redeemable Stock); (vii) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of JSC or CCA; (viii) payments to Holdings (A) in an
aggregate amount not to exceed $2 million per annum to cover the reasonable
expenses of Holdings incurred in the ordinary course of business and (B) in an
amount not to exceed the amount believed in good faith by the Board of Directors
of JSC or CCA, as the case may be, to be necessary or advisable for the payment
of any liability of Holdings, JSC and CCA in connection with federal, state,
local or foreign taxes; (ix) payments to JSC or any Restricted Subsidiary of JSC
in respect of Indebtedness of JSC or any Restricted Subsidiary of JSC owed to
JSC or another Restricted Subsidiary of JSC; (x) distributions and payments
required to be made pursuant to the Times Mirror Agreement or
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distributions or payments to Holdings, to enable Holdings to satisfy its payment
obligations under the Times Mirror Agreement; (xi) payments to Persons who are
no longer Employees (as defined in the 1992 Stock Option Plan) or the
beneficiaries or estates of such Persons, as a result of the purchase by
Holdings of options issued pursuant to the 1992 Stock Option Plan (or Common
Stock issued upon the exercise of such options) held by such Persons in
accordance with the 1992 Stock Option Plan; provided that such payments do not
exceed $4 million in any fiscal year; or payments or distributions to Holdings
to enable Holdings to make any such payments; or (xii) the payment of pro rata
dividends to holders of Capital Stock of Smurfit Newsprint; provided that, in
the case of clauses (ii) through (vii), (xi) and (xii), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein. In connection with any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of any security which is not Capital Stock but which is convertible into or
exchangeable for Capital Stock (including options, warrants or other rights to
purchase Capital Stock), such purchase, repurchase, redemption, defeasance or
other acquisition or retirement shall be deemed covered by clause (iii) and not
by clause (ii) of the first paragraph of this 'Limitation on Restricted
Payments' covenant if the Board of Directors of JSC makes a good faith
determination that the value of the underlying Capital Stock, less any
consideration payable by the holder of such security in connection with such
conversion or exchange, is less than the value of the referenced security.
Notwithstanding the foregoing, any amounts paid pursuant to clause (iii) of this
second paragraph of this 'Limitation on Restricted Payments' covenant shall
reduce the amount available for Restricted Payments under clause (C) of the
first paragraph of this 'Limitation on Restricted Payments' covenant.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of CCA or JSC (or Holdings or a Holdings Parent to the extent that the proceeds
therefrom are contributed to CCA) and (1) the repurchase, redemption or other
acquisition of Capital Stock out of the proceeds of such issuance or (2) the
acquisition of Indebtedness that is subordinated in right of payment to the
Senior Notes or the redemption of the Series A Senior Notes out of the proceeds
of such issuance, as permitted by clause (iv) or (vi) above, then, in
calculating whether the conditions of clause (C) of the first paragraph of this
'Limitation on Restricted Payments' covenant have been met with respect to any
subsequent Restricted Payments, both the proceeds of such issuance and the
application of such proceeds shall be included under clause (C). (Section 3.04)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
So long as any of the Senior Notes are outstanding, JSC will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary (other than CCA) to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by JSC or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to JSC or any other Restricted
Subsidiary, (iii) make loans or advances to JSC or any other Restricted
Subsidiary or (iv) transfer, subject to certain exceptions, any of its property
or assets to JSC or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances or
restrictions: (i) existing in any Credit Agreement, (ii) existing under the 1993
Notes, the Senior Subordinated Notes, the Subordinated Debentures, the Junior
Accrual Debentures, any indenture or agreement related to any of the foregoing
or any agreements in effect on the Closing Date or in any Indebtedness
containing any such encumbrance or restriction that is permitted pursuant to
clause (v) below or in any extensions, refinancings, renewals or replacements of
any of the foregoing; provided that the encumbrances and restrictions in any
such extensions, refinancings, renewals or replacements are not materially less
favorable taken as whole to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced; (iii) existing under any Receivables Program or any other agreement
providing for the Incurrence of Indebtedness (or any exhibit, appendix or
schedule to such agreement or other agreement executed as a condition to the
execution of, funding under or pursuant to such agreement); provided that the
encumbrances and restrictions in any such agreement are not materially less
favorable taken as a whole to the Holders than those encumbrances and
restrictions contained in any Credit Agreement as of the Closing Date; (iv)
existing under or by
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reason of applicable law; (v) existing with respect to any Person or the
property or assets of such Person acquired by JSC or any Restricted Subsidiary
and existing at the time of such acquisition, which encumbrances or restrictions
are not applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired; (vi) in
the case of clause (iv) of the first paragraph of this 'Limitation on Dividend
and Other Payment Restrictions Affecting Restricted Subsidiaries' covenant, (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of JSC or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) arising or agreed to in the ordinary course of business and that do not,
individually or in the aggregate, detract from the value of property or assets
of JSC or any Restricted Subsidiary in any manner material to JSC and its
Restricted Subsidiaries taken as a whole; or (vii) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary. Nothing contained in this
'Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant shall prevent JSC or any Restricted Subsidiary from (1)
entering into any agreement permitting or providing for the incurrence of Liens
otherwise permitted in the 'Limitation on Liens' covenant or (2) restricting the
sale or other disposition of property or assets of JSC or any of its
Subsidiaries that secure Indebtedness of JSC or any of its Subsidiaries.
(Section 3.05)
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF JSC AND RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, JSC will not and will not permit any
Restricted Subsidiary (other than CCA), directly or indirectly, to issue or sell
any shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to JSC or another Restricted
Subsidiary that is a Wholly Owned Subsidiary of JSC, (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary for purposes of the Indenture, (iii)
if the Net Cash Proceeds from such issuance or sale are applied, to the extent
required to be applied, pursuant to the 'Limitation on Asset Sales' covenant or
if such issuance or sale does not constitute an 'Asset Sale,' (iv) issuances or
sales to foreign nationals of shares of the Capital Stock of Foreign
Subsidiaries, to the extent mandated by applicable foreign law or (v) issuances
or sales of Capital Stock by JSC to Holdings. (Section 3.06)
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Indenture, JSC will not, and will not permit any
Restricted Subsidiary of JSC to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale, lease
or exchange of property or assets, or the rendering of any service) with any
holder (or any Affiliate of such holder) of 5% or more of any class of Capital
Stock of Holdings or with any Affiliate of JSC, except upon fair and reasonable
terms no less favorable to JSC or such Restricted Subsidiary of JSC than could
be obtained, at the time of such transaction or at the time of the execution of
the agreement providing therefor, in a comparable arm's-length transaction with
a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to, (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which JSC or a Restricted Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking firm
or a nationally recognized accounting firm stating that the transaction is fair
or, in the case of an opinion of a nationally recognized accounting firm,
reasonable or fair to JSC or such Restricted Subsidiary from a financial point
of view; (ii) any transaction among JSC and any Restricted Subsidiaries or among
Restricted Subsidiaries; (iii) the payment of reasonable and customary regular
fees to directors of JSC or any Restricted Subsidiary who are not employees of
JSC or any Restricted Subsidiary; (iv) any payments or other transactions
pursuant to any tax-sharing agreement between JSC, CCA and Holdings or any other
Person with which JSC is required or permitted to file a consolidated tax return
or with which JSC is or could be part of a consolidated group for tax purposes;
(v) any Restricted Payments not prohibited by the 'Limitation on Restricted
Payments' covenant; (vi) the provisions of management, financial and operational
services by JSC and its Subsidiaries to Affiliates of JSC in which JSC or its
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Subsidiaries have Investments and the payment of compensation for such services;
provided, that the Board of Directors of JSC has determined that the provision
of such services is in the best interests of JSC and its Subsidiaries; (vii) any
transaction required by the Times Mirror Agreement; or (viii) any transaction
contemplated by the terms of the Recapitalization Plan. (Section 3.07)
LIMITATION ON LIENS
Under the terms of the Indenture, JSC will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the Senior
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or prior to) the obligation or liability secured by
such Lien for so long as such Lien affects such Principal Property, shares of
Capital Stock or Indebtedness unless, after giving effect thereto, the aggregate
amount of any Indebtedness so secured, plus, the Attributable Indebtedness for
all sale-leaseback transactions restricted as described in the 'Limitation on
Sale-Leaseback Transactions' covenant, does not exceed 10% of Adjusted
Consolidated Net Tangible Assets.
The foregoing limitation does not apply to, and any computation of secured
Indebtedness under such limitation shall exclude, (i) Liens securing obligations
under (A) any Credit Agreement and (B) any Receivables Programs; (ii) other
Liens existing on the Closing Date; (iii) Liens securing Indebtedness of
Restricted Subsidiaries (other than Acquired Indebtedness and refinancings
thereof); (iv) Liens securing Indebtedness Incurred under clause (iv) or (v) of
the second paragraph of the 'Limitation on Indebtedness' covenant; (v) Liens
granted in connection with the extension, renewal or refinancing, in whole or in
part, of any Indebtedness described in clauses (i) through (iv) above; provided
that with respect to clauses (ii) and (iii) the amount of Indebtedness secured
by such Lien is not increased thereby; and provided further that the extension,
renewal or refinancing of Indebtedness of JSC may not be secured by Liens on
assets of any Restricted Subsidiary (other than CCA) other than to the extent
the Indebtedness being extended, renewed or refinanced was at any time
previously secured by Liens on assets of such Restricted Subsidiary; (vi) Liens
with respect to Acquired Indebtedness permitted under clause (viii) of the
second paragraph of the 'Limitation on Indebtedness' covenant and permitted
refinancings thereof; provided that such Liens do not extend to or cover any
property or assets of JSC or any Subsidiary of JSC other than the property or
assets of the Subsidiary acquired; (vii) Liens securing the Senior Subordinated
Notes, the Subordinated Debentures, the Junior Accrual Debentures or the 1993
Notes, in each case to the extent required to be incurred pursuant to the terms
of the indentures governing such Indebtedness; or (viii) Permitted Liens.
(Section 3.08)
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Indenture, JSC will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any Principal Property, unless the aggregate amount of all Attributable
Indebtedness with respect to such transactions, plus all Indebtedness secured by
Liens on Principal Properties (excluding secured Indebtedness that is excluded
as described in the 'Limitation on Liens' covenant), does not exceed 10% of
Adjusted Consolidated Net Tangible Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any
sale-leaseback transaction if (i) the lease is for a period, including renewal
rights, of not in excess of three years; (ii) the sale or transfer of the
Principal Property is entered into prior to, at the time of, or within 12 months
after the later of the acquisition of the Principal Property or the completion
of construction thereof; (iii) the lease secures or relates to industrial
revenue or pollution control bonds; (iv) the transaction is between JSC and any
Restricted Subsidiary or between Restricted Subsidiaries; or (v) JSC or such
Restricted Subsidiary, within 12 months after the sale of any Principal Property
is completed, applies an amount not less than the net proceeds received from
such sale to the retirement of unsubordinated Indebtedness, to Indebtedness of a
Restricted Subsidiary (other than CCA) or to the purchase of other property that
will constitute Principal Property or improvements thereto. (Section 3.09)
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LIMITATION ON ASSET SALES
Under the terms of the Indenture, in the event and to the extent that the
Net Cash Proceeds received by Holdings, JSC or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months (other than Asset Sales by Holdings, JSC
or any Restricted Subsidiary to JSC or another Restricted Subsidiary) exceed 10%
of Adjusted Consolidated Net Tangible Assets in any one fiscal year (determined
as of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of JSC has been prepared), then JSC shall or shall
cause the relevant Restricted Subsidiary to (i) within 12 months (or, in the
case of Asset Sales of plants or facilities, 24 months) after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets in
any one fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a balance sheet of JSC and its Subsidiaries has
been prepared) (A) apply an amount equal to such excess Net Cash Proceeds to
repay unsubordinated Indebtedness of CCA or JSC, make a dividend or distribution
to JSC for application by JSC to repay unsubordinated Indebtedness of JSC, or
repay Indebtedness of any Restricted Subsidiary of JSC, in each case owing to a
Person other than JSC or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) (or enter into
a definitive agreement committing to so invest within 12 months after the date
of such agreement), in property or assets of a nature or type or which will be
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, JSC and its Restricted Subsidiaries
existing on the date of such Investment (as determined in good faith by the
Board of Directors of JSC, whose determination shall be conclusive and evidenced
by a Board Resolution) and (ii) apply (no later than the end of such 12-month
period or 24-month period, as the case may be, referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this 'Limitation on Asset Sales'
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period or 24-month period,
as the case may be, as set forth in clause (A) or (B) of the preceding sentence
and neither applied nor committed to be applied as set forth above by the end of
such period shall constitute 'Excess Proceeds.'
