<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
REGISTRATION NOS. 33-52383 AND 33-58348
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENTS NOS. 5 AND 6 ON
FORM S-2
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JEFFERSON SMURFIT CORPORATION (U.S.)
(FORMERLY CONTAINER CORPORATION OF AMERICA)
(Exact Name Of Co-Registrant As Specified In Its Charter)
------------------------
<TABLE>
<CAPTION>
<S> <C>
Delaware 36-2659288
(State Or Other Jurisdiction Of Incorporation Or Organization) (I.R.S. Employer Identification Number)
150 North Michigan Avenue Patrick J. Moore
Chicago, Illinois 60601 Vice President And Chief Financial Officer
(312) 346-6600 150 North Michigan Avenue
(Address, Including Zip Code, And Telephone Number, Including Chicago, Illinois 60601
Area Code, Of Coregistrant's Principal Executive Offices) (312) 346-6600
(Name, Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Agent For Service)
</TABLE>
------------------------
JSCE, INC.
(Exact Name Of Co-Registrant As Specified In Its Charter)
------------------------
<TABLE>
<CAPTION>
<S> <C>
Delaware 37-1337160
(State Or Other Jurisdiction Of Incorporation Or Organization) (I.R.S. Employer Identification Number)
150 North Michigan Avenue Patrick J. Moore
Chicago, Illinois 60601 Vice President And Chief Financial Officer
(312) 346-6600 150 North Michigan Avenue
(Address, Including Zip Code, And Telephone Number, Including Chicago, Illinois 60601
Area Code, Of Coregistrant's Principal Executive Offices) (312) 346-6600
(Name, Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Agent For Service)
</TABLE>
------------------------
Copy to: Copy to:
Joseph A. Walsh, Jr. John R. Ettinger
Winston & Strawn Davis Polk & Wardwell
35 West Wacker Drive 450 Lexington Avenue
Chicago, IL 60601 New York, New York 10017
(312) 558-5600 (212) 450-4000
------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in these Post-Effective Amendments relates to Registration Statement
No. 33-52383 filed by the Co-Registrants and declared effective May 4, 1994
and Registration Statement No. 33-58348 filed by the Co-Registrants and
declared effective April 6, 1993. These Post-Effective Amendments consist of
Post-Effective Amendment No. 5 to Registration Statement No. 33-52383 and
Post-Effective Amendment No. 6 to Registration Statement No. 33-58348 and
shall become effective in accordance with Section 8(c) of the Securities Act
of 1933. The Prospectus included in the Post-Effective Amendments has been
prepared in accordance with the requirements of Form S-2 and is filed
pursuant to Rule 401 of the Securities Act of 1933. These post-effective
amendments are collectively referred to as "Post-Effective Amendments" and
the registration statements amended hereby are collectively referred to as
the "Registration Statements."
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [x]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this form, check the following box [ ].
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering [ ].
If delivery of the prospectus is expected to be made pursuant to Rule
434, please 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.
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<PAGE>
[LOGO]
JEFFERSON SMURFIT CORPORATION (U.S.)
JSCE, INC.
$900,000,000
$300,000,000 11 1/4% Series A Senior Notes due 2004
$100,000,000 10 3/4% Series B Senior Notes due 2002
$500,000,000 9 3/4% 1993 Senior Notes due 2003
________________________
JSCE, Inc. has unconditionally guaranteed the senior notes. The senior
notes and the guarantee of the senior notes are senior unsecured obligations
of Jefferson Smurfit Corporation (U.S.) and JSCE, Inc., respectively.
Jefferson Smurfit Corporation (U.S.) may redeem the Series A Senior
Notes at its option of any time on or after May 1, 1999. Neither the Series
B Senior Notes nor the 1993 Senior Notes are redeemable prior to maturity.
Interest on the Series A and Series B Senior Notes is paid on May 1 and
November 1 of each year. Interest on the 1993 Senior Notes is paid on April
1 and October 1 of each year.
________________________
INVESTING IN THESE NOTES INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 3.
________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
________________________
Morgan Stanley & Co. Incorporated and Dean Witter Reynolds Inc. will use
this prospectus in connection with sales in market-making transactions. Morgan
Stanley & Co. Incorporated and Dean Witter Reynolds Inc. may act as principal or
agent in such transactions.
________________________
MORGAN STANLEY DEAN WITTER
THE DATE OF THIS PROSPECTUS IS APRIL ___, 1999.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Incorporation of Certain Documents by Reference.....1
Available Information...............................1
Forward-Looking Statements..........................2
Risk Factors........................................3
Ratio of Earnings to Fixed Charges..................9
Use of Proceeds.....................................9
Selected Consolidated Historical Financial Data....10
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............12
Business...........................................21
Description of Notes...............................26
Market-Making Activities...........................65
Legal Matters......................................65
Experts............................................65
Index To Financial Statements.....................F-1
</TABLE>
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<PAGE>
All references in this prospectus to "Company," "we," "us" or "our"
mean JSCE, Inc. ("JSCE") and its consolidated subsidiaries, including
Jefferson Smurfit Corporation (U.S.) ("JSC (U.S.)").
In this prospectus, references to "dollar" and "$" are to United
States dollars, and the terms "United States" and "U.S." mean the United
States of America, its states, its territories, its possessions and all areas
subject to its jurisdiction. All tons referenced are short tons, unless
otherwise indicated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission are hereby incorporated by reference in this prospectus:
- JSCE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed with the Commission on March 31, 1999
(which incorporates by reference certain information from
Smurfit-Stone Container Corporation's Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 27, 1999),
and
- All other reports filed by JSCE pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since December 31,
1998 and prior to the termination of the offering of the
securities offered hereby.
Information incorporated by reference is considered to be part of this
prospectus. Any statement contained in a document incorporated by reference
will be modified or superseded to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
by reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address: Jefferson Smurfit Corporation
(U.S.), Attention: Treasury Department, 150 North Michigan Avenue, Chicago,
Illinois 60601; telephone (312) 346-6600.
AVAILABLE INFORMATION
JSCE files annual, quarterly and current reports and other information
with the Securities and Exchange Commission. You may read and copy any
reports, statements or other information on file at the Commission's public
refrence room in Washington, D.C. You can request copes of those documents
upon payment of a duplicating fee, by writing to the Commission.
We have filed a registration statement on Form S-2 with the
Commission. This prospectus, which forms a part of that registration
statement, does not contain all of the information included in the
registration statement. Certain information is omitted and you should refer
to the registration statement and its exhibits. With respect to references
made in this prospectus to any of our contracts or other documents, such
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. You may review a copy of the registration statement at the
Commission's public reference room in Washington, D.C. and at the
Commission's regional offices in Chicago, Illinois and New York, New York.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. JSCE's Commission filings and the
registration statement can also be reviewed by accessing the Commission's
Internet site at http://www.sec.gov.
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FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning
of Section 17A of the Securities Act and Section 21E of the Exchange Act. When
used in this prospectus, the words "anticipates," "believes," "expects,"
"intends" and similar expressions identify such forward-looking statements.
Although we believe that such statements are based on reasonable assumptions,
these forward-looking statements are subject to numerous factors, risks and
uncertainties that could cause actual outcomes and results to be materially
different from those projected. These factors, risks and uncertainties include,
among others, the following:
- the impact of general economic conditions where we do business,
including interest rates;
- general industry conditions, including competition and product
and raw material prices;
- fluctuations in exchange rates and currency values;
- capital expenditure requirements;
- legislative or regulatory requirements;
- access to capital markets; and
- other factors described in this prospectus.
Our actual results, performance or achievement could differ materially
from those expressed in, or implied by, the forward-looking statements. No
assurances can be given that any of the events anticipated by the
forward-looking statements will occur or, if any of them do, what impact they
will have on our results of operations and financial condition.
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<PAGE>
RISK FACTORS
This prospectus includes "forward-looking statements" within the
meaning of Section 17A of the Securities Act and Section 21E of the Exchange
Act including, in particular, the statements about our plans, strategies and
prospects under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested
by such forward-looking statements are reasonable, we can give no assurance
that such plans, intentions or expectations will be achieved. Important
factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to
us or persons acting on our behalf are qualified by the following cautionary
statements.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER
THE NOTES.
The following chart shows certain important credit statistics of the
date or at the beginning of the period specified below:
<TABLE>
AT DECEMBER 31, 1998
--------------------
<S> <C>
Total indebtedness................................ $2,570.0 million
Stockholders' equity (deficit).................... $ (538.0) million
Debt to total capitalization ratio................ 1.26:1.0
</TABLE>
For the year ended December 31, 1998, earnings were inadequate to
cover fixed charges by $252 million.
Our substantial indebtedness could have important consequences to you.
For example, it could:
- make it more difficult for us to perform our obligations with
respect to these notes;
- increase our vulnerability to general adverse economic and
industry conditions;
- require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby reducing
amounts available for working capital, capital expenditures and
other general corporate purposes;
- limit our flexibility in planning for, or reacting to changes in
our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our
competitors that have less debt; and
- limit, along with the financial and other restrictive covenants
in our indebtedness, among other things, our ability to borrow
additional funds.
ABILITY TO SERVICE DEBT AND LIQUIDITY -- WE REQUIRE A SIGNIFICANT AMOUNT OF
CASH TO SERVICE OUR INDEBTEDNESS. OUR ABILITY TO GENERATE CASH DEPENDS ON
MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to comply with the financial
covenants contained in our indebtedness, including these notes, will depend
on our future performance in general and more specifically on our ability to
generate cash. Our ability to generate cash is subject to general economic,
financial, legislative, competitive, regulatory and other factors that are
beyond our control. For example, we have little or no control over the state
of the economy, demand for and selling prices of our products, costs of our
raw materials and legislation and other factors relating to our industry
generally or to specific competitors.
We generally expect to fund our debt service obligations (and the debt
service obligations of our subsidiaries), capital expenditures and working
capital requirements through funds generated from operations and additional
borrowings under our credit facilities and securitization program. We cannot
assure you that we will generate sufficient cash flow to meet our obligations
under our indebtedness. Future borrowings may not be available to us under
our credit facilities or otherwise in an amount sufficient to enable us to
pay our indebtedness,
3
<PAGE>
including these notes, or to fund our other liquidity needs. If we are
unable to generate sufficient cash flow or otherwise obtain funds necessary
to make required payments on our indebtedness, or if we fail to comply with
various covenants contained in our indebtedness, we would be in default under
the terms of our indebtedness. If we default under our indebtedness, the
holders of the indebtedness could accelerate the maturity of the defaulted
indebtedness which could cause defaults under other indebtedness or result in
our bankruptcy.
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE
MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER
EXACERBATE THE RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the
future. The terms of the indentures for these notes do not fully prohibit us
from doing so. As of December 31, 1998, our credit facility and
securitization program permitted additional borrowings of up to approximately
$528.0 million. If new debt is added to our current debt levels, the related
risks that we now face could intensify. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Notes" for a further description of our
additional borrowing ability.
REFINANCING; FINANCING A CHANGE IN CONTROL OFFER -- UPON A CHANGE OF CONTROL,
YOU HAVE A RIGHT TO BE REPAID. WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
A substantial amount of our indebtedness matures prior to the notes.
Accordingly, we will have to refinance or otherwise generate sufficient cash
to repay such indebtedness. Our ability to do this will depend, in part, on
our financial condition at the time and the covenants and other provisions in
our debt agreements. In the absence of such refinancing, we could be forced
to dispose of assets to make up for any shortfall in the payments due on our
indebtedness. Under such circumstances, we cannot assure you that we would
realize the best price for such assets. Furthermore, the lenders under our
credit facility generally are entitled to the proceeds of asset sales and
certain sales of securities by us. We cannot assure you that we could sell
assets quickly enough, or for amounts sufficient, to enable us to make any
such payments.
Upon the occurrence of certain specific kinds of change of control
events, we will be required to offer to repurchase all outstanding notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of these notes or that
restrictions in our other indebtedness will not allow such repurchase. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would
not constitute a "change of control" under the indenture. See "Description
of Notes-Repurchase of Notes Upon Change of Control" for a further discussion
of our obligation to repurchase these notes upon a change of control The
occurrence of a change of control (as defined in the newsprint supply
agreement between Smurfit Newsprint Corporation and The Times Mirror Company)
could also result in The Times Mirror Company having certain rights under the
supply agreement. The exercise of change of control rights by The Times
Mirror Company could trigger cross-default or cross-acceleration provisions
in our indebtedness and lead to our bankruptcy.
EFFECTIVE SUBORDINATION -- ALTHOUGH YOUR NOTES ARE REFERRED TO AS "SENIOR
NOTES," THEY ARE EFFECTIVELY SUBORDINATED TO OUR SECURED INDEBTEDNESS.
Our secured indebtedness has priority over these notes with respect to
the assets securing the secured indebtedness. Although these notes, the
guarantee and the indebtedness under our credit facility all constitute
senior indebtedness, the notes and guarantee are unsecured and are
effectively subordinated to the indebtedness under our secured credit
facility. In the event of a liquidation, reorganization, bankruptcy or
similar proceeding involving us, our assets which serve as collateral will be
available to satisfy the obligations under any secured indebtedness before
any payments are made on these notes. As of December 31, 1998, we had
approximately $2,570.0 million of indebtedness outstanding, of which
approximately $1,642.5 million constituted secured indebtedness.
4
<PAGE>
TERMS OF THE NOTES -- RESTRICTIVE COVENANTS IN VARIOUS AGREEMENTS INCLUDING
THE INDENTURES PURSUANT TO WHICH THE NOTES WERE ISSUED MAY RESTRICT OUR
ABILITY TO PURSUE OUR BUSINESS STRATEGIES. OUR ABILITY TO COMPLY WITH THESE
RESTRICTIONS DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Various agreements, including the indentures pursuant to which these
notes were issued, contain covenants that restrict, among other things, our
ability to:
- incur indebtedness;
- pay dividends;
- engage in transactions with stockholders and affiliates,
- issue capital stock;
- create liens;
- sell assets;
- engage in mergers and consolidations; and
- make investments in unrestricted subsidiaries.
Although the covenants in the indentures are generally designed to
protect you from actions that could result in significant credit
deterioration, the covenants are subject to various exceptions. These
exceptions generally allow us to continue to operate our business without
undue restraint and, therefore, are not total prohibitions with respect to
the proscribed activities. For example, we could incur additional
indebtedness that is secured or that is equal in rank to the notes in the
future if we are able to satisfy the financial ratios required by the
covenant restricting debt issuance. See "Description of the Senior Notes" for
a further description of such exceptions.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID INDEBTEDNESS AND GUARANTEES THEREOF
AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM DEBTORS AND
GUARANTORS.
Under federal bankruptcy and comparable provisions of state fraudulent
transfer laws, the notes and the guarantees could be voided or subordinated
if, at the time the indebtedness under the notes and the guarantees were
incurred, among other things, JSC (U.S.) or JSCE, as the case may be:
- was insolvent or were rendered insolvent by reason of the
indebtedness incurred and payments made in connection herewith;
- was engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
- intended to, or believed that we would, incur debts beyond our
ability to pay such debts as they matured.
The measure of insolvency for purposes of the fraudulent transfer laws
vary depending upon the law of the jurisdiction being applied. Generally,
however, a company would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets;
- if the present fair saleable value of its 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 mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating
history and other factors, we believe that the issuance of the notes and the
guarantees will not constitute fraudulent transfers. However, we cannot
assure you that a court passing on such issue would agree with our
conclusions.
5
<PAGE>
PRODUCT PRICING -- ANY FUTURE DECREASES IN PRICES FOR OUR PRODUCTS WOULD
ADVERSELY AFFECT OUR OPERATING RESULTS AND WOULD ADVERSELY IMPACT OUR ABILITY
TO RESPOND TO COMPETITION OR OTHERWISE TAKE ADVANTAGE OF BUSINESS
OPPORTUNITIES.
The paperboard and packaging products industries are subject to
cyclical changes in the economy and industry capacity. These changes can
significantly impact the selling prices of our products and our
profitability. The vast majority of our products are commodities which are
subject to substantial price competition and volatility. Our sales and
profitability have historically been more sensitive to price changes than
changes in volume. Future decreases in prices for our products would
adversely affect our operating results and, coupled with our highly leveraged
financial position, would adversely impact our ability to respond to
competition and to other conditions or to otherwise take advantage of
business opportunities.
EFFECT OF ASIAN ECONOMIC WEAKNESS - ASIAN ECONOMIC PROBLEMS HAVE HAD AN
ADVERSE IMPACT ON DEMAND FOR AND PRICES OF OUR PRODUCTS.
Recently, several countries in Asia have experienced a severe economic
crisis, which included a significant devaluation of their currencies and
general financial difficulties. This crisis has negatively affected the
demand for, and prices of, our products. In particular, Asian demand for
paper and pulp products has declined as a result of weak economic conditions
and financial market turmoil. This decline in demand has led to downward
pricing pressures and a reduction of consumption in the region. In addition,
producers for the Asian markets have redirected their production to other
markets, thereby deflating prices in other markets.
Weak market conditions in Asia may continue to adversely impact demand
and world-wide pricing for our products. In addition, Asian producers may
use their depreciated currencies to increase exports to other markets. Any
significant destabilization of one or more major Asian trading currencies
could further erode prices for our products. A decline in prices for our
products could have a material adverse effect on our financial condition and
results of operations.
RAW MATERIALS -- WE MAY BE ADVERSELY AFFECTED BY INCREASES IN COSTS OF RAW
MATERIALS USED IN OUR INDUSTRIES.
Wood fiber and recycled fiber, the principal raw materials used in the
manufacture of our products, are purchased in highly competitive, price
sensitive markets. The prices of and demand for these raw materials have
historically been volatile. In addition, the supply and price of wood fiber
in particular is dependent upon a variety of factors over which we have no
control, such as environmental and conservation regulations, natural
disasters and weather. A decrease in supply of wood fiber has caused higher
wood fiber costs in some of the regions in which we purchase wood. In
addition, the increase in demand of products manufactured from recycled fiber
periodically has caused a significant increase in the cost of recycled fiber.
Our cost of raw materials is likely to continue to fluctuate based upon
supply and demand. An increase in such costs of could have a material
adverse effect on our financial condition and results of operation.
COMPETITION -- WE COULD BE ADVERSELY AFFECTED BY COMPETITION.
The paperboard and packaging products industries are highly
competitive. Our competitors include large, vertically integrated paperboard
and packaging products companies and numerous smaller companies. Certain of
our competitors have significantly greater financial resources than us, and
other large competitors may enter the market. In recent years, the
paperboard and packaging products industries have each been consolidating,
and we believe that this trend is likely to continue.
The primary competitive factors in the paperboard and packaging
products industries are price, design, quality and service. To the extent
that one or more of our competitors becomes more successful with respect to
any key competitive factor, our business could be materially adversely
affected.
6
<PAGE>
ENVIRONMENTAL MATTERS -- OUR BUSINESS IS SUBJECT TO VARIOUS ENVIRONMENTAL
REGULATIONS. VIOLATIONS AND COSTS OF COMPLIANCE WITH THESE REGULATIONS COULD
ADVERSELY AFFECT OUR BUSINESS.
Federal, state and local environmental requirements, particularly
those relating to air and water quality, are a significant factor in our
business. We face potential environmental liability:
- as a result of violations of permits or similar authorizations
that have occurred from time to time at our facilities;
- for response costs at various sites with respect to which we have
received notice that we may be a "potentially responsible party";
and
- for contamination of certain properties we own, under the
Comprehensive Environmental Response, Compensation and Liability
Act, analogous state laws and other laws concerning hazardous
substance contamination.
Compliance with federal, state and local environmental requirements is
a significant, on-going factor in our business. We have recorded charges for
expenses relating to our potential liability for environmental compliance.
While we believe that the recorded charges are adequate to cover our
environmental liability, we cannot assure you that our actual expenditures
relating to environmental matters will not exceed the recorded charges.
Similarly, while we believe we are currently in material compliance with all
applicable environmental laws and have adequately budgeted for future
expenditures required to maintain such compliance, unforeseen significant
expenditures in connection with compliance could have an adverse effect on
our financial condition.
The United States Environmental Protection Agency ("EPA") has
finalized significant parts of a comprehensive rule governing the pulp, paper
and paperboard industry (the "Cluster Rule"), which will require substantial
capital expenditures to achieve compliance. We estimate (based on
preliminary engineering studies made as of December 31, 1998) compliance with
the Cluster Rule may require $130 million in capital expenditures over the
next two to four years. We cannot predict the ultimate cost of complying
with the regulations until further engineering studies are completed and
additional regulations are finalized. We cannot predict the amount of
capital expenditures that will be required to comply with future standards.
Over the last three years we have averaged $15 million annually in capital
expenditures related to environmental compliance and we estimate spending
approximately $32 million in capital expenditures related to environmental
compliance in 1999. A significant amount of the increased expenditures in
1999 will be due to compliance with the Cluster Rule.
SIGNIFICANT STOCKHOLDERS - SIGNIFICANT STOCKHOLDERS OF OUR PARENT ARE ABLE TO
SIGNIFICANTLY INFLUENCE THE VOTE ON MATTERS SUBMITTED TO A VOTE OF HOLDERS OF
ITS COMMON STOCK. THEIR INTERESTS MAY CONFLICT WITH YOUR INTERESTS.
Approximately 40% of the common stock of our parent company,
Smurfit-Stone Container Corporation ("SSCC"), is owned by Smurfit
International B.V. ("SIBV") and certain other entities. These entities are
able to significantly influence the vote on all matters submitted to a vote
of SSCC's stockholders. The interests of these entities could conflict with
your interests. The presence of the significant stockholders may also deter
a potential acquiror from making a tender offer or otherwise attempting to
obtain control of SSCC.
LIQUIDITY OR TRADING MARKET FOR NOTES -- THE NOTES ARE NOT LISTED FOR TRADING
ON ANY SECURITIES EXCHANGE AND WE CANNOT ASSURE YOU THAT A TRADING MARKET FOR
THE NOTES WILL CONTINUE.
The notes are not listed for trading on any securities exchange or on
any automated dealer quotation system. Morgan Stanley & Co. Incorporated
currently makes a market in the notes. However, Morgan Stanley is not
obligated to make a market for the notes and may discontinue or suspend such
market-making at any time without notice. Accordingly, no assurance can be
given as to the liquidity of, or the trading market for, the notes. Further,
the liquidity of, and trading market for, the notes may be adversely affected
by declines and volatility in the market for debt securities generally as
well as any changes in our financial performance or prospects.
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YEAR 2000 ISSUE -- OUR OPERATIONS MAY BE ADVERSELY AFFECTED IN THE EVENT OUR
COMPUTER SYSTEMS AND DEVICES ARE UNABLE TO PROPERLY RECOGNIZE DATE-SENSITIVE
INFORMATION WHEN THE YEAR CHANGES TO 2000.
The Year 2000 issue is the result of computer programs using two
digits rather than four to define the applicable year. Any of our computer
programs that use two digits rather than four digits to specify the year will
be unable to interpret dates beyond the year 1999. This problem could result
in a system failure or miscalculations causing disruptions of operations.
Our financial and information system applications, manufacturing operations
and relationships with vendors and customers could be critically affected.
We have developed plans to address this exposure. Financial and operational
systems and manufacturing equipment have been assessed, detailed plans have
been and continue to be developed and conversion efforts have commenced.
Although no assurance can be given, we believe that our internal systems are
Year 2000 compliant or will be upgraded or replaced in connection with
previously planned changes. We are also communicating with our leading
suppliers and customers to determine whether they are Year 2000 complaint.
Our failure or the failure of our suppliers or customers to achieve Year 2000
compliance could materially adversely affect our results of operations.
8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................. (a) (a) 1.60 2.49 1.15
</TABLE>
(a) For the years ended December 31, 1998 and 1997, respectively, earnings
were inadequate to cover fixed charges by $252 million and $28 million,
respectively.
For purposes of these calculations, earnings consist of income (loss)
from continuing operations before income taxes, minority interests and
extraordinary items and cumulative effect of accounting changes, plus fixed
charges. Fixed charges consist of interest on indebtedness, amortization of
deferred debt issuance costs and that portion of lease rental expense
considered to be representative of the interest factors therein (deemed to be
one-fourth of lease rental expense). Amounts exclude the discontinued
operations of our Newsprint division.
A statement describing the computation of the above ratios is as an
exhibit to the registration statement of which this prospectus is a part.
USE OF PROCEEDS
The Company will not receive any proceeds from sales by Morgan Stanley
& Co. Incorporated ("Morgan Stanley") and Dean Witter Reynolds Inc. ("Dean
Witter," and together with Morgan Stanley, "Morgan Stanley Dean Witter") of
the notes.
9
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data as
of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998. This
data should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and our consolidated financial
statements and the related notes included elsewhere in this prospectus. The
selected consolidated financial data presented under the captions "Summary of
Operations" and "Other Financial Data" were derived from our consolidated
financial statements, which were audited by independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1998(a) 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
(in millions, except statistical data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (b)
Net sales $3,022 $2,936 $3,087 $3,706 $2,974
Income (loss) from operations (49) 175 332 601 310
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting changes (154) (20) 79 230 22
Discontinued operations, net of income tax
provision 10 21 38 17 (10)
Income (loss) before extraordinary item and
cumulative effect of accounting change (144) 1 117 247 12
Net income (loss) (160) 1 112 243 (43)
- --------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA
Net cash provided by operating activities $ 117 $ 88 $ 380 $ 393 $ 135
Net cash used for investing activities (595) (175) (133) (160) (148)
Net cash provided by (used for) financing
activities 484 87 (262) (268) 31
Depreciation, depletion and amortization 134 127 125 122 116
Capital investments and acquisitions 265 191 129 170 152
Working capital 145 71 34 51 15
Property, plant, equipment and timberland, net 1,760 1,788 1,720 1,709 1,681
Total assets 3,174 2,771 2,688 2,783 2,759
Long-term debt, less current maturities 2,526 2,025 1,934 2,111 2,392
Stockholders' deficit (538) (374) (375) (487) (730)
- --------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA (TONS IN THOUSANDS)
Containerboard and solid bleached sulfate
production (tons) 2,163 2,214 2,250 2,176 2,198
Coated boxboard production (tons) 582 585 538 545 537
Corrugated shipments (billion sq. ft.) 29.9 31.7 30.0 29.4 30.8
Folding carton shipments (tons) 536 488 474 476 493
Fiber reclaimed and brokered (tons) 5,155 4,832 4,464 4,293 4,134
Number of employees 15,000 15,800 15,800 16,200 16,600
</TABLE>
- ------------------------------
(a) We recorded pre-tax charges of $310 million ($187 million after tax) in
the fourth quarter of 1998, including $257 million of restructuring
charges in connection with the merger of Stone Container Corporation
("Stone") with JSC Acquisition Corporation, a wholly-owned subsidiary of
SSCC (the "Merger"), $30.0 million for settlement of our
Cladwood-Registered Trademark- litigation and $23 million of Merger
related costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Restructuring, Merger Related
Charges and Litigation Costs" for a further description of such
litigation and costs.