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, CCA must, not later than the fifteenth
Business Day of such month, make an offer (an 'Excess Proceeds Offer') to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Senior Notes equal to the Excess Proceeds on such date, at a purchase price
equal to 101% of the principal amount of such Senior Notes, plus, in each case,
accrued interest (if any) to the date of purchase (the 'Excess Proceeds
Payment').
Notwithstanding the foregoing, (i) to the extent that any or all of the Net
Cash Proceeds of any Asset Sale are prohibited or delayed by applicable local
law from being repatriated to the United States of America, the portion of such
Net Cash Proceeds so affected will not be required to be applied pursuant to
this 'Limitation on Asset Sales' covenant but may be retained for so long, but
only for so long, as the applicable local law will not permit repatriation to
the United States of America (under the Indenture JSC will agree to promptly
take or cause the relevant Restricted Subsidiary to promptly take all reasonable
actions required by the applicable local law and within JSC's control to permit
such repatriation) and once such repatriation of any such affected Net Cash
Proceeds is permitted under the applicable local law, such repatriation will be
immediately effected and such repatriated Net Cash Proceeds will be applied in
the manner set forth in this 'Limitation on Asset Sales' covenant as if such
Asset Sale had occurred on the date of repatriation; and (ii) to the extent that
the Board of Directors of JSC has determined in good faith that repatriation of
any or all of the Net Cash Proceeds would have an adverse tax or other
consequence to JSC, the Net Cash Proceeds so affected may be retained outside
the United States of America for so long as such adverse tax or other
consequence would continue.
CCA shall commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this 'Limitation on Asset Sales' covenant and that all Senior
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the 'Excess Proceeds Payment Date'); (iii) that
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any Senior Note not tendered will continue to accrue interest; (iv) that, unless
CCA defaults in the payment of the Excess Proceeds Payment, any Senior Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue
interest after the Excess Proceeds Payment Date; (v) that Holders electing to
have a Senior Note purchased pursuant to the Excess Proceeds Offer will be
required to surrender the Senior Note together with the form entitled 'Option of
the Holder to Elect Purchase' on the reverse side of the Senior Note completed,
to the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Excess Proceeds Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Senior Notes delivered for purchase and a statement that
such Holder is withdrawing his election to have such Senior Notes purchased; and
(vii) that Holders whose Senior Notes are being purchased only in part will be
issued new Senior Notes equal in principal amount to the unpurchased portion of
the Senior Notes surrendered; provided that each Senior Note purchased and each
new Senior Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, CCA shall (i) accept for payment on a
pro rata basis Senior Notes or portions thereof tendered pursuant to the Excess
Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Senior Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the relevant Trustee all Senior Notes or
portions thereof so accepted together with an Officers' Certificate specifying
the Senior Notes or portions thereof accepted for payment by CCA. The Paying
Agent shall promptly mail to the Holders of Senior Notes so accepted payment in
an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Senior Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered; provided that
each Senior Notes purchased and each new Senior Notes issued shall be in an
original principal amount of $1,000 or integral multiples thereof. CCA will
publicly announce the results of the Excess Proceeds Offer as soon as
practicable after the Excess Proceeds Payment Date. For purposes of this
'Limitation on Asset Sales' covenant, the Trustee shall act as the Paying Agent.
CCA will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by CCA under this 'Limitation on Asset Sales' covenant and CCA is required to
repurchase Senior Notes as described above and CCA may modify any of the
foregoing provisions of this 'Limitation on Asset Sales' covenant to the extent
it is advised by independent counsel that such modification is necessary or
appropriate in order to ensure such compliance. (Section 3.10)
REPURCHASE OF SENIOR NOTES UPON CHANGE OF CONTROL
(a) In the event of a Change of Control, each Holder shall have the right
to require the repurchase of its Senior Notes by CCA in cash pursuant to the
offer described below (the 'Change of Control Offer') at a purchase price equal
to 101% of the principal amount thereof, plus accrued interest (if any) to the
date of purchase (the 'Change of Control Payment'). Prior to the mailing of the
notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, CCA covenants to (i) (A) repay
in full all unsubordinated Indebtedness of CCA or make a dividend or
distribution to JSC for application by JSC to repay in full all unsubordinated
Indebtedness of JSC or (B) offer to repay in full all such unsubordinated
Indebtedness of either JSC or CCA and to repay such unsubordinated Indebtedness
of each holder of such unsubordinated Indebtedness who has accepted such offer
or (ii) obtain the requisite consents, if any, under the instruments governing
any such unsubordinated Indebtedness of JSC or CCA to permit the repurchase of
the Senior Notes as provided for in the succeeding paragraph. CCA shall first
comply with the covenant in the preceding sentence before it shall be required
to repurchase Senior Notes pursuant to this 'Repurchase of Senior Notes upon
Change of Control' covenant.
(b) Within 30 days of the Change of Control, CCA shall mail a notice to the
Trustee and each Holder stating: (i) that a Change of Control has occurred, that
the Change of Control Offer is being
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made pursuant to this 'Repurchase of Senior Notes upon Change of Control'
covenant and that all Senior Notes validly tendered will be accepted for
payment; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the 'Change of Control Payment Date'); (iii) that any Senior
Notes not tendered will continue to accrue interest; (iv) that, unless CCA
defaults in the payment of the Change of Control Payment, any Senior Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date; (v) that Holders
electing to have any Senior Notes or portion thereof purchased pursuant to the
Change of Control Offer will be required to surrender such Senior Notes,
together with the form entitled 'Option of the Holder to Elect Purchase' on the
reverse side of such Senior Notes completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Change of Control Payment Date; (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Senior
Notes delivered for purchase and a statement that such Holder is withdrawing his
election to have such Senior Notes purchased; and (vii) that Holders whose
Senior Notes are being purchased only in part will be issued new Senior Notes
equal in principal amount to the unpurchased portion of the Senior Notes
surrendered; provided that each Senior Note purchased and each new Senior Note
issued shall be in an original principal amount of $1,000 or integral multiples
thereof.
(c) On the Change of Control Payment Date, CCA shall: (i) accept for
payment Senior Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Senior Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Senior Notes or portions
thereof so accepted together with an Officers' Certificate specifying the Senior
Notes or portions thereof accepted for payment by CCA. The Paying Agent shall
promptly mail, to the Holders of Senior Notes so accepted, payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail to such Holders a new Senior Notes equal in principal amount to any
unpurchased portion of the Senior Notes surrendered; provided that each Senior
Notes purchased and each new Senior Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof. CCA will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date. For purposes of this 'Repurchase of
Senior Notes upon Change of Control' covenant, the Trustee shall act as Paying
Agent.
(d) CCA will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs under
this 'Repurchase of Senior Notes upon Change of Control' covenant and CCA is
required to repurchase Senior Notes as described above and CCA may modify any of
the foregoing provisions of this 'Repurchase of Senior Notes upon Change of
Control' covenant to the extent it is advised by independent counsel that such
modification is necessary or appropriate in order to ensure such compliance.
(Section 3.18)
If CCA is unable to repay all of its unsubordinated Indebtedness and is
also unable to obtain the consents of its unsubordinated creditors (and/or of
the holders of other Indebtedness, if any, of CCA or JSC outstanding at the time
of a Change of Control whose consent would be so required) to permit the
repurchase of Senior Notes either pursuant to clause (i)(B) or clause (ii) of
the first paragraph of the foregoing covenant, then CCA will have breached such
covenant. This breach will constitute an Event of Default under the Indenture if
it continues for a period of 30 consecutive days after written notice is given
to CCA by the Trustee or the holders of at least 25% in aggregate principal
amount of the Senior Notes outstanding. In addition, the failure by CCA to
repurchase Senior Notes at the conclusion of the Change of Control Offer will
constitute an Event of Default without any waiting period or notice
requirements. JSC has guaranteed all payments due on the Senior Notes, including
those due by reason of the acceleration thereof following the occurrence of an
Event of Default. This obligation of JSC is not subject to any waiting period or
notice requirement once such an acceleration has occurred; as discussed above,
however, in certain circumstances there are notice and waiting period
requirements that must be satisfied before CCA's breach of the above covenant
constitutes an Event of Default.
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There can be no assurances that CCA (or JSC) will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of the Senior Notes) required by the foregoing covenant
and similar provisions contained in the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures, any Credit Agreement (as
well as in any other indebtedness which might be outstanding at the time).
Although there is some variation in the definition of 'Change of Control' among
such different classes of debt, there is substantial overlap. In any event, the
above covenant requiring CCA to repurchase the Senior Notes will, unless the
consents referred to above are obtained, require CCA and JSC to offer to repay
or repay all indebtedness outstanding under any Credit Agreement, and any other
indebtedness then outstanding which by its terms prohibits such repurchases of
the Senior Notes, either prior to or concurrently with such repurchases.
EVENTS OF DEFAULT
The following events will be defined as 'Events of Default' in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Senior Notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest on
any Senior Notes when the same becomes due and payable, and such default
continues for a period of 30 days; (c) JSC or CCA defaults in the performance of
or breaches any other covenant or agreement of JSC or CCA in the Indenture or
under the Senior Notes and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Series A Senior Notes and the Series B
Senior Notes then outstanding taken together as one class or, in the case of any
such default or breach under only one Indenture, 25% or more in aggregate
principal amount of the Series A Senior Notes or the Series B Senior Notes, as
the case may be, then outstanding; (d) there occurs with respect to any issue or
issues of Indebtedness of JSC, CCA and/or one or more of their Significant
Subsidiaries having an outstanding principal amount of $50 million or more
individually or $100 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration; (e) any final
judgment or order (not covered by insurance) for the payment of money in excess
of $50 million individually or $100 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against JSC,
CCA or any of their Significant Subsidiaries and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following entry
of the final judgment or order in excess of $50 million individually or that
causes the aggregate amount for all such final judgments or orders outstanding
and not paid or discharged against all such Persons to exceed $100 million
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; (f) a court having
jurisdiction in the premises enters a decree or order for (i) relief in respect
of JSC, CCA or any of their Significant Subsidiaries in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of JSC, CCA or any of their
Significant Subsidiaries or for all or substantially all of the property and
assets of JSC, CCA or any of their Significant Subsidiaries or (iii) the winding
up or liquidation of the affairs of JSC, CCA or any of their Significant
Subsidiaries and, in each case, such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; (g) JSC, CCA or any of their
Significant Subsidiaries (i) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (ii) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of JSC, CCA or any of their Significant Subsidiaries or for all or
substantially all of the property and assets of JSC, CCA or any of their
Significant Subsidiaries or (iii) effects any general assignment for the benefit
of creditors; (h) JSC, CCA and/or one or more of their Significant Subsidiaries
fails to make (i) at the final (but not any interim) fixed maturity of any issue
of Indebtedness a principal payment of $50 million or more or (ii) at the final
(but not any interim) fixed
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maturity of more than one issue of such Indebtedness principal payments
aggregating $100 million or more and, in the case of clause (i), such defaulted
payment shall not have been made, waived or extended within 30 days of the
payment default and, in the case of clause (ii), all such defaulted payments
shall not have been made, waived or extended within 30 days of the payment
default that causes the amount described in clause (ii) to exceed $100 million;
or (i) the non-payment of any two or more items of Indebtedness of JSC, CCA
and/or one or more of their Significant Subsidiaries that would constitute at
the time of such nonpayments, but for the individual amounts of such
Indebtedness, an Event of Default under clause (d) or clause (h) above, or both,
and which items of Indebtedness aggregate $100 million or more. (Section 5.01)
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to JSC or CCA) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Series A Senior Notes and Series B Senior
Notes then outstanding taken together as one class or, in the case of any such
Event of Default which occurs and is continuing under only one Indenture, 25% in
aggregate principal amount of the Series A Senior Notes or the Series B Senior
Notes, as the case may be, then outstanding, by written notice to CCA (and to
the Trustee if such notice is given by the Holders (the 'Acceleration Notice')),
may, and the Trustee at the request of the Holders shall, declare the entire
unpaid principal of, premium, if any, and accrued interest on the Senior Notes
to be immediately due and payable. Upon a declaration of acceleration, such
principal of, premium, if any, and accrued interest shall be immediately due and
payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (d), (h) or (i) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (d), (h) or (i) shall be remedied, cured by JSC or CCA or waived by
the holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(f) or (g) above occurs with respect to JSC or CCA, all unpaid principal of,
premium, if any, and accrued interest on the Senior Notes then outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. The Holders of at least a
majority in principal amount of the outstanding Series A Senior Notes and Series
B Senior Notes taken together as one class or, in the case of any default under
only one Indenture, a majority in principal amount of the outstanding Series A
Senior Notes or Series B Senior Notes, as the case may be, by written notice to
JSC, CCA and the Trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences if (i) all existing Events of
Default, other than the nonpayment of the principal of, premium, if any, and
interest on the Senior Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
(Section 5.02) For information as to the waiver of defaults, see
' -- Modification and Waiver.'
As a result of the foregoing voting provisions relating to Events of
Default under the Indenture, Holders of Series B Senior Notes even if acting
unanimously may not be able to (i) declare a default under the Series B Senior
Note Indenture following a default in the performance of or any breach of
covenants or agreements of JSC or CCA as set forth in clause (c) above, or (ii)
request acceleration of the principal of, premium, if any, and accrued interest
on, the Series B Senior Notes if an Event of Default occurs.
The Holders of at least a majority in aggregate principal amount of the
outstanding Senior Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Senior Notes not joining in the
giving of such direction. (Section 5.05) A Holder may not pursue any remedy with
respect to the Indenture or the Senior Notes unless: (i) the Holder gives the
Trustee written notice of a continuing Event of Default; (ii) the Holders of at
least 25% in aggregate principal amount of outstanding Senior Notes make a
written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer the Trustee indemnity satisfactory to the Trustee against any
costs, liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request
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and the offer of indemnity; and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the outstanding Senior Notes do not
give the Trustee a direction that is inconsistent with the request. (Section
5.06) However, such limitations do not apply to the right of any Holder of a
Senior Note to receive payment of the principal of, premium, if any, or interest
on, such Senior Note or to bring suit for the enforcement of any such payment,
on or after the due date expressed in the Senior Notes which right shall not be
impaired or affected without the consent of the Holder. (Section 5.07) For
purposes of the foregoing paragraph, actions that may be taken by Holders of at
least a majority or 25% in aggregate principal amount of the outstanding Senior
Notes may only be taken by Holders of at least a majority or 25% (as the case
may be) in aggregate principal amount of the Series A Senior Notes and the
Series B Senior Notes taken together as one class or, in the case of any remedy
which relates solely to one Indenture or one class of Senior Notes, by Holders
of at least a majority or 25% (as the case may be) in aggregate principal amount
of the Series A Senior Notes or the Series B Senior Notes, as the case may be.
(Sections 5.04, 5.05 and 5.06)
The Indenture will require certain officers of JSC and CCA to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of JSC and CCA and their
Subsidiaries and JSC's and CCA's and their Subsidiaries' performance under the
Indenture 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 Trustee of any default or defaults in the performance of
any covenants or agreements under the Indenture. (Section 3.15)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither JSC nor CCA shall consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of JSC with a positive
net worth; provided that, in connection with any merger of JSC or CCA with a
Restricted Subsidiary that is a Wholly Owned Subsidiary of JSC, no consideration
(other than common stock in the surviving Person, JSC or CCA) shall be issued or
distributed to the stockholders of JSC) unless: (i) JSC or CCA shall be the
continuing Person, or the Person (if other than JSC or CCA) formed by such
consolidation or into which JSC or CCA is merged or that acquired or leased such
property and assets of JSC or CCA shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of JSC or CCA, as the case may
be, on all of the Senior Notes and under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Interest Coverage Ratio of the continuing
Person continuing as, or becoming the successor, obligor on the Senior Notes or
the Guarantee is at least 1:1, or, if less, equal to the Interest Coverage Ratio
of JSC or CCA, as the case may be, immediately prior to such transaction;
provided that, if the Interest Coverage Ratio of JSC or CCA, as the case may be,
before giving effect to such transaction is within the range set forth in column
(A) below, then the pro forma Interest Coverage Ratio of the continuing Person
becoming the successor obligor of the Senior Notes shall be at least equal to
the lesser of (1) the ratio determined by multiplying the percentage set forth
in column (B) below by the Interest Coverage Ratio of JSC or CCA, as the case
may be, prior to such transaction and (2) the ratio set forth in column (C)
below:
<TABLE>
<CAPTION>
(A) (B) (C)
- -------------------------------------------------------------------------------- --- ------
<S> <C> <C>
1.11:1 to 1.99:1................................................................ 90 % 1.5:1
2.00:1 to 2.99:1................................................................ 80 % 2.1:1
3.00:1 to 3.99:1................................................................ 70 % 2.4:1
4.00:1 or more.................................................................. 60 % 2.5:1
</TABLE>
and provided further that, if the pro forma Interest Coverage Ratio of JSC, CCA
or any Person becoming the successor obligor of the Senior Notes, as the case
may be, is 3:1 or more, the calculation in the preceding proviso shall be
inapplicable and such transaction shall be deemed to have complied
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with the requirements of this clause (iii); (iv) immediately after giving effect
to such transaction on a pro forma basis, JSC, CCA or any Person becoming the
successor obligor of the Senior Notes shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of JSC or CCA, as the case may be,
immediately prior to such transaction; and (v) JSC or CCA, as the case may be,
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv)) and Opinion
of Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture comply with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with (in no event, however, shall such Opinion of Counsel cover financial
ratios, the solvency of any Person or any other financial or statistical data or
information); provided, however, that clauses (iii) and (iv) above do not apply
if, in the good faith determination of the Board of Directors of JSC or CCA, as
the case may be, whose determination shall be evidenced by a Board Resolution,
the principal purpose of such transaction is to change the state of
incorporation of JSC or CCA, as the case may be; and provided further that any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
JSC shall be released from all of its obligations under its Guarantee of
the Senior Notes and the Indenture if the purchaser of Capital Stock of CCA
having a majority of the voting rights thereunder, or the parent of CCA (other
than 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 Indebtedness represented by the Senior Notes. (Section 4.01)
In the event (i) JSC merges into CCA and (ii) in connection therewith a
direct or indirect Wholly Owned Subsidiary of Holdings ('Interco'), of which CCA
is at such time a direct or indirect Wholly Owned Subsidiary, (x) guarantees the
obligations of CCA on the Senior Notes on the same terms and to the same extent
as JSC had guaranteed such obligations prior to the aforesaid merger, and (y)
assumes all obligations of JSC set forth in the Indenture (without giving effect
to the effect of the aforesaid merger on such obligations) (collectively, the
'Substitution Transaction') then, notwithstanding anything to the contrary in
the Indenture, upon delivery of an Officer's Certificate to the effect that the
foregoing has occurred and the execution and delivery by CCA and Interco of a
supplemental indenture evidencing such merger and guarantee and assumption, and
without regard to the requirements set forth in clauses (i) through (v) of the
first paragraph under 'Consolidation, Merger and Sale of Assets', (a) all
references in the Indenture to 'CCA' shall continue to refer to CCA, as the
survivor in such merger, (b) all references to 'JSC' and to 'JSC's guarantee'
shall refer to Interco and to Interco's guarantee contemplated by clause (ii)
above, respectively; and (c) no breach of default under the Indenture shall be
deemed to have occurred solely by reason of the Substitution Transaction.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that JSC and CCA will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Senior Notes on the 123rd day after the deposit referred to
below, and the provisions of the Indenture will no longer be in effect with
respect to the Senior Notes or JSC's Guarantee of the Senior Notes (except for,
among other matters, certain obligations to register the transfer or exchange of
the Senior Notes, to replace stolen, lost or mutilated Senior Notes to maintain
paying agencies and to hold monies for payment in trust) if, among other things,
(A) CCA has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
outstanding Senior Notes on the Stated Maturity of such payments in accordance
with the terms of the Indenture and the Senior Notes (B) JSC or CCA has
delivered to the Trustee (i) either an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of CCA's exercise of its option under this 'Defeasance' provision
and will be subject to federal income tax on the same amount and in the same
manner and at
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the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be accompanied by a
ruling of the Internal Revenue Service to the same effect unless there has been
a change in applicable federal income tax law after the date of the Indenture
such that a ruling is no longer required or a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which JSC or
CCA is a party or by which JSC or CCA is bound, and (D) if at such time the
Senior Notes are listed on a national securities exchange, CCA has delivered to
the Trustee an Opinion of Counsel to the effect that the Senior Notes will not
be delisted as a result of such deposit, defeasance and discharge. (Section
7.02)
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under 'Consolidation,
Merger and Sale of Assets' and all the covenants described herein under
'Covenants,' clause (c) under 'Events of Default with respect to such covenants
and clauses (iii) and (iv) under 'Consolidation, Merger and Sale of Assets,' and
clauses (d), (e), (h) and (i) under 'Events of Default' shall be deemed not to
be Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the outstanding Senior Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the Senior
Notes, the satisfaction of the provisions described in clauses (B)(ii), (C), and
(D) of the preceding paragraph and the delivery by CCA to the Trustee of an
Opinion of Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred. (Section 7.03)
Defeasance and Certain Other Events of Default. In the event CCA exercises
its option to omit compliance with certain covenants and provisions of the
Indenture with respect to the Senior Notes as described in the immediately
preceding paragraph and the Senior Notes are declared due and payable because of
the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Senior Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Senior Notes at the
time of the acceleration resulting from such Event of Default. However, CCA will
remain liable for such payments and JSC's Guarantee with respect to such
payments will remain in effect.
The Credit Agreement contains a covenant prohibiting defeasance of the
Senior Notes. See 'Description of Certain Indebtedness -- Terms of New Credit
Agreement'.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by JSC, CCA and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Series A Senior Notes and Series B
Senior Notes taken together as one class or, in the case of any such
modification or amendment which affects only one class of Senior Notes, a
majority in aggregate principal amount of the outstanding Series A Senior Notes
or Series B Senior Notes, as the case may be, provided, however, that no such
modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Senior Note, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Senior
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Note, (iii) change the place or currency of payment of principal of, or premium,
if any, or interest on, any Senior Note, (iv) impair the right to institute suit
for the enforcement of any payment on or after the Stated Maturity (or, in the
case of a redemption, on or after the Redemption Date) of any Senior Note, (v)
reduce the above-stated percentage of outstanding Senior Notes, the consent of
whose Holders is necessary to modify or amend the Indenture, (vi) waive a
default in the payment of principal of, premium, if any, or interest on the
Senior Notes, (vii) reduce the percentage of aggregate principal amount of
outstanding Senior Notes, the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults, or (viii) release JSC from its Guarantee of the Senior Notes. The
provisions requiring the consent or approval of specified percentages of Holders
of either class of Senior Notes or both classes of Senior Notes jointly cannot
be modified or amended without the consent of a majority in aggregate principal
amount of the Holders of such class of Senior Notes or such two classes of
Senior Notes jointly, as the case may be. (Section 8.02)
To the extent that modifications and amendments of the Indenture may be
made with the consent of a majority in aggregate principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class, modifications and amendments of the Series B Senior Note Indenture
could be made without the consent of any Holder of Series B Senior Notes.
The Credit Agreement contains a covenant prohibiting JSC or CCA from
consenting to any modification of the Indenture or waiver of any provision
thereof without the consent of a specified percentage of the lenders under the
Credit Agreement. See 'Description of Certain Indebtedness -- Terms of New
Credit Agreement'.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Senior Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of JSC or CCA in the Indenture, or in any of
the Senior Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, shareholder, officer, director,
employee or controlling person of JSC or CCA or of any successor Person thereof.
Each Holder, by accepting the Senior Notes, waives and releases all such
liability. (Section 9.09)
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. (Section 6.01)
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of CCA or JSC, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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THE UNDERWRITER
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the 'Underwriting Agreement'), the Underwriter has agreed
to purchase, and CCA has agreed to sell to the Underwriter, all of the Senior
Notes.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Senior Notes is subject to the approval of
certain legal matters by its counsel and to certain other conditions. The
Underwriter is obligated to take and pay for all Senior Notes offered hereby if
any are taken.