(b) The operating results for all prior periods have been restated to
present the operating results of Smurfit Newsprint Corporation, a
wholly-owned subsidiary of JSC (U.S.) ("SNC"), as a discontinued
operation.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Market conditions and demand for containerboard and corrugated
containers, our primary products, are generally subject to cyclical changes
in the economy and changes in industry capacity, both of which can
significantly impact selling prices and our profitability.
Containerboard market conditions have generally been weak since 1996
due primarily to excess capacity within the industry. During this period,
inventory levels were high and many paper companies, including the Company,
took economic downtime at their mills in order to reduce inventories. Lost
production resulting from economic downtime for the industry overall in the
second half of 1998 was approximately 1.5 million tons, or 8%, of capacity.
Linerboard prices declined dramatically in 1996 and continued to fall in the
first half of 1997, dropping to $310 per ton in April 1997. Lower inventory
levels and strengthening demand in the second half of 1997 combined to
increase prices to approximately $390 per ton by December 1997. Linerboard
prices were stable in the first half of 1998, but declined during the second
half of the year. The price at December 31, 1998 was approximately $340 per
ton. Corrugated container prices followed this same pricing trend during the
past three years with somewhat less fluctuation.
The outlook for containerboard and corrugated containers in late 1998
and early 1999 has improved substantially. The strength of December
corrugated container shipments and the amount of economic downtime taken at
paper mills in the second half of 1998 have resulted in a significant
reduction in inventory levels. In addition, several paper companies,
including the Company, have announced mill shutdowns approximating 6% of
industry capacity. The shutdowns will improve the balance between supply and
demand. Based on these developments, we implemented a price increase for
linerboard and medium of $50 per ton and $60 per ton, respectively, in the
first quarter of 1999.
Market conditions in the folding carton and boxboard mill industry
were stable in 1997, but weakened somewhat in 1998 as demand declined 3%
compared to last year. Mill productive capacity in the boxboard industry
exceeds current levels of demand. While economic downtime at boxboard mills
was avoided, the lower demand for board resulted in reduced prices. Boxboard
prices increased in 1997 and held steady for the first nine months of 1998.
Boxboard prices began to decline in the last quarter of 1998 due to weaker
demand. The price for recycled boxboard declined by approximately $30 per
ton during 1998. The combination of reduced demand and industry-wide excess
capacity continued to keep pressure on folding carton selling prices during
1998.
Recycled fiber is an important raw material of our recycled paperboard
mills. Supplies of recycled fiber can vary widely at times and are highly
dependent upon the demand of recycled paper mills. Because of the lower
demand created by the extensive economic downtime taken by containerboard
mills in recent years and particularly in 1998, the price of old corrugated
containers declined in 1998 to its lowest levels in five years.
11
<PAGE>
RESULTS OF OPERATIONS
Segment Data
(In millions)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- ------------------- -------------------
Net Profit/ Net Profit/ Net Profit/
Sales (loss) Sales Loss Sales Loss
------------ ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Containerboard & corrugated containers $ 1,696 $ 113 $ 1,607 $ 56 $1,794 $197
Reclamation 265 (1) 292 6 218 (2)
Boxboard and folding cartons 784 67 752 68 756 66
Other operations 277 35 285 33 319 38
-------- ------- -------- ------ -------- ------
Total operations $3,022 214 $2,936 163 $3,087 299
-------- -------- --------
-------- -------- --------
Other, net (1) (463) (186) (168)
------- ------ ------
Income (loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect of accounting change $(249) $(23) $131
------- ------ ------
------- ------ ------
</TABLE>
- -------------------------------------------------------------------------------
(1) Other, net includes corporate revenues and expenses, net interest
expense and, for 1998, a $257 million restructuring charge in connection with
the Merger, which covers the cost of shutting down certain mills and termination
of employees and other Merger related costs.
1998 COMPARED TO 1997
Net sales of $3,022 million and operating profits of $214 million were
higher than 1997 by 3% and 31%, respectively, due primarily to higher sales
prices. The increase or decrease in net sales for our segments is shown in the
chart below.
<TABLE>
<CAPTION>
Boxboard
Containerboard & &
Corrugated Folding Other
Containers Cartons Reclamation Operations Total
---------- ------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
(in millions)
Increase (decrease) due to:
Sales prices and product mix $ 146 $ (13) $ (59) $ 11 $ 85
Sales volume (63) 45 34 (12) 4
Acquisitions and new facilities 9 9
Sold or closed facilities (3) (2) (7) (12)
------- ----- ------- ------ ------
Total increase (decrease) $ 89 $ 32 $ (27) $ (8) $ 86
------- ----- ------- ------ ------
------- ----- ------- ------ ------
</TABLE>
CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
Net sales of the Containerboard and Corrugated Containers segment
increased 6% compared to 1997 to $1,696 million and segment profits increased
$57 million compared to 1997 to $113 million. The increases in net sales and
profits were primarily the result of increased sales prices. Containerboard
and corrugated container prices were higher in 1998 by 16% and 11%,
respectively, compared to 1997. Solid bleached sulfate prices declined 2%
during the period. Containerboard sales volume in 1998 declined 2% compared
to 1997 due primarily to the closure of three containerboard mills, effective
December 1, 1998 and higher levels of economic downtime. See "
- --Restructuring, Merger Related Costs and Litigation Costs" for a further
description of such closure. The cost of the mill closures is included in
other, net in the Segment Data table above. We also had 28 days of downtime
in 1997 at our Brewton, Alabama mill associated with a rebuild and upgrade of
its mottled white paper machine. Sales volume for corrugated containers
declined 6% compared to 1997 due to our strategy to reduce volume associated
with low margin accounts. Cost of goods sold as a percent of net sales
decreased from 88% in 1997 to 85% in 1998 due primarily to the higher sales
prices in 1998.
BOXBOARD AND FOLDING CARTONS SEGMENT
Net sales of the Boxboard and Folding Cartons segment increased 4%
compared to 1997 to $784 million and segment profits declined $1 million
compared to 1997 to $67 million. The increase in net sales was due
12
<PAGE>
primarily to increased sales volume of folding cartons. Folding carton sales
volume increased 10% compared to 1997, reflecting growth in new business
acquired near the end of 1997. Sales volume for the boxboard mills declined
1% compared to 1997. Boxboard prices were higher in 1998 on average,
increasing 3% compared to 1997. Folding carton prices declined 3%,
reflecting the change in product mix related to the new business acquired.
Cost of goods sold as a percent of net sales for 1998 was comparable to 1997.
RECLAMATION SEGMENT
Net sales of the Reclamation segment declined 9% compared to 1997 to
$265 million and segment profit decreased $7 million compared to 1997 to a
loss of $1 million. The decreases were due to lower prices. On average,
sales prices for reclaimed fiber were 16% lower in 1998 compared to 1997.
The decline in price was due to the reduced demand for fiber from old
corrugated containers. In spite of the downturn in domestic demand, we were
able to increase overall sales volume nearly 7% over 1997 by increasing
foreign sales and supply positions with major domestic customers. Cost of
goods sold as a percent of net sales increased from 87% in 1997 to 89% in
1998 due to the lower sales prices in 1998.
DISCONTINUED OPERATIONS
During February 1999, we announced our intention to divest the
operating assets of SNC. The SNC results are reflected as discontinued
operations for all periods presented in our statements of operations. Net
sales for discontinued operations amounted to $324 million, $302 million, and
$323 million for 1998, 1997 and 1996, respectively.
RESTRUCTURING, MERGER RELATED CHARGES AND LITIGATION COSTS
During the fourth quarter of 1998, we recorded pre-tax charges of $310
million ($187 million after tax), including $257 million for restructuring
costs in connection with the Merger, $23 million of other Merger related
costs and $30 million for settlement of certain litigation.
The restructuring included the shutdown of approximately 1.1 million
tons, or 15%, of SSCC's North American containerboard mill capacity. Three
containerboard mills with capacity of approximately 700,000 tons were closed.
The restructuring charge of $257 million included provisions for costs
associated with
- adjustment of property plant and equipment of closed facilities
to fair value less costs to sell of $179 million,
- facility closure costs of $42 million,
- severance related costs of $27 million, and
- other Merger related costs of $9 million.
The cash and non-cash elements of the restructuring charge are $78
million and $179 million, respectively.
We closed the mill facilities on December 1 and, as of December 31,
1998, we had terminated approximately 700 employees. We intend to either
abandon or sell these facilities in the near future. Future cash outlays for
the restructuring are anticipated to be $42 million in 1999, $6 million in
2000, $5 million in 2001 and $18 million thereafter. We are continuing to
evaluate all areas of our business in connection with the Merger integration,
including the identification of corrugated container facilities that might be
closed. Additional restructuring charges are expected in 1999 as management
finalizes its plans.
Subsequent to an understanding reached in December 1998, SSCC and SNC
entered into a settlement agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood-Registered Trademark-, a
composite wood siding product manufactured by SNC that has been used
primarily in the construction of manufactured or mobile homes. Pursuant to
the settlement, SNC has agreed to pay $20 million into a settlement fund plus
up to approximately $6.5 million of administrative costs, attorneys' fees and
class representative payments. We recorded a $30 million pre-tax charge in
our results from discontinued operations for amounts SNC has agreed to pay
into the settlement fund. We believe our reserve is adequate to pay eligible
claims. However, the
13
<PAGE>
number of claims, and the number of potential claimants who choose not to
participate in the settlement, could cause us to re-evaluate whether the
liabilities in connection with the Cladwood-Registered Trademark- cases could
exceed established reserves.
INTEREST
Interest expense for 1998 was $196 million, the same as for 1997. The
average effective interest rate for our outstanding debt was lower in 1998,
offsetting the impact of higher average debt levels outstanding.
INCOME TAXES
See Note 6 of the Notes to Consolidated Financial Statements included
in this prospectus for information concerning the benefit from (provision
for) income taxes as well as information regarding differences between
effective tax rates and statutory rates.
1997 COMPARED TO 1996
Net sales of $2,936 million and profits of $163 million for our
operations were lower than 1996 by 5% and 45%, respectively due primarily to
lower sales prices. Other net costs shown in the Segment Data table above
include corporate revenues and expenses and net interest expense. The
increase or decrease in net sales for our segments is shown in the chart
below.
<TABLE>
<CAPTION>
Boxboard
Containerboard &
& Corrugated Folding Other
Containers Cartons Reclamation Operations Total
---------- ------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
(in millions)
Increase (decrease) due to:
Sales prices and product mix $ (220) $ (38) $ 45 $ (20) $(233)
Sales volume 15 34 23 12 84
Acquisitions and new facilities 22 6 28
Sold or closed facilities (4) (26) (30)
-------- ------ ----- ------- ------
Total increase (decrease) $ (187) $ (4) $ 74 $ (34) $(151)
-------- ------ ----- ------- ------
-------- ------ ----- ------- ------
</TABLE>
CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
Net sales of the Containerboard and Corrugated Containers segment
decreased 10% compared to 1996 to $1,607 million and segment profit decreased
$141 million compared to 1996 to $ 56 million. The decrease in net sales and
profits were primarily a result of significant reductions in sales prices for
containerboard and corrugated containers. An increase in sales volume
slightly offset the decline due to price. On average, corrugated container
prices and containerboard prices each decreased 13% compared to 1996. Solid
bleached sulfate prices decreased 2% compared to 1996. Demand for corrugated
containers was strong throughout 1997 and shipments of corrugated containers
increased 6% compared to 1996. As market conditions improved, we
successfully implemented two price increases in 1997 for linerboard, the
first in August for $40 per ton and the second in October for $50 per ton.
Containerboard sales volume in 1997 decreased 2% compared to 1996 due to
economic downtime taken to reduce inventories in 1997 and a shutdown at our
Brewton, Alabama mill associated with a rebuild and upgrade of our mottled
while paper machine. Shipments of solid bleached sulfate increased 2%
compared to 1996. Cost of goods sold as a percent of net sales increased from
81% in 1996 to 88% in 1997 due primarily to the lower sales prices in 1998.
BOXBOARD AND FOLDING CARTONS SEGMENT
Net sales of the Boxboard and Folding Cartons segment decreased 1%
compared to 1996 to $752 million, and segment profit increased $ 2 million
when compared to 1996 to $68 million. The decrease in net sales was
primarily a result of lower average sales prices largely offset by an
increase in volume. Sales prices for boxboard and folding cartons each
decreased 5% compared to 1996. Demand strengthened in the second half of
1997,
14
<PAGE>
enabling us to implement a $40 per ton price increase in the fourth quarter
of 1997. Demand for folding cartons and boxboard remained steady throughout
1997. Shipments of folding cartons and boxboard increased 3% and 6%,
respectively, compared to 1996. Cost of goods sold as a percent of net sales
decreased from 84% in 1996 to 83% in 1997 due primarily to product mix.
RECLAMATION SEGMENT
Net sales for the Reclamation segment increased 34% compared to 1996
to $292 million, and segment profits increased $8 million compared to 1996 to
$6 million. The increases were primarily the result of improved selling
prices and volume. Shipments of reclaimed fiber increased 8% compared to
1996. On average, sales prices for reclaimed fiber were 17% higher in 1997
compared to 1996. Cost of goods sold as a percent of net sales decreased from
89% in 1996 to 87% in 1997 due to the higher sales prices in 1998.
INTEREST
Net interest expense of $196 million for 1997 was $2 million lower
than for 1996. The decline was due primarily to lower average debt levels
outstanding and lower effective interest rates.
INCOME TAXES
See Note 6 of the Notes to Consolidated Financial Statements included
in this prospectus for information concerning the benefit from (provision
for) income taxes as well as information regarding differences between
effective tax rates and statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Operating activities have historically been the major source of cash
to fund our capital expenditures and debt payments. Net cash provided by
operating activities for 1998 of $117 million and borrowings under our bank
credit facilities of $1,441 million were used primarily to fund capital
investments totaling $265 million, make intercompany loans to SSCC of $336
million related to the Merger, fund net debt payments of $921 million and pay
$35 million of deferred debt issuance costs. Capital investments of $265
million include the purchase of a containerboard machine located at our mill
in Fernandina Beach, Florida for $175 million from a subsidiary of Jefferson
Smurfit Group plc.
FINANCING ACTIVITIES
In March 1998, JSC (U.S.) entered into a new credit facility (the
"1998 Credit Agreement") consisting of a $550 million revolving credit
facility, a $400 million seven-year Tranche A Term Loan, and a $350 million
eight-year Tranche B Term Loan. Net proceeds from the 1998 Credit Agreement
were used to fully repay outstanding principal and accrued interest under our
previous credit facility. The 1998 Credit Agreement reduced interest
expense, extended debt maturities, and improved the financial flexibility of
the Company. JSC (U.S.) recorded an extraordinary loss of $13 million (net
of income tax benefits of $9 million) related to the early extinguishment of
our bank debt.
In November 1998, in connection with the Merger, JSC (U.S.) and its
bank group amended and restated the 1998 Credit Agreement to, among other
things:
- allow an additional $550 million borrowing on the Tranche B Term
Loan;
- allow the purchase of the containerboard machine discussed above;
- make a $300 million intercompany loan to SSCC, which was
contributed to Stone as additional paid-in capital;
- permit the Merger; and
- ease certain financial covenants.
15
<PAGE>
The 1998 Credit Agreement contains various business and financial
covenants including, among other things:
- limitations on dividends, redemptions and repurchases of capital
stock;
- limitations on the incurrence of indebtedness;
- limitations on capital expenditures; and
- maintenance of certain financial covenants.
The 1998 Credit Agreement also requires prepayments if JSC (U.S.) has
excess cash flows, as defined, or receives proceeds from certain asset sales,
insurance, issuance of equity securities or incurrence of certain
indebtedness. The obligations under the 1998 Credit Agreement are
unconditionally generated by the Company and certain of its subsidiaries.
The obligations under the 1998 Credit Agreement are secured by a security
interest in substantially all of the assets of JSC (U.S.). Such
restrictions, together with our highly leveraged position of could restrict
corporate activities, including our ability to respond to market conditions,
to provide for unanticipated capital expenditures or to take advantage of
business opportunities.
We intend to sell or liquidate certain of our assets, including our
newsprint and woodlands operations. Proceeds from asset sales are required
to be used to pay down the borrowings under the 1998 Credit Agreement.
We expect internally generated cash flows, proceeds from asset
divestitures and existing financing resources will be sufficient for the next
several years to meet its obligations, including debt service, restructuring
payments, settlement of the Cladwood-Registered Trademark- litigation and
capital expenditures. Scheduled debt payments in 1999 and 2000 are $44
million and $70 million, respectively, with increasing amounts thereafter.
Capital expenditures for 1999 are expected to be approximately $110 million.
We expect to use any excess cash provided by operations to make further debt
reductions. As of December 31, 1998, we had $422 million of unused borrowing
capacity under the 1998 Credit Agreement and $106 million of unused borrowing
capacity under its $315 million accounts receivable securitization program,
subject to JSC (U.S.)'s level of eligible accounts receivable.
YEAR 2000
The Year 2000 issue concerns the inability of computer systems and
devices to properly recognize and process date-sensitive information when the
year changes to 2000. We depend upon our information technology ("IT") and
non-IT systems (used to run manufacturing equipment that contain embedded
hardware or software that must handle dates) to conduct and manage our
business. We believe that, by replacing, repairing or upgrading these
systems, the Year 2000 issue can be resolved without material operational
difficulties. While it is difficult, at present, to fully quantify the
overall cost of this work, we expect to spend approximately $43 million
through 1999 to correct the Year 2000 issue, of which approximately $18
million has been incurred through December 31, 1998. A large portion of
these costs relate to enhancements that will enable us to reduce or avoid
costs and operate many of its production facilities more efficiently. Some
of these projects have been accelerated in order to replace existing systems
that cannot be brought into compliance by the year 2000. We are utilizing
both internal and external resources to evaluate the potential impact of the
Year 2000 problem. We plan to fund our Year 2000 effort with cash from
operations and borrowings under the 1998 Credit Agreement.
Our Year 2000 program management office is responsible for guiding and
coordinating operating units in developing and executing their Year 2000
plans, enabling us to share knowledge and work across operating units,
developing standard planning and formats for internal and external reporting,
consistent customer and vendor communications and where appropriate, the
development of contingency plans. Our Year 2000 program consists of the
following seven phases:
Phase 1: Planning/Awareness: The planning and awareness phase
includes the identification of critical business
processes and components.
Phase 2: Inventory: During the inventory phase, our personnel will
identify systems that could potentially have a Year 2000
problem and categorize the system as compliant,
non-compliant, obsolete or unknown.
Phase 3: Triage: In the triage phase, every system is assigned a
business risk as high, medium, or low.
16
<PAGE>
Phase 4: Detailed Assessment: The detailed assessment provides for
a planned schedule of remediation and estimated cost.
Phase 5: Remediation: Remediation involves what corrective action
to take if there is a Year 2000 problem, such as
replacing, repairing or upgrading the system, and
concludes with the execution of system test.
Phase 6: Fallout: In the Fallout phase, the inventory will be kept
up to date and no new Year 2000 problems will be
introduced.
Phase 7: Contingency Planning: We are developing contingency
plans for the most reasonable worst case scenarios.
We have completed the planning, inventory, triage, and detailed
assessment of our IT systems and are taking corrective action and testing the
new, upgraded or repaired systems. We identified seven high-risk IT systems,
of which two have been remediated and the remaining five are scheduled to be
substantially completed by the end of the second quarter of 1999.
Our operating facilities rely on control systems, which control and
monitor production, power, emissions and safety. The inventory, triage and
detailed assessment phases for all operating facilities are expected to be
substantially completed by the first quarter of 1999. We retained a third
party to assist with the verification and validation of these three phases.
We expect to have substantially completed all phases of our Year 2000 program
by the end of the second quarter of 1999.
The Year 2000 program management office is in the process of surveying
each vendor to insure that they are Year 2000 compliant or have a plan in
place. Vendor responses are due to be received by the end of the first
quarter of 1999. We also have compiled a list of mission critical vendors. A
mission critical vendor is a provider of goods or services without which a
facility could not function. Where appropriate, our representatives will
conduct an in-depth investigation of a mission critical vendor's ability to
be Year 2000 compliant.
We currently believe that we will be able to replace, repair or
upgrade all of our IT and non-IT systems affected by the Year 2000 issue on a
timely basis. In the event we do not complete our plan to bring systems into
compliance before the year 2000, there could be severe disruption in the
operation of its process control and other manufacturing systems, financial
systems and administrative systems. Production problems and delayed product
deliveries could result in a loss of customers. The production impact of a
Year 2000 related failure varies significantly among the facilities and any
such failure could cause manufacturing delays, possible environmental
contamination or safety hazards. The most reasonably likely worst case
scenario is the occurrence of a Year 2000 related failure on one or more of
our paper machines. We have the capability to produce and ship products from
multiple geographic locations should disruptions occur. Delays in invoicing
customer shipments could cause a slowdown in cash receipts, which could
affect our ability to meet our financial obligations. To the extent customers
experience Year 2000 problems that are not remediated on a timely basis, we
may experience material fluctuations in the demand for our products. The
amount of any potential liability and/or lost revenue cannot be reasonably
estimated at this time; however, such amounts could be material.
While we currently expect no material adverse consequences to our
financial condition or results of operations due to Year 2000 issues, our
beliefs and expectations are based on certain assumptions that ultimately may
prove to be inaccurate. Each of our operating facilities is developing a
specific contingency plan for their most reasonably likely worst case
scenarios. These plans are expected to be complete for both IT systems and
non-IT systems by the end of the second quarter of 1999. We will also seek
to take appropriate actions to mitigate the effects of our or significant
vendors' failure to remediate the Year 2000 problem in a timely manner,
including increasing the inventory of critical raw materials and supplies,
increasing finished goods inventories, switching to alternative energy
sources, and making arrangements for alternate vendors.
There is a risk that our plans for achieving Year 2000 compliance may
not be completed on time. However, failure to meet critical milestones being
identified in our plans would provide advance notice, and steps would be
taken to prevent injuries to employees and others, and to prevent
environmental contamination. Customers and suppliers would also receive
advance notice allowing them to implement alternate plans.
17
<PAGE>
ENVIRONMENTAL MATTERS
Our operations are subject to extensive environmental regulation by
federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over our foreign operations. We have made, and
expect to continue to make, significant capital expenditures to comply with
water, air and solid and hazardous waste regulations. Capital expenditures
for environmental control equipment and facilities were approximately $24
million in 1997 and approximately $10 million in 1998. We anticipate that
environmental capital expenditures will approximate $32 million in 1999. The
majority of the 1999 expenditures relate to amounts that we currently
anticipate will be required to comply with the Cluster Rule. Although
capital expenditures for environmental control equipment and facilities and
compliance costs in future years will depend on legislative and technological
developments which cannot be predicted at this time, such costs could
increase as environmental regulations become more stringent. Environmental
control expenditures include projects which, in addition to meeting
environmental concerns, may yield certain benefits to us in the form of
increased capacity and production cost savings. In addition to capital
expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance
(including any remediation) represent ongoing costs to us.
In November 1997, the EPA issued the Cluster Rule, which made existing
requirements for discharge of wastewaters under the Clean Water Act more
stringent and impose new requirements on air emissions under the Clean Air
Act for the pulp and paper industry. Though the final rule is still not
fully promulgated, we currently believe it will be required to make capital
expenditures of up to $130 million from 1999 through 2002 in order to meet
the requirements of the new regulations. Also, additional operating expenses
will be incurred as capital installations required by the Cluster Rule are
put into service.
In addition, we are subject to litigation and governmental proceedings
regarding environmental matters in which injunctive and/or monetary relief is
sought. We have been named as a potentially responsible party at a number of
sites which are the subject of remedial activity under the CERCLA or
comparable state laws. Although we are subject to joint and several
liability imposed under CERCLA, at most of the multi-potentially responsible
party sites there are organized groups of potentially responsible parties and
costs are being shared among potentially responsible parties. Payments
related to clean-up at existing and former operating sites and CERCLA sites
were not material to our liquidity during 1998. Future environmental
regulations may have an unpredictable adverse effect on our operations and
earnings, but they are not expected to adversely affect our competitive
position.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are significantly affected by the amount
of interest on our indebtedness. Our financing arrangements include both
fixed and variable rate debt in which changes in interest rates will impact
the fixed and variable debt differently. A change in the interest rate of
fixed rate debt will impact the fair value of the debt. A change in the
interest rate on the variable rate debt will impact interest expense and cash
flows. Management's objective is to protect us from interest rate volatility
and reduce or limit interest expense within acceptable levels of market risk.
To mitigate the impact of fluctuations in interest rates, we periodically
enter into interest rate swaps, caps or options to hedge interest rate
exposure. We do not utilize derivatives for speculative or trading purposes.
Any derivative would be specific to the debt instrument, contract or
transaction, which would determine the specifics of the hedge. At December
31, 1998 there were no derivative contracts outstanding.
The table below presents principal amounts by year of anticipated
maturity for our debt obligations and related average interest rates base on
the weighted average interest rates at the end of the period. Variable
interest rates disclosed do not attempt to project future interest rates.
This information should be read in conjunction with Note 4 to the Notes to
Consolidated Financial Statements which are included in this prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
Outstanding as of December 31, 1998
-----------------------------------------------------------------------
Fair
(in millions) 1999 2000 2001 2002 2003 Thereafter Total Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank term loans and revolver -
8.71% average interest rate (variable) $34 $59 $59 $59 $60 $1,114 $1,385 $1,385
U.S. accounts receivable securitization -
5.41% average interest rate (variable) 209 209 209
Senior notes -
10.36% average interest rate (fixed) 100 500 300 900 930
U.S. industrial revenue bonds -
7.53% average interest rate (fixed) 1 3 4 24 32 32
Other 9 7 8 8 4 8 44 44
-----------------------------------------------------------------------
Total Debt $44 $69 $67 $376 $568 $1,446 $2,570 $2,600
=======================================================================
</TABLE>
EFFECTS OF INFLATION
Although inflation has slowed in recent years, it is still a factor in
the economy and we continue to seek ways to mitigate its impact to the extent
permitted by competition. Inflationary increases in operating costs have been
moderate since 1996, and have not had a material impact on our financial
position or operating results during the last three years. We use the
last-in, first-out method of accounting for approximately 82% of our
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus provides a closer
matching of revenue and expenses in periods of increasing costs. On the
other hand, depreciation charges represent the allocation of historical costs
incurred over past years and are significantly less than if they were based
on the current cost of productive capacity being consumed.
PROSPECTIVE ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for Computer Software
Developed or Obtained for Internal Use," which requires that certain costs
incurred in connection with developing or obtaining software for internal-use
must be capitalized. Cost for such work performed internally by our
employees is currently expensed as incurred. SOP 98-1 is effective beginning
on January 1, 1999. We do not expect that the adoption of SOP 98-1 will have
a material impact on our future earnings or financial position.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. We
have not assessed what the impact of SFAS No. 133 will be on our future
earnings or financial position.
19
<PAGE>
BUSINESS
GENERAL
JSCE is a wholly-owned subsidiary of SSCC. On May 10, 1998, Jefferson
Smurfit Corporation ("JSC"), a Delaware corporation, now known as SSCC,
entered into a merger agreement with JSC Acquisition Corporation, a
wholly-owned subsidiary of SSCC, and Stone. On November 18, 1998, JSC
Acquisition Corporation was merged with and into Stone.