The Underwriter initially proposes to offer part of the Senior Notes
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of % of the principal amount of the Senior Notes. The Underwriter
may allow, and such dealers may reallow, a concession not in excess of % of
the principal amount of the Senior Notes to certain other dealers. After the
initial offering of the Senior Notes, the offering price and other selling terms
may from time to time be varied by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
Upon consummation of the Equity Offerings and the SIBV Investment,
affiliates of MS&Co. will own approximately 30.8% of the outstanding shares of
Holdings Common Stock (30.0% if the overallotment option is exercised in full).
See 'Security Ownership of Certain Beneficial Owners'.For a description of
certain transactions between JSC, CCA, Holdings, MSLEF II, MS&Co. and affiliates
of MS&Co., see 'Certain Transactions'.
The provisions of Schedule E ('Schedule E') to the By-laws of the National
Association of Securities Dealers, Inc. (the 'NASD') apply to the Debt
Offerings. Under the By-laws of the NASD, when a NASD member such as the
Underwriter distributes an affiliated company's debt securities that are rated
below investment grade, the yield on such debt securities can be no lower than
that recommended by a 'qualified independent underwriter.' The NASD requires
that the 'qualified independent underwriter' (i) be an NASD member experienced
in the securities or investment banking business, (ii) not be an affiliate of
the issuer of the securities and (iii) agree to undertake the responsibilities
and liabilities of an underwriter under the Securities Act. In accordance with
this requirement, is serving in
such role, and the yield to maturity on the Senior Notes will not be lower than
's recommended yield to maturity. also
participated in the preparation of the Registration Statement of which this
Prospectus is a part and has performed due diligence with respect thereto. The
Company has agreed to pay a fee of $ in connection with
the Debt Offerings and to reimburse for certain expenses. The
Company has also agreed to indemnify against certain
liabilities, including liabilities under the Securities Act.
Pursuant to the provisions of Schedule E, NASD members may not execute
transactions in the Senior Notes to any accounts over which they exercise
discretionary authority without prior written approval of the customer.
The Company has been advised by the Underwriter that it presently intends
to make a market in the Senior Notes, as permitted by applicable laws and
regulations. The Underwriter is not obligated to make a market in the Senior
Notes and any such market-making may be discontinued at any time at the sole
discretion of the Underwriter. Accordingly, no assurance can be given as to the
liquidity of, or trading market for, the Senior Notes.
From time to time MS&Co. has provided, and continues to provide, investment
banking services to Holdings, the Company and its affiliates. See 'Certain
Transactions'.
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LEGAL MATTERS
The validity of the Senior Notes and the guarantees thereof and certain
other legal matters relating to the Debt Offerings have been passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York. Certain
legal matters have been passed upon for the Underwriter by Shearman & Sterling,
New York, New York. Skadden, Arps, Slate, Meagher & Flom also represented MSLEF
II and the Company in connection with the 1989 Transaction, the 1992 Transaction
and regularly represents the Company, 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, 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, 1992, have been audited by
Ernst & Young, 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Jefferson Smurfit Corporation (U.S.)
(formerly Jefferson Smurfit Corporation):
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 Stockholders' Deficit...................................................... F-5
Consolidated Statements of Cash Flows................................................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
</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
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>
<CAPTION>
<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............................................. $2,153.3 $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>
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
F-20
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
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>
[LOGO]
CONTAINER CORPORATION OF AMERICA
JEFFERSON SMURFIT CORPORATION (U.S.)
<PAGE>
[ALTERNATE]
PROSPECTUS
$400,000,000
[LOGO]
CONTAINER CORPORATION OF AMERICA
$300,000,000 % SERIES A SENIOR NOTES DUE 2004
$100,000,000 % SERIES B SENIOR NOTES DUE 2002
- ----------------------------------------------------------
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
JEFFERSON SMURFIT CORPORATION (U.S.)
- ----------------------------------------------------------
INTEREST ON THE SERIES A SENIOR NOTES PAYABLE AND
INTEREST ON THE SERIES B SENIOR NOTES PAYABLE AND
- ----------------------------------------------------------
THE SERIES A SENIOR NOTES WILL BE REDEEMABLE AT THE OPTION OF CCA, IN WHOLE OR
IN PART, ANY TIME ON OR AFTER , 1999, INITIALLY AT % OF THEIR PRINCIPAL
AMOUNT, PLUS ACCRUED INTEREST, DECLINING TO 100% OF THEIR PRINCIPAL
AMOUNT, PLUS ACCRUED INTEREST, ON OR AFTER . IN ADDITION, CCA MAY
REDEEM, AT ANY TIME PRIOR TO , 1997, UP TO $100 MILLION
AGGREGATE PRINCIPAL AMOUNT OF THE SERIES A SENIOR NOTES, AT A
REDEMPTION PRICE OF % OF THEIR PRINCIPAL AMOUNT, PLUS ACCRUED
INTEREST, WITH THE NET CASH PROCEEDS FROM AN ISSUANCE OF
CAPITAL STOCK OF CCA OR JSC OR ANY PARENT OF CCA TO THE
EXTENT THAT SUCH PROCEEDS ARE CONTRIBUTED TO CCA. THE
SERIES B SENIOR NOTES WILL NOT BE REDEEMABLE PRIOR
TO MATURITY.
- ----------------------------------------------------------
THE SERIES A SENIOR NOTES AND THE SERIES B SENIOR NOTES WILL BE SENIOR UNSECURED
OBLIGATIONS OF CCA AND THE GUARANTEES OF THE SERIES A SENIOR NOTES AND THE
SERIES B SENIOR NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF JSC.
- ----------------------------------------------------------
SEE 'RISK FACTORS' FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
- ----------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales in market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. Morgan Stanley &
Co. Incorporated may act as principal or agent in such transactions.
<PAGE>
[ALTERNATE]
ADDITIONAL INFORMATION
Container Corporation of America ('CCA') and Jefferson Smurfit Corporation
(U.S.) ('JSC') have filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement (which term shall encompass any amendment
thereto) on Form S-2 under the Securities Act of 1933 (the 'Securities Act'),
with respect to the Series A Senior Notes and the Series B Senior Notes 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 (as defined below).
The respective indentures pursuant to which the Series A Senior Notes and
Series B Senior Notes will be issued require JSC to file with the Commission
annual reports containing consolidated financial statements and the related
report of independent public accountants and quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year for so long as any Series A Senior Notes or Series
B Senior Notes, as the case may be, are outstanding.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission 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, 1992, filed with the Commission on March 30, 1993; and JSC's
Amendment to Annual Report on Form 8, filed with the Commission on April
28, 1993;
(2) JSC's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1993, June 30, 1993 and September 30, 1993 filed with the
Commission on May 5, 1993, August 12, 1993 and November 15, 1993,
respectively;
(3) JSC's Current Reports on Form 8-K, filed with the Commission on
February 25, 1993, October 14, 1993 and March 3, 1994; and
(4) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1992.
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)
A-2
<PAGE>
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.
No action has been or will be taken in any jurisdiction by CCA, JSC or the
Underwriter that would permit a public offering of the Series A Senior Notes and
the Series B Senior Notes or possession or distribution of this Prospectus in
any jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are required
by CCA, JSC and the Underwriter to inform themselves about and to observe any
restrictions as to the offering of the Series A Senior Notes and the Series B
Senior Notes and the distribution of this Prospectus.
In this Prospectus, references to 'dollar' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons.
- ----------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.........................
Incorporation of Certain Documents by
Reference....................................
Prospectus Summary.............................
Risk Factors...................................
Recapitalization Plan..........................
Use of Proceeds................................
Capitalization.................................
Selected Historical Financial Data.............
Pro Forma Financial Data.......................
Management's Discussion and Analysis of Results
of Operations and Financial Condition........
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.......................................
Management.....................................
Security Ownership of Certain Beneficial
Owners.......................................
Certain Transactions...........................
Description of Certain Indebtedness............
Description of the Senior Notes................
Market-Making Activities of MS&Co. ............
Legal Matters..................................
Experts........................................
Index to Financial Statements..................
</TABLE>
A-3
<PAGE>
[ALTERNATE]
TRADING MARKET FOR THE SENIOR NOTES
The Senior Notes are not listed for trading on any securities exchange or
on any automated dealer quotation system. MS&Co. currently makes a market in the
Senior Notes. However, MS&Co. is not obligated to make a market for the Senior
Notes and may discontinue or suspend such market-making at any time without
notice. Accordingly, no assurance can be given as to the liquidity of, or the
trading market for, the Senior Notes. Further, the liquidity of, and trading
market for, the Senior Notes may be adversely affected by declines and
volatility in the market for high yield securities generally as well as any
changes in the Company's financial performance or prospects.
A-4
<PAGE>
[ALTERNATE]
MARKET-MAKING ACTIVITIES OF MS&CO.
This Prospectus is to be used by MS&Co. in connection with offers and sales
of the Senior Notes in market-making transactions at negotiated prices related
to prevailing market prices at the time of sale. MS&Co. may act as principal or
agent in such transactions. MS&Co. has no obligation to make a market for the
Senior Notes and may discontinue or suspend its market-making activities at any
time without notice.
MS&Co. acted as underwriter in connection with the original offering of the
Senior Notes and received an underwriting commission of $ million in
connection therewith.
Upon consummation of the Equity Offerings and the SIBV Investment,
affiliates of MS&Co. will own approximately 30.8% of the outstanding shares of
Holdings Common Stock (30.0% if the overallotment option is exercised in full).
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'.
A-5
<PAGE>
[ALTERNATE]
LEGAL MATTERS
The validity of the Senior Notes 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 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.
A-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable by CCA in
connection with the offering of the securities being registered hereby, other
than underwriting discounts and commissions. All of such expenses, except the
Securities and Exchange Commission registration fee and the National Association
of Securities Dealers, Inc. filing fees, are estimated.
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------------------------- ----------
<S> <C>
Securities and Exchange Commission registration fee................................................. $ 206,897
National Association of Securities Dealers, Inc. filing fee......................................... 30,500
Blue Sky fees and expenses.......................................................................... 20,000
Printing and engraving expenses.....................................................................
Legal fees and expenses.............................................................................
Accounting fees and expenses........................................................................
Miscellaneous.......................................................................................
----------
Total..................................................................................... $
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the Co-Registrants provide, and following the consummation
of the Offerings will continue to provide, the Co-Registrants with the authority
to indemnify their directors, officers, employees and agents to the full extent
allowed by Delaware law. It is anticipated that Holdings will enter into
indemnification agreements with each of its directors which will provide such
persons, in their capacities (among others) as directors and/or officers of
Holdings, the Co-Registrants and each of their respective subsidiaries, with
indemnification, and advancements for expenses, in connection with certain
events, whether occurring before or after the consummation of the Offerings. In
addition, Holdings maintains, and following the consummation of the Offerings
will continue to maintain, an insurance policy which provides directors and
officers of the Co-Registrants with coverage in connection with certain events,
whether occurring before or after the consummation of the Offerings. In
addition, the Co-Registrants have indemnified SIBV and MSLEF II and certain
related parties with respect to matters relating to their business, pursuant to
an organization agreement among such parties.
See Item 17 for the Co-Registrants' undertaking with respect to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of JSC.
3.2* Form of Restated Certificate of Incorporation of CCA.
3.3* Form of By-laws of JSC.
3.4* Form of By-laws of CCA.
4.1* Form of Indenture for the Series A Senior Notes.
4.2* Form of Indenture for the Series B Senior Notes.
4.3 Indenture for the 1993 Notes (incorporated by reference to Exhibit 4.4 to Holdings'
Registration Statement on Form S-1 (File No. 33-75520)).
4.4* First Supplemental Indenture to the 1993 Note Indenture
4.5 Indenture for the Senior Subordinated Notes (incorporated by reference to Exhibit 4.6 to
Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
4.6 Indenture for the Subordinated Debentures (incorporated by reference to Exhibit 4.7 to
Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
4.7 Indenture for the Junior Accrual Debentures (incorporated by reference to Exhibit 4.8 to
Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Second Amended and Restated Organization Agreement, as of August 26, 1992, among JSC, CCA,
MSLEF II, Inc., SIBV, Holdings and MSLEF II (incorporated by reference to Exhibit 10.1(d)
to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1992).
10.2* Form of Stockholders Agreement among Holdings, SIBV, MSLEF II and certain related
entities.
10.3* Form of Registration Rights Agreement among Holdings, MSLEF II and SIBV.
10.4 Shareholders Agreement, dated as of February 21, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 4.2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.5 Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times
Mirror Company (incorporated by reference to Exhibit 10.39 to JSC's Annual Report on Form
10-K for the fiscal year ended December 31, 1990). Portions of this exhibit have been
excluded pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
10.6 Operating Agreement, dated as of April 30, 1992, by and between CCA and Smurfit
Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1992).