As a result of the merger, Stone became a 100% owned subsidiary of
SSCC. SSCC continues to own 100% of the equity interest of JSCE. SSCC has no
operations other than its investment in JSCE and Stone. JSCE owns 100% of
the equity interest in JSC (U.S.). JSCE has no operations other than its
investment in JSC (U.S.). JSC (U.S.) has extensive operations throughout the
United States.
We are a large, integrated producer of containerboard, corrugated
containers and other packaging products. We believe our high level of
integration enhances our ability to respond quickly and efficiently to
customers and to fill orders on short lead times. We operate in three major
business segments:
- Containerboard and Corrugated Containers;
- Boxboard and Folding Cartons; and
- Reclamation.
For a summary of revenues, profits, identifiable assets, capital
expenditures and depreciation, depletion and amortization for each of our
segments, see Note 12, "Business Segment Information" of the Notes to
Consolidated Financial Statements contained in this prospectus.
We closed three containerboard mills located in Alton, Illinois,
Circleville, Ohio and Jacksonville, Florida on December 1, 1998. Amounts in
the discussion below include these paper mill facilities through November 30,
1998. In addition, we recently announced our intention to divest the
newsprint mills owned by SNC and accordingly our former newsprint segment is
now accounted for as a discontinued operation.
CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
The primary products of our Containerboard and Corrugated Containers
segment include corrugated containers, containerboard, solid bleached sulfate
and timber products. This segment includes four paper mills and 52 container
plants located in the United States. Sales for the Containerboard and
Corrugated Containers segment in 1998 were $1,735 million (including $39
million of intersegment sales).
Production of our containerboard mills and sales of our corrugated
container facilities for the last three years were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tons Produced (in thousands)
Containerboard..................................... 1,978 2,024 2,061
Solid bleached sulfate............................. 185 290 189
Corrugated containers sold (in billion sq. ft)......... 29.9 31.7 30.0
</TABLE>
Our containerboard mills produce a full line of containerboard, which
for 1998 included 1,045,000 tons of unbleached kraft linerboard, 316,000 tons
of mottled white linerboard, 509,000 tons of recycled medium and 108,000 tons
of semi-chemical medium. Our containerboard mills and corrugated container
operations are highly integrated, with the majority of containerboard
produced by us used internally by our corrugated container operations. In
1998, our container plants consumed 1,951,000 tons of containerboard,
representing an integration level of approximately 99%.
20
<PAGE>
Corrugated containers are used to ship diverse products such as home
appliances, electric motors, small machinery, grocery products, produce,
books, tobacco and furniture and for many other applications, including point
of purchase displays. We provide innovative packaging solutions, stressing
the value-added aspects of our corrugated containers, including labeling and
multi-color graphics to differentiate its products and respond to customer
requirements. Our container plants are located nationwide, serving local
customers and large national accounts. Our sales of corrugated containers in
1998 were $1,202 million.
We also produce solid bleached sulfate, a portion of which is consumed
internally by our folding carton plants.
We manage approximately one million acres of owned and leased
timberland in the southeastern United States. In 1998, we harvested 954,000
cords of timber, which would satisfy approximately 42% of the wood fiber
requirements for our paper mills.
BOXBOARD AND FOLDING CARTONS SEGMENT
The Boxboard and Folding Cartons segment's primary products are coated
recycled boxboard and folding cartons. Sales for this segment in 1998 were
$784 million.
Production of coated recycled boxboard in 1998, 1997 and 1996 by our
boxboard mills was 582,000, 585,000 and 538,000 tons, respectively. Our
boxboard and folding carton operations are also integrated, with the majority
of tons produced by our boxboard mills used internally by our folding carton
operations. In 1998, our folding carton plants consumed 611,000 tons of
recycled boxboard and solid bleached sulfate, representing an integration
level of approximately 75%.
Folding cartons are sold to manufacturers of consumable goods,
especially food, beverage, detergents, paper products and other consumer
products. Our folding carton plants offer extensive converting capabilities,
including web and sheet lithographic, rotogravure and flexographic printing,
laminating and a full line of structural and graphic design services. Folding
cartons are used primarily to protect customers' products while providing
point of purchase advertising. We make 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 accounts. Our folding
carton plants are located nationwide. Folding carton sales volumes for 1998,
1997 and 1996 were 536,000, 488,000 and 474,000 tons, respectively. Our
sales of folding cartons in 1998 were $698 million.
We have focused our capital expenditures and our marketing activities
in this segment to support a strategy of enhancing product quality as it
relates to packaging graphics, increasing flexibility while reducing customer
lead time and assisting customers in innovative package designs.
We provide marketing consultation and research activities through our
Design and Market Research center. This center 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.
OTHER PRODUCTS
NEWSPRINT
SNC manufactures newsprint at two mills located in Oregon. SNC
produced 575,000, 574,000 and 522,000 metric tons of newsprint during 1998,
1997 and 1996, respectively. In 1998 sales of newsprint were $303 million.
For the past three years, an average of approximately 44% of SNC's newsprint
production has been sold to The Times Mirror Company pursuant to a long-term
newsprint agreement entered into in connection with our acquisition of SNC
from Times Mirror in February 1986. Under the terms of the agreement, SNC
supplies newsprint to Times Mirror generally at prevailing market prices.
Sales of newsprint to Times Mirror in 1998 amounted to $126 million.
21
<PAGE>
CLADWOOD-Registered Trademark-
Cladwood-Registered Trademark- is a wood composite panel used by the
housing industry, manufactured from sawmill shavings and other wood residuals
and overlaid with recycled newsprint. SNC has two Cladwood-Registered
Trademark- plants located in Oregon. Sales for Cladwood-Registered
Trademark- in 1998 were $21 million.
SPECIALTY PACKAGING
We produce a wide variety of specialty packaging products including
uncoated recycled boxboard, papertubes and cores, solid fiber partitions and
consumer packaging. Papertubes and cores are used primarily for paper, film
and foil, yarn carriers and other textile products and furniture components.
Flexible packaging, paper and metallized paper labels and heat transfer
labels are used in a wide range of consumer product applications. In
addition, a contract packaging plant provides custom contract packaging
services including cartoning, bagging, liquid-filling or powder-filling and
high-speed overwrapping. We produce high-quality rotogravure cylinders and
has a full-service organization experienced in the production of color
separations and lithographic film for the commercial printing, advertising
and packaging industries. In 1998, our sales of specialty packaging products
were $294 million (including $17 million of intersegment sales).
RECLAMATION OPERATIONS
Our reclamation operations procure fiber resources for our paper mills
as well as other producers. We operate 27 reclamation facilities that
collect, sort, grade and bale recovered paper. We also collect aluminum and
glass. In addition, we operate a nationwide brokerage system whereby we
purchase and resell recovered paper to our recycled paper mills and other
producers on a regional and national contract basis. Brokerage contracts
provide bulk purchasing, resulting in lower prices and cleaner recovered
paper. Many of the reclamation facilities are located close to our recycled
paper mills, assuring availability of supply, when needed, with minimal
shipping costs. Tons of recovered paper collected for 1998, 1997 and 1996
were 5,155,000, 4,832,000 and 4,464,000, respectively. In 1998, 33% of the
recovered paper collected was sold internally to our paper mills. Our sales
of recycled materials in 1998 were $397 million (including $132 million of
intersegment sales).
FIBER RESOURCES
Wood fiber and recycled fiber are the principal raw materials used in
the manufacture of our paper products. We satisfy a significant portion of
our needs for wood fiber through our forestry operations and essentially all
of our needs for recycled fiber through the operation of our reclamation
facilities and nationwide brokerage system. Our wood fiber requirements not
satisfied internally are purchased on the open market or under long-term
contracts.
Wood fiber and recycled fiber are purchased in highly competitive,
price sensitive markets, which have historically exhibited price and demand
cyclicality. A decrease in the supply of wood fiber due to conservation
regulation has caused, and will likely continue to cause, higher wood fiber
costs in some of the regions in which we procure wood fiber. Fluctuations in
supply and demand for recycled fiber has from time to time caused tight
supplies of recycled fiber and at those times we have experienced an increase
in the cost of such fiber. While we have not experienced any significant
difficulty in obtaining wood fiber and recycled fiber in proximity to our
mills, we cannot assure you that this will continue to be the case for any or
all of our mills.
22
<PAGE>
MARKETING
Our marketing strategy with respect to our mills is to maximize sales
of products to manufacturers located within an economical shipping area. Our
converting plants focus on both specialty products tailored to fit customers'
needs and high volume sales of commodity products. We also seek to broaden
the customer base for each of our 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. We also maintain national sales offices for
customers who purchase through a centralized purchasing office. National
account business may be allocated to more than one plant because of
production capacity and equipment requirements.
Our business is not dependent upon a single customer or upon a small
number of major customers. We do not believe that the loss of any one
customer would have a material adverse effect on our profitability.
COMPETITION
The markets in which we sell our principal products are highly
competitive and comprised of many participants. Although no single company
is dominant, we do face significant competitors in each of our businesses.
Our competitors include large vertically integrated companies as well as
numerous smaller companies. The industries in which we compete are
particularly sensitive to price fluctuations brought about by shifts in
industry capacity and other cyclical industry conditions. Other competitive
factors include design, quality and service, with varying emphasis depending
on product line.
BACKLOG
Demand for our major product lines is relatively constant throughout
the year and seasonal fluctuations in marketing, production, shipments and
inventories are not significant. Backlogs are not a significant factor in
the industry. We do not have a significant backlog of orders, as most orders
are placed for delivery within 30 days.
RESEARCH AND DEVELOPMENT
Our research and development center uses state-of-the-art technology
to assist all levels of the manufacturing and sales processes 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. We actively pursue applications for patents on new
inventions and designs and attempts to protect its patents against
infringement. Nevertheless, we believe that our success and growth are
dependent on the quality of our products and our relationships with our
customers, rather than on the extent of our patent protection. We hold or are
licensed to use certain patents, licenses, trademarks and tradenames on
products, but do not consider that the successful continuation of any
important phase of our business is dependent upon such patents. The cost of
our research and development center for 1998, 1997 and 1996 was approximately
$3 million each year.
EMPLOYEES
We had approximately 15,000 employees at December 31, 1998, of whom
approximately 9,700 (65%) are represented by collective bargaining units.
The expiration dates of union contracts for our major paper mill facilities
are as follows: the Brewton, Alabama mill, expiring in October 2002 and the
Fernandina Beach, Florida mill, expiring in June 2003. We believe that our
employee relations are generally good and are currently in the process of
bargaining with unions representing production employees at a number of our
operations. While the terms of these agreements may vary, we believe that
the material terms of our collective bargaining agreements are customary for
the industry and the type of facility, the classification of the employees
and the geographic location covered thereby.
23
<PAGE>
LITIGATION
Subsequent to an understanding reached in December 1998, SSCC and SNC
entered into a settlement agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood-Registered Trademark-, a
composite wood siding product manufactured by SNC that has been used
primarily in the construction of manufactured or mobile homes. Pursuant to
the settlement, SNC has agreed to pay $20 million into a settlement fund plus
up to approximately $6.5 million of administrative costs, attorneys' fees and
class representative payments. We recorded a $30 million pre-tax charge in
our results from discontinued operations for amounts SNC has agreed to pay
into the settlement fund. We believe our reserve is adequate to pay eligible
claims. However, the number of claims, and the number of potential claimants
who choose not to participate in the settlement, could cause us to
re-evaluate whether the liabilities in connection with the
Cladwood-Registered Trademark- cases could exceed established reserves.
We are a defendant in a number of lawsuits and claims arising out of
the conduct of our business including those related to environmental matters.
While the ultimate results of such suits or other claims cannot be predicted
with certainty, we believe that the resolution of these matters will not have
a material adverse effect on our consolidated financial condition or results
of operations.
ENVIRONMENTAL COMPLIANCE
Our operations are subject to extensive environmental regulation by
federal, state, and local authorities. In the past, we have made significant
capital expenditures to comply with water, air, solid and hazardous waste,
and other environmental laws and regulations, and expect to make significant
expenditures in the future for environmental compliance. Because various
environmental standards are subject to change, we cannot predict the amount
of capital expenditures that will ultimately be required to comply with
future standards. In particular, the EPA has finalized significant parts of
the Cluster Rule, which will require substantial expenditures to achieve
compliance. We estimate, based on engineering studies done to date, that
compliance with these portions of the Cluster Rule should require less than
$130 million in capital expenditures over the next two to four years.
Howeer, we cannot preduct the ultimate cost of complying with the regulations
until further engineering studies are completed and additional regulations
are finalized.
In addition to Cluster Rule compliance, we anticipate additional
capital expenditures related to environmental compliance. For the past three
years, we have spent an average of approximately $15 million annually on
capital expenditures for environmental purposes. The anticipated spending
for such capital projects for fiscal 1999 is approximately $32 million. A
significant amount of the increased expenditures in 1999 will be due to
compliance with the Cluster Rule and is included in the estimate of less than
$130 million referenced above. Since our competitors are, or will be,
subject to comparable environmental standards, including the Cluster Rule,
management is of the opinion, based on current information, that compliance
with environmental standards will not adversely affect our competitive
position.
24
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, "CCA"
refers to Container Corporation of America (the predecessor entity to JSC
(U.S.)); "Old JSC (U.S.)" refers to Jefferson Smurfit Corporation (U.S.)
prior to its merger with CCA; and "JSC" refers to Jefferson Smurfit
Corporation, now known as "SSCC."
The Series A Senior Notes were issued under an Indenture (the "Series A
Senior Note Indenture") among Old JSC (U.S.), CCA and NationsBank of Georgia,
National Association, as trustee ("NationsBank"). The Series B Senior Notes
were issued under an Indenture (the "Series B Senior Note Indenture") among
Old JSC (U.S.), CCA and NationsBank, as trustee. The 1993 Senior Notes were
issued under an Indenture (the "1993 Senior Note Indenture" and together with
the Series A and Series B Senior Note Indentures, the "Indentures") among Old
JSC (U.S.), CCA and NationsBank, as trustee. On December 31, 1995, The Bank
of New York (the "Series A Senior Note Trustee," the Series B Senior Note
Trustee" or the "1993 Senior Note Trustee") replaced NationsBank, as trustee
under the Indentures. Except as described under " -- Optional Redemption"
below or as otherwise indicated, this description applies to each Indenture,
and references to the "notes" shall be to the Series A Senior Notes, the
Series B Senior Notes or the 1993 Senior Notes, as the case may be, or, if
the context requires, to all three.
The following description is a summary of the material provisions of
the Indentures. It does not restate those agreements in their entirety. We
urge you to read the Indentures because they, and not this description,
define your rights as holders of the notes. We have filed copies of the
Indentures as exhibits to the registration statement which includes this
prospectus. Wherever particular sections or defined terms of the Indentures
not otherwise defined herein are referred to, such sections or defined terms
shall be incorporated herein by reference.
GENERAL
Principal of, premium, if any, and interest on the notes is payable,
and the notes may be exchanged or transferred, at the office or agency of JSC
(U.S.) in the Borough of Manhattan, The City of New York (which for the
Series A Senior Notes shall be the office or agency of the Series A Senior
Note Trustee, at 61 Broadway, Suite 1412, New York, New York 10006, for the
Series B Senior Notes, shall be the office or agency of the Series B Senior
Note Trustee at 61 Broadway, Suite 1412, New York, New York 10006, and for
the 1993 Senior Notes, shall be the office or agency of the 1993 Senior Note
Trustee at 61 Broadway, Suite 1412, New York, New York 10006); provided that,
at our option, payment of interest may be made by check mailed to the address
of the Holders as such address appears in the Senior Notes Register.
(Sections 2.01, 2.03 and 2.06)
The notes were issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. (Section
2.02) No service charge was made for any registration of transfer or exchange
of notes, but we may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith. (Section 2.05)
TERMS OF THE NOTES
The Series A Senior Notes and Series B Senior Notes are unsecured
senior obligations of JSC (U.S.), limited to $300 million aggregate principal
amount of Series A Senior Notes, and $100 million aggregate principal amount
of Series B Senior Notes, and will mature on May 1, 2004, and May 1, 2002,
respectively. Each note bears interest at the rate per annum shown on the
front cover of this prospectus from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semi-annually (to the
Holders of record at the close of business on the April 15 or October 15
immediately preceding the Interest Payment Date) on May 1 and November 1 of
each year.
The 1993 Senior Notes are unsecured senior obligations of JSC (U.S.),
limited to $500 million aggregate principal amount, and will mature on April
1, 2003. Each 1993 Senior Note bears interest at the rate per annum shown on
the front cover of this prospectus from the most recent Interest Payment Date
to which interest has been paid or provided for, payable semi-annually (to
the Holders of record at the close of business on the March 15 or September
15 immediately preceding the Interest Payment Date) on April 1 and October 1
of each year.
25
<PAGE>
OPTIONAL REDEMPTION
JSC (U.S.) may not redeem the Series B Senior Notes or the 1993 Senior
Notes prior to maturity.
The Series A Senior Notes are redeemable, at JSC (U.S.)'s option, in
whole or in part, at any time on or after May 1, 1999 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by first
class mail to each Holder's last address as it appears in the Senior Notes
Register, at the following Redemption Prices (expressed as percentages of
principal amount), plus accrued interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior
to the Redemption Date), if redeemed during the 12-month period commencing on
May 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------------------------------------
<S> <C>
1999...................................... 105.625%
2000...................................... 102.813%
2001 and thereafter....................... 100.0%
</TABLE>
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 1998 Credit Agreement contains covenants limiting the optional
redemption of the notes.
RANKING
The Indebtedness evidenced by the notes ranks pari passu in right of
payment with all other senior indebtedness of JSC (U.S.), including, without
limitation, JSC (U.S.)'s obligations under the 1998 Credit Agreement. JSCE's
guarantee of the notes ranks pari passu in right of payment with all other
unsubordinated indebtedness of JSCE, including, without limitation, JSCE's
obligations under the 1998 Credit Agreement.
JSC (U.S.)'s obligations under the 1998 Credit Agreement and JSCE's
guarantees of such obligations are secured by pledges of substantially all of
our assets with the exception of cash and cash equivalents and trade
receivables. JSC (U.S.)'s obligations under the 1998 Credit Agreement, but
not the notes, are guaranteed by JSC, JSCE and certain of JSC's subsidiaries,
and the obligations of JSCE and each such guaranteeing subsidiary are
secured, among other things, by substantially all of the assets of JSCE and
such guaranteeing subsidiary, as the case may be. The notes and JSCE's
guarantee of the notes will be effectively subordinated to such security
interests and guarantees to the extent of such security interests and
guarantees. As of December 31, 1998, JSC (U.S.) had outstanding approximately
$2,570.0 million of senior indebtedness (excluding intercompany indebtedness),
of which approximately $1,642.5 million was secured indebtedness. The secured
indebtedness will have priority over the notes with respect to the assets
securing such indebtedness. See "Risk Factors --Effective Subordination" for a
further discussion of security for the notes.
GUARANTEE
JSC (U.S.)'s obligations under the notes are unconditionally
guaranteed by JSCE.
26
<PAGE>
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indentures. Some definitions appear
in the 1993 Senior Note Indenture that do not appear in the other Indentures,
and vice versa. Reference is made to the Indentures for the full definition
of all terms as well as any other capitalized term used herein for which no
definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Subsidiary and not Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
"Adjusted Consolidated Net Income" is defined to mean, for any period,
the aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP; provided
that the following items shall be excluded in computing Adjusted Consolidated
Net Income (without duplication):
(1) the net income (or loss) of such Person (other than net income (or loss)
attributable to a Subsidiary of such Person) in which any other Person
(other than such Person or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other
distributions actually paid to such Person or any of its Subsidiaries by
such other Person during such period;
(2) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in
such case, except to the extent includable pursuant to clause (1)
above), the net income (or loss) of such Person accrued prior to the
date it becomes a Subsidiary of any other Person or is merged into or
consolidated with such other Person or any of its Subsidiaries or all or
substantially all of the property and assets of such Person are acquired
by such other Person or any of its Subsidiaries;
(3) the net income (or loss) of any Subsidiary (other than CCA) of any
Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of such net income is not at
the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary;
(4) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any
amounts paid or accrued as dividends on Preferred Stock of such Person
or Preferred Stock of any Subsidiary of such Person owned by Persons
other than such Person and any of its Subsidiaries;
(6) all extraordinary gains and extraordinary losses; and
(7) all non-cash charges reducing net income of such Person that relate to
stock options or stock appreciation rights and all cash payments
reducing net income of such Person that relate to stock options or stock
appreciation rights, to the extent such cash payments are not made
pursuant to clause (11) of the "Limitation on Restricted Payments"
covenant; provided that, solely for the purposes of calculating the
Interest Coverage Ratio (and in such case, except to the extent
includable pursuant to clause (1) above), "Adjusted Consolidated Net
Income" of JSCE shall include the amount of all cash dividends received
by JSCE or any Subsidiary of JSCE from an Unrestricted Subsidiary.
"Adjusted Consolidated Net Tangible Assets" is defined to mean the
total amount of assets of JSCE and its Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom:
(1) all current liabilities of JSCE and its Subsidiaries (excluding
intercompany items); and
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(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on the
most recently available consolidated balance sheet of JSCE and its
Subsidiaries, prepared in conformity with GAAP.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by", and "under common control with"), as applied to any Person,
is defined to mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
For purposes of this definition, no Bank nor any affiliate of any Bank shall
be deemed to be an Affiliate of JSCE or any of its Subsidiaries nor shall
Morgan Stanley (or any affiliate thereof) be deemed an Affiliate of JSCE or
any of its Subsidiaries solely by reason of its ownership of or right to vote
any Indebtedness of JSCE or any of its Subsidiaries.
"Asset Acquisition" is defined to mean:
(1) an investment by JSCE or any of its Subsidiaries in any other Person
pursuant to which such Person shall become a Subsidiary of JSCE or any
of its Subsidiaries or shall be merged into or consolidated with JSCE or
any of its Subsidiaries; or
(2) an acquisition by JSCE or any of its Subsidiaries of the assets of any
Person other than JSCE or any of its Subsidiaries that constitute
substantially all of a division or line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
JSCE or any of its Subsidiaries (other than to JSCE or another Subsidiary of
JSCE) of:
(1) all or substantially all of the Capital Stock of any Subsidiary of JSCE;
or
(2) all or substantially all of the assets that constitute a division or
line of business of JSCE or any of its Subsidiaries.
"Asset Sale" is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other
than JSCE or any of its Subsidiaries of:
(1) all or any of the Capital Stock of any Subsidiary of such Person (other
than pursuant to a public offering of the Capital Stock of CCA or JSCE
pursuant to which at least 15% of the total issued and outstanding
Capital Stock of CCA or JSCE has been sold by means of an effective
registration statement under the Securities Act or sales, transfers or
other dispositions of Capital Stock of CCA or JSCE substantially
concurrently with or following such a public offering);
(2) all or substantially all of the property and assets of an operating unit
or business of such Person or any of its Subsidiaries; or
(3) any other property and assets of such Person or any of its Subsidiaries
outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the provisions of
the Indenture applicable to Mergers, Consolidations and Sales of Assets
(it being acknowledged that JSCE and its Subsidiaries may dispose of
equipment in the ordinary course of their respective businesses);
provided that sales or other dispositions of inventory, receivables and
other current assets shall not be included within the meaning of "Asset
Sale."
"Attributable Indebtedness' is defined to mean, when used in
connection with a sale-leaseback transaction referred to in the "Limitation
on Sale-Leaseback Transactions" covenant, at any date of determination, the
product of:
(1) the net proceeds from such sale-leaseback transaction; and
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(2) a fraction, the numerator of which is the number of full years of the
term of the lease relating to the property involved in such
sale-leaseback transaction (without regard to any options to renew or
extend such term) remaining at the date of the making of such
computation and the denominator of which is the number of full years of
the term of such lease (without regard to any options to renew or extend
such term) measured from the first day of such term.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing:
(1) the sum of the product of (a) the number of years from such date of
determination to the dates of each successive scheduled principal
payment of such debt security, and (b) the amount of such principal
payment by,
(2) the sum of all such principal payments.
"Banks" is defined to mean the lenders who are from time to time
parties to any Credit Agreement.
"Board of Directors" is defined to mean the Board of Directors of JSCE
or CCA, as the case may be, or any committee of such Board of Directors duly
authorized to act under the Indenture.
"Business Day" is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city
of the Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" is defined to mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's capital stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such Person as lessee,
in conformity with GAAP, is required to be capitalized on the balance sheet
of such Person; and "Capitalized Lease Obligation" is defined to mean the
rental obligations, as aforesaid, under such lease.
"Change of Control" is defined to mean such time as:
(1) (a) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Original
Stockholders, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 35% of the total
voting power of the then outstanding Voting Stock of JSC or a JSC
Parent and
(b) the Original Stockholders beneficially own, directly or
indirectly, less than the then outstanding Voting Stock of JSC or
a JSC Parent beneficially owned by such "person" or "group"; or
(2) (a) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Original
Stockholders, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 35% of the total
voting power of the then outstanding Voting Stock of JSCE,
(b) the Original Stockholders beneficially own, directly or
indirectly, less than the then outstanding Voting Stock of JSCE
beneficially owned by such "person" or "group"; and
(c) CCA is a Subsidiary of JSCE at the time that the later of (a) and
(b) above occurs.
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"Closing Date" is defined to mean the date on which the respective
series of notes were originally issued under the Indentures.
"Common Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's common stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such common stock.
"Consolidated EBITDA" is defined to mean, with respect to any Person
for any period, the sum of the amounts for such period of:
(1) Adjusted Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or sales
of assets);
(4) depreciation expense;
(5) amortization expense; and
(6) all other non-cash items reducing Adjusted Consolidated Net Income, less
all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for such Person and its Subsidiaries
in conformity with GAAP;
provided that, if a Person has any Subsidiary that is not a Wholly Owned
Subsidiary of such Person, Consolidated EBITDA of such Person shall be
reduced (to the extent not otherwise reduced by GAAP) by an amount equal to:
(1) the Adjusted Consolidated Net Income of such Subsidiary multiplied by
(2) the quotient of:
(a) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by such
Person or any Subsidiary of such Person divided by
(b) the total number of shares of outstanding Common Stock of such
Subsidiary on the last day of such period.
"Consolidated Interest Expense" is defined to mean, with respect to
any Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting;
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing; the net costs associated
with Interest Rate Agreements; and Indebtedness that is Guaranteed by such
Person) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by such Person and its consolidated subsidiaries during such period;
excluding, however,
(1) any amount of such interest of any Subsidiary of such Person if the net
income (or loss) of such Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income for such person pursuant to clause
(iii) of the definition thereof (but only in the same proportion as the
net income (or loss) of such Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income for such Person pursuant to clause
(iii) of the definition thereof); and
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(2) any premiums, fees and expenses (and any amortization thereof) payable
in connection with the 1989 Transaction, the 1992 Transaction, the 1993
Transaction (i.e., the Refinancing), the issuance of the New
Subordinated Notes and the applications of the proceeds thereof or the
Recapitalization Plan, all as determined on a consolidated basis in
conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, shareholders' equity as set forth on the most recently
available consolidated balance sheet of JSCE and its Subsidiaries (which
shall be as of a date not more than 60 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of JSCE or any Subsidiary of JSCE, each
item to be determined in accordance with GAAP (excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Credit Agreement" is defined to mean either:
(1) the Credit Agreement, dated as of May 11, 1994, amended and restated as
of May 17, 1996, among JSC, JSCE, JSC (U.S.), The Chase Manhattan Bank,
Bankers Trust Company and the other lenders, as amended from time to
time (the "1994 Credit Agreement"); or
(2) any Credit Agreement which amends, supplements, extends, renews,
replaces, or otherwise modifies from time to time, including, without
limitation, any agreement increasing the amount of, extending the
maturity of, refinancing or otherwise restructuring all or any portion
of such agreement or agreements, provided that such agreement will be a
Credit Agreement under the Indenture only if a notice to that effect is
delivered to the Trustee and there shall be at any time no more than two
instruments that are Credit Agreements.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect JSCE or any of its Subsidiaries against fluctuations in currency
values to or under which JSCE or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Default" is defined to mean any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Existing Subordinated Debt Refinancing" is defined to mean the
refinancing of any or all of the Indebtedness represented by the Junior
Accrued Debentures, Senior Subordinated Notes and the Subordinated
Debentures, including pursuant to any Credit Agreement.
"Foreign Subsidiary" is defined to mean any Subsidiary of JSCE that:
(1) derives more than 80% of its sales or net income from; or
(2) has more than 80% of its assets located in, territories and
jurisdictions outside the United States of America (in each case
determined on a consolidated basis in conformity with GAAP).
"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP, except that calculations
made for purposes of determining compliance with the terms of the covenants
and with other provisions of the Indenture shall be made without giving
effect to:
(1) the amortization of any expenses incurred in connection with the 1989
Transaction, the 1992 Transaction, the 1993 Transaction (i.e., the
Refinancing), the issuance of the New Subordinated Notes and the
application of the proceeds thereof or the Recapitalization Plan;
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(2) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17; and
(3) any charges associated with the adoption of Financial Accounting
Standard Nos. 106 and 109.
"Guarantee" is defined to mean any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to
protect such obligation 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 "Securityholder" or "Senior Notes Holder"
is defined to mean the registered holder of any Series A Senior Note, Series
B Senior Note or 1993 Senior Note, as the case may be.
"Incur" is defined to mean, with respect to any Indebtedness, to
incur, create, issue, assume, Guarantee or otherwise become liable for or
with respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness; provided that neither the accrual of interest
(whether such interest is payable in cash or kind) nor the accretion of
original issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any
date of determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments (other than, in the case of JSCE and its
Subsidiaries, any non-negotiable notes of JSCE or its Subsidiaries
issued to its insurance carriers in lieu of maintenance of policy
reserves in connection with its workers' compensation and liability
insurance programs);
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables;
(5) all obligations of such Person as lessee under Capitalized Leases;
(6) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of:
(a) the fair market value of such asset at such date of
determination; and
(b) the amount of such Indebtedness,
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(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person;
(8) all obligations in respect of borrowed money under any Credit Agreement,
the Secured Notes and any Guarantees thereof; and
(9) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance
at such date of all unconditional obligations as described above and the
maximum liability determined by such Person's board of directors, in
good faith, as reasonably likely to occur, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations
at such date, provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original
issue discount of such Indebtedness at such time as determined in
conformity with GAAP; and provided further that Indebtedness shall not
include:
(a) any liability for federal, state, local or other taxes or;
(b) obligations of JSCE or its Restricted Subsidiaries pursuant to
Receivables Programs.
"Interest Coverage Ratio" is defined to mean, with respect to any
Person on any Transaction Date, the ratio of:
(1) the aggregate amount of Consolidated EBITDA of such Person for the four
fiscal quarters for which financial information in respect thereof is
available immediately prior to such Transaction Date to
(2) the aggregate Consolidated Interest Expense of such Person during such
four fiscal quarters. In making the foregoing calculation,
(a) pro forma effect shall be given to:
(i) any Indebtedness Incurred subsequent to the end of the
four-fiscal-quarter period referred to in clause (i) and
prior to the Transaction Date (other than Indebtedness
Incurred under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) on
the last day of such period);
(ii) any Indebtedness Incurred during such period to the
extent such Indebtedness is outstanding at the
Transaction Date; and
(iii) any Indebtedness to be Incurred on the Transaction Date,
in each case as if such Indebtedness had been Incurred on
the first day of such four-fiscal-quarter period and
after giving pro forma effect to the application of the
proceeds thereof as if such application had occurred on
such first day;
(b) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation
(taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months) had been the applicable rate for the
entire period;
(c) there shall be excluded from Consolidated Interest Expense any
Consolidated Interest Expense related to any amount of
Indebtedness that was outstanding during such four-fiscal-quarter
period or thereafter but that is not outstanding or is to be
repaid on the Transaction Date, except for Consolidated Interest
Expense accrued (as adjusted pursuant to clause (b)) during such
four-fiscal-
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quarter period under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any
successor revolving credit or similar arrangement) on the
Transaction Date;
(d) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur
during such four-fiscal-quarter period or thereafter and prior to
the Transaction Date as if they had occurred and such proceeds
had been applied on the first day of such four-fiscal-quarter
period;
(e) with respect to any such four-fiscal-quarter period commencing
prior to the Refinancing, the Refinancing shall be deemed to have
taken place on the first day of such period; and
(f) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been
made by any Person that has become a Subsidiary of JSC or has
been merged with or into JSCE or any Subsidiary of JSCE during
the four-fiscal-quarter period referred to above or subsequent to
such period and prior to the Transaction Date and that would have
constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Subsidiary of JSCE
as if such asset dispositions or asset acquisitions were Asset
Dispositions or Asset Acquisitions that occurred on the first day
of such period; provided that to the extent that clause (d) or
(f) of this sentence requires that pro forma effect be given to
an Asset Acquisition or an asset acquisition, such pro forma
calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired for
which financial information is available.
"Interest Rate Agreement" is defined to mean any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate hedge agreement or other
similar agreement or arrangement designed to protect JSCE or any of its
Subsidiaries against fluctuations in interest rates or obtain the benefits of
floating interest rates to or under which JSCE or any of its Subsidiaries is
a party or a beneficiary on the date of the Indenture or becomes a party or a
beneficiary thereafter.
"Investment" is defined to mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described below:
(1) "Investment" shall include the fair market value of the net assets of
any Subsidiary of JSCE at the time that such Subsidiary of JSCE is
designated an Unrestricted Subsidiary and shall exclude the fair market
value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of
JSCE and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined by the Board of Directors in good faith.
"JSC" is defined to mean Jefferson Smurfit Corporation, a Delaware
corporation.
"JSC Parent" is defined to mean any entity of which JSC is a direct or
indirect Subsidiary.
"Junior Accrual Debentures" is defined to mean CCA's 15 1/2% Junior
Subordinated Accrual Debentures due 2004.
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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 JSCE or any
Subsidiary of JSCE) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of:
(1) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale;
(2) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of JSCE and its Subsidiaries,
taken as a whole;
(3) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either:
(a) is secured by a Lien on the property or assets sold; or
(b) is required to be paid as a result of such sale; and
(4) appropriate amounts to be provided by JSCE or any Subsidiary of JSCE as
a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP.
"New Senior Notes", when used in reference to the 1993 Senior Notes,
is defined to mean the Series A Senior Notes and Series B Senior Notes and
such other debt securities that may be issued in substitution therefor (in
whole or in part) pursuant to clause (1) of the definition of
"Recapitalization Plan", in each case issued in connection with the
Recapitalization Plan.
"New Subordinated Notes" is defined to mean the 11 1/2% Junior
Subordinated Notes maturing 2005, in an aggregate amount not to exceed $200
million, of CCA which SIBV had committed to purchase (which commitment
terminates on the Closing Date without any of such notes having been issued).
"1989 Transaction" is defined to mean the transaction in which:
(1) JSC acquired the entire equity interest in Old JSC (U.S.);
(2) Old JSC (U.S.) (through its ownership of JSC Enterprises) acquired the
entire equity interest in CCA;
(3) the MSLEF I Group received $500 million in respect of its shares of CCA
common stock;
(4) SIBV received $41.75 per share, or an aggregate of approximately $1.25
billion, in respect of its shares of Old JSC (U.S.) stock; and
(5) the public stockholders received $43 per share of Old JSC (U.S.) stock.
"1993 Transaction" is defined to mean the issuance and sale of the
1993 Senior Notes, the repayment of Indebtedness with the proceeds of such
sale and the amendments (and consent payments in respect thereof) to
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certain debt instruments, and the agreements related thereto, that were
effected in April 1993 (also referred to as the Refinancing).
"1992 Stock Option Plan" is defined to mean the JSC 1992 Stock Option
Plan, as the same may be amended, supplemented or otherwise modified from
time to time.
"1992 Transaction" is defined to mean the purchase, in August 1992, by
certain stockholders of JSC of $232 million of Common Stock of JSC, the
contribution by JSC of such $232 million to CCA and the application by CCA of
such $232 million to repurchase Junior Accrual Debentures and repay other
subordinated Indebtedness of CCA.
"Original Stockholders" is defined to mean, collectively, MSLEF II,
Morgan Stanley Group, SIBV, JS Group and any Affiliate of any such Person.
"Permitted Liens" is defined to mean:
(1) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
(2) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred
in the ordinary course of business (exclusive of obligations for the
payment of borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of JSCE or any
of its Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or tangible
personal property acquired after the Closing Date; provided that:
(a) such Lien is created solely for the purpose of securing
Indebtedness Incurred:
(i) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of
or within six months after the later of the acquisition,
the completion of construction or the commencement of
full operation of such property; or
(ii) to refinance any Indebtedness previously so secured;
(b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost; and
(c) any such Lien shall not extend to or cover any property or assets
other than such item of property or assets and any improvements
on such item;
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(7) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of JSCE or any of its Subsidiaries;
(8) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of JSCE or any of its
Subsidiaries relating to such property or assets;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or Operating Lease; provided that any sale-leaseback
transaction related thereto complies with the "Limitation on
Sale-Leaseback Transactions" covenant;
(10) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(11) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary;
(12) Liens in favor of JSCE or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order against
JSCE or any Subsidiary of JSCE that does not give rise to an Event of
Default;
(14) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are either within the general parameters customary in
the industry and incurred in the ordinary course of business or
otherwise permitted under the terms of any Credit Agreement, in each
case securing Indebtedness under Interest Rate Agreements, Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed to protect JSCE
or any of its Subsidiaries from fluctuations in the price of
commodities;
(17) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by JSCE or any
of its Subsidiaries in the ordinary course of business in accordance
with the past practices of JSCE and its Subsidiaries prior to the
Closing Date;
(18) Liens on or sales of receivables; and
(19) Liens securing any real property or other assets of JSCE or any
Restricted Subsidiary in favor of the United States of America or any
State thereof, or any department, agency, instrumentality or political
subdivision thereof, in connection with the financing of industrial
revenue bond facilities or any equipment or other property designed
primarily for the purpose of air or water pollution control; provided
that any such Lien on such facilities, equipment or other property shall
not apply to any other assets of JSCE or any Restricted Subsidiary.
"Person" is defined to mean an individual, a corporation, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
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"Principal Property" is defined to mean any manufacturing or
processing plant, warehouse or other building used by JSCE or any Restricted
Subsidiary, other than a plant, warehouse or other building that, in the good
faith opinion of the Board of Directors of JSCE as reflected in a Board
Resolution, is not of material importance to the business conducted by JSCE
and its Restricted Subsidiaries taken as a whole as of the date such Board
Resolution is adopted.
"Recapitalization Closing Date" is defined to mean the date on which the
transactions described in clauses (1) through (4) of the definition of
"Recapitalization Plan" are consummated; provided that if such transactions do
not occur on the same date, "Recapitalization Closing Date" shall be defined to
mean the date designated as such by the Company.
"Recapitalization Plan" is defined to mean, collectively, the following
transactions:
(1) the sale of the Series A and Series B Senior Notes;
(2) the sale by JSC of JSC Common Stock substantially concurrently with the
transaction described in clause (1);
(3) the SIBV Investment substantially concurrently with the transaction
described in clause (1);
(4) the execution and delivery of the 1994 Credit Agreement;
(5) the application of the proceeds of the transactions described in clauses
(1) through (4);
(6) the Existing Subordinated Debt Refinancing;
(7) the obtaining of all consents and waivers necessary or determined by
CCA, Old JSC (U.S.) or JSC to be appropriate in connection with the
foregoing;
(8) all other transactions related to, or entered into in connection with,
the foregoing unless CCA determines that any such transaction should not
be considered part of the Recapitalization Plan; and
(9) the payment and accrual of all fees and expenses related to the
foregoing.
"Receivables Programs" is defined to mean, with respect to any Person,
obligations of such Person or its Subsidiaries pursuant to accounts receivable
securitization programs, to the extent that the proceeds received pursuant to a
pledge, sale or other encumbrance of accounts receivable pursuant to such
programs do not exceed 91% of the total book value of such accounts receivable
(determined on a consolidated basis in accordance with GAAP as of the end of the
most recent fiscal quarter for which financial information is available), and
any extension, renewal, modification or replacement of such programs, including,
without limitation, any agreement increasing the amount of, extending the
maturity of, refinancing or otherwise restructuring all or any portion of the
obligations under such programs or any successor agreement or agreements.
"Redeemable Stock" is defined to mean any class or series of Capital
Stock of any Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the notes;
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes; or
(3) convertible into or exchangeable for Capital Stock referred to in clause
(i) or (ii) above or Indebtedness having a scheduled maturity prior to
the Stated Maturity of the notes; provided that any Capital Stock that
would not constitute Redeemable Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change
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<PAGE>
of control" occurring prior to the Stated Maturity of the notes shall
not constitute Redeemable Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more
favorable (except with respect to any premium payable) to the holders
of such Capital Stock than the provisions contained in "Limitation on
Asset Sales" and "Repurchase of Notes upon Change of Control" covenants
described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such
provisions prior to such Person's repurchase of such notes, as are
required to be repurchased pursuant to the "Limitation on Asset Sales"
and "Repurchase of Notes upon Change of Control" covenants described
below.
"Refinancing" is defined to mean the issuance and sale of the 1993
Senior Notes, the repayment of Indebtedness under the credit agreements in
effect in 1993 with the proceeds of such sale and the amendments (and consent
payments in respect thereof) to the credit agreements in effect in 1993 and
the Secured Notes, and the agreements related thereto, that were effected
prior to, or at approximately the same time as, the issuance and sale of the
1993 Senior Notes.
"Restricted Subsidiary" is defined to mean any Subsidiary of JSCE
other than an Unrestricted Subsidiary.
"Secured Notes" is defined to mean CCA's Senior Secured Floating Rate
Senior Notes due 1998 and the note purchase agreement relating thereto, as the
foregoing may be amended from time to time.
"Senior Subordinated Notes" is defined to mean CCA's 13 1/2% Senior
Subordinated Notes due 1999.
"SIBV Investment" is defined to mean the purchase by SIBV (or a
corporate affiliate thereof) of shares of JSC Common Stock, substantially
concurrently with the sale by CCA of the Series A and Series B Senior Notes.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of JSCE that, together with its Subsidiaries:
(1) for the most recent fiscal year of JSCE, accounted for more than 10% of
the consolidated revenues of JSCE; or
(2) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of JSCE, all as set forth on the most recently
available consolidated financial statements of JSCE for such fiscal
year.
"Smurfit Newsprint" is defined to mean Smurfit Newsprint Corporation, a
Delaware corporation.
"Stated Maturity" is defined to mean:
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal
of such debt security is due and payable; and
(2) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
"Subordinated Debentures" is defined to mean CCA's 14% Subordinated
Debentures due 2001.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the outstanding Voting Stock is owned, directly or indirectly, by JSCE or by
one or more other Subsidiaries of JSCE, or by such Person and one or more
other Subsidiaries of such Person; provided that, except as the term
"Subsidiary" is used in the definition of "Unrestricted Subsidiary" set forth
below, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary of
JSCE for purposes of the Indenture.
"Times Mirror Agreement" is defined to mean the Shareholders Agreement,
dated February 21, 1986 between Old JSC (U.S.) and The Times Mirror Company, as
the same may at any time be amended, modified or supplemented.
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<PAGE>
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by JSCE or any of its Subsidiaries, the date such Indebtedness
is to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean:
(1) any Subsidiary of JSCE that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of JSCE
in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
JSCE may designate any Subsidiary of JSCE (including any newly acquired
or newly formed Subsidiary of JSCE) other than CCA to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, JSCE or any other Subsidiary of JSCE
that is not a Subsidiary of the Subsidiary to be so designated; provided
that either:
(a) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(b) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on
Restricted Payments" covenant described below. The Board of
Directors of JSCE may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary of JSCE; provided that immediately after
giving effect to such designation (x) JSCE could Incur $1.00 of
additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described below and (y) no
Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors of
JSCE shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions. Any
Subsidiary of JSCE may be designated as an Unrestricted
Subsidiary (or not so designated) for purposes of the Indenture
without regard to whether such Subsidiary is so designated (or
not so designated) for purposes of any other agreement relating
to Indebtedness of JSCE or any of its Subsidiaries.
"Voting Stock" is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors.
"Wholly Owned Subsidiary" is defined to mean, with respect to any
Person, any Subsidiary of such Person if all of the Common Stock or other
similar equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly by
such Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
Under the terms of the Indentures, JSCE shall not, and shall not permit
any Restricted Subsidiary to, Incur any Indebtedness unless, after giving effect
to the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio of JSCE would be greater than
<TABLE>
<S> <C> <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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<PAGE>
Notwithstanding the foregoing, JSCE and any Restricted Subsidiary
(except as expressly provided below) may Incur each and all of the following:
(1) Indebtedness:
(a) of JSCE and CCA outstanding at any time in an aggregate principal
amount not to exceed the amount of outstanding Indebtedness and
unused commitments under the 1994 Credit Agreement on the Closing
Date less any Indebtedness Incurred pursuant to clause (3) below
to refinance or refund the Junior Accrual Debentures, the Senior
Subordinated Notes or the Subordinated Debentures (or, in the
case of the 1993 Senior Note Indenture, Indebtedness (A) of JSCE
and CCA outstanding at any time in an aggregate principal amount
not to exceed the sum of (x) the amount of outstanding
Indebtedness and unused commitments under the 1994 Credit
Agreement on the Recapitalization Closing Date less any
Indebtedness Incurred pursuant to clause (3) below to refinance
or refund the Junior Accrual Debentures, the Senior Subordinated
Notes or the Subordinated Debentures and (y) the Indebtedness
represented by the New Senior Notes);
(b) of JSCE and CCA outstanding at any time in an aggregate principal
amount not to exceed $275 million;
(c) of JSC Enterprises, CCA Enterprises and Smurfit Newsprint under
any Credit Agreement outstanding at any time in an aggregate
principal amount not to exceed the amount of outstanding
Indebtedness and unused commitments under the 1994 Credit
Agreement on the Closing Date less, for purposes of determining
cash borrowings under any Credit Agreement by JSC Enterprises,
CCA Enterprises and Smurfit Newsprint:
(i) any Indebtedness Incurred pursuant to clause (3) below to
refinance or refund the Junior Accrual Debentures, the
Senior Subordinated Notes or the Subordinated
Debentures;and
(ii) the amount of Indebtedness Incurred under clause (1)(a)
of this paragraph (or, in the case of the 1993 Senior
Note Indenture;
(c) of JSC Enterprises, CCA Enterprises and Smurfit Newsprint under
any Credit Agreement);
(d) of Restricted Subsidiaries of JSCE (other than CCA) in an
aggregate principal amount not to exceed $50 million at any one
time outstanding; and
(e) consisting of Guarantees by Restricted Subsidiaries of JSCE
(other than CCA) of Indebtedness of JSCE and its Restricted
Subsidiaries under any Credit Agreement or any other Indebtedness
of such Persons for borrowed money; provided that any such
Restricted Subsidiary that Guarantees such Indebtedness under any
Credit Agreement or any such other Indebtedness for borrowed
money shall fully and unconditionally Guarantee the notes on a
senior basis (to the same extent and for only so long as such
Indebtedness under any Credit Agreement or such other
Indebtedness for borrowed money is Guaranteed by such Restricted
Subsidiary); provided further that (x) any such Guarantees of
Indebtedness subordinated to the notes will be subordinated to
such Subsidiary's Guarantee of the notes, if any, in a like
manner and (y) for purposes of this covenant, a Guarantee by a
Restricted Subsidiary shall not be deemed to exist, and
Indebtedness shall not be deemed to have been Incurred by a
Restricted Subsidiary, solely by reason of one or more security
interests in assets of such Restricted Subsidiary having been
granted pursuant to any Credit Agreement (or, in the case of the
1993 Senior Note Indenture, having been granted to any Person);
(2) Indebtedness:
(a) of JSCE to any of its Restricted Subsidiaries that is a Wholly
Owned Subsidiary of JSCE, or of a Restricted Subsidiary to JSCE
or to any other Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
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<PAGE>
(b) of JSCE or any Restricted Subsidiary to Smurfit Newsprint; or
(c) of JSCE or any Restricted Subsidiary to any Foreign Subsidiary in
an aggregate principal amount not to exceed $20 million at any
one time outstanding;
(3) Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, outstanding Indebtedness of JSCE or any of
its Restricted Subsidiaries, other than Indebtedness Incurred under
clauses (1)(a), (b) or (d), (2)(c), (4) or (9) of this paragraph and any
refinancings thereof, in an amount (or, if such new Indebtedness
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, with an original
issue price) not to exceed the amount so exchanged, refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided
that Indebtedness issued in exchange for, or the proceeds of which are
used to refinance or refund, the notes or JSCE's Guarantee thereof or
other Indebtedness of CCA or JSCE that is pari passu with, or
subordinated in right of payment to, the notes or JSCE's Guarantee
thereof, as the case may be (other than the Junior Accrual Debentures,
Senior Subordinated Notes and the Subordinated Debentures), shall only
be permitted under this clause (3) if:
(a) in case the Indebtedness to be refinanced is subordinated in
right of payment to the notes or JSCE's Guarantee thereof, such
new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of
payment to the notes or JSCE's Guarantee thereof, as the case may
be, at least to the extent that the Indebtedness to be refinanced
is subordinated to the notes or JSCE's Guarantee thereof, as the
case may be;
(b) in case the notes are refinanced in part or the Indebtedness to
be refinanced is pari passu with, or subordinated in right of
payment to, the notes or JSCE's Guarantee thereof, such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to six months after the
Stated Maturity of the Indebtedness to be refinanced (or, if
earlier, six months after the Stated Maturity of the notes) and
the Average Life of such new Indebtedness is at least equal to
the remaining Average Life of the Indebtedness to be refinanced
plus six months (or, if less, the remaining Average Life of the
notes plus six months); and
(c) if the Indebtedness to be refinanced is Indebtedness of JSCE or
CCA, such new Indebtedness Incurred pursuant to this clause (3)
may not be Indebtedness of any Restricted Subsidiary of JSCE
other than CCA;
(4) Indebtedness:
(a) in respect of performance, surety or appeal bonds provided in the
ordinary course of business;
(b) under Currency Agreements and Interest Rate Agreements; provided
that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not increase the
Indebtedness of JSCE or its Restricted Subsidiaries outstanding
at any time other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; and
(c) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of JSC or any Restricted Subsidiary of JSCE pursuant
to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of
JSCE, other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of JSCE for the purpose of financing such
acquisition;
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(5) Indebtedness in respect of letters of credit and bankers' acceptances
Incurred in the ordinary course of business consistent with past
practice;
(6) Indebtedness of JSCE or CCA in an aggregate amount not to exceed $100
million at any one time outstanding; provided that such Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to
which such Indebtedness is issued or remains outstanding;
(a) is expressly made subordinate in right of payment to the notes or
JSCE's Guarantee thereof, as the case may be;
(b provides that no required payments of principal of such
Indebtedness by way of sinking fund, mandatory redemption or
otherwise shall be made by JSCE or CCA (including, without
limitation, at the option of the holder thereof other than an
option given to a holder pursuant to an "asset sale" or "change
of control" provision that is no more favorable (except with
respect to any premium payable) to the holders of such
Indebtedness than the provisions contained in the "Limitation on
Asset Sales" and "Repurchase of Notes upon Change of Control"
covenants and such Indebtedness specifically provides that JSCE
and CCA will not repurchase or redeem such Indebtedness pursuant
to such provisions prior to CCA's repurchase of the notes
required to be repurchased by CCA under the "Limitation on Asset
Sales" and "Repurchase of Notes upon Change of Control"
covenants) at any time prior to the Stated Maturity of the notes;
and
(c) after giving effect to the Incurrence of such Indebtedness and
the application of the proceeds therefrom, JSCE's Interest
Coverage Ratio would be at least 1.25:1;
(7) Indebtedness of CCA or JSCE Incurred on or before December 1, 1994, the
proceeds of which are used to pay cash interest on the Junior Accrual
Debentures;
(8) Acquired Indebtedness, provided that, at the time of the Incurrence
thereof, JSCE could Incur at least $1.00 of Indebtedness under the first
paragraph of this "Limitation on Indebtedness" covenant, and
refinancings thereof; provided that such refinancing Indebtedness may
not be Incurred by any Person other than JSCE, CCA or the Restricted
Subsidiary that is the obligor on such Acquired Indebtedness;
(9) Indebtedness of JSCE or CCA Incurred to finance, directly or indirectly,
capital expenditures of JSCE and its Restricted Subsidiaries in an
aggregate principal amount not to exceed $75 million in each fiscal year
of JSCE, and any refinancing of such Indebtedness (including pursuant to
any Capitalized Lease); provided that the amount of Indebtedness which
may be Incurred in any fiscal year of JSCE pursuant to this clause (9)
shall be increased by the amount of Indebtedness (other than refinancing
Indebtedness) which could have been Incurred in the prior fiscal year
(including by reason of this proviso) of JSCE pursuant to this clause
(9) but which was not so Incurred; and
(10) Indebtedness represented by the obligations of JSCE or CCA to repurchase
shares, or cancel or repurchase options to purchase shares, of JSC's, a
JSC Parent's, JSCE's or CCA's Common Stock held by employees of JSC,
JSCE or any of its Restricted Subsidiaries (or, in the case of the 1993
Senior Note Indenture, employees of JSCE and its Restricted
Subsidiaries) as set forth in the agreements under which such employees
purchase or hold shares of JSC's, a JSC Parent's, JSCE's or CCA's Common
Stock, as such agreements may be amended; provided that such
Indebtedness is subordinated to the notes and JSCE's Guarantee thereof,
as the case may be, and that no payment of principal of such
Indebtedness may be made while any notes are outstanding.