10.7 Stock Purchase Agreement, dated as of January 15, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.8(a) Financial Advisory Services Agreement, dated September 12, 1989, among MS&Co., the Company
and SIBV (incorporated by reference to Exhibit 10.8(a) to JSC/CCA's Registration Statement
on Form S-1 (File No. 33-31212)).
10.8(b) Financial Advisory Services Agreement Amendment, dated as of October 19, 1989, among
MS&Co., the Company and SIBV (incorporated by reference to Exhibit 10.8(b) to JSC/CCA's
Registration Statement on Form S-1 (File No. 33-31212)).
10.9 Deferred Compensation Agreement, dated January 1, 1979, between JSC and James B. Malloy,
as amended and effective November 10, 1983 (incorporated by reference to Exhibit 10(m) to
JSC's Registration Statement on Form S-1 (File No. 2-86554)).
10.10(a) JSC Deferred Compensation Capital Enhancement Plan (incorporated by reference to Exhibit
10(r) to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1985).
10.10(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated by
reference to Exhibit 10.37 to JSC/CCA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.11 Letter Agreement, dated November 24, 1982, between C. Larry Bradford and Alton Packaging
Corporation, as amended and effective November 10, 1983 (incorporated by reference to
Exhibit 10(g) to JSC's Registration Statement on Form S-1 (File No. 2-86554)).
10.12 Form of Agreement for Indemnification of Directors and Officers of JSC and CCA
(incorporated by reference to Exhibit 10(v) to JSC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986).
10.13(a) JSC Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.33 to JSC/CCA's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989).
10.13(b) Amendment No. 1 to JSC Deferred Director's Fee Plan (incorporated by reference to Exhibit
10.34 to JSC/CCA's Annual Report on Form 10-K for the fiscal year ended December 31,
1989).
10.14 Jefferson Smurfit Corporation Management Incentive Plan 1994 (incorporated by reference to
Exhibit 10.14 to Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
10.15* Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan.
10.16 Rights Agreement, dated as of April 30, 1992, among CCA, Smurfit Paperboard, Inc. and
Bankers Trust Company, as collateral trustee (incorporated by reference to Exhibit 10.43
to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1992).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.17 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.48
to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1992).
10.18* Commitment Letter, dated February 10, 1994, among JSC, CCA, Chemical, Bankers Trust, CSI
and BTSC.
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges.
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5).
23.2 Consent of Ernst & Young.
24.1 Powers of Attorney (other than Powers of Attorney previously filed).
25.1* Statement on Form T-1 of the eligibility of , as Trustee under the Series A Senior
Note Indenture and the Series B Senior Note Indenture.
</TABLE>
(b) *** Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II: Amounts Receivable From Related Parties and Underwriters, Promoters and Employees
Other than Related Parties
Schedule V: Property, Plant and Equipment
Schedule VI: Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
Schedule VIII: Valuation and Qualifying Accounts
Schedule X: Supplementary Income Statement Information
</TABLE>
* To be filed by amendment.
** Previously filed.
*** All other schedules specified under Regulation S-X for the Registrant have
been omitted because they are either not applicable, not required or because
the information required is included in the Financial Statements of the
Registrant or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ('Securities Act') may be permitted to directors, officers and
controlling persons of the Co-Registrants pursuant to the foregoing provisions,
or otherwise, the Co-Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Co-Registrants of expenses incurred or paid by a director,
officer or controlling person of the Co-Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Co-Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Co-Registrants hereby undertake:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Co-Registrants pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(d) If the Co-Registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 28, 1994.
CONTAINER CORPORATION OF AMERICA
By /s/ JOHN R. FUNKE
...................................
John R. Funke
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ------------------
<S> <C> <C>
* Director, Chairman of the Board
.........................................
MICHAEL W.J. SMURFIT
* Director, President and Chief Executive
......................................... Officer (Principal Executive Officer)
JAMES E. TERRILL
/s/ JOHN R. FUNKE Vice President and Chief Financial Officer March 28, 1994
......................................... (Principal Financial and
JOHN R. FUNKE Accounting Officer)
* Director
.........................................
HOWARD E. KILROY
* Director
.........................................
DONALD P. BRENNAN
* Director
.........................................
ALAN E. GOLDBERG
* Director
.........................................
DAVID R. RAMSAY
</TABLE>
*By /s/ JOHN R. FUNKE
..................................
JOHN R. FUNKE
ATTORNEY-IN-FACT
MARCH 28, 1994
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 28, 1994.
JEFFERSON SMURFIT CORPORATION
By /s/ JOHN R. FUNKE
...................................
John R. Funke
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ------------------
<S> <C> <C>
* Director, Chairman of the Board
.........................................
MICHAEL W.J. SMURFIT
* Director, President and Chief Executive
......................................... Officer (Principal Executive Officer)
JAMES E. TERRILL
/s/ JOHN R. FUNKE Vice President and Chief Financial Officer March 28, 1994
......................................... (Principal Financial and
JOHN R. FUNKE Accounting Officer)
* Director
.........................................
HOWARD E. KILROY
* Director
.........................................
DONALD P. BRENNAN
* Director
.........................................
ALAN E. GOLDBERG
* Director
.........................................
DAVID R. RAMSAY
</TABLE>
*By /s/ JOHN R. FUNKE
..................................
JOHN R. FUNKE
ATTORNEY-IN-FACT
MARCH 28, 1994
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER
THAN RELATED PARTIES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------- ---------- -------- --------------------- -------------------
BALANCE AT END
DEDUCTIONS OF PERIOD
--------------------- -------------------
BALANCE AT AMOUNTS
BEGINNING AMOUNTS WRITTEN NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT CURRENT
- -------------------------------------- ---------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993
JS Group............................ $ $ $ $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
Year ended December 31, 1992
JS Group............................ $ $ $ $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
Year ended December 31, 1991
JS Group............................ $5.2 $ $ 5.2 $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
</TABLE>
S-1
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------- ------------ -------- ----------- ----------- --------
BALANCE AT OTHER
BEGINNING OF CHANGES BALANCE
PERIOD, AS ADDITIONS ADD(DEDUCT) AT END
PREVIOUSLY AT COSTS DESCRIBE OF
CLASSIFICATION REPORTED (A) RETIREMENTS (B) PERIOD
- ----------------------------------------------- ------------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Land...................................... $ 47.6 $ $ (1.3) $ 13.9 $ 60.2
Buildings and leasehold improvements...... 216.4 9.6 (2.6) 17.9 241.3
Machinery, fixtures and equipment......... 1,477.8 119.7 (40.0) 43.6 1,601.1
Construction in progress.................. 53.3 (14.9) (1.8) (1.5) 35.1
------------ -------- ----------- ----------- --------
$1,795.1 $114.4 $ (45.7) $ 73.9 $1,937.7
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 226.4 $ 20.1 $ (.7) $ 15.7 $ 261.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Year ended December 31, 1992
Land...................................... $ 47.3 $ .2 $ $ .1 $ 47.6
Buildings and leasehold improvements...... 211.3 5.3 (.3) .1 216.4
Machinery, fixtures and equipment......... 1,418.8 79.1 (23.5) 3.4 1,477.8
Construction in progress.................. 59.1 (5.8) 53.3
------------ -------- ----------- ----------- --------
$1,736.5 $ 78.8 $ (23.8) $ 3.6 $1,795.1
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 228.5 $ 20.4 $ (2.2) $ (20.3) $ 226.4
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Year ended December 31, 1991
Land...................................... $ 50.4 $ .3 $ (.1) $ (3.3) $ 47.3
Buildings and leasehold improvements...... 205.0 4.9 (2.0) 3.4 211.3
Machinery, fixtures and equipment......... 1,329.7 99.9 (13.4) 2.6 1,418.8
Construction in progress.................. 56.4 2.5 .2 59.1
------------ -------- ----------- ----------- --------
$1,641.5 $107.6 $ (15.5) $ 2.9 $1,736.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 231.9 $ 16.9 $ (2.3) $ (18.0) $ 228.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
</TABLE>
- ------------
(A) Includes capitalized leases which are not reflected in the Consolidated
Statements of Cash Flow.
(B) See next page.
S-2
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
COMPONENTS OF OTHER CHANGES
(IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL
TIMBER OTHER
CLASSIFICATION ACQUISITIONS SFAS 109(A) RESTRUCTURING(B) DEPLETION OTHER CHANGES
- ------------------------------------ ------------ ----------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Land........................... $ $ 15.2 $ (1.5) $ $ .2 $ 13.9
Buildings and leasehold
improvements................. 27.7 (9.9) .1 17.9
Machinery, fixtures and
equipment.................... 1.4 120.5 (78.0) (.3) 43.6
Construction in progress....... .1 (1.5) (.1) (1.5 )
----- ----------- ------- --------- ------ -------
$1.5 $ 163.4 $(90.9) $ $ (.1) $ 73.9
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ 35.9 $ (20.2) $ $ 15.7
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Year ended December 31, 1992
Land........................... $ $ $ $ $ .1 $ .1
Buildings and leasehold
improvements................. .1 .1
Machinery, fixtures and
equipment.................... 5.2 (1.8) 3.4
Construction in progress.......
----- ----------- ------- --------- ------ -------
$5.2 $ $ $ $ (1.6) $ 3.6
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ $ $ (20.3) $ $(20.3 )
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Year ended December 31, 1991
Land........................... $ .1 $ $ $ $ (3.4) $ (3.3 )
Buildings and leasehold
improvements................. .8 2.6 3.4
Machinery, fixtures and
equipment.................... 3.2 (.6) 2.6
Construction in progress....... .3 (.1) .2
----- ----------- ------- --------- ------ -------
$4.4 $ $ $ $ (1.5) $ 2.9
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ $ $ (18.1) $ .1 $(18.0 )
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
</TABLE>
- ------------
(A) Represents increase in property balances in connection with the adoption of
SFAS No. 109. See footnote 6 to the December 31, 1993 consolidated
financial statements.
(B) Represents reduction in property balances in connection with restructuring
and other charges. See footnote 11 to the December 31, 1993 consolidated
financial statements.
S-3
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN B
------------ COLUMN C COLUMN E COLUMN F
BALANCE AT ---------- ------------ --------
BEGINNING OF ADDITIONS OTHER BALANCE
COLUMN A PERIOD, AS CHARGED TO COLUMN D CHANGES AT END
- --------------------------------------------- PREVIOUSLY COSTS AND ----------- ADD (DEDUCT) OF
DESCRIPTION REPORTED EXPENSES RETIREMENTS DESCRIBE(A) PERIOD
- --------------------------------------------- ------------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings and leasehold improvements.... $ 52.1 $ 11.2 $ (1.6) $ (5.8) $ 55.9
Machinery, fixtures and equipment....... 472.9 92.1 (19.1) (38.6) 507.3
------------ ---------- ----------- ------------ --------
$525.0 $103.3 $ (20.7) $(44.4) $563.2
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
Year ended December 31, 1992:
Buildings and leasehold improvements.... $ 41.9 $ 10.6 $ (.2) $ (.2) $ 52.1
Machinery, fixtures and equipment....... 397.2 95.9 (20.2) 472.9
------------ ---------- ----------- ------------ --------
$439.1 $106.5 $ (20.4) $ (.2) $525.0
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
Year ended December 31, 1991:
Buildings and leasehold improvements.... $ 34.1 $ 9.7 $ (1.9) $ $ 41.9
Machinery, fixtures and equipment....... 312.0 96.1 (11.7) .8 397.2
------------ ---------- ----------- ------------ --------
$346.1 $105.8 $ (13.6) $ .8 $439.1
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
</TABLE>
- ------------
(A) See next page.
The annual provisions for depreciation have been computed principally in
accordance with the following estimated lives:
Building and leasehold improvements -- 20 to 50 years
Machinery, fixtures and equipment -- 3 to 30 years
S-4
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE VI -- ACCMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
COMPONENTS OF OTHER CHANGES
(IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL
OTHER
CLASSIFICATION ACQUISITIONS SFAS 109(1) RESTRUCTURING(2) OTHER CHANGES
- -------------------------------------------------- ------------ ----------- ---------------- ----- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Building and leasehold improvements.......... $ $ .2 $ (5.7) $(.3) $ (5.8)
Machinery, fixtures and equipment............ .4 2.8 (41.8) (38.6)
--- ----- ------- ----- -------
$ .4 $ 3.0 $(47.5) $(.3) $(44.4)
--- ----- ------- ----- -------
--- ----- ------- ----- -------
Year ended December 31, 1992
Buildings and leasehold improvements......... $ $ $ $(.2) $ (.2)
Machinery, fixtures and equipment............
--- ----- ------- ----- -------
$ $ $ $(.2) $ (.2)
--- ----- ------- ----- -------
--- ----- ------- ----- -------
Year Ended December 31, 1991
Buildings and leasehold improvements......... $ .1 $ $ $(.1) $
Machinery, fixtures and equipment............ .8 .8
--- ----- ------- ----- -------
$ .9 $ $ $(.1) $ .8
--- ----- ------- ----- -------
--- ----- ------- ----- -------
</TABLE>
- ------------
(1) Represents increase in property balances in connection with the adoption of
SFAS No. 109. See footnote 6 to the December 31, 1993 consolidated financial
statements.
(2) Represents reduction in property balances in connection with restructuring
and other charges. See footnote 11 to the December 31, 1993 consolidated
financial statements.
S-5
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN B
------------ COLUMN C COLUMN E
BALANCE AT ------------------------ COLUMN D --------
BEGINNING OF CHARGED TO ---------- BALANCE
COLUMN A PERIOD, AS CHARGED TO OTHER DEDUCTIONS AT END
- ------------------------------------------------ PREVIOUSLY COSTS AND ACCOUNTS DESCRIBE OF
DESCRIPTION REPORTED EXPENSES DESCRIBE (A) PERIOD
- ------------------------------------------------ ------------ ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts............ $7.8 $4.0 $ $2.6 $9.2
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Year ended December 31, 1992
Allowance for doubtful accounts............ $8.2 $3.5 $ $3.9 $7.8
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Year ended December 31, 1991
Allowance for doubtful accounts............ $7.8 $3.6 $ $3.2 $8.2
----- ----- ----- ----- --------
----- ----- ----- ----- --------
</TABLE>
- ------------
(A) Uncollectible accounts written off, net of recoveries.
S-6
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN B
-------------------------------------
COLUMN A YEAR ENDED DECEMBER 31,
- --------------------------------------------------- -------------------------------------
ITEM 1993 1992 1991
- --------------------------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Maintenance and repairs............................ $ 237.8 $ 232.0 $ 208.5
</TABLE>
Amounts for (i) depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals, (ii) taxes, other than payroll and
income taxes, (iii) royalties and (iv) advertising costs are not presented as
such amounts are less than 1% of total sales and revenue in all periods.
S-7
APPENDIX
Graphic and Image Information:
See the narrative descriptions of 5 graphs on pages 7, 42, 43, 44 and 45
in the prospectus of this electronic filing.
<PAGE>
STATEMENT OF DIFFERENCES
The registered trademark shall be expressed as 'r'.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
---------------- --------------------------------------------------------------------------------------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of JSC.
3.2* Form of Restated Certificate of Incorporation of CCA.
3.3* Form of By-laws of JSC.
3.4* Form of By-laws of CCA.
4.1* Form of Indenture for the Series A Senior Notes.
4.2* Form of Indenture for the Series B Senior Notes.
4.3 Indenture for the 1993 Notes (incorporated by reference to Exhibit 4.4 to Holdings'
Registration Statement on Form S-1 (File No. 33-75520)).
4.4* First Supplemental Indenture to the 1993 Note Indenture
4.5 Indenture for the Senior Subordinated Notes (incorporated by reference to Exhibit 4.6
to Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
4.6 Indenture for the Subordinated Debentures (incorporated by reference to Exhibit 4.7 to
Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
4.7 Indenture for the Junior Accrual Debentures (incorporated by reference to Exhibit 4.8
to Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Second Amended and Restated Organization Agreement, as of August 26, 1992, among JSC,
CCA, MSLEF II, Inc., SIBV, Holdings and MSLEF II (incorporated by reference to Exhibit
10.1(d) to JSC's quarterly report on Form 10-Q for the quarter ended September 30,
1992).
10.2* Form of Stockholders Agreement among Holdings, SIBV, MSLEF II and certain related
entities.
10.3* Form of Registration Rights Agreement among Holdings, MSLEF II and SIBV.
10.4 Shareholders Agreement, dated as of February 21, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 4.2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.5 Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times
Mirror Company (incorporated by reference to Exhibit 10.39 to JSC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990). Portions of this exhibit have
been excluded pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
10.6 Operating Agreement, dated as of April 30, 1992, by and between CCA and Smurfit
Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to JSC's quarterly report
on Form 10-Q for the quarter ended March 31, 1992).
10.7 Stock Purchase Agreement, dated as of January 15, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.8(a) Financial Advisory Services Agreement, dated September 12, 1989, among MS&Co., the
Company and SIBV (incorporated by reference to Exhibit 10.8(a) to JSC/CCA's
Registration Statement on Form S-1 (File No. 33-31212)).
10.8(b) Financial Advisory Services Agreement Amendment, dated as of October 19, 1989, among
MS&Co., the Company and SIBV (incorporated by reference to Exhibit 10.8(b) to JSC/CCA's
Registration Statement on Form S-1 (File No. 33-31212)).
10.9 Deferred Compensation Agreement, dated January 1, 1979, between JSC and James B.
Malloy, as amended and effective November 10, 1983 (incorporated by reference to
Exhibit 10(m) to JSC's Registration Statement on Form S-1 (File No. 2-86554)).
10.10(a) JSC Deferred Compensation Capital Enhancement Plan (incorporated by reference to
Exhibit 10(r) to JSC's quarterly report on Form 10-Q for the quarter ended September
30, 1985).
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
---------------- --------------------------------------------------------------------------------------- ----
<C> <S> <C>
10.10(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated by
reference to Exhibit 10.37 to JSC/CCA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.11 Letter Agreement, dated November 24, 1982, between C. Larry Bradford and Alton
Packaging Corporation, as amended and effective November 10, 1983 (incorporated by
reference to Exhibit 10(g) to JSC's Registration Statement on Form S-1 (File No.
2-86554)).
10.12 Form of Agreement for Indemnification of Directors and Officers of JSC and CCA
(incorporated by reference to Exhibit 10(v) to JSC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986).
10.13(a) JSC Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.33 to
JSC/CCA's Annual Report on Form 10-K for the fiscal year ended December 31, 1989).
10.13(b) Amendment No. 1 to JSC Deferred Director's Fee Plan (incorporated by reference to
Exhibit 10.34 to JSC/CCA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989).
10.14 Jefferson Smurfit Corporation Management Incentive Plan 1994 (incorporated by reference
to Exhibit 10.14 to Holdings' Registration Statement on Form S-1 (File No. 33-75520)).
10.15* Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan.
10.16 Rights Agreement, dated as of April 30, 1992, among CCA, Smurfit Paperboard, Inc. and
Bankers Trust Company, as collateral trustee (incorporated by reference to Exhibit
10.43 to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1992).
10.17 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit
10.48 to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1992).
10.18* Commitment Letter, dated February 10, 1994, among JSC, CCA, Chemical, Bankers Trust,
CSI and BTSC.
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges.
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5).
23.2 Consent of Ernst & Young.
24.1 Powers of Attorney (other than Powers of Attorney previously filed).
25.1* Statement on Form T-1 of the eligibility of , as Trustee under the Series A
Senior Note Indenture and the Series B Senior Note Indenture.
</TABLE>
(b) *** Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II: Amounts Receivable From Related Parties and Underwriters, Promoters and Employees
Other than Related Parties
Schedule V: Property, Plant and Equipment
Schedule VI: Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
Schedule VIII: Valuation and Qualifying Accounts
Schedule X: Supplementary Income Statement Information
</TABLE>
* To be filed by amendment.
** Previously filed.
*** All other schedules specified under Regulation S-X for the Registrant have
been omitted because they are either not applicable, not required or because
the information required is included in the Financial Statements of the
Registrant or notes thereto.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$300,000,000
CONTAINER CORPORATION OF AMERICA
% SERIES A SENIOR NOTES DUE 2004
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
JEFFERSON SMURFIT CORPORATION (U.S.)
and
$100,000,000
CONTAINER CORPORATION OF AMERICA
% SERIES B SENIOR NOTES DUE 2002
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
JEFFERSON SMURFIT CORPORATION (U.S.)
UNDERWRITING AGREEMENT
, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
, 1994
Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
Container Corporation of America, a Delaware corporation (the 'Company'),
proposes to issue and sell to Morgan Stanley & Co. Incorporated (the
'Underwriter') (i) $300,000,000 aggregate principal amount of its % Series A
Senior Notes Due 2004 (the 'Series A Senior Notes') to be issued pursuant to the
provisions of an Indenture dated as of , 1994 (the 'Series A Senior Note
Indenture') among the Company, Jefferson Smurfit Corporation (U.S.), a Delaware
corporation ('JSC'), as guarantor and , as Trustee (the 'Series A Senior Note
Trustee'), and (ii) $100,000,000 aggregate principal amount of its % Series B
Senior Notes Due 2002 (the 'Series B Senior Notes', and collectively with the
Series A Senior Notes, the 'Securities') to be issued pursuant to the provisions
of an Indenture dated as of , 1994 (the 'Series B Senior Note Indenture', and
collectively with the Series A Senior Note Indenture, the 'Indentures') among
the Company, JSC as guarantor and , as Trustee (the 'Series B Senior
Note Trustee', and collectively with the Series A Senior Note Trustee, the
'Trustees').
The Company and JSC have filed with the Securities and Exchange Commission
(the 'Commission') a registration statement, including a prospectus relating to
the Securities and to JSC's unconditional guarantee of each of the Series A
Senior Notes (the 'Series A Guarantee') and the Series B Senior Notes (the
'Series B Guarantee', and collectively with the Series A Guarantee, the
'Guarantees'). The registration statement as amended at the time it becomes
effective, including the exhibits thereto, the documents incorporated by
reference therein and the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the 'Securities Act'), is hereinafter
referred to as the 'Registration Statement'; and the prospectus in the form
first used to confirm sales of Securities, including the documents incorporated
by reference therein, is hereinafter referred to as the 'Prospectus'.
<PAGE>
2
I.
Each of the Company (other than as set forth in paragraph (g)) and JSC (other
than as set forth in paragraph (f)) represents and warrants to the Underwriter
that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and
no proceedings for such purpose are pending before or, to the Company's or
JSC's knowledge, threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iii) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph 1(b) do not apply
(A) to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to the Underwriter furnished to
the Company in writing by the Underwriter expressly for use therein or (B) to
that part of the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of 1939, as amended (the
'Trust Indenture Act'), of each of the Trustees.
(c) Each of the Company, JSC, JSC Enterprises, Inc. ('JSC Enterprises'),
CCA Enterprises, Inc. ('CCA Enterprises') and Smurfit Newsprint Corporation
('SNC') has been duly incorporated, is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
JSC and their respective subsidiaries, taken as a whole. Neither the Company
nor JSC has any 'significant subsidiaries' (as defined in Rule 1.02 of the
Commission's Regulation S-X) other than those referred to above.
<PAGE>
3
(d) This Agreement has been duly authorized, executed and delivered by
each of the Company and JSC.
(e) On the Closing Date, each of the Indentures will have been duly
qualified under the Trust Indenture Act and will have been duly authorized,
executed and delivered by each of the Company and JSC and will be a valid and
binding agreement of each of the Company and JSC, enforceable against each of
the Company and JSC in accordance with its terms except to the extent that
(a) enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity) and (b) the waiver contained in Section 3.17 of each Indenture may
be deemed unenforceable.
(f) The Securities have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the
applicable Indenture and delivered to and paid for by the Underwriter in
accordance with the terms of this Agreement, will be entitled to the benefits
of the applicable Indenture, and will be valid and binding obligations of the
Company, enforceable in accordance with their terms except to the extent that
(a) the enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity) and (b) the waiver contained in Section 3.17 of each Indenture may
be deemed unenforceable.
(g) Each of the Guarantees has been duly authorized by JSC and, upon
execution and delivery of the applicable Indenture by JSC, and assuming due
execution and authentication of the Securities in accordance with the
applicable Indenture, will be entitled to the benefits of the applicable
Indenture and will be valid and binding obligations of JSC, enforceable in
accordance with its terms except to the extent that (a) the enforcement
thereof may be limited by (1) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (2) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity)
and (b) the waiver contained in Section 3.17 of each Indenture may be deemed
unenforceable.