In the case of the Series A Senior Note Indenture and the Series B
Senior Note Indenture, notwithstanding any other provision of this "Limitation
on Indebtedness" covenant:
(1) the maximum amount of Indebtedness that JSCE or any Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to fluctuations
in the exchange rates of currencies;
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<PAGE>
(2) Indebtedness Incurred pursuant to the 1994 Credit Agreement on the
Closing Date (and after repaying the Indebtedness to be repaid pursuant
to the Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any
overallotment option granted in connection with sales of JSC Common
Stock pursuant to clause (2) of the definition of "Recapitalization
Plan" and the application of any proceeds thereof), shall be treated as
Incurred immediately after the Closing Date pursuant to clause (1)(a) or
(1)(c), as the case may be, of the second paragraph of this "Limitation
on Indebtedness" covenant;
(2) for purposes of calculating the amount of Indebtedness outstanding at
any time under clause (1) of the second paragraph of this "Limitation on
Indebtedness" covenant, no amount of Indebtedness of JSCE or any
Restricted Subsidiary outstanding on the Closing Date, including the
notes, shall be considered to be outstanding; and
(4) neither JSCE nor CCA may Incur any Indebtedness that is expressly
subordinated to any other Indebtedness of JSCE or CCA, as the case may
be, unless such Indebtedness, by its terms or the terms of any agreement
or instrument pursuant to which such Indebtedness is issued, is also
expressly made subordinate to the notes or JSCE's Guarantee of the
notes, as the case may be, at least to the extent that such Indebtedness
is subordinated to such other Indebtedness; provided that the limitation
in clause (4) above shall not apply to distinctions between categories
of unsubordinated Indebtedness which exist by reason of:
(a) any liens or other encumbrances arising or created in respect of
some but not all unsubordinated Indebtedness;
(b) intercreditor agreements between holders of different classes of
unsubordinated Indebtedness; or
(c) different maturities or prepayment provisions.
In the case of the 1993 Senior Note Indenture, notwithstanding any other
provision of this "Limitation on Indebtedness" convenant,
(1) the maximum amount of Indebtedness that JSCE or any Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
convenant shall not be deemed to be exceeded due solely to fluctuations
in the exchange rates of currencies;
(2) Indebtedness Incurred pursuant to the 1994 Credit Agreement, or
represented by the New Senior Notes, on the Recapitalization Closing
Date (and after repaying the Indebtedness to be repaid pursuant to the
Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any
overallotment option granted in connection with sales of Common Stock of
JSC pursuant to clause (2) of the definition of "Recapitalization Plan"
and the application of any proceeds thereof) shall be treated as
Incurred immediately after the Recapitalization Closing Date pursuant to
clause (1)(a) of the second paragraph of this "Limitation on
Indebtedness" covenant;
(3) for purposes of calculating the amount of Indebtedness outstanding at
any time under clauses (1)(b) and (1)(d) of the second paragraph of this
"Limitation on Indebtedness" covenant, no amount of Indebtedness of JSCE
or any Restricted Subsidiary outstanding on the Closing Date shall be
considered to be outstanding and (iv) neither JSCE nor CCA may Incur any
Indebtedness that is expressly subordinated to any other Indebtedness of
JSCE or CCA, as the case may be, unless such Indebtedness, by its terms
or the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is also expressly made subordinate to JSCE
Guarantee of the 1993 Senior Notes or the New Senior Notes, as the case
may be, at least to the extent that such Indebtedness is subordinated to
such other Indebtedness; provided that the limitation in clause;
(4) above shall not apply to distinctions between categories of
unsubordinated Indebtedness which exist by reason of:
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(a) any liens or other encumbrances arising or created in respect of
some but not all unsubordinated Indebtedness;
(b) intercreditor agreements between holders of different classes of
unsubordinated Indebtedness; or
(c) different maturities or prepayment provisions.
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant:
(1) Indebtedness resulting from security interests granted with respect to
Indebtedness of JSCE or any Restricted Subsidiary otherwise included in
the determination of such particular amount, and Guarantees (and
security interests in respect thereof) of, or obligations with respect
to letters of credit supporting, Indebtedness otherwise included in the
determination of such particular amount shall not be included;
(2) any Liens granted pursuant to the equal and ratable provisions referred
to in the first paragraph or clause (1) of the second paragraph of the
"Limitation on Liens" covenant shall not be treated as Indebtedness; and
(3) Indebtedness permitted under this "Limitation of Indebtedness" covenant
need not be permitted solely by reference to one provision permitting
such Indebtedness but may be permitted in part by reference to one such
provision and in part by reference to one or more other provisions of
this covenant permitting such Indebtedness. For purposes of determining
compliance with this "Limitation on Indebtedness" covenant, (x) in the
event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described in the above clauses, JSCE, in
its sole discretion, shall classify such item of Indebtedness and only
be required to include the amount and type of such Indebtedness in one
of such clauses and (y) the amount of Indebtedness issued at a price
that is less than the principal amount thereof shall be equal to the
amount of the liability in respect thereof determined in conformity with
GAAP. (Section 3.03)
LIMITATION ON RESTRICTED PAYMENTS
So long as any of the notes are outstanding, JSCE will not, and will
not permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on its Capital
Stock (other than dividends or distributions payable solely in shares of
its or such Restricted Subsidiary's Capital Stock (other than Redeemable
Stock) of the same class held by such holders or in options, warrants or
other rights to acquire such shares of Capital Stock) held by Persons
other than JSCE or any Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of JSC, a JSC Parent, JSCE or CCA (including options,
warrants or other rights to acquire such shares of Capital Stock) held
by Persons other than JSCE or any Restricted Subsidiary that is a Wholly
Owned Subsidiary of JSCE;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other voluntary
acquisition or retirement for value of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA that is subordinated in right of payment to
the notes (other than the Senior Subordinated Notes, the
Subordinated Debentures and the Junior Accrual Debentures); or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes (other than the Guarantees of JSCE
with respect to the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures); or
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(4) make any Investment in any Unrestricted Subsidiary (such payments or any
other actions described in clauses (1) through (4) being collectively
"Restricted Payments") if, at the time of, and after giving effect to,
the proposed Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing;
(b) JSCE could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; or
(c) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in
good faith by the Board of Directors of JSCE, whose determination
shall be conclusive and evidenced by a Board Resolution) after
the date of the Indenture shall exceed the sum of:
(i) 50% of the aggregate amount of the Adjusted Consolidated
Net Income (or, if the Adjusted Consolidated Net Income
is a loss, minus 100% of such amount) of JSCE (determined
by excluding income resulting from the transfers of
assets received by JSCE or a Restricted Subsidiary from
an Unrestricted Subsidiary) accrued on a cumulative basis
during the period (taken as one accounting period)
beginning on the first day of the month immediately
following the Closing Date and ending on the last day of
the last fiscal quarter preceding the Transaction Date;
plus
(ii) the aggregate net proceeds (including the fair market
value of noncash proceeds as determined in good faith by
the Board of Directors of JSCE) received by JSCE or CCA
from the issuance and sale permitted by the Indenture of
the Capital Stock of JSCE or CCA (other than Redeemable
Stock) to a Person who is not a Restricted Subsidiary of
JSCE or an Unrestricted Subsidiary of JSCE, including an
issuance or sale permitted by the Indenture for cash or
other property upon the conversion of any Indebtedness of
JSCE or CCA subsequent to the Closing Date, or from the
issuance of any options, warrants or other rights to
acquire Capital Stock of JSCE or CCA (in each case,
exclusive of any Redeemable Stock or any options,
warrants or other rights that are redeemable at the
option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the notes) plus all
amounts contributed to the capital of JSCE by JSC; plus
(iii) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries (other than such Investments
made pursuant to clause (5) of the second paragraph of
this "Limitation on Restricted Payments" covenant)
resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other
transfers of assets, in each case to JSCE or any
Restricted Subsidiary from Unrestricted Subsidiaries, or
from redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided
in the definition of "Investments"), not to exceed in the
case of any Unrestricted Subsidiary the amount of
Investments previously made by JSCE or any Restricted
Subsidiary in such Unrestricted Subsidiary; plus
(iv) $25 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of:
(1) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of:
(a) Indebtedness of JSC or a JSC Parent;
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(b) Indebtedness of CCA that is subordinated in right of payment to
the notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange
for, Indebtedness Incurred under clause (3) or (4) of the second
paragraph of the "Limitation on Indebtedness" covenant;
(3) the payment of dividends on the Capital Stock of JSCE or CCA, following
any initial public offering of Capital Stock of JSC provided for in the
Recapitalization Plan, of up to 6% per annum of the net proceeds
received by JSCE or CCA, as the case may be, from JSC out of the
proceeds of:
(a) such public offering; and
(b) the SIBV Investment (and, in the case of the 1993 Senior Note
Indenture;
(c) any other sale of Capital Stock of JSC, JSCE or CCA which is
substantially concurrent with the public offering referred to in
(a)) (net of underwriting discounts and commissions, if any, but
without deducting other fees or expenses therefrom);
(4) the repurchase, redemption or other acquisition of Capital Stock of JSC,
a JSC Parent, JSCE or CCA in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other
than Redeemable Stock) of JSC, a JSC Parent, JSCE or CCA;
(5) the making of Investments in Unrestricted Subsidiaries in an aggregate
amount not to exceed $25 million in each fiscal year of JSCE;
(6) the acquisition of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA which is subordinated in right of payment to
the notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of
the Capital Stock of JSC, a JSC Parent, JSCE or CCA (other than
Redeemable Stock);
(7) payments or distributions pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of JSCE
or CCA;
(8) payments to JSC:
(a) in an aggregate amount not to exceed $2 million per annum to
cover the reasonable expenses of JSC incurred in the ordinary
course of business; and
(b) in an amount not to exceed the amount believed in good faith by
the Board of Directors of JSCE or CCA, as the case may be, to be
necessary or advisable for the payment of any liability of JSC,
JSCE and CCA in connection with federal, state, local or foreign
taxes;
(9) payments to JSC or any Restricted Subsidiary of JSCE in respect of
Indebtedness of JSCE or any Restricted Subsidiary of JSCE owed to JSCE
or another Restricted Subsidiary of JSCE;
(10) distributions and payments required to be made pursuant to the Times
Mirror Agreement or distributions or payments to JSC, to enable JSC to
satisfy its payment obligations under the Times Mirror Agreement;
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(11) payments to Persons who are no longer Employees (as defined in the 1992
Stock Option Plan) or the beneficiaries or estates of such Persons, as a
result of the purchase by JSC of options issued pursuant to the 1992
Stock Option Plan (or Common Stock issued upon the exercise of such
options) held by such Persons in accordance with the 1992 Stock Option
Plan; provided that such payments do not exceed $4 million in any fiscal
year; or payments or distributions to JSC to enable JSC to make any such
payments; or
(12) the payment of pro rata dividends to holders of Capital Stock of Smurfit
Newsprint; provided that, in the case of clauses (2) through (7), (11)
and (12), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set
forth therein. In connection with any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of any security
which is not Capital Stock but which is convertible into or exchangeable
for Capital Stock (including options, warrants or other rights to
purchase Capital Stock), such purchase, repurchase, redemption,
defeasance or other acquisition or retirement shall be deemed covered by
clause (3) and not by clause (2) of the first paragraph of this
"Limitation on Restricted Payments" covenant if the Board of Directors
of JSCE makes a good faith determination that the value of the
underlying Capital Stock, less any consideration payable by the holder
of such security in connection with such conversion or exchange, is less
than the value of the referenced security. Notwithstanding the
foregoing, any amounts paid pursuant to clause (3) of this second
paragraph of this "Limitation on Restricted Payments" covenant shall
reduce the amount available for Restricted Payments under clause (4)(c)
of the first paragraph of this "Limitation on Restricted Payments"
covenant.
Notwithstanding the foregoing, in the event of an issuance of Capital
Stock of CCA or JSCE (or JSC or a JSC Parent to the extent that the proceeds
therefrom are contributed to CCA) and:
(1) the repurchase, redemption or other acquisition of Capital Stock out of
the proceeds of such issuance as permitted by clause (4) above; or
(2) the acquisition of Indebtedness that is subordinated in right of
payment to the notes, as permitted by clause (6) above, then, in
calculating whether the conditions of clause (c) of the first paragraph
of this "Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments, both the proceeds of such
issuance and the application of such proceeds shall be included under
clause (c) of the first paragraph of this "Limitation on Restricted
Payments" covenant. (Section 3.04)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
So long as any of the notes are outstanding, JSCE will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary (other than CCA) to:
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by JSCE or
any other Restricted Subsidiary;
(2) pay any Indebtedness owed to JSCE or any other Restricted Subsidiary;
(3) make loans or advances to JSCE or any other Restricted Subsidiary; or
(4) transfer, subject to certain exceptions, any of its property or assets
to JSCE or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances
or restrictions:
(1) existing in any Credit Agreement;
(2) existing under the notes, the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures, any indenture or
agreement related to any of the foregoing or any agreements in effect on
the
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Closing Date or in any Indebtedness containing any such encumbrance
or restriction that is permitted pursuant to clause (5) below or in any
extensions, refinancings, renewals or replacements of any of the
foregoing; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are not materially
less favorable taken as whole to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended,
refinanced, renewed or replaced;
(3) existing under any Receivables Program or any other agreement providing
for the Incurrence of Indebtedness (or any exhibit, appendix or schedule
to such agreement or other agreement executed as a condition to the
execution of, funding under or pursuant to such agreement); provided
that the encumbrances and restrictions in any such agreement are not
materially less favorable taken as a whole to the Holders than those
encumbrances and restrictions contained in any Credit Agreement as of
the Closing Date (or the Recapitalization Closing Date);
(4) existing under or by reason of applicable law;
(5) existing with respect to any Person or the property or assets of such
Person acquired by JSCE or any Restricted Subsidiary and existing at the
time of such acquisition, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired;
(6) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant:
(a) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset;
(b) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or
assets of JSCE or any Restricted Subsidiary not otherwise
prohibited by the Indenture; or
(c) arising or agreed to in the ordinary course of business and that
do not, individually or in the aggregate, detract from the value
of property or assets of JSCE or any Restricted Subsidiary in any
manner material to JSCE and its Restricted Subsidiaries taken as
a whole; or
(7) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary. Nothing contained in this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent JSCE or any Restricted Subsidiary
from:
(a) entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted in the "Limitation on
Liens" covenant; or
(b) restricting the sale or other disposition of property or assets
of JSCE or any of its Subsidiaries that secure Indebtedness of
JSCE or any of its Subsidiaries. (Section 3.05)
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF JSCE AND RESTRICTED SUBSIDIARIES
Under the terms of the Indentures, JSCE will not and will not permit any
Restricted Subsidiary (other than CCA), directly or indirectly, to issue or sell
any shares of its Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) except:
(1) to JSCE or another Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
(2) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
for purposes of the Indenture;
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(3) if the Net Cash Proceeds from such issuance or sale are applied, to the
extent required to be applied, pursuant to the "Limitation on Asset
Sales" covenant or if such issuance or sale does not constitute an
"Asset Sale;"
(4) issuances or sales to foreign nationals of shares of the Capital Stock
of Foreign Subsidiaries, to the extent mandated by applicable foreign
law; or
(5) issuances or sales of Capital Stock by JSCE to JSC. (Section 3.06)
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Indentures, JSCE will not, and will not permit
any Restricted Subsidiary of JSCE to, directly or indirectly, enter into, renew
or extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of JSC or with any Affiliate of JSCE, except upon fair and
reasonable terms no less favorable to JSCE or such Restricted Subsidiary of JSCE
than could be obtained, at the time of such transaction or at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions:
(a) approved by a majority of the disinterested members of the Board
of Directors; or
(b) for which JSCE or a Restricted Subsidiary delivers to the Trustee
a written opinion of a nationally recognized investment banking
firm or a nationally recognized accounting firm stating that the
transaction is fair or, in the case of an opinion of a nationally
recognized accounting firm, reasonable or fair to JSCE or such
Restricted Subsidiary from a financial point of view;
(2) any transaction among JSCE and any Restricted Subsidiaries or among
Restricted Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
JSCE or any Restricted Subsidiary who are not employees of JSCE or any
Restricted Subsidiary;
(4) any payments or other transactions pursuant to any tax-sharing agreement
between JSCE, CCA and JSC or any other Person with which JSCE is
required or permitted to file a consolidated tax return or with which
JSCE is or could be part of a consolidated group for tax purposes;
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant;
(6) the provisions of management, financial and operational services by JSCE
and its Subsidiaries to Affiliates of JSCE in which JSCE or its
Subsidiaries have Investments and the payment of compensation for such
services; provided, that the Board of Directors of JSCE has determined
that the provision of such services is in the best interests of JSCE and
its Subsidiaries;
(7) any transaction required by the Times Mirror Agreement; or
(8) any transaction contemplated by the terms of the Recapitalization Plan.
(Section 3.07)
LIMITATION ON LIENS
Under the terms of the Indentures, JSCE will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
on any Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the notes
and all other amounts due under
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the Indenture to be directly secured equally and ratably with (or prior to)
the obligation or liability secured by such Lien for so long as such Lien
affects such Principal Property, shares of Capital Stock or Indebtedness
unless, after giving effect thereto, the aggregate amount of any Indebtedness
so secured, plus, the Attributable Indebtedness for all sale-leaseback
transactions restricted as described in the "Limitation on Sale-Leaseback
Transactions" covenant, does not exceed 10% of Adjusted Consolidated Net
Tangible Assets.
The foregoing limitation does not apply to, and any computation of
secured Indebtedness under such limitation shall exclude:
(1) Liens securing obligations under:
(a) any Credit Agreement; and
(b) any Receivables Programs (and, in the case of the 1993 Senior
Note Indenture;
(c) the Secured Notes for so long as they remain outstanding);
(2) other Liens existing on the Closing Date;
(3) Liens securing Indebtedness of Restricted Subsidiaries (other than
Acquired Indebtedness and refinancings thereof);
(4) Liens securing Indebtedness Incurred under clause (4) or (5) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(5) Liens granted in connection with the extension, renewal or refinancing,
in whole or in part, of any Indebtedness described in clauses (1)
through (4) above; provided that with respect to clauses (2) and (3) the
amount of Indebtedness secured by such Lien is not increased thereby;
and provided further that the extension, renewal or refinancing of
Indebtedness of JSCE may not be secured by Liens on assets of any
Restricted Subsidiary (other than CCA) other than to the extent the
Indebtedness being extended, renewed or refinanced was at any time
previously secured by Liens on assets of such Restricted Subsidiary;
(6) Liens with respect to Acquired Indebtedness permitted under clause (7)
of the second paragraph of the "Limitation on Indebtedness" covenant and
permitted refinancings thereof; provided that such Liens do not extend
to or cover any property or assets of JSCE or any Subsidiary of JSCE
other than the property or assets of the Subsidiary acquired;
(7) Liens securing the Senior Subordinated Notes, the Subordinated
Debentures, the Junior Accrual Debentures or the other notes, in each
case to the extent required to be incurred pursuant to the terms of the
indentures governing such Indebtedness; or
(8) Permitted Liens. (Section 3.08)
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Indentures, JSCE will not, and will not permit
any Restricted Subsidiary to, enter into any sale-leaseback transaction
involving any Principal Property, unless the aggregate amount of all
Attributable Indebtedness with respect to such transactions, plus all
Indebtedness secured by Liens on Principal Properties (excluding secured
Indebtedness that is excluded as described in the "Limitation on Liens"
covenant), does not exceed 10% of Adjusted Consolidated Net Tangible Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any
sale-leaseback transaction if:
(1) the lease is for a period, including renewal rights, of not in excess of
three years;
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(2) the sale or transfer of the Principal Property is entered into prior to,
at the time of, or within 12 months after the later of the acquisition
of the Principal Property or the completion of construction thereof;
(3) the lease secures or relates to industrial revenue or pollution control
bonds;
(4) the transaction is between JSCE and any Restricted Subsidiary or between
Restricted Subsidiaries; or
(5) JSCE or such Restricted Subsidiary, within 12 months after the sale of
any Principal Property is completed, applies an amount not less than the
net proceeds received from such sale to the retirement of unsubordinated
Indebtedness, to Indebtedness of a Restricted Subsidiary (other than
CCA) or to the purchase of other property that will constitute Principal
Property or improvements thereto. (Section 3.09)
LIMITATION ON ASSET SALES
Under the terms of the Indentures, in the event and to the extent that
the Net Cash Proceeds received by JSC, JSCE or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months (other than Asset Sales by JSC, JSCE or
any Restricted Subsidiary to JSCE or another Restricted Subsidiary) exceed 10%
of Adjusted Consolidated Net Tangible Assets in any one fiscal year (determined
as of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of JSCE has been prepared), then JSCE shall or shall
cause the relevant Restricted Subsidiary to:
(1) within 12 months (or, in the case of Asset Sales of plants or
facilities, 24 months) after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets in any one
fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a balance sheet of JSCE and its
Subsidiaries has been prepared);
(a) apply an amount equal to such excess Net Cash Proceeds to repay
unsubordinated Indebtedness of CCA or JSCE, make a dividend or
distribution to JSCE for application by JSCE to repay
unsubordinated Indebtedness of JSCE, or repay Indebtedness of any
Restricted Subsidiary of JSCE, in each case owing to a Person
other than JSCE or any of its Restricted Subsidiaries; or
(b) invest an equal amount, or the amount not so applied pursuant to
clause (a) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in
property or assets of a nature or type or which will be used in a
business (or in a company having property and assets of a nature
or type, or engaged in a business) similar or related to the
nature or type of the property and assets of, or the business of,
JSCE and its Restricted Subsidiaries existing on the date of such
Investment (as determined in good faith by the Board of Directors
of JSCE, whose determination shall be conclusive and evidenced by
a Board Resolution); and
(2) apply (no later than the end of such 12-month period or 24-month period,
as the case may be, referred to in clause (1)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (1)) as provided
in the following paragraphs of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 12-month period
or 24-month period, as the case may be, as set forth in clause (a) or
(b) of the preceding paragraph and neither applied nor committed to be
applied as set forth above by the end of such period shall constitute
"Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, CCA must, not later than the fifteenth
Business Day of such month, make an offer (an "Excess Proceeds Offer") to
purchase from the Holders of the notes on a pro rata basis an aggregate
principal amount of notes equal to the Excess Proceeds on such date, at a
purchase price equal to 101% of the principal amount of such notes, plus, in
each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment").
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Notwithstanding the foregoing:
(1) to the extent that any or all of the Net Cash Proceeds of any Asset Sale
are prohibited or delayed by applicable local law from being repatriated
to the United States of America, the portion of such Net Cash Proceeds
so affected will not be required to be applied pursuant to this
"Limitation on Asset Sales" covenant but may be retained for so long,
but only for so long, as the applicable local law will not permit
repatriation to the United States of America (under the Indenture JSCE
will agree to promptly take or cause the relevant Restricted Subsidiary
to promptly take all reasonable actions required by the applicable local
law and within JSCE's control to permit such repatriation) and once such
repatriation of any such affected Net Cash Proceeds is permitted under
the applicable local law, such repatriation will be immediately effected
and such repatriated Net Cash Proceeds will be applied in the manner set
forth in this "Limitation on Asset Sales" covenant as if such Asset Sale
had occurred on the date of repatriation; and
(2) to the extent that the Board of Directors of JSCE has determined in good
faith that repatriation of any or all of the Net Cash Proceeds would
have an adverse tax or other consequence to JSCE, the Net Cash Proceeds
so affected may be retained outside the United States of America for so
long as such adverse tax or other consequence would continue.
CCA shall commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating:
(1) that the Excess Proceeds Offer is being made pursuant to this
"Limitation on Asset Sales" covenant and that all notes validly tendered
will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Excess Proceeds Payment Date");
(3) that any Senior Note not tendered will continue to accrue interest;
(4) that, unless CCA defaults in the payment of the Excess Proceeds Payment,
any Senior Note accepted for payment pursuant to the Excess Proceeds
Offer shall cease to accrue interest after the Excess Proceeds Payment
Date;
(5) that Holders electing to have a Senior Note purchased pursuant to the
Excess Proceeds Offer will be required to surrender the Senior Note
together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of the Senior Note completed, to the Paying Agent at
the address specified in the notice prior to the close of business on
the Business Day immediately preceding the Excess Proceeds Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such
notes purchased; and
(7) that Holders whose notes are being purchased only in part will be issued
new notes equal in principal amount to the unpurchased portion of the
notes surrendered; provided that each Senior Note purchased and each new
Senior Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, CCA shall:
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
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(2) deposit with the Paying Agent money sufficient to pay the purchase price
of all notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the relevant Trustee all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by CCA.
The Paying Agent shall promptly mail to the Holders of notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Senior Note equal
in principal amount to any unpurchased portion of the notes surrendered;
provided that each notes purchased and each new 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 notes as described above and CCA may modify any of the foregoing
provisions of this "Limitation on Asset Sales" covenant to the extent it is
advised by independent counsel that such modification is necessary or
appropriate in order to ensure such compliance. (Section 3.10)
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
(1) In the event of a Change of Control, each Holder shall have the right to
require the repurchase of its notes by CCA in cash pursuant to the offer
described below (the "Change of Control Offer") at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest (if
any) to the date of purchase (the "Change of Control Payment"). Prior to
the mailing of the notice to Holders provided for in the succeeding
paragraph, but in any event within 30 days following any Change of
Control, CCA covenants to:
(a) (i) repay in full all unsubordinated Indebtedness of CCA or
make a dividend or distribution to JSCE for application
by JSCE to repay in full all unsubordinated Indebtedness
of JSCE; or
(ii) offer to repay in full all such unsubordinated
Indebtedness of either JSCE or CCA and to repay such
unsubordinated Indebtedness of each holder of such
unsubordinated Indebtedness who has accepted such offer;
or
(b) obtain the requisite consents, if any, under the instruments
governing any such unsubordinated Indebtedness of JSCE or CCA to
permit the repurchase of the notes as provided for in the
succeeding paragraph. CCA shall first comply with the covenant in
the preceding sentence before it shall be required to repurchase
notes pursuant to this "Repurchase of Notes upon Change of
Control" covenant.
(2) Within 30 days of the Change of Control, CCA shall mail a notice to the
Trustee and each Holder stating:
(a) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this "Repurchase of Notes upon
Change of Control" covenant and that all notes validly tendered
will be accepted for payment;
(b) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Change of Control Payment
Date");
(c) that any notes not tendered will continue to accrue interest;
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(d) that, unless CCA defaults in the payment of the Change of Control
Payment, any notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(e) that Holders electing to have any notes or portion thereof
purchased pursuant to the Change of Control Offer will be
required to surrender such notes, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of
such notes completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the
Business Day immediately preceding the Change of Control Payment
Date;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of such Holder, the principal
amount of notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such notes purchased;
and
(g) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered; provided that each Senior Note
purchased and each new Senior Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof.