(h) The execution and delivery by each of the Company and JSC of, and the
performance by each of the Company and JSC of its obligations under, this
Agreement, the Indentures, the Securities and the Guarantees will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws of either the Company or JSC, or any agreement or
other instrument binding upon the Company or
<PAGE>
4
JSC or any of their respective subsidiaries that is material to the Company
and JSC and their respective subsidiaries, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company or JSC or any of their respective subsidiaries, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company or
JSC of its respective obligations under this Agreement, the Indentures, the
Securities or the Guarantees, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Securities and the Guarantees.
(i) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial
or otherwise, or in the earnings, business or operations of the Company and
JSC and their respective subsidiaries, taken as a whole, from that set forth
in the Prospectus.
(j) There are no legal or governmental proceedings pending or, to the
Company's or JSC's knowledge, threatened to which the Company or JSC or any
of their respective subsidiaries is a party or to which any of the properties
of the Company or JSC or any of their respective subsidiaries is subject that
are required to be described in the Registration Statement or the Prospectus
and are not so described, or any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(k) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the rules and regulations of
the Commission thereunder.
(l) Neither the Company nor JSC is an 'investment company' or an entity
'controlled' by a company which is required to register as an 'investment
company', as such terms are defined in the Investment Company Act of 1940, as
amended.
(m) Other than as described in the Prospectus, each of the Company and JSC
and their respective subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ('Environmental
Laws'), (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance
<PAGE>
5
with Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and JSC and their respective
subsidiaries, taken as a whole.
(n) Each of the Company and JSC has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
II.
The Company hereby agrees to sell to the Underwriter, and the Underwriter,
upon the basis of the representations and warranties herein contained, but
subject to the conditions hereinafter stated, agrees to purchase from the
Company (i) the Series A Senior Notes at % of their principal amount -- the
purchase price -- plus accrued interest, if any, from , 1994 to the date
of payment and delivery and (ii) the Series B Senior Notes at % of their
principal amount -- the purchase price -- plus accrued interest, if any, from
, 1994 to the date of payment and delivery.
III.
The Company is advised by you that you propose to make a public offering of
the Securities as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that (i) the Series A Senior Notes are to be offered to the
public initially at % of their principal amount -- the public offering
price -- plus accrued interest, if any, and to certain dealers selected by you
at a price that represents a concession not in excess of % of their principal
amount under the public offering price, and that you may allow, and such dealers
may reallow, a concession, not in excess of % of their principal amount, to
certain other dealers and (ii) the Series B Senior Notes are to be offered to
the public initially at % of their principal amount -- the public offering
price -- plus accrued interest, if any, and to certain dealers selected by you
at a price that represents a concession not in excess of % of their principal
amount under the public offering price, and that you may allow, and such dealers
may reallow, a concession, not in excess of % of their principal amount, to
certain other dealers.
<PAGE>
6
IV.
Payment for the Securities shall be made (i) by certified or official bank
check or checks payable to the order of the Company in New York Clearing House
funds at the office of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue,
New York, New York, or (ii), upon three business days' notice to the
Underwriter, in same day funds by wire transfer to the Company's account at a
bank designated by the Company, at 10:00 A.M., local time, on , 1994, or
at such other time on the same or such other date, not later than , 1994,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the 'Closing Date'. If payment is to be made in same
day funds, the Company agrees to pay to the Underwriter on the Closing Date
interest on the purchase price payable pursuant to Section II hereof, for a
period of one day, calculated at a rate equal to the cost of funds of the
Underwriter.
Payment for the Securities shall be made against delivery to you of the
Securities registered in such names and in such denominations as you shall
request in writing not later than two full business days prior to the date of
delivery, with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriter duly paid.
V.
The obligations of the Company and JSC and the obligations of the Underwriter
hereunder are subject to the condition that the Registration Statement shall
have become effective not later than the date hereof.
The obligations of the Underwriter hereunder are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date,
(i) there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's or JSC's securities by
any 'nationally recognized statistical rating organization', as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act; and
<PAGE>
7
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and JSC and
their respective subsidiaries, taken as a whole, from that set forth in the
Registration Statement that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the Securities on
the terms and in the manner contemplated in the Prospectus.
(b) The Underwriter shall have received on the Closing Date a certificate
from each of the Company and JSC, each dated the Closing Date and signed by
an executive officer of the Company and JSC, as the case may be, to the
effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company and JSC contained in this
Agreement are true and correct as of the Closing Date and that each of the
Company and JSC has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied on or before the
Closing Date.
Each of the officers signing and delivering such certificate may rely upon
the best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom, special counsel for
the Company and JSC, substantially to the effect that
(i) each of the Company and JSC has been duly organized, and is subsisting
and in good standing, as a corporation under the laws of the State of
Delaware, and has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus;
(ii) this Agreement has been duly authorized, executed and delivered by
each of the Company and JSC;
(iii) each of the Indentures has been duly authorized, executed and
delivered by each of the Company and JSC and is a valid and binding agreement
of each of the Company and JSC, enforceable against each of the Company and
JSC in accordance with its terms except to the extent that (a) enforcement
thereof may be limited by (1) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (2) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity)
and (b) the waiver contained in Section 3.17 of each Indenture may be deemed
unenforceable;
<PAGE>
8
(iv) each of the Indentures has been duly qualified under the Trust
Indenture Act of 1939;
(v) the Securities have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the
applicable Indenture and delivered to and paid for by the Underwriter in
accordance with the terms of this Agreement, will be entitled to the benefits
of the applicable Indenture and will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms
except to the extent that (a) enforcement thereof may be limited by (1)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (2)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity) and (b) the waiver contained
in Section 3.17 of each Indenture may be deemed unenforceable;
(vi) each of the Guarantees has been duly authorized by JSC and, upon
execution and delivery of the applicable Indenture by JSC and when the
Securities have been authenticated in accordance with the provisions of the
applicable Indenture, will be entitled to the benefits of the applicable
Indenture and will be a valid and binding obligation of JSC, enforceable
against JSC in accordance with its terms except to the extent that (a)
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity) and (b) the waiver contained in Section 3.17 of each Indenture may
be deemed unenforceable;
(vii) the execution and delivery by each of the Company and JSC of, and
the performance by each of the Company and JSC of its obligations under, this
Agreement, the Indentures, the Securities (in the case of the Company) and
the Guarantees (in the case of JSC) will not (a) violate or result in a
breach of any term of the certificate of incorporation or by-laws of either
the Company or JSC, (b) based upon a review of those laws, rules and
regulations which, in such counsel's experience, are normally applicable to
transactions of the type provided for in or by this Agreement, the
Securities, the Guarantees and the Indentures, violate any provision of any
federal or New York State law or the General Corporation Law of the State of
Delaware, (c) conflict with any of the agreements or instruments listed on
Schedule I thereto (except that such counsel need not express an opinion as
to any ratio or financial or statistical covenant contained or incorporated
in any of the agreements or instruments listed on Schedule I thereto), (d) to
the best of such counsel's
<PAGE>
9
knowledge, violate any judgment, order or decree of any New York or Delaware
governmental body, agency or court having jurisdiction over the Company or
JSC and (e) based upon a review of those laws, rules and regulations which,
in such counsel's experience, are normally applicable to transactions of the
type provided for in or by this Agreement, the Securities, the Guarantees and
the Indentures, no consent, approval, authorization or order of, or
qualification with, any governmental body or agency of the State of New York,
the State of Delaware or the United States is required for the performance by
the Company or JSC of its respective obligations under this Agreement, the
Indentures, the Securities and the Guarantees, except such as may be (1)
required and have been obtained under the Securities Act and the Trust
Indenture Act and (2) required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Securities and
the Guarantees;
(viii) the statements contained (1) in the Prospectus under the caption
'Description of the Senior Notes' and (2) in the Registration Statement under
Item 15 of Form S-2 under the Securities Act, in each case insofar as such
statements constitute matters of law or legal conclusions, have been reviewed
by such counsel and fairly present the information disclosed therein in all
material respects, and the provisions of the contracts, agreements and
instruments summarized under the aforementioned caption and item conform in
all material respects to the descriptions thereof in the Prospectus and the
Registration Statement;
(ix) to such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company or JSC is a party or
to which any of their properties is subject that are required to be described
in the Registration Statement or the Prospectus and are not so described, and
there are no statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described
or filed or incorporated by reference as an exhibit thereto as required;
(x) the Registration Statement, as of its effective date, and the
Prospectus, as of its date, complied as to form in all material respects with
the requirements of the Securities Act, the Trust Indenture Act and the rules
and regulations of the Commission thereunder, except that, in each case, such
counsel need not express any opinion as to the financial statements,
schedules and other financial or statistical information included in the
Registration Statement or the Prospectus or excluded therefrom, or the
exhibits to the
<PAGE>
10
Registration Statement, including each Statement of Eligibility of the
Trustee on Form T-1 (the 'Forms T-1'); and
(xi) neither the Company, JSC nor Jefferson Smurfit Corporation, a
Delaware corporation, is an 'investment company', as such term is defined in
the Investment Company Act of 1940, as amended.
In addition, such opinion shall state that such counsel has participated
in the preparation of the Registration Statement and in conferences with
officers and other representatives of the Company and JSC, the General
Counsel of the Company and JSC, representatives of the independent public
accountants for the Company and JSC, and with your representatives at which
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel need not pass upon or
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus and need
not make any independent check or verification thereof (other than to the
extent set forth in subparagraph (viii) above), on the basis of the
foregoing, no facts have come to the attention of such counsel which have led
such counsel to believe that either the Registration Statement, as of the
date it became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, as of
its date or as of the Closing Date, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; except that such counsel need not
express any opinion or belief with respect to the financial statements,
schedules and other financial or statistical information included in the
Registration Statement or the Prospectus or excluded therefrom, or the
exhibits to the Registration Statement, including the Forms T-1.
(d) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Michael E. Tierney, Vice President, General Counsel and
Secretary of the Company and JSC, substantially to the effect that
(i) each of the Company and JSC is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and JSC and their respective subsidiaries, taken as a whole;
<PAGE>
11
(ii) each of JSC Enterprises, CCA Enterprises and SNC has been duly
organized, and is subsisting in good standing as a corporation, under the
laws of the State of Delaware, and has the corporate power and authority to
own its property and to conduct its business as described in the
Prospectus, and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and JSC and their respective
subsidiaries, taken as a whole, and neither the Company nor JSC has any
'significant subsidiaries' (as defined in Rule 1.02 of the Commission's
Regulation S-X) other than those referred to above;
(iii) this Agreement has been duly authorized, executed and delivered by
each of the Company and JSC;
(iv) each of the Indentures has been duly authorized, executed and
delivered by each of the Company and JSC;
(v) the Securities have been duly authorized and executed by the
Company;
(vi) each of the Guarantees has been duly authorized by JSC;
(vii) the execution and delivery by each of the Company and JSC of, and
the performance by each of the Company and JSC of its obligations under,
this Agreement, the Indentures, the Securities (in the case of the Company)
and the Guarantees (in the case of JSC) will not (a) violate or result in a
breach of any term of the certificate of incorporation or by-laws of either
the Company or JSC, (b) conflict with any agreement or other instrument
binding upon the Company or JSC or any of their respective subsidiaries
that is material to the Company and JSC and their respective subsidiaries,
taken as a whole (except that such counsel need not express an opinion with
respect to the compliance by the Company and JSC and their respective
subsidiaries with any ratio or financial or statistical covenant contained
or incorporated in any such agreement or instrument), (c) to the best of
such counsel's knowledge, violate any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
JSC or any of their respective subsidiaries, and (d) no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company or JSC of its
respective obligations under this Agreement, the Indentures, the Securities
or the Guarantees, except such as
<PAGE>
12
may be (1) required and have been obtained under the Securities Act and the
Trust Indenture Act and (2) required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Securities
and the Guarantees; and
(viii) to the best of such counsel's knowledge, each of the Company and
JSC (i) is in compliance with any and all applicable federal, state and
local laws and regulations relating to the protection of human health, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminations ('Environmental Laws'), (ii) has received all permits,
licenses or other approvals required of it under applicable Environmental
Laws to conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, individually
or in the aggregate, have a material adverse effect on the Company and JSC
and their respective subsidiaries, taken as a whole.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Shearman & Sterling, counsel for the Underwriter, covering
the matters referred to in subparagraphs (ii), (iii), (iv), (v), (vi), (viii)
(but only as to the statements in the Prospectus under 'Description of the
Senior Notes' and 'The Underwriter') and (x), as well as the last
subparagraph, of paragraph (c) above.