(3) On the Change of Control Payment Date, CCA shall:
(a) accept for payment notes or portions thereof tendered pursuant to
the Change of Control Offer;
(b) deposit with the Paying Agent money sufficient to pay the
purchase price of all notes or portions thereof so accepted; and
(c) deliver, or cause to be delivered, to the Trustee, all notes or
portions thereof so accepted together with an Officers'
Certificate specifying the notes or portions thereof accepted for
payment by CCA. The Paying Agent shall promptly mail, to the
Holders of notes so accepted, payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and
mail to such Holders a new notes equal in principal amount to any
unpurchased portion of the notes surrendered; provided that each
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 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 Notes upon
Change of Control" covenant and CCA is required to repurchase
notes as described above and CCA may modify any of the foregoing
provisions of this "Repurchase of Notes upon Change of Control"
covenant to the extent it is advised by independent counsel that
such modification is necessary or appropriate in order to ensure
such compliance. (Section 3.18)
If CCA is unable to repay all of its unsubordinated Indebtedness and is
also unable to obtain the consents of its unsubordinated creditors (and/or of
the holders of other Indebtedness, if any, of CCA or JSCE outstanding at the
time of a Change of Control whose consent would be so required) to permit the
repurchase of notes either pursuant to clause (1)(b) or clause (2) of the
foregoing covenant, then CCA will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to CCA by the Trustee or
the holders of at least 25% in aggregate principal amount of the notes
outstanding. See " -- Events of Default." In addition, the failure by CCA to
repurchase notes at the conclusion of the Change of Control Offer will
constitute an Event of Default without any waiting period or notice
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<PAGE>
requirements. JSCE has guaranteed all payments due on the notes, including those
due by reason of the acceleration thereof following the occurrence of an Event
of Default. This obligation of JSCE is not subject to any waiting period or
notice requirement once such an acceleration has occurred; as discussed above,
however, in certain circumstances there are notice and waiting period
requirements that must be satisfied before CCA's breach of the above covenant
constitutes an Event of Default.
There can be no assurances that CCA (or JSCE) will have sufficient
funds available at the time of any Change of Control to make any debt payment
(including repurchases of the notes) required by the foregoing covenant and
similar provisions contained in the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures, any Credit Agreement
and the Secured Notes (as well as in any other indebtedness which might be
outstanding at the time). Although there is some variation in the definition
of "Change of Control" among such different classes of debt, there is
substantial overlap. In any event, the above covenant requiring CCA to
repurchase the notes will, unless the consents referred to above are
obtained, require CCA and JSCE to offer to repay or repay all indebtedness
outstanding under any Credit Agreement and the Secured Notes, and any other
indebtedness then outstanding which by its terms prohibits such repurchases
of the notes, either prior to or concurrently with such repurchases.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the
Indenture:
(1) CCA defaults in the payment of principal of (or premium, if any, on) any
notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(2) CCA defaults in the payment of interest on any notes when the same
becomes due and payable, and such default continues for a period of 30
days;
(3) JSCE or CCA defaults in the performance of or breaches any other
covenant or agreement of JSCE or CCA in the Indenture or under the notes
and such default or breach continues for a period of 30 consecutive days
after written notice by the Trustee or the Holders of 25% or more in
aggregate principal amount of the Series A Senior Notes and the Series B
Senior Notes then outstanding taken together as one class or, in the
case of any such default or breach under only one Indenture, 25% or more
in aggregate principal amount of the Series A Senior Notes or the Series
B Senior Notes, as the case may be, then outstanding, or, in the case of
the 1993 Senior Notes, written notice by the Trustee or Holders of 25%
or more in the aggregate principal amount of the 1993 Senior Notes;
(4) there occurs with respect to any issue or issues of Indebtedness of
JSCE, CCA and/or one or more of their Significant Subsidiaries having an
outstanding principal amount of $50 million or more individually or $100
million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be
created, an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration;
(5) any final judgment or order (not covered by insurance) for the payment
of money in excess of $50 million individually or $100 million in the
aggregate for all such final judgments or orders against all such
Persons (treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against JSCE, CCA or any of their Significant
Subsidiaries and shall not be paid or discharged, and there shall be any
period of 30 consecutive days following entry of the final judgment or
order in excess of $50 million individually or that causes the aggregate
amount for all such final judgments or orders outstanding and not paid
or discharged against all such Persons to exceed $100 million during
which a stay of enforcement of such final judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect;
(6) a court having jurisdiction in the premises enters a decree or order
for:
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(a) relief in respect of JSCE, CCA or any of their Significant
Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect;
(b) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of JSCE, CCA or any of
their Significant Subsidiaries or for all or substantially all of
the property and assets of JSCE, CCA or any of their Significant
Subsidiaries; or
(c) the winding up or liquidation of the affairs of JSCE, CCA or any
of their Significant Subsidiaries and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60
consecutive days;
(7) JSCE, CCA or any of their Significant Subsidiaries:
(a) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary
case under any such law;
(b) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of JSCE, CCA or any of their Significant
Subsidiaries or for all or substantially all of the property and
assets of JSCE, CCA or any of their Significant Subsidiaries; or
(c) effects any general assignment for the benefit of creditors;
(8) JSCE, CCA and/or one or more of their Significant Subsidiaries fails to
make:
(a) at the final (but not any interim) fixed maturity of any issue of
Indebtedness a principal payment of $50 million or more; or
(b) at the final (but not any interim) fixed maturity of more than
one issue of such Indebtedness principal payments aggregating
$100 million or more and, in the case of clause (a), such
defaulted payment shall not have been made, waived or extended
within 30 days of the payment default and, in the case of clause
(b), all such defaulted payments shall not have been made, waived
or extended within 30 days of the payment default that causes the
amount described in clause (b) to exceed $100 million; or
(9) the non-payment of any two or more items of Indebtedness of JSCE, CCA
and/or one or more of their Significant Subsidiaries that would
constitute at the time of such nonpayments, but for the individual
amounts of such Indebtedness, an Event of Default under clause (4) or
clause (8) above, or both, and which items of Indebtedness aggregate
$100 million or more. (Section 5.01)
If an Event of Default (other than an Event of Default specified in
clause (6) or (7) above that occurs with respect to JSCE or CCA) occurs and is
continuing under both the Series A Senior Note Indenture and the Series B Senior
Note Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Series A Senior Notes and Series B Senior Notes then
outstanding taken together as one class or, in the case of any such Event of
Default which occurs and is continuing under only one Indenture, 25% in
aggregate principal amount of the Series A Senior Notes or the Series B Senior
Notes, as the case may be, then outstanding, by written notice to CCA (and to
the Trustee if such notice is given by the Holders) (or, in the case of the 1993
Senior Note Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the 1993 Senior Notes, then outstanding, by written notice
to CCA (and to the Trustee if such notice is given by the Holders)) (the
"Acceleration Notice"), may, and the Trustee at the request of the Holders
shall, declare the entire unpaid principal of, premium, if any, and accrued
interest on the Senior Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (4), (8) or (9)
above has occurred and is
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continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default
pursuant to clause (4), (8) or (9) shall be remedied, cured by JSCE or CCA or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (6) or (7) above occurs with respect to JSCE or CCA, all
unpaid principal of, premium, if any, and accrued interest on the notes then
outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class (or, in the case of any default under the respective Indenture
relating to the Series A Senior Notes or the Series B Senior Notes, then a
majority in principal amount of the outstanding Series A Senior Notes or
Series B Senior Notes, as the case may be) (or, in the case of the 1993
Senior Note Indenture, the Holders of at least a majority in aggregate
principal amount of the 1993 Senior Notes then outstanding), by written
notice to JSCE, CCA and to the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if:
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the notes that have
become due solely by such declaration of acceleration, have been cured
or waived; and
(2) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction. (Section 5.02) For information as to the
waiver of defaults, see " -- Modification and Waiver."
As a result of the foregoing voting provisions relating to Events of
Default under the Series B Senior Note Indenture, Holders of Series B Senior
Notes even if acting unanimously may not be able to
(1) declare a default under the Series B Senior Note Indenture following a
default in the performance of or any breach of covenants or agreements
of JSCE or CCA as set forth in clause (3) above; or
(2) request acceleration of the principal of, premium, if any, and accrued
interest on, the Series B Senior Notes if an Event of Default occurs.
The Holders of at least a majority in aggregate principal amount of
the outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of notes not joining in
the giving of such direction. (Section 5.05) A Holder may not pursue any
remedy with respect to the Indenture or the notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of outstanding
notes make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding notes do not give the Trustee a
direction that is inconsistent with the request. (Section 5.06).
However, such limitations do not apply to the right of any Holder of a
Senior Note to receive payment of the principal of, premium, if any, or
interest on, such Senior Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the notes which right
shall not be impaired or affected without the consent of the Holder. (Section
5.07) For purposes of the foregoing paragraph, actions that may be taken by
Holders
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of at least a majority or 25% in aggregate principal amount of the
outstanding notes may only be taken by Holders of at least a majority or 25%
(as the case may be) in aggregate principal amount of the Series A Senior
Notes and the Series B Senior Notes taken together as one class or, in the
case of any remedy which relates solely to one Indenture or one class of
notes, by Holders of at least a majority or 25% (as the case may be) in
aggregate principal amount of the Series A Senior Notes, the Series B Senior
Notes or the 1993 Senior Notes as the case may be. (Sections 5.04, 5.05 and
5.06)
The Indentures require certain officers of JSCE and CCA to certify, on
or before a date not more than 90 days after the end of each fiscal year,
that a review has been conducted of the activities of JSCE and CCA and their
Subsidiaries and JSCE's and CCA's and their Subsidiaries' performance under
the Indenture and that JSCE and CCA have fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
JSCE and CCA will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the
Indenture. (Section 3.15)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither JSCE nor CCA shall consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially
all of its property and assets (as an entirety or substantially an entirety
in one transaction or a series of related transactions) to, any Person (other
than a Restricted Subsidiary that is a Wholly Owned Subsidiary of JSCE with a
positive net worth; provided that, in connection with any merger of JSCE or
CCA with a Restricted Subsidiary that is a Wholly Owned Subsidiary of JSCE,
no consideration (other than common stock in the surviving Person, JSCE or
CCA) shall be issued or distributed to the stockholders of JSCE) unless:
(1) JSCE or CCA shall be the continuing Person, or the Person (if other than
JSCE or CCA) formed by such consolidation or into which JSCE or CCA is
merged or that acquired or leased such property and assets of JSCE or
CCA shall be a corporation organized and validly existing under the laws
of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of JSCE or CCA, as the case may be,
on all of the notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Interest Coverage Ratio of the continuing Person continuing
as, or becoming the successor, obligor on the notes or the Guarantee is
at least 1:1, or, if less, equal to the Interest Coverage Ratio of JSCE
or CCA, as the case may be, immediately prior to such transaction;
provided that, if the Interest Coverage Ratio of JSCE or CCA, as the
case may be, before giving effect to such transaction is within the
range set forth in column (A) below, then the pro forma Interest
Coverage Ratio of the continuing Person becoming the successor obligor
of the notes shall be at least equal to the lesser of:
(a) the ratio determined by multiplying the percentage set forth in
column (B) below by the Interest Coverage Ratio of JSCE or CCA,
as the case may be, prior to such transaction; and
(b) the ratio set forth in column (C) below:
<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
JSCE, CCA or any Person becoming the successor obligor of the notes, as
the case may be, is 3:1 or more, the calculation in the preceding
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proviso shall be inapplicable and such transaction shall be deemed to
have complied with the requirements of this clause (3);
(4) immediately after giving effect to such transaction on a pro forma
basis, JSCE, CCA or any Person becoming the successor obligor of the
notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of JSCE or CCA, as the case may be, immediately
prior to such transaction; and
(5) JSCE or CCA, as the case may be, delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (3) and (4)) and Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such
supplemental indenture comply with this provision and that all
conditions precedent provided for herein relating to such transaction
have been complied with (in no event, however, shall such Opinion of
Counsel cover financial ratios, the solvency of any Person or any other
financial or statistical data or information); provided, however, that
clauses (3) and (4) above do not apply if, in the good faith
determination of the Board of Directors of JSCE or CCA, as the case may
be, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of
incorporation of JSCE or CCA, as the case may be; and provided further
that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
JSCE shall be released from all of its obligations under its Guarantee
of the notes and the Indenture if the purchaser of Capital Stock of CCA
having a majority of the voting rights thereunder, or the parent of CCA
(other than JSCE) following a consolidation or merger of CCA, satisfies the
requirements of clauses (3) and (4) of the preceding sentence with respect to
JSCE.
Notwithstanding the foregoing, nothing in clause (2), (3), (4) or (5)
above shall prevent the occurrence of:
(1) a merger or consolidation of JSCE and CCA, or either of their respective
successors;
(2) the sale of all or substantially all of the assets of CCA to JSCE;
(3) the sale of all or substantially all of the assets of JSCE to CCA or
(iv) the assumption by JSCE of the Indebtedness represented by the
notes. (Section 4.01)
In the event:
(1) JSCE merges into CCA; and
(2) in connection therewith a direct or indirect Wholly Owned Subsidiary of
JSC ("Interco"), of which CCA is at such time a direct or indirect
Wholly Owned Subsidiary, (x) guarantees the obligations of CCA on the
notes on the same terms and to the same extent as JSCE had guaranteed
such obligations prior to the aforesaid merger, and (y) assumes all
obligations of JSCE set forth in the Indenture (without giving effect to
the effect of the aforesaid merger on such obligations) (collectively,
the "Substitution Transaction");
then, notwithstanding anything to the contrary in the Indenture, upon delivery
of an Officers' Certificate to the effect that the foregoing has occurred and
the execution and delivery by CCA and Interco of a supplemental indenture
evidencing such merger and guarantee and assumption, and without regard to the
requirements set forth in clauses (1) through (5) of the first paragraph under
"Consolidation, Merger and Sale of Assets":
(1) all references in the Indenture to "CCA" shall continue to refer to CCA,
as the survivor in such merger;
(2) all references to "JSCE" and to "JSCE's guarantee" shall refer to
Interco and to Interco's guarantee contemplated by clause (2) above,
respectively; and
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(3) no breach or default under the Indenture shall be deemed to have
occurred solely by reason of the Substitution Transaction. (Section
4.03)
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indentures provide that JSCE and CCA
will be deemed to have paid and will be discharged from any and all
obligations in respect of the notes on the 123rd day after the deposit
referred to below, and the provisions of the Indenture will no longer be in
effect with respect to the notes or JSCE's Guarantee of the notes (except
for, among other matters, certain obligations to register the transfer or
exchange of the notes, to replace stolen, lost or mutilated notes to maintain
paying agencies and to hold monies for payment in trust) if, among other
things:
(1) CCA has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the outstanding notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the
notes;
(2) JSCE or CCA has delivered to the Trustee:
(a) either an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as
a result of CCA's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be accompanied by a
ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law
after the date of the Indenture such that a ruling is no longer
required or a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel; and
(b) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15.6-A of the New
York Debtor and Creditor Law;
(3) immediately after giving effect to such deposit on a pro forma basis, no
Event of Default, or event that after the giving of notice or lapse of
time or both would become an Event of Default, shall have occurred and
be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which JSCE or CCA is a party or by
which JSCE or CCA is bound; and
(4) if at such time the notes are listed on a national securities exchange,
CCA has delivered to the Trustee an Opinion of Counsel to the effect
that the notes will not be delisted as a result of such deposit,
defeasance and discharge. (Section 7.02)
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indentures further provide that the provisions of the Indentures will no
longer be in effect with respect to clauses (3) and (4) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (3) under "Events of Default with respect to such
covenants and clauses (3) and (4) under "Consolidation, Merger and Sale of
Assets," and clauses (4), (5), (8) and (9) under "Events of Default" shall be
deemed not to be Events of Default, upon, among other things, the deposit
with the Trustee, in trust, of money and/or U.S. Government Obligations that
through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the outstanding
notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the notes, the satisfaction of the provisions described in
clauses (2)(b), (3), and (4) of the preceding paragraph and the delivery by
CCA to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
obligations and will be
61
<PAGE>
subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance
had not occurred. (Section 7.03)
Defeasance and Certain Other Events of Default. In the event CCA
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the notes as described in the immediately
preceding paragraph and the notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the notes at the
time of the acceleration resulting from such Event of Default. However, CCA
will remain liable for such payments and JSCE's Guarantee with respect to
such payments will remain in effect.
The 1998 Credit Agreement contains a covenant prohibiting defeasance
of the notes.
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by JSCE,
CCA and the Trustee with (x) in the case of the 1993 Senior Notes, the
consent of the Holders of not less than a majority in aggregate principal
amount of the outstanding 1993 Senior Notes, and (y) in the case of the
Series A Senior Notes and the Series B Senior Notes, the consent of the
Holders of not less than a majority in aggregate principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class or, in the case of any such modification or amendment which affects
only one class of notes, a majority in aggregate principal amount of the
outstanding Series A Senior Notes or Series B Senior Notes, as the case may
be, provided, however, that no such modification or amendment may, without
the consent of each Holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Senior Note;
(2) reduce the principal amount of, or premium, if any, or interest on, any
Senior Note;
(3) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Senior Note;
(4) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Senior Note;
(5) reduce the above-stated percentage of outstanding notes, the consent of
whose Holders is necessary to modify or amend the Indenture;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes;
(7) reduce the percentage of aggregate principal amount of outstanding
notes, the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of
certain defaults, (or, in the case of the Series A and Series B Senior
Notes;
(8) release JSCE from its Guarantee of the notes). The provisions requiring
the consent or approval of specified percentages of Holders of either
class of the Series A and Series B Senior Notes or both classes of the
Series A and Series B Senior Notes jointly cannot be modified or amended
without the consent of a majority in aggregate principal amount of the
Holders of such class of the Series A and Series B Senior Notes or such
two classes of the Series A and Series B Senior Notes jointly, as the
case may be. (Section 8.02)
To the extent that modifications and amendments of the Indenture may
be made with the consent of a majority in aggregate principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class, modifications and amendments of the Series B Senior Note Indenture
could be made without the consent of any Holder of Series B Senior Notes.
62
<PAGE>
The 1998 Credit Agreement contains a covenant prohibiting JSCE or CCA
from consenting to any modification of the Indenture or waiver of any
provision thereof without the consent of a specified percentage of the
lenders under the 1998 Credit Agreement.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indentures provide that no recourse for the payment of the
principal of, premium, if any, or interest on any of the notes or for any
claim based thereon or otherwise in respect thereof, and no recourse under or
upon any obligation, covenant or agreement of JSCE or CCA in the Indentures,
or in any of the notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, shareholder,
officer, director, employee or controlling person of JSCE or CCA or of any
successor Person thereof. Each Holder, by accepting the notes, waives and
releases all such liability. (Section 9.09)
CONCERNING THE TRUSTEE
The Indentures provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in each such Indenture. If an Event of Default has occurred and is
continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise
as a prudent person would exercise under the circumstances in the conduct of
such person's own affairs. (Section 6.01)
The Indentures and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights
of the Trustee, should it become a creditor of CCA or JSCE, to obtain payment
of claims in certain cases or to realize on certain property received by it
in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such conflict or resign.
63
<PAGE>
MARKET-MAKING ACTIVITIES
Morgan Stanley Dean Witter will use this prospectus in connection with
sales of the notes in market-making transactions at negotiated prices related
to prevailing market prices at the time of sale. Morgan Stanley Dean Witter
may act as principal or agent in such transactions. Morgan Stanley Dean Witter
has no obligation to make a market for the notes and may discontinue or suspend
its market-making activities at any time without notice.
Morgan Stanley acted as underwriter in connection with the original
offerings of the notes and received an underwriting discount of $23 million
in connection therewith.
As of December 31, 1998, affiliates of Morgan Stanley Dean Witter owned
approximately 7.4% of the outstanding shares of common stock of SSCC. Alan
E. Goldberg is a director of SSCC and is a designee of an affiliate of Morgan
Stanley Dean Witter. See "Risk Factors - Significant Stockholders" and JSCE's
Annual Report on Form 10-K for further information regarding Mr. Goldberg and
the equity ownership of the affiliates of Morgan Stanley Dean Witter.
LEGAL MATTERS
The validity of the notes and the guarantees thereof have been passed
upon for us by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements of JSCE at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
appearing in this prospectus and the registration statements of which this
prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein
and are included in reliance upon which such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of JSCE, appearing in its Annual
Report on Form 10-K for the year ended December 31, 1998, incorporated by
reference into this prospectus and the registration statements of which this
prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index to Financial Statements: Page No.
<S> <C>
Report of Independent Auditors...........................................F-2
Consolidated Balance Sheets - December 31, 1998 and 1997.................F-3
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Operations................................F-4
Consolidated Statements of Stockholder's Equity (Deficit)............F-5
Consolidated Statements of Cash Flows................................F-6
Notes to Consolidated Financial Statements...........................F-7
</TABLE>
All other schedules specified under Regulation S-X for JSCE, Inc. have been
omitted because they are not applicable, because they are not required or
because the information required is included in the financial statements or
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JSCE, Inc.
We have audited the accompanying consolidated balance sheets of JSCE, Inc.
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three years
in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in Item 16(b) of the Registration
Statement. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JSCE, Inc. at
December 31, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, in 1998 the Company
changed its method of accounting for start-up costs.
/s/Ernst & Young LLP
St. Louis, Missouri
February 11, 1999,
except for Note 11, as to which the date is March 23, 1999
F-2
<PAGE>
JSCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (IN MILLIONS, EXCEPT SHARE DATA) 1998 1997
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents...................................... $ 18 $ 12
Receivables, less allowances of $9 in 1998 and $10 in 1997..... 294 302
Inventories
Work-in-process and finished goods........................... 104 89
Materials and supplies....................................... 124 151
-----------------
228 240
Refundable income taxes........................................ 22 6
Deferred income taxes.......................................... 122 32
Prepaid expenses and other current assets...................... 10 10
-----------------
Total current assets......................................... 694 602
Net property, plant and equipment................................... 1,499 1,523
Timberland, less timber depletion................................... 261 265
Goodwill, less accumulated
amortization of $65 in 1998 and $58 in 1997.................... 226 237
Notes receivable from SSCC.......................................... 342
Other assets........................................................ 152 144
-----------------
$ 3,174 $ 2,771
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities.................................................
Current maturities of long-term debt........................... $ 44 $ 15
Accounts payable............................................... 276 334
Accrued compensation and payroll taxes......................... 75 88
Interest payable............................................... 28 25
Other current liabilities...................................... 126 69
------------------
Total current liabilities.................................... 549 531
Long-term debt, less current maturities........................ 2,526 2,025
Other long-term liabilities.................................... 278 227
Deferred income taxes.......................................... 359 362
Stockholder's equity (deficit)
Common stock, par, value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital..................................... 1,102 1,102
Retained earnings (deficit).................................... (1,636) (1,476)
Accumulated other comprehensive income (loss) (4)
-----------------
Total stockholder's equity (deficit)......................... (538) (374)
-----------------
$ 3,174 $ 2,771
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
JSCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, (IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................................... $ 3,022 $ 2,936 $ 3,087
Costs and expenses
Cost of goods sold................................................. 2,524 2,514 2,500
Selling and administrative expenses................................ 290 247 255
Restructuring charge............................................... 257
------------------------------------------
Income (loss) from operations.................................... (49) 175 332
Other income (expense)
Interest expense, net.............................................. (196) (196) (198)
Other, net......................................................... (5) (2) (3)
------------------------------------------
Income (loss) from continuing operations before income taxes,
extraordinary item and cumulative effect of accounting change.... (250) (23) 131
Benefit from (provision for) income taxes............................... 96 3 (52)
------------------------------------------
Income (loss) from continuing operations before extraordinary item and
cumulative effect of accounting change........................... (154) (20) 79
Discontinued operations
Income from discontinued operations, net of income taxes $6 in 1988,
$14 in 1997 and $25 in 1996...................................... 10 21 38
------------------------------------------
Income (loss) before extraordinary item and cumulative effect of
accounting change,............................................ (144) 1 117
Extraordinary item
Loss from early extinguishment of debt, net of income tax benefit of
$9 in 1998 and $3 in 1996........................................ (13) (5)
Cumulative effect of accounting change
Start-up costs, net of income tax benefit of $2.................... (3)
------------------------------------------
Net income (loss).................................................. $ (160) $ 1 $ 112
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
JSCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN MILLIONS, EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------
Accumulated
Par Additional Retained Other
Number Value, Paid-In Earnings Comprehensive
of Shares $.01 Capital (Deficit) Income (Loss) Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1,000 $ $ 1,102 $ (1,589) $ $ (487)
Comprehensive income
Net income.......................... 112 112
Other comprehensive income, net of tax
------------------------------------------------------------------------------
Comprehensive income.............. 112 112
------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 1,000 1,102 (1,477) (375)
Comprehensive Income
Net income.......................... 1 1
Other comprehensive income, net of tax
------------------------------------------------------------------------------
Comprehensive income 1 1
------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 1,000 1,102 (1,476) (374)
Comprehensive income (loss)
Net loss............................ (160) (160)
Other comprehensive income
(loss), net of tax................
Minimum pension liability
adjustment...................... (4) (4)
------------------------------------------------------------------------------
Comprehensive income (loss)... (160) (4) (164)
------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998............. 1,000 $ $ 1,102 $ (1,636) $ (4) $ (538)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
JSCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................................ $ (160) $ 1 $ 112
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Extraordinary loss from early extinguishment of debt.............. 22 8
Cumulative effect of accounting change for start-up costs......... 5
Depreciation, depletion and amortization.......................... 134 127 125
Amortization of deferred debt issuance costs...................... 8 11 13
Deferred income taxes............................................. (92) 13 34
Non-cash employee benefit expense................................. 5 4 17
Non-cash restructuring charge..................................... 179
Change in current assets and liabilities, net of effects from
acquisition
Receivables..................................................... 8 (24) 60
Inventories..................................................... 3 (32) 17
Prepaid expenses and other current assets....................... (1) 3
Accounts payable and accrued liabilities........................ (16) (4)
Interest payable................................................ (4) (5) (4)
Income taxes.................................................... (16) (6) 2
Other, net.......................................................... 42 (4)
------------------------------------------
Net cash provided by operating activities................................ 117 88 380
------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Property additions.................................................. (263) (166) (120)
Timberland additions................................................ (2) (16) (9)
Investments in affiliates and acquisitions.......................... (9)
Notes receivable from SSCC.......................................... (336)
Construction funds held in escrow................................... 9 (10)
Proceeds from property and timberland disposals and sale of business 6 7 6
------------------------------------------
Net cash used for investing activities.............................. (595) (175) (133)
------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings under bank credit facilities............................. 1,441 250
Net borrowings (repayments) under accounts receivable
securitization program............................................ (1) 30 (38)
Payments of long-term debt.......................................... (921) (7) (481)
Other increases in long-term debt................................... 64 13
Deferred debt issuance costs........................................ (35) (6)
------------------------------------------
Net cash provided by (used for) financing activities................ 484 87 (262)
------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 6 (15)
Cash and cash equivalents
Beginning of year................................................... 12 12 27
------------------------------------------
End of year......................................................... $ 18 $ 12 $ 12
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: JSCE, Inc., hereafter referred to as the "Company,"
is a wholly-owned subsidiary of Smurfit-Stone Container Corporation ("SSCC"),
formerly known as Jefferson Smurfit Corporation ("JSC"). On November 18,
1998 a subsidiary of JSC was merged with Stone Container Corporation
("Stone"), an action hereafter referred to as the "Merger," and Stone became
a subsidiary of SSCC. The Company owns 100% of the equity interest in JSC
(U.S.) and is a guarantor of the senior unsecured indebtedness of JSC (U.S.).
The Company has no operations other than its investment in JSC (U.S.). JSC
(U.S.) has extensive operations throughout the United States.