The opinion of Skadden, Arps, Slate, Meagher & Flom and of Michael E.
Tierney described in paragraphs (c) and (d) above shall be rendered to you at
the request of the Company and JSC, and shall so state therein.
(f) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be,
in form and substance satisfactory to you, from Ernst & Young, independent
public accountants for the Company, containing statements and information of
the type ordinarily included in accountants' 'comfort letters' to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(g) JSC and the Company shall have (i) entered into a loan agreement (the
'New Bank Facilities') with a syndicate of banks with Chemical Bank as
administrative agent providing for term loans in the aggregate amount of $1.2
billion and a revolving credit facility in the amount of $450 million to be
available to JSC and the Company and (ii) borrowed under the New Bank
Facilities at least an amount
<PAGE>
13
equal to the amount that, together with the net proceeds from the sale of the
Securities, the SIBV Investment and the Equity Offerings (each as described
in the Prospectus), is sufficient to repay all amounts outstanding under the
1989 Credit Agreement, the Secured Notes and the 1992 Credit Agreement, all
as described in the Prospectus. The New Bank Facilities shall contain terms
and conditions no less favorable in any material respect to the Company, JSC
and Jefferson Smurfit Corporation (the 'Parent') than the description thereof
set forth in the Registration Statement when it was declared effective. The
Company shall have provided to you and your counsel copies of all closing
documents delivered to the parties to the New Bank Facilities as you or your
counsel shall have reasonably requested.
(h) A supplemental indenture reflecting the Proposed 1993 Note Amendment
(as described in the Prospectus) to the Indenture relating to the Company's
9 3/4% Senior Notes due 2003 shall have been executed and become operative
according to its terms.
(i) In each case as described in the Prospectus, (i) the Reclassification
shall have been completed, (ii) the Parent, Smurfit International B.V.
('SIBV') and The Morgan Stanley Leveraged Equity Fund II, L.P. shall have
entered into the Stockholders Agreement, (iii) the certificates of
incorporation and bylaws of each of the Company, JSC and the Parent shall
have been amended as described in the Prospectus and (iv) the Company, JSC
and the Parent shall have received all consents or waivers in writing with
respect to all material agreements under which consents or waivers are
required to permit consummation of the Recapitalization Plan.
The obligations of the Underwriter hereunder are also subject to the
concurrent closing of (i) the sale of shares of the Parent's Common Stock to
SIBV for a purchase price of $100 million (the 'SIBV Investment') and (ii) the
sale of shares of the Parent's Common Stock pursuant to the Underwriting
Agreement between the Parent and Morgan Stanley & Co. Incorporated, Kidder,
Peabody & Co. Incorporated and Salomon Brothers Inc, as representatives of the
U.S. Underwriters thereunder, and Morgan Stanley & Co. International Limited,
Kidder, Peabody International Limited, Salomon Brothers International Limited
and S.G. Warburg Securities, as representatives of the International
Underwriters thereunder, of even date herewith (the 'Equity Offerings').
VI.
In further consideration of the agreements of the Underwriter herein
contained, each of the Company and JSC covenants as follows:
<PAGE>
14
(a) To furnish to you, without charge, two signed copies of the
Registration Statement (including exhibits thereto) and, during the period
mentioned in paragraph (c) below, as many copies of the Prospectus and any
supplements and amendments thereto or to the Registration Statement as you
may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, unless, in the reasonable judgment of the Company, JSC
and their counsel, such amendment or supplement is necessary to comply with
law, in which case, before amending or supplementing the Registration
Statement or Prospectus, the Company or JSC will furnish you a copy of such
proposed amendment or supplement and permit you a reasonable opportunity to
comment thereon.
(c) If, during such period after the first date of the public offering of
the Securities as in the opinion of your counsel the Prospectus is required
by law to be delivered in connection with sales by the Underwriter or a
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of your
counsel, it is necessary to amend or supplement the Prospectus to comply with
law, forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriter and to the dealers (whose names and addresses you
will furnish to the Company and JSC) to which Securities may have been sold
by you and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including reasonable fees and disbursements
of counsel) in connection with such qualification and in connection with (i)
the determination of the eligibility of the Securities for investment under
the laws of such jurisdictions as you may designate and (ii) any review of
the offering of the Securities by the National Association of Securities
Dealers, Inc.; provided that neither the Company nor JSC shall be obligated
to so qualify the Securities if such qualification requires it to file any
general consent to service of process or to register or qualify as a foreign
corporation in any jurisdiction in which it is not so registered or
qualified.
<PAGE>
15
(e) To make generally available to the Company's security holders and to you as
soon as practicable an earnings statement covering the twelve-month period
ending June 30, 1995 that satisfies the provisions of Section 11(a) of the
Securities Act and the rules and regulations of the Commission thereunder.
(f) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or otherwise
dispose of any debt securities of the Company or warrants to purchase debt
securities of the Company substantially similar to the Securities (other than
the Securities) without your prior written consent.
(g) To use the net proceeds received (i) by the Company and JSC from the sale of
the Securities hereunder and (ii) from the Parent's sales of Common Stock
pursuant to the Equity Offerings and the SIBV Investment, in the manner
specified in the Prospectus under the captions 'Use of Proceeds' and
'Recapitalization Plan'.
(h) To pay all document production charges and expenses of Shearman & Sterling,
counsel for the Underwriter (but not including their fees for professional
services), in connection with the preparation of this Agreement.
VII.
The Company and JSC agree jointly and severally to indemnify and hold
harmless the Underwriter and each person, if any, who controls the Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred by the Underwriter
or any such controlling person in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company or JSC shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to the
Underwriter furnished to the Company and JSC in writing by the Underwriter
expressly for use therein; provided that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter or any person controlling the Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
to the
<PAGE>
16
Underwriter any amendments or supplements thereto) was not sent or given by or
on behalf of the Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Securities
to such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities.
The Underwriter agrees to indemnify and hold harmless the Company and JSC,
their directors, their officers who sign the Registration Statement and each
person, if any, who controls the Company or JSC within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company and JSC to the Underwriter,
but only with reference to information relating to the Underwriter furnished to
the Company and JSC in writing by the Underwriter expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
'indemnified party') shall promptly notify the person against whom such
indemnity may be sought (the 'indemnifying party') in writing, and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to the second preceding paragraph, and by the
Company or JSC, as the case may be, in the case of parties indemnified pursuant
to the first preceding paragraph. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment, but only to the
extent provided by the first and second paragraphs of this Article VII.
Notwithstanding the
<PAGE>
17
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first or second paragraph of this
Article VII is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and JSC on the one hand and the Underwriter on
the other hand from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company or JSC on the
one hand and of the Underwriter on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and JSC on the one hand and the
Underwriter on the other hand from the offering of the Securities shall be
deemed to be in the same respective proportions as the net proceeds from the
offering of the Securities (before deducting expenses) received by the Company
and the total underwriting discounts and commissions received by the
Underwriter, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Securities. The
relative fault of the Company or JSC on the one hand and of the Underwriter on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or JSC or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, JSC and the Underwriter agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or
<PAGE>
18
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Article VII, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that the Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article VII are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Article VII and
the representations and warranties of the Company and JSC contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Underwriter or any person controlling the Underwriter or by or on behalf
of the Company or JSC, their officers or directors or any person controlling the
Company or JSC and (iii) acceptance of and payment for any of the Securities.
VIII.
This Agreement shall be subject to termination by notice given by you to the
Company and JSC, if (a) after the execution and delivery of this Agreement and
prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company or JSC shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the
Prospectus.
<PAGE>
19
IX.
This Agreement shall become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.
If this Agreement shall be terminated by the Underwriter because of any
failure or refusal on the part of the Company or JSC to comply with the terms or
to fulfill any of the conditions of this Agreement, or if for any reason the
Company or JSC shall be unable to perform its obligations under this Agreement
or if this Agreement is terminated pursuant to Article VIII hereof, the Company
and JSC will reimburse the Underwriter for all out-of-pocket expenses (including
the fees and disbursements of its counsel) reasonably incurred by the
Underwriter in connection with this Agreement or the offering contemplated
hereunder. The Company shall not in any event be liable to the Underwriter for
loss of anticipated profits from the transactions contemplated by this
Agreement.
This Agreement may be signed in two or more counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument.
<PAGE>
20
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
Very truly yours,
CONTAINER CORPORATION OF AMERICA
By ...................................
Name:
Title:
JEFFERSON SMURFIT CORPORATION (U.S.)
By ...................................
Name:
Title:
Accepted, , 1994
MORGAN STANLEY & CO.
INCORPORATED
By ...................................
Name:
Title:
<PAGE>
EXHIBIT 12.1
JEFFERSON SMURFIT CORPORATION (U.S.)
CALCULATION OF HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income (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) $ 64.7 $155.6
Add (deduct):
Earnings before income taxes of unconsolidated foreign
subsidiaries........................................... 19.5
Interest expense......................................... 254.2 300.1 335.2 337.8 119.1
Interest expense of unconsolidated foreign
subsidiaries........................................... 2.8
Interest component of rental expense..................... 11.3 10.6 9.7 9.3 8.6
------- ------- ------- ------ ------
Earnings available for fixed charges.......................... $ 4.7 $ 283.5 $ 320.6 $411.8 $305.6(a)
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Fixed charges:
Interest expense(b)...................................... $ 254.2 $ 300.1 $ 335.2 $337.8 $119.1
Interest expense of unconsolidated foreign
subsidiaries........................................... 2.8
Capitalized interest..................................... 3.4 4.2 2.4 5.8 6.0
Interest component of rental expense..................... 11.3 10.6 9.7 9.3 8.6
------- ------- ------- ------ ------
Total fixed charges................................. $ 268.9 $ 314.9 $ 347.3 $352.9 $136.5
------- ------- ------- ------ ------
------- ------- ------- ------ ------
Ratio of earnings to fixed charges............................ (a) (a) (a) 1.17 2.24
------- ------- ------- ------ ------
------- ------- ------- ------ ------
</TABLE>
- ------------
(a) For the years ended December 31, 1993, 1992 and 1991, earnings were
inadequate to cover fixed charges by $264.2 million, $31.4 million and
$26.7 million, respectively.
(b) For the years ended December 31, 1993, 1992, 1991, 1990 and 1989 interest
expense includes amortization of deferred debt issuance costs of $7.9
million, $14.6 million, $17.6 million, $16.9 million and $3.2 million,
respectively.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' and to
the use of our report dated January 28, 1994, in the Registration Statement
(Form S-2 No. 33-52383) and related Prospectus of Container Corporation of
America and Jefferson Smurfit Corporation (to be renamed Jefferson Smurfit
Corporation (U.S.)) for the registration of $300 million aggregate principal
amount of % Series A Senior Notes due 2004 and $100 million aggregate
principal amount of % Series B Senior Notes due 2002, guaranteed on a
senior basis, by Jefferson Smurfit Corporation (U.S.).
ERNST & YOUNG
St. Louis, Missouri
March 25, 1994
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints John R. Funke, Patrick J. Moore and James E. Terrill, each with full
power to act without the others as his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, (i) to sign a Registration
Statement (the 'Equity Registration Statement') of SIBV/MS Holdings, Inc.
('Holdings'), as registrant (under the name Jefferson Smurfit Corporation), to
be filed under the Securities Act of 1933, as amended, and any and all
amendments (including post-effective amendments) thereto, with respect to the
initial public offering of common stock of Holdings, (ii) to sign a Registration
Statement (the 'Debt Registration Statement') of Container Corporation of
America ('CCA'), as co-registrant, and Jefferson Smurfit Corporation ('JSC'), as
co-registrant (under the name Jefferson Smurfit (U.S.) Corporation), to be filed
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) thereto, with respect to one or more
tranches of senior debt securities to be issued by CCA and guaranteed by JSC,
and (iii) to file the Equity Registration Statement and the Debt Registration
Statement, in each case, together with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and such
other state and federal government commissions and agencies as may be necessary,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their or his substitute or
substitutes, lawfully do or cause to be done by virtue hereof.
/S/ DONALD P. BRENNAN
.....................................
SIGNATURE
DONALD P. BRENNAN
.....................................
(PRINT NAME)
February 18, 1994