The deficit in stockholder's equity is primarily due to SSCC's 1989 purchase
of JSC (U.S.)'s common equity owned by Jefferson Smurfit Group plc ("JS
Group") and the acquisition by JSC (U.S.) of its common equity owned by the
Morgan Stanley Leveraged Equity Fund I, L.P., which were accounted for as
purchases of treasury stock.
NATURE OF OPERATIONS: The Company's major operations are in paper products,
recycled and renewable fiber resources, and consumer and specialty packaging.
In February 1999, the Company announced its intention to divest its newsprint
subsidiary, and accordingly, its newsprint segment is accounted for as a
discontinued operation (See Note 8). The Company's paperboard mills procure
virgin and recycled fiber and produce paperboard for conversion into
corrugated containers, folding cartons and industrial packaging at
Company-owned facilities and third-party converting operations. Paper
product customers represent a diverse range of industries including
paperboard and paperboard packaging, wholesale trade, retailing and
agri-business. Recycling operations collect or broker wastepaper for sale to
Company-owned and third-party paper mills. Consumer packaging produces labels
and flexible packaging for use in industrial, medical and consumer product
applications. Customers and operations are principally located in the United
States. Credit is extended to customers based on an evaluation of their
financial condition.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and majority-owned and controlled subsidiaries.
Significant intercompany accounts and transactions are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents of $14 million and $9 million are
pledged at December 31, 1998 and 1997 as collateral for obligations
associated with the accounts receivable securitization program (See Note 4).
REVENUE RECOGNITION: Revenue is recognized at the time products are shipped
to external customers.
INVENTORIES: Inventories are valued at the lower of cost or market,
principally under the last-in, first-out ("LIFO") method except for $42
million in 1998 and $51 million in 1997 which are valued at the lower of
average cost or market. First-in, first-out ("FIFO") costs (which approximate
replacement costs) exceed the LIFO value by $47 million and $62 million at
December 31, 1998 and 1997, respectively.
NET PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried
at cost. The costs of additions, improvements and major replacements are
capitalized, while maintenance and repairs are charged to expense as
incurred. Provisions for depreciation and amortization are made using
straight-line rates over the estimated useful lives of the related assets and
the terms of the applicable leases for leasehold improvements. Estimated
useful lives of papermill machines average 23 years, while major converting
equipment and folding carton presses have estimated useful lives of 20 years.
TIMBERLAND, LESS TIMBER DEPLETION: Timberland is stated at cost less
accumulated cost of timber harvested. The portion of the costs of timberland
attributed to standing timber is charged against income as timber is cut, at
rates
F-7
<PAGE>
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.
GOODWILL: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the
straight-line method over 40 years.
DEFERRED DEBT ISSUANCE COSTS: Deferred debt issuance costs included in other
assets are amortized over the terms of the respective debt obligations using
the interest method.
LONG-LIVED ASSETS: In accordance with Statement of Financial accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," long-lived assets held
and used by the Company and the related goodwill are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.
INCOME TAXES: The Company accounts for income taxes in accordance with the
liability method of accounting for income taxes. Under the liability method,
deferred assets and liabilities are recognized based upon anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases
(See Note 6).
FINANCIAL INSTRUMENTS: The Company periodically enters into interest rate
swap agreements that involve the exchange of fixed and floating rate interest
payments without the exchange of the underlying principal amount. For
interest rate instruments that effectively hedge interest rate exposures, the
net cash amounts paid or received on the agreements are accrued and
recognized as an adjustment to interest expense. If an arrangement is
replaced by another instrument and no longer qualifies as a hedge
instrument, then it is marked to market and carried on the balance sheet at
fair value. Gains and losses realized upon settlement of these agreements are
deferred and amortized to interest expense over a period relevant to the
agreement if the underlying hedged instrument remains outstanding, or
immediately if the underlying hedged instrument is settled.
ENVIRONMENTAL MATTERS: The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations from
which no current or future benefit is discernible. Expenditures that extend
the life of the related property or mitigate or prevent future environmental
contamination are capitalized. Reserves for environmental liabilities are
established in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." The Company records a liability at the time when it
is probable and can be reasonably estimated. Such liabilities are not
discounted or reduced for potential recoveries from insurance carriers.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS: Certain reclassifications of prior year presentations
have been made to conform to the 1998 presentation.
START-UP COSTS: In April 1998, the AICPA issued SOP 98-5, "Reporting the
Costs of Start-Up Activities," which requires that costs related to start-up
activities be expensed as incurred. Prior to 1998, the Company capitalized
certain costs to open new plants or to start new production processes. The
Company adopted the provisions of the SOP in its financial statements as of
the beginning of 1998. The Company recorded a charge for the cumulative
effect of an accounting change of $3 million, net of taxes of $2 million, to
expense costs that had been capitalized prior to 1998.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS: SOP 98-1, "Accounting for Computer
Software Developed or Obtained for Internal Use" was issued in March 1998.
SOP 98-1 is effective beginning on January 1, 1999 and requires that certain
costs incurred after the date of adoption in connection with developing or
obtaining software for internal-use must be capitalized. The Company does
not anticipate that the adoption of SOP 98-1 will have a material effect on
its 1999 financial statements.
F-8
<PAGE>
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. The Company has not assessed what the impact of SFAS No. 133
will be on the Company's future earnings or financial position.
2. RESTRUCTURING
During the fourth quarter of 1998, in connection with SSCC's Merger with
Stone, the Company recorded a pretax restructuring charge of $257 million
related to the permanent shutdown of certain containerboard mill operations
and related facilities, the termination of certain employees, and liabilities
for lease commitments at the shutdown facilities. The containerboard mill
facilities were permanently shut down on December 1, 1998 and, in the near
future, the Company will abandon or sell these facilities. The assets at
these facilities were adjusted to their estimated fair value less cost to
sell based upon appraisals. The sales and operating income of these mill
facilities in 1998 prior to closure were $209 million and $9 million
respectively. The terminated employees included approximately 700 employees
at these mills and 50 employees in the Company's corporate office. These
employees were terminated in December 1998. The following are the components
of the write-down of property, plant and equipment to fair value and exit
liabilities along with related 1998 activity:
<TABLE>
<CAPTION>
Opening Balance at
Balance Activity December 31, 1998
------- -------- -----------------
<S> <C> <C> <C>
Non-cash
- --------
Write-down of property and equipment to fair value . . $179 $(179) $
Cash
- ----
Severance. . . . . . . . . . . . . . . . . . . . . . . 27 (3) 24
Lease commitments. . . . . . . . . . . . . . . . . . . 21 (1) 20
Pension curtailments . . . . . . . . . . . . . . . . . 9 9
Facility closure costs . . . . . . . . . . . . . . . . 13 (3) 10
Other. . . . . . . . . . . . . . . . . . . . . . . . . 8 8
---- ------ ---
$257 $(186) $71
---- ------ ---
---- ------ ---
</TABLE>
Future cash outlays are anticipated to be $42 million in 1999, $6 million in
2000, $5 million in 2001, and $18 million thereafter. The Company is
continuing to evaluate all areas of its business in connection with its
merger integration, including the identification of corrugated container
facilities that might be closed. Additional restructuring charges are
expected in 1999 as management finalizes its plans.
In addition, the Company recorded $23 million of Merger-related charges as
selling and administrative expenses during the fourth quarter of 1998. These
charges pertained to professional management fees to achieve operating
efficiencies from the Merger, fees for management personnel changes and other
Merger costs.
3. NET PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1998 1997
---------
<S> <C> <C>
Land..................................................... $ 61 $ 63
Buildings and leasehold improvements..................... 281 304
Machinery, fixtures and equipment........................ 1,943 2,024
Construction in progress................................. 51 66
------ -------
2,336 2,457
Less accumulated depreciation and amortization........... (837) (934)
------ -------
Net property, plant and equipment........................ $1,499 $1,523
------ -------
------ -------
</TABLE>
F-9
<PAGE>
Depreciation and depletion expense was $127 million, $119 million and $117
million for 1998, 1997 and 1996, respectively. Property, plant and equipment
include capitalized leases of $54 million and $45 million and related
accumulated amortization of $23 million and $18 million at December 31, 1998
and 1997, respectively.
4. LONG-TERM DEBT
Long-term debt as of December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
BANK CREDIT FACILITIES
1998 Tranche A Term Loan (7.4% weighted average variable rate), payable in various $ 400 $
installments through March 31, 2005.................................................
1998 Tranche B Term Loan (8.0% weighted average variable rate), payable in various 900
installments through March 31, 2006.................................................
1994 Term Loans (8.5% weighted average variable rate)................................... 736
Revolving Credit Facility (7.8% weighted average variable rate), due March 31, 2005..... 85 120
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM BORROWINGS
Accounts receivable securitization program borrowings (6.3% weighted average variable 209 210
rate), due in February 2002.........................................................
SENIOR UNSECURED NOTES
11.25% Series A Senior Unsecured Notes, due May 1, 2004................................. 300 300
10.75% Series B Senior Unsecured Notes, due May 1, 2002................................. 100 100
9.75% Notes due April 1, 2003........................................................... 500 500
OTHER DEBT
Other (including obligations under capitalized leases of $37 million and $32 million)... 76 74
------ ------
Total debt.............................................................................. 2,570 2,040
Less current maturities................................................................. (44) (15)
------ ------
Long-term debt.......................................................................... $2,526 $2,025
------ ------
------ ------
</TABLE>
The amounts of total debt outstanding at December 31, 1998 maturing during
the next five years are as follows:
<TABLE>
<S> <C>
1999 . . . . . . . . . . $ 44
2000 . . . . . . . . . . 69
2001 . . . . . . . . . . 67
2002 . . . . . . . . . . 376
2003 . . . . . . . . . . 568
Thereafter . . . . . . . $1,446
</TABLE>
BANK CREDIT FACILITIES
In March 1998, JSC (U.S.) entered into a bank credit facility (the "JSC
(U.S.) 1998 Credit Agreement") consisting of a $550 million revolving credit
facility ("Revolving Credit Facility") of which up to $150 million may
consist of letters of credit, a $400 million Tranche A Term Loan and a $350
million Tranche B Term Loan. Net proceeds from the offering were used to
repay the 1994 JSC (U.S.) Tranche A, Tranche B, Tranche C Term Loans and
Revolving Credit Facility. The write-off of related deferred debt issuance
costs, totaling $13 million (net of income tax benefits of $9 million), is
reflected in the accompanying consolidated statement of operations as an
extraordinary item.
On November 18, 1998, JSC (U.S.) and its bank group amended and restated the
JSC (U.S.) 1998 Credit Agreement to, among other things, (i) allow an
additional $550 million borrowing on the Tranche B Term Loan, (ii) allow the
purchase of a
F-10
<PAGE>
paper machine from an affiliate (See Note 9), (iii) make a $300 million
intercompany loan to SSCC, which was contributed to Stone as additional
paid-in capital, (iv) permit the Merger, and (v) ease certain financial
covenants.
A commitment fee of .5% per annum is assessed on the unused portion of the
JSC (U.S.) Revolving Credit Facility. At December 31, 1998, the unused
portion of this facility, after giving consideration to outstanding letters
of credit, was $422 million.
The JSC (U.S.) 1998 Credit Agreement contains various covenants and
restrictions including, among other things, (i) limitations on dividends,
redemptions and repurchases of capital stock, (ii) limitations on the
incurrence of indebtedness, liens, leases and sale-leaseback transactions,
(iii) limitations on capital expenditures, and (iv) maintenance of certain
financial covenants. The JSC (U.S.) 1998 Credit Agreement also requires
prepayments if JSC (U.S.) has excess cash flows, as defined, or receives
proceeds from certain asset sales, insurance, issuance of equity securities
or incurrence of certain indebtedness.
The obligations under the JSC (U.S.) 1998 Credit Agreement are
unconditionally guaranteed by SSCC, the Company and its subsidiaries and are
secured by a security interest in substantially all of the assets of JSC
(U.S.) and its material subsidiaries, with the exception of cash, cash
equivalents and trade receivables. The JSC (U.S.) 1998 Credit Agreement is
also secured by a pledge of all the capital stock of the Company and each of
its material subsidiaries and by certain intercompany notes.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM BORROWINGS
JSC (U.S.) has a $315 million accounts receivable securitization program (the
"Securitization Program") which provides for the sale of certain of the
Company's trade receivables to a wholly owned, bankruptcy remote, limited
purpose subsidiary, Jefferson Smurfit Finance Corporation ("JS Finance").
The accounts receivable purchases are financed through the issuance of
commercial paper or through borrowings under a revolving liquidity facility
and a $15 million term loan. Under the Securitization Program, JS Finance
has granted a security interest in all its assets, principally cash and cash
equivalents and trade accounts receivable. The Company has $106 million
available for additional borrowing at December 31, 1998, subject to eligible
accounts receivable. Borrowings under the Securitization Program, which
expire February 2002, 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.
SENIOR UNSECURED NOTES
The 11.25% Series A Senior Unsecured Notes are redeemable in whole or in part
at the option of JSC (U.S.), at any time on or after May 1, 1999 with
premiums of 5.625% and 2.813% of the principal amount if redeemed during the
12-month periods commencing May 1, 1999 and 2000, respectively. The 10.75%
Series B Senior Unsecured Notes and the 9.75% Senior Notes are not redeemable
prior to maturity. Holders of the JSC (U.S.) Senior Notes have the right,
subject to certain limitations, to require JSC (U.S.) to repurchase their
securities at 101% of the principal amount plus accrued and unpaid interest,
upon the occurrence of a change in control or in certain events, from
proceeds of major asset sales, as defined.
The notes, which are unconditionally guaranteed on a senior basis by the
Company, rank pari passu with the 1998 Credit Agreement and contain business
and financial covenants which are less restrictive than those contained in
the 1998 Credit Agreement.
OTHER
Interest costs capitalized on construction projects in 1998, 1997 and 1996
totaled $2 million, $5 million and $3 million, respectively. Interest
payments on all debt instruments for 1998, 1997 and 1996 were $184 million,
$188 million and $186 million, respectively.
F-11
<PAGE>
5. LEASES
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum rental
commitments (exclusive of real estate taxes and other expense) under
operating leases having initial or remaining non-cancelable terms in excess
of one year are reflected below:
<TABLE>
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . $ 32
2000 . . . . . . . . . . . . . . . . . . . . 26
2001 . . . . . . . . . . . . . . . . . . . . 22
2002 . . . . . . . . . . . . . . . . . . . . 19
2003 . . . . . . . . . . . . . . . . . . . . 16
Thereafter . . . . . . . . . . . . . . . . . 55
----
Total minimum lease payments . . . . . . . $170
----
----
</TABLE>
Net rental expense for operating leases, including leases having a duration
of less than one year, was approximately $54 million, $50 million and $50
million for 1998, 1997 and 1996, respectively.
6. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment and timberland...................... $(335) $(414)
Inventory......................................................... (17) (13)
Prepaid pension costs............................................. (30) (31)
Other............................................................. (124) (114)
----- -----
Total deferred tax liabilities.................................. (506) (572)
----- -----
Deferred tax assets
Employee benefit plans............................................ 89 96
Net operating loss, alternative minimum tax and tax credit
carryforwards................................................... 103 99
Minimum pension liability......................................... 2
Restructuring..................................................... 49
Other............................................................. 36 58
----- -----
Total deferred tax assets....................................... 279 253
Valuation allowance for deferred tax assets....................... (10) (11)
Net deferred tax assets......................................... 269 242
----- -----
Net deferred tax liabilities.......................................... $(237) $(330)
----- -----
----- -----
</TABLE>
At December 31, 1998, the Company had approximately $43 million of net
operating loss carryforwards for state purposes that expire in the years 1999
through 2018. A valuation allowance of $10 million has been established for
a portion these deferred tax assets. The Company had approximately $60
million of alternative minimum tax credit carryforwards for U.S. federal
income tax purposes, which are available indefinitely.
F-12
<PAGE>
The benefit from (provision for) income taxes from continuing operations
before income taxes, extraordinary item and cumulative effect of accounting
change is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9 $10 $(18)
State and local . . . . . . . . . . . . . . . . . . . . . . 3
--- --- ----
Total current benefit (expense) . . . . . . . . . . . . . . 12 10 (18)
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . 76 (5) 1
State and local . . . . . . . . . . . . . . . . . . . . . . 8 (2) 5
Net operating loss carryforwards. . . . . . . . . . . . . . (40)
--- --- ----
Total deferred benefit (expense). . . . . . . . . . . . . . 84 (7) (34)
--- --- ----
Total benefit from (provision for) income taxes. . . . . . $96 $ 3 $(52)
--- --- ----
--- --- ----
</TABLE>
The Company's benefit from (provision for) income taxes differed from the
amount computed by applying the statutory U.S. federal income tax rate to
income (loss) from continuing operations before income taxes, extraordinary
item and cumulative effect of accounting change is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. federal income tax benefit (provision) at
federal statutory rate. . . . . . . . . . . . . . . . . . . $87 $8 $(46)
Permanent differences from applying purchase
accounting. . . . . . . . . . . . . . . . . . . . . . . . . (3) (3) (3)
Permanently non-deductible expenses. . . . . . . . . . . . . (2) (8) 3
State income taxes, net of federal income tax effect . . . . 12 2
Effect of valuation allowances on deferred tax
assets, net of federal benefit . . . . . . . . . . . . . . 1 7 (5)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (3) (1)
--- --- ----
Benefit from (provision for) income taxes. . . . . . . . . . $96 $3 $(52)
--- --- ----
--- --- ----
</TABLE>
The federal income tax returns for 1989 through 1994 are currently under
examination. While the ultimate results of such examination cannot be
predicted with certainty, the Company's management believes that the
examination will not have a material adverse effect on its consolidated
financial condition or results of operations.
The Company made income tax payments of $16 million, $8 million and $39
million in 1998, 1997 and 1996, respectively.
7. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees. Approximately 31% of pension plan assets at
December 31, 1998, are invested in cash equivalents or debt securities and
69% are invested in equity securities. Equity securities at December 31,
1998 include .7 million shares of SSCC common stock with a market value of
approximately $12 million and 26 million shares of JS Group common stock
having a market value of approximately $48 million. Dividends paid on JS
Group common stock during 1998 and 1997 were approximately $2 million in each
year.
F-13
<PAGE>
The defined benefit plans of the Company were merged with the defined benefit
plans of Stone on December 31, 1998. As a result of this plan merger, the
plan assets of the Company will be available to meet the funding requirements
of all plans. Plan asset information provided below reflects the plan assets
of the Company prior to the effect of this plan merger.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for all
salaried as well as certain hourly employees. The assumed health care cost
trend rates used in measuring the accumulated postretirement benefit
obligation ("APBO") range from 5% to 9% at December 31, 1998 decreasing to
the ultimate rate of 5%. The effect of a 1% increase in the assumed health
care cost trend rate would increase the APBO as of December 31, 1998 by $2
million and have an immaterial effect on the annual net periodic
postretirement benefit cost for 1998.
The following provides a reconciliation of benefit obligations, plan assets,
and funded status of the plans.
<TABLE>
<CAPTION>
Defined Benefit Postretirement
Plans Plans
------------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1 ................................. $ 950 $ 864 $ 103 $ 98
Service cost .................................................... 18 16 1 2
Interest cost ................................................... 68 65 7 7
Amendments ...................................................... 8
Plan participants' contributions ................................ 4 4
Actuarial loss .................................................. 22 58 3 4
Benefits paid ................................................... (55) (53) $ (13) (12)
------ ------ ----- -----
Benefit obligation at December 31 ............................... $1,011 $ 950 $ 105 $ 103
------ ------ ----- -----
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1 .......................... $1,013 $ 926 $ $
Actual return on plan assets .................................... 49 139
Employer contributions .......................................... 1 1 9 8
Plan participants' contributions ................................ 4 4
Benefits paid ................................................... (55) (53) (13) (12)
------ ------ ----- -----
Fair value of plan assets at
December 31 ................................................... $1,008 $1,013 $ $
------ ------ ----- -----
OVER (UNDER) FUNDED STATUS: ..................................... $ (3) $ 63 $(105) $(103)
Unrecognized actuarial (gain) loss .............................. 20 (32) 6 4
Unrecognized prior service cost ................................. 44 43 (2) (3)
Net transition obligation ....................................... (9) (13)
------ ------ ----- -----
Net amount recognized ........................................... $ 52 $ 61 $(101) $(102)
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
F-14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS:
Prepaid benefit cost ............................................ $ 52 $ 80 $ $
Accrued benefit liability ....................................... (19) (101) (102)
Additional minimum liability .................................... (16)
Intangible asset ................................................ 10
Accumulated other comprehensive income .......................... 4
Deferred tax .................................................... 2
------ ------ ----- -----
Net amount recognized ........................................... $ 52 $ 61 $(101) $(102)
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
The weighted-average assumptions used in the accounting for the defined
benefit plans and postretirement plans were:
<TABLE>
<CAPTION>
Defined Benefit Postretirement
Plans Plans
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted discount rate ........................... 7.00% 7.25% 7.00% 7.25%
Rate of compensation increase .................... 3.75% 4.00% N/A N/A
Expected return on assets ........................ 9.50% 9.50% N/A N/A
Health care cost trend on covered charges ........ N/A N/A 6.50% 7.50%
</TABLE>
The components of net pension expense for the defined benefit plans and the
components of the postretirement benefit costs follow:
<TABLE>
<CAPTION>
Defined Benefit Plans Postretirement Plans
--------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost ....................... $ 24 $ 19 $ 23 $1 $1 $
Interest cost ...................... 68 65 62 7 7 7
Expected return on plan assets ..... (85) (80) (75)
Curtailment cost ................... 2
Special retiree charge ............. 6
---- ---- ---- -- -- --
Net periodic benefit cost .......... $ 9 $ 4 $ 16 $8 $8 $7
---- ---- ---- -- -- --
---- ---- ---- -- -- --
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $72 million, $70 million and $36
million, respectively, as of December 31, 1998 and $31 million, $27 million
and none as of December 31, 1997.
SAVINGS PLANS
The Company sponsors voluntary savings plans covering substantially all
salaried and certain hourly employees. The Company match is paid in SSCC
common stock, up to an annual maximum. The Company's expense for the savings
plans totaled $9 million, $9 million and $8 million in 1998, 1997 and 1996,
respectively.
8. DISCONTINUED OPERATIONS
During February 1999 the Company adopted a formal plan to sell the operating
assets of its subsidiary, Smurfit Newsprint Corporation ("SNC").
Accordingly, SNC is accounted for as a discontinued operation in the
accompanying consolidated financial statements. The Company has restated its
prior financial statements to present the operating results of SNC as a
discontinued operation.
F-15
<PAGE>
SNC revenues were $324 million, $302 million and $323 million for 1998, 1997
and 1996, respectively. The net assets of SNC included in the accompanying
consolidated balance sheets as of December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Inventories and current assets ...................... $ 31 $ 20
Net property, plant and equipment ................... 194 205
Other assets ........................................ 7 7
Accounts payable and other current liabilities ...... (67) (41)
Other liabilities ................................... (72) (71)
---- ----
Net assets of discontinued operations ............. $ 93 $120
---- ----
---- ----
</TABLE>
9. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH JS GROUP
Transactions with JS Group, a significant shareholder of the Company, its
subsidiaries and affiliated companies were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Product sales ................................................... $39 $34 $34
Product and raw material purchases .............................. 54 51 64
Management services income ...................................... 4 4 5
Charges from JS Group for services provided ..................... 1
Charges to JS Group for costs pertaining to the Fernandina
No. 2 paperboard machine through November 18, 1998 ............ 50 53 54
Receivables at December 31 ...................................... 5 3 3
Payables at December 31 ......................................... 4 11 10
</TABLE>
Product sales to and purchases from JS Group, its subsidiaries and affiliates
are consummated on terms generally similar to those prevailing with unrelated
parties.
The Company provides certain subsidiaries and affiliates of JS Group with
general management and elective management services under separate Management
Services Agreements. In consideration for general management services, the
Company is paid a fee up to 2% of the subsidiaries' or affiliates' gross
sales. In consideration for elective services, the Company is reimbursed for
its direct cost of providing such services.
On November 18, 1998, the Company purchased the No. 2 paperboard machine
located in the Company's Fernandina Beach, Florida, paperboard mill (the
"Fernandina Mill") for $175 million from an affiliate of JS Group. Until
that date the Company and the affiliate were parties to an operating
agreement whereby the Company operated and managed the No. 2 paperboard
machine. The Company was compensated for its direct production and
manufacturing costs and indirect manufacturing, selling and administrative
costs incurred for the entire Fernandina Mill. The compensation was
determined by applying various formulas and agreed-upon amounts to the
subject costs. The amounts reimbursed to the Company are reflected as
reductions of cost of goods sold and selling and administrative expenses in
the accompanying consolidated statements of operations.
F-16
<PAGE>
TRANSACTIONS WITH STONE
Transactions with Stone after November 18, 1998 are included in related party
transactions. The Company sold and purchased containerboard paper from
Stone, primarily at market prices as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Product sales ................................... $14
Product and raw material purchases .............. 8
Receivables at December 31 ...................... 8
Payables at December 31 ......................... 4
</TABLE>
TRANSACTIONS WITH SSCC
In connection with the Merger, a $300 million intercompany loan was made to
SSCC, which was contributed to Stone as additional paid-in capital. In
addition, a $36 million intercompany loan was made to SSCC to pay certain
Merger costs. These notes bear interest at the rate of 14.21% per annum, are
payable semi-annually on December 1 and June 1 of each year commencing June
1, 1999, and have a maturity date of November 18, 2004. SSCC has the option,
in lieu of paying accrued interest in cash, to pay the accrued interest by
adding the amount of accrued interest to the principal amount of the notes.
Interest income of $6 million was recorded in 1998.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------- ---------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ................ $ 18 $ 18 $ 12 $ 12
Notes receivable from SSCC ............... 342 342
Long-term debt, including current
maturities.............................. 2,570 2,600 2,040 2,105
</TABLE>
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair values of notes receivable
are based on discounted future cash flows. The fair value of the Company's
debt is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.
11. CONTINGENCIES
The Company's past and present operations include activities which are
subject to federal, state and local environmental requirements, particularly
relating to air and water quality. The Company faces potential environmental
liability as a result of violations of permit terms and similar
authorizations that have occurred from time to time at its facilities.
The Company faces potential liability for response costs at various sites
with respect to which the Company has received notice that it may be a
potentially responsible party ("PRP"), as well as contamination of certain
Company-owned properties, concerning hazardous substance contamination. In
estimating its reserves for environmental remediation and future costs, the
Company's estimated liability reflects only the Company's expected share. In
determining the liability, the estimate takes into consideration the number
of other PRPs at each site, the identity and financial condition of such
parties and experience regarding similar matters.
F-17
<PAGE>
Subsequent to an understanding reached in December 1998, the Company and SNC
entered into a Settlement Agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood-Registered Trademark-, a
composite wood siding product manufactured by SNC that has been used
primarily in the construction of manufactured or mobile homes. The Company
recorded a $30 million pre-tax charge to reflect amounts SNC has agreed to
pay into a settlement fund, administrative costs, plaintiffs' attorneys'
fees, class representative payments and other costs. The Company believes its
reserve is adequate to pay eligible claims. However, the number of claims,
and the number of potential claimants who choose not to participate in the
settlement, could cause the Company to re-evaluate whether the liabilities in
connection with the Cladwood-Registered Trademark- cases could exceed
established reserves.
In March 1999, management of SNC's Oregon City, Oregon newsprint mill became
aware of possible violations of the mill's National Pollutant Discharge
Elimination System permit. SNC has provided both the EPA and Oregon
Department of Environmental Quality with a detailed report of its internal
investigation and it is probable that the agencies will conduct an additional
investigation based on this report. The Company is unable to predict its
potential liability in this matter at this time.
The Company is a defendant in a number of lawsuits and claims arising out of
the conduct of its business, including those related to environmental
matters. While the ultimate results of such suits or other proceedings
against the Company cannot be predicted with certainty, the management of the
Company believes that the resolution of these matters will not have a
material adverse effect on its consolidated financial condition or results of
operations.
12. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which changes the way operating
segment information is presented. The information for 1997 and 1996 has been
restated from the prior year's presentation in order to conform to the 1998
presentation.
The Company has three reportable segments: (1) Containerboard and Corrugated
Containers , (2) Boxboard and Folding Cartons and (3) Reclamation. The
Containerboard and Corrugated Containers segment is highly integrated. It
includes a system of mills and plants that produces a full line of
containerboard that is converted into corrugated containers. Corrugated
containers are used to transport such diverse products as home appliances,
electric motors, small machinery, grocery products, produce, books, tobacco
and furniture. The Boxboard and Folding Cartons segment is also highly
integrated. It includes a system of mills and plants that produces a broad
range of coated recycled boxboard that is converted into folding cartons.
Folding cartons are used primarily to protect products such as food, fast
food, detergents, paper products, beverages, health and beauty aids and other
consumer products, while providing point of purchase advertising. The
Reclamation segment collects recovered paper generated by industrial,
commercial and residential sources which is used as raw material for the
Company's containerboard and boxboard mills as well as sales to external
third party mills.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, and other gains and losses. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies except that the
Company accounts for inventory on a FIFO basis at the segment level compared
to a LIFO basis at the consolidated level. Intersegment sales and transfers
are recorded at market prices. Intercompany profit is eliminated at the
corporate division level.
The Company's reportable segments are strategic business units that offer
different products. The reportable segments are each managed separately
because they manufacture distinct products. Other includes specialty
packaging business unit and corporate related items. Corporate related items
include goodwill, equity investments, income and expense not allocated to
reportable segments (goodwill amortization and interest expense), the
adjustment to record inventory at LIFO, and the elimination of intercompany
assets and intercompany profit. In 1998, corporate related items also
included a $257 million restructuring charge (See Note 2). The restructuring
charge included $179 million for the write-down of property, plant and
equipment of the Containerboard and Corrugated Containers segment to fair
value.
F-18
<PAGE>
A summary of business segment follows:
<TABLE>
<CAPTION>
Container- Boxboard
board & &
Corrugated Folding Recla-
Containers Cartons mation Other Total
---------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues from external
customers ....................... $1,696 $784 $265 $ 277 $3,022
Intersegment revenues ............. 39 132 17 188
Depreciation, depletion and
amortization .................... 70 22 3 39 134
Segment profit(loss) .............. 113 67 (1) (249) (250)
Total assets at December 31 ....... 1,396 451 207 1,120 3,174
Capital expenditures .............. 208 26 6 25 265
1997
- ----
Revenues from external
customers ....................... $1,607 $752 $292 $ 285 $2,936
Intersegment revenues ............. 35 154 13 202
Depreciation, depletion and
amortization .................... 67 21 3 36 127
Segment profit (loss) ............. 56 68 6 (153) (23)
Total assets at December 31 ....... 1,462 435 228 646 2,771
Capital expenditures .............. 101 37 $ 7 37 182
1996
- ----
Revenues from external
customers ....................... $1,794 $756 $218 $ 319 $3,087
Intersegment revenues ............. 41 133 18 192
Depreciation, DEPLETION and
amortization .................... 67 20 3 35 125
Segment profit (loss) ............. 197 66 (2) (130) 131
Total assets at December 31 ....... 1,434 393 198 663 2,688
Capital expenditures .............. 58 24 13 34 129
</TABLE>
The following table presents net sales to external customers by country:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
United States ............................... $2,839 $2,753 $2,905
Foreign ..................................... 183 183 182
------ ------ ------
Total net sales ........................... $3,022 $2,936 $3,087
------ ------ ------
------ ------ ------
</TABLE>
13. SUMMARIZED FINANCIAL INFORMATION JSC (U.S.)
The following summarized financial information is presented for JSC (U.S.), a
wholly owned subsidiary of the Company. No separate financial statements are
presented for JSC (U.S.) because the financial statements of JSC (U.S.) are
identical to those of the Company.
F-19
<PAGE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current assets ........................................... $ 694 $ 602
Property, plant and equipment and timberlands, net ....... 1,760 1,788
Goodwill ................................................. 226 237
Other assets ............................................. 494 144
------- -------
Total assets ........................................... $ 3,174 $ 2,771
------- -------
------- -------
Current liabilities ...................................... $ 549 $ 531
Long-term debt ........................................... 2,526 2,025
Other liabilities ........................................ 637 589
Stockholder's deficit
Common stock............................................
Additional paid-in capital ............................. 1,102 1,102
Retained earnings (deficit) ............................ (1,636) (1,476)
Accumulated other comprehensive income ................. (4)
------- -------
Total stockholder's deficit ............................ (538) (374)
------- -------
Total liabilities and stockholder's deficit ............ $ 3,174 $ 2,771
------- -------
------- -------
</TABLE>
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net sales ............................................. $ 3,022 $ 2,936 $ 3,087
Cost and expenses ..................................... 3,071 2,761 2,755
Interest expense, net ................................. 196 196 198
Other income (expense), net ........................... (5) (2) (3)
------- ------- -------
Income (loss) from continuing operations before
income taxes, extraordinary item, and
cumulative effect of accounting change .............. (250) (23) 131
Benefit from (provision for) income taxes ............. 96 3 (52)
Discontinued operations ............................... 10 21 38
Extraordinary item
Loss from early extinguishment of debt, net of
income tax benefits ............................... (13) (5)
Cumulative effect of accounting change ................ (3)
------- ------- -------
Net income (loss) ..................................... $ (160) $ 1 $ 112
------- ------- -------
------- ------- -------
</TABLE>
The above Condensed Consolidated Statements of Operations have been restated
to reflect the newsprint division as a discontinued operation.
F-20
<PAGE>
14. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1998
- ----
Net sales ................................. $764 $764 $758 $ 736
Gross profit .............................. 127 125 125 121
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change ....................... 3 2 3 (162)
Discontinued operations ................... 8 9 5 (12)
Extraordinary item ........................ (13)
Cumulative effect of accounting
change .................................. (3)
Net income (loss) ......................... (5) 11 8 (174)
1997
- ----
Net sales ................................. $711 $709 $753 $ 763
Gross profit .............................. 100 99 116 107
Income (loss) from continuing
operations .............................. (8) (9) 1 (4)
Discontinued operations ................... 1 5 7 8
Net income (loss) ......................... (7) (4) 8 4
</TABLE>
The first three quarters of 1998 and all quarters for 1997 have been restated
to reflect discontinued operations. The first quarter of 1998 has been
restated for the cumulative effect of accounting change for start-up costs.
F-21
<PAGE>
JSCE INC.
[BACK PAGE]
JEFFERSON SMURFIT CORPORATION (U.S.)
JSCE, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED ON THIS PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses paid in
connection with the original offerings of the notes, other than underwriting
discounts and commissions. All of such expenses, except the Securities and
Exchange Commission registration fee and the National Association of
Securities Dealers, Inc. filing fees, have been estimated.
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C>
Securities and Exchange Commission registration fee............................. $ 363,147
National Association of Securities Dealers, Inc. filing fee..................... 61,000
Blue Sky fees and expenses...................................................... 55,000
Printing and engraving expenses................................................. 825,000
Legal fees and expenses......................................................... 1,300,000
Accounting fees and expenses.................................................... 450,000
Miscellaneous................................................................... 27,603
----------
Total............................................................. $3,081,750
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the co-registrants provide the co-registrants with the
authority to indemnify their directors, officers, employees and agents to the
full extent allowed by Delaware law. Smurfit Stone Container Corporation
maintains an insurance policy which provides directors and officers of the
co-registrants with coverage in connection with certain events.
See Item 17 for the co-registrants' undertaking with respect to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The Exhibits to this registration statement are listed in the Index to
Exhibits.
(b) Financial Statement Schedules - "Schedule II - Valuation and
Qualifying Accounts and Reserves" of JSCE, Inc. is immediately following the
Index to Exhibits.
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:
II-1
<PAGE>
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the co-registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) (a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(d) If the co-registrant is a foreign private issuer, to file
a post-effective amendment to the registration statement
to include any financial statements required by Rule 3-19
of Regulation S-X at the start of any delayed offering or
throughout a continuous offering.
(4) For purposes of determining any liability under the Securities
Act of 1933, as amended (the "Securities Act"), each filing of the
co-registrants' annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference into these Post-Effective Amendments shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<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
these Post-Effective Amendments Nos. 5 and 6 to the Registration Statements
to be signed on its behalf by the undersigned, thereunto duly authorized, on
April 21, 1999.
JEFFERSON SMURFIT CORPORATION (U.S.)
BY /s/ PATRICK J. MOORE
-------------------------------------------
Patrick J. Moore
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, these
Post-Effective Amendments Nos. 5 and 6 to the Registration Statements have
been signed below by the following persons in the capacities and on the dates
indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all posteffective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that each said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Director, President and Chief April 21, 1999
Executive Office (Principal
Executive Officer)
/s/ RAY M. CURRAN
- -----------------------------
RAY M. CURRAN
Director, Vice President and April 21, 1999
Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ PATRICK J. MOORE
- -----------------------------
PATRICK J. MOORE
</TABLE>
<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 these
Post-Effective Amendments Nos. 5 and 6 to the Registration Statements to be
signed on its behalf by the undersigned, thereunto duly authorized, on April 21,
1999.
JSCE, INC.
BY /s/ PATRICK J. MOORE
--------------------------------------------
Patrick J. Moore
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, these
Post-Effective Amendments Nos. 5 and 6 to the Registration Statements have
been signed below by the following persons in the capacities and on the dates
indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all posteffective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that each said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- -------------------------- ------------
<S> <C> <C>
Director, President and April 21,
Chief Executive Office 1999
(Principal Executive
/S/ RAY M. CURRAN Officer)
- ---------------------------------
RAY M. CURRAN
Vice President and April 21,
Chief Financial Officer 1999
(Principal Financial
/s/ PATRICK J. MOORE and Accounting Officer)
- ---------------------------------
PATRICK J. MOORE
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ---------------------------------------------------------------------------------------
<C> <S> <C>
1.1(a)* Underwriting Agreement relating to the Series A and
Series B Senior Notes, previously filed as Exhibit
1.1 to the Company's Registration Statement on Form
S-2 (No. 33-2383)
1.1(b)* Underwriting Agreement relating to the 1993 Senior
Notes, previously filed as Exhibit 1.1 to the
Company's Registration Statement on Form S-2 (No.
33-58348)
1.2* Agreements, dated April 4, 1994, between JSC (U.S.)
and A.G. Edwards & Sons, Inc., the qualified
independent underwriter
2.1 Agreement and Plan of Merger dated as of May 10, 1998,
as amended, among SSCC, Stone and JSC Acquisition
(incorporated by reference to Exhibit 2(a) to
SSCC's Registration Statement on Form S-4 (File No.
333-65431)).
2.2 Stock Purchase Agreement dated as of May 10, 1998
among SIBV, JSG, MSLEF, SSCC and certain other
shareholders of SSCC (incorporated by reference to
Exhibit 2(b) to SSCC's Registration Statement on
Form S-4 (File No. 333-65431)).
2.3 Asset Purchase Agreement dated as of May 10, 1998
between SSCC and Smurfit Packaging Corporation
(incorporated by reference to Exhibit 2(c) to
SSCC's Registration Statement on Form S-4 (File No.
333-65431)).
3.1* Restated Certificate of Incorporation of JSC (U.S.)
3.2* Certificate of Incorporation of JSCE
3.3* By-laws of JSC (U.S.)
3.4* By-laws of JSCE
4.1 Indenture for the Series A Senior Notes (incorporated
by reference to Exhibit 4.1 to JSC's Quarterly
report on Form 10-Q for the quarter ended March 31,
1994)
4.2 Indenture for the Series B Senior Notes (incorporated
by reference to Exhibit 4.2 to JSC's Quarterly
report on Form 10-Q for the quarter ended March 31,
1994)
4.3 Indenture for the 1993 Senior Notes (incorporated by
reference to Exhibit 4.4 to JSC's Registration
Statement on Form S-1 (File No. 33-75520))
4.4 First Supplemental Indenture to the 1993 Note
Indenture (incorporated by reference to Exhibit 4.5
to JSC's Registration Statement on Form S-1 (File
No. 33-75520))
4.5* Second Supplemental Indenture to the 1993 Note
Indenture
5.1(a)* Opinion of Skadden, Arps, Slate, Meagher & Flom
relating to the Series A and Series B Senior Notes,
previously filed as Exhibit 5.1 to the Company's
Registration Statement on Form S-2 (No. 33-52383)
5.1(b)* Opinion of Skadden, Arps, Slate, Meagher & Flom
relating to the 1993 Senior Notes, previously filed
as Exhibit 5.1 to the Company's Registration
Statement on Form S-2 (No. 33-58348)
10.1 Subscription Agreement among SSCC, JSC (U.S.), CCA and
SIBV (incorporated by reference to Exhibit 10.4 to
SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994).
10.2(a) Restated Newsprint Agreement, dated January 1, 1990,
by and between SNC and Times Mirror (incorporated
by reference to Exhibit 10.39 to JSC (U.S.)'s
Annual Report on Form 10-K for the fiscal year
ended December 31, 1990). Portions of this exhibit
have been excluded pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
<PAGE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ---------------------------------------------------------------------------------------
<C> <S> <C>
10.2(b) Amendment No. 1 to the Restated Newsprint Agreement
(incorporated by reference to Exhibit 10.6(b) to
SSCC's Registration Statement on Form S-1 (File No.
33-75520)).
10.3 JSC (U.S.) Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.7 to
SSCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.4 JSC (U.S.) Management Incentive Plan (incorporated by
reference to Exhibit 10.10 to SSCC's Annual Report
on Form 10-K for the fiscal year ended December 31,
1995).
10.5 Jefferson Smurfit Corporation Amended and Restated
1992 Stock Option Plan dated as of May 1, 1997
(incorporated by reference to Exhibit 10.10 to
SSCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).
10.6 Amended and Restated Credit Agreement, dated as of
November 18, 1998, among SSCC, JSCE, JSC (U.S.) and
the Banks party thereto (incorporated by reference
to Exhibit 10.6 to SSCC's Annual Report on Form
10-K for the fiscal year ended December 31, 1998).
10.7(a) Term Loan Agreement dated as of February 23, 1995
among JS Finance and Bank Brussels Lambert, New
York Branch (incorporated by reference to Exhibit
10.1 to SSCC's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995).
10.7(b) Depositary and Issuing and Paying Agent Agreement
(Series A Commercial Paper) dated as of February
23, 1995 (incorporated by reference to Exhibit 10.2
to SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.7(c) Depositary and Issuing and Paying Agent Agreement
(Series B Commercial Paper) dated as of February
23, 1995 (incorporated by reference to Exhibit 10.3
to SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.7(d) Receivables Purchase and Sale Agreement dated as of
February 23, 1995 among JSC (U.S.), as the Initial
Servicer and JS Finance, as the Purchaser
(incorporated by reference to Exhibit 10.4 to
SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.7(e) Liquidity Agreement dated as of February 23, 1995
among JS Finance, the Financial Institutions party
thereto as Banks, Bankers Trust Company as Facility
Agent and Bankers Trust Company as Collateral Agent
(incorporated by reference to Exhibit 10.6 to
SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.7(f) Commercial Paper Dealer Agreement dated as of February
23, 1995 among BT Securities Corporation, MS&Co.,
JSC (U.S.) and JS Finance (incorporated by
reference to Exhibit 10.7 to SSCC's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995).
10.7(g) Addendum dated March 6, 1995 to Commercial Paper
Dealer Agreement (incorporated by reference to
Exhibit 10.8 to SSCC's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
10.7(h) First Omnibus Amendment dated as of March 31, 1996 to
the Receivables Purchase and Sale Agreement among
JSC (U.S.), JS Finance and the Banks party thereto
(incorporated by reference to Exhibit 10.3 to
SSCC's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
<PAGE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ---------------------------------------------------------------------------------------
<C> <S> <C>
10.7(i) Affiliate Receivables Sale Agreement dated as of March
31, 1996 between SNC and SSCC (incorporated by
reference to Exhibit 10.4 to SSCC's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1996).
10.7(j) Amendment No. 2 dated as of August 19, 1997 to the
Term Loan Agreement among JS Finance and Bank
Brussels Lambert, New York Branch and JSC (U.S.) as
Servicer (incorporated by reference to Exhibit
10.12(j) to SSCC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.7(k) Amendment No. 2 dated as of August 19, 1997 to the
Receivables Purchase and Sale Agreement among JSC
(U.S.) as the Seller and Servicer, JS Finance as
the Purchaser, Bankers Trust Company as Facility
Agent and Bank Brussels Lambert, New York Branch as
the Term Bank (incorporated by reference to Exhibit
10.12(k) to SSCC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.7(l) Amendment No. 2 dated as of August 19, 1997 to the
Liquidity Agreement among JS Finance, Bankers Trust
Company as Facility Agent, JSC (U.S.) as Servicer,
Bank Brussels Lambert, New York Branch as Term Bank
and the Financial Institutions party thereto as
Banks (incorporated by reference to Exhibit
10.12(1) to SSCC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.8 Consulting Agreement dated as of October 24, 1996 by
and between James S. Terrill and JSC (U.S.)
(incorporated by reference to Exhibit 10.15 to
SSCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.9(a) Letter Agreement dated as of May 10, 1998 between SIBV
and Stone (incorporated by reference to Exhibit
10(b) to SSCC's Registration Statement on Form S-4
(File No. 333-65431)).
10.9(b) Letter Agreement dated as of May 10, 1998 between
MSLEF and Stone (incorporated by reference to
Exhibit 10(c) to SSCC's Registration Statement on
Form S-4 (File No. 333-65431)).
10.9(c) Letter Agreement dated as of May 10, 1998 between Mr.
Roger W. Stone and SSCC (incorporated by reference
to Exhibit 10(d) to SSCC's Registration Statement
on Form S-4 (File No. 333-65431)).
10.10 Registration Rights Agreement dated as of May 10, 1998
among MSLEF, SIBV, SSCC and the other parties
identified on the signature pages thereto
(incorporated by reference to Exhibit 10(e) to
SSCC's Registration Statement on Form S-4 (File No.
333-65431)).
10.11 Voting Agreement dated as of May 10, 1998, as amended,
among SIBV, MSLEF and Mr. Roger W. Stone
(incorporated by reference to Exhibit 10(f) to
SSCC's Registration Statement on Form S-4 (File No.
333-65431)).
10.12 SSCC 1998 Long Term Incentive Plan (incorporated by
reference to Exhibit 10.14 to SSCC's Annual Report
on Form 10-K for the fiscal year ended December 31,
1998).
10.13 Forms of Employment Security Agreements (incorporated
by reference to Exhibit 10(h) to SSCC's
Registration Statement on Form S-4 (File No.
333-65431)).
10.14 Forms of Employment Security Agreements (incorporated
by reference to Exhibit 10(h) to SSCC's
Registration Statement on Form S-4 (File No.
333-65431)).
10.15 Management Incentive Plan (incorporated by reference
to Exhibit 10(b) to Stone Container Corporation's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1980).
<PAGE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
- ---------------------------------------------------------------------------------------
<C> <S> <C>
10.16 Stone Container Corporation Directors' Deferred
Compensation Plan (incorporated by reference to
Exhibit 10(b) to Stone Container Corporation's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.17 Stone Container Corporation 1982 Incentive Stock
Option Plan (incorporated by reference to Appendix
A to the Prospectus included in Stone Container
Corporation's Form S-8 Registration Statement,
Registration Number 2-79221, effective September
27, 1982).
10.18 Stone Container Corporation 1993 Stock Option Plan
(incorporated by reference to Appendix A to Stone
Container Corporation's Proxy Statement dated as of
April 10, 1992).
10.19 Stone Container Corporation Deferred Income Savings
Plan, as amended (incorporated by reference to
Exhibit 4.3 to Stone Container Corporation's Form
S-8 Registration Statement, Registration Number
333-42087).
10.20 Stone Container Corporation 1992 Long-Term Incentive
Program (incorporated by reference to Exhibit A to
Stone Container Corporation's Proxy Statement dated
as of April 11, 1991).
10.21 Stone Container Corporation 1995 Long-Term Incentive
Plan (incorporated by reference to Exhibit A to
Stone Container Corporation's Proxy Statement dated
as of April 7, 1995).
10.22 Stone Container Corporation 1995 Key Executive Officer
Short-Term Incentive Plan (incorporated by
reference to Exhibit B to Stone Container
Corporation's Proxy Statement dated as of April 7,
1995).
10.23 Form of Severance Agreement, dated July 22, 1996,
entered into between Stone Container Corporation
and Roger W. Stone, (incorporated by reference to
Exhibit 10(j) to Stone Container Corporation's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.24 Form of Severance Agreement, dated July 22, 1996,
entered into between Stone Container Corporation
and John D. Bence, Thomas W. Cadden, Matthew S.
Kaplan and Randolph C. Read (incorporated by
reference to Exhibit 10(k) to Stone Container
Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.25 Employment Agreement, dated November 18, 1998, entered
into between SSCC and Harold D. Wright
(incorporated by reference to Exhibit 10.26 to
SSCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998).
12.1 Calculation of Historical Ratios of Earnings to Fixed
Charges for JSCE
12.2 Calculation of Historical Ratios of Earnings to Fixed
Charges for JSC (U.S.)
23.1(a)* Consent of Skadden, Arps, Slate, Meagher & Flom
(included in Exhibit 5.1(a))
23.1(b)* Consent of Skadden, Arps, Slate, Meagher & Flom
(included in Exhibit 5.1(b))
23.2 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included on signature page hereto)
25.1(a)* Statement on Form T-1 of the eligibility of
NationsBank of Georgia, National Association, as
Trustee under the Series A Senior Note Indenture
and the Series B Senior Note Indenture, previously
filed as Exhibit 25.1 to the Company's Registration
Statement on Form S-2 (No. 33-52383)
25.1(b)* Statement on Form T-1 of the eligibility of
NationsBank of Georgia, National Association, as
Trustee under the 1993 Senior Note Indenture,
previously filed as Exhibit 25.1 to the Company's
Registration
</TABLE>
<PAGE>
* Previously filed.
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at End
Beginning of Costs and Deductions of Period
Description Period Expenses Describe
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND SALES RETURNS AND ALLOWANCES:
Year ended December 31, 1998 $ 10 $ 2 $ 3(a) $ 9
Year ended December 31, 1997 $ 9 $ 2 $ 1(a) $ 10
Year ended December 31, 1996 $ 9 $ 5 $ 5(a) $ 9
RESTRUCTURING OF JSC (U.S.) OPERATIONS:
Year ended December 31, 1998 $ $ 257 $186(b) $ 71
</TABLE>
(a) Uncollectible amounts written off, net of recoveries.
(b) Charges against the restructuring reserves
<PAGE>
EXHIBIT 12.1
JSCE, INC.
CALCULATION OF HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change $ (250) $ (23) $ 131 $ 373 $ 46
Add (deduct):
Minority interest share of income (loss) 2 (1)
Interest expense (a) 196 196 198 235 266
Interest component of rental expense 13 12 12 12 11
--------------------------------------------------------
Earnings available for fixed charges $ (41) $ 185 $ 341 $ 622 $ 322
--------------------------------------------------------
--------------------------------------------------------
Fixed Charges:
Interest expense (a) $ 196 $ 196 $ 198 $ 235 $ 266
Capitalized interest 2 5 3 3 4
Interest component of rental expense 13 12 12 12 11
--------------------------------------------------------
Total fixed charges $ 211 $ 213 $ 213 $ 250 $ 281
--------------------------------------------------------
--------------------------------------------------------
Ratio of earnings to fixed charges (b) (b) 1.60 2.49 1.15
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
(a) Interest expense includes amortization of debt issuance cost of $8 million
in 1998, $11 million in 1997, $13 million in 1996, $14 million in 1995 and
$10 million in 1994.
(b) For the years ended December 31, 1998 and 1997, earnings were inadequate to
cover fixed charges by $252 million and $28 million, respectively.
<PAGE>
EXHIBIT 12.2
JEFFERSON SMURFIT CORPORATION (U.S.)
CALCULATION OF HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change $ (250) $ (23) $ 131 $ 373 $ 46
Add (deduct):
Minority interest share of income (loss) 2 (1)
Interest expense (a) 196 196 198 235 266
Interest component of rental expense 13 12 12 12 11
--------------------------------------------------------
Earnings available for fixed charges $ (41) $ 185 $ 341 $ 622 $ 322
--------------------------------------------------------
--------------------------------------------------------
Fixed Charges:
Interest expense (a) $ 196 $ 196 $ 198 $ 235 $ 266
Capitalized interest 2 5 3 3 4
Interest component of rental expense 13 12 12 12 11
--------------------------------------------------------
Total fixed charges $ 211 $ 213 $ 213 $ 250 $ 281
--------------------------------------------------------
--------------------------------------------------------
Ratio of earnings to fixed charges (b) (b) 1.60 2.49 1.15
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
(a) Interest expense includes amortization of debt issuance cost of $8 million
in 1998, $11 million in 1997, $13 million in 1996, $14 million in 1995 and
$10 million in 1994.
(b) For the years ended December 31, 1998 and 1997, earnings were inadequate to
cover fixed charges by $252 million and $28 million, respectively.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in
the head notes to "Selected Consolidated Historical Financial Data" and to
the use of our report dated February 11, 1999 (except for Note 11, as to
which the date is March 23, 1999) with respect to the consolidated financial
statements and schedule of JSCE, Inc. included in the Post-Effective
Amendment No. 5 to the Registration Statement (Form S-2 to Form S-3, No.
33-52383) and the Post-Effective Amendment No. 6 to the Registration
Statement (Form S-2 to Form S-3, 33-58348), and the related Prospectus of
Jefferson Smurfit Corporation (U.S.), for the registration of $300 million
aggregate principal amount of 11 1/4% Series A Senior Notes due 2004, $100
million aggregate principal amount of 10 3/4% Series B Senior Notes due 2002,
and $500 million aggregate principal amount of 9 3/4% 1993 Senior Notes due
2003, all of which are unconditionally guaranteed on a senior basis by JSCE,
Inc. and to the incorporation by reference therein of our report dated
February 11, 1999 with respect to the consolidated financial statements and
schedule of JSCE, Inc. included in its Annual Report on Form 10-K for the
year ended December 31, 1998 filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
St. Louis, Missouri
April 20, 1999
