FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
April 20, 2000
ST. LAURENT PAPERBOARD INC.
(Translation of registrant's name into English)
630 Rene-Levesque Boulevard, West, Suite 3000,
Montreal, Quebec H3B 5C7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F ...... Form 40-F ..X...
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b)under the Securities Exchange Act of 1934.
Yes ..... No ...X..
INFORMATION FILED WITH THIS REPORT
The following documents are filed collectively as an Exhibit to this Report:
Exhibit I -- Letter of Transmittal to St. Laurent Paperboard Inc.
Securityholders, dated April 14, 2000, relating to Special
Meeting of Securityholders to be held May 26, 2000 to approve a
plan of arrangement (the "Arrangement") involving St. Laurent
and the St. Laurent Securityholders pursuant to an Amended and
Restated Pre-Merger Agreement between St. Laurent, Smurfit-Stone
Container Corporation ("Smurfit-Stone") and certain subsidiaries
of Smurfit-Stone under which Arrangement St. Laurent will become
an indirect wholly-owned subsidiary of Smurfit-Stone, Notice of
Special Meeting, and Management Proxy Circular dated April 14,
2000 relating to consideration of the Arrangement involving
St. Laurent Paperboard Inc. and Smurfit-Stone Container
Corporation, Stone Container Corporation, 3701174 Canada, Inc.
and 3038727 Nova Scotia Company, and (iv) proxy card.
<PAGE>
On April 20, 2000 St. Laurent Paperboard Inc. caused the foregoing proxy
materials to be sent to St. Laurent's Securityholders.
Exhibit I -- Letter of Transmittal to St. Laurent Paperboard Inc.
Securityholders, dated April 14, 2000, relating to Special
Meeting of Securityholders to be held May 26, 2000 to approve a
plan of arrangement (the "Arrangement") involving St. Laurent
and the St. Laurent Securityholders pursuant to an Amended and
Restated Pre-Merger Agreement between St. Laurent, Smurfit-Stone
Container Corporation ("Smurfit-Stone") and certain subsidiaries
of Smurfit-Stone under which Arrangement St. Laurent will become
an indirect wholly-owned subsidiary of Smurfit-Stone, Notice of
Special Meeting, and Management Proxy Circular dated April 14,
2000 relating to consideration of the Arrangement involving
St. Laurent Paperboard Inc. and Smurfit-Stone Container
Corporation, Stone Container Corporation, 3701174 Canada, Inc.
and 3038727 Nova Scotia Company, and (iv) proxy card.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 20, 2000
ST. LAURENT PAPERBOARD INC.
(Registrant)
By: /s/ Richard Garneau
-------------------------------
Name: Richard Garneau
Title: Senior Vice President and
Chief Financial Officer
St. Laurent Paperboard Inc.
<PAGE>
St. Laurent Logo
April 14, 2000
Dear St. Laurent Paperboard Inc. Securityholder:
The Board of Directors cordially invites you to attend a meeting (the
"Meeting") of holders of common shares ("St. Laurent Common Shares"), options
("St. Laurent Options") and restricted share units ("St. Laurent RSUs")
(collectively, "St. Laurent Securityholders") of St. Laurent Paperboard Inc.
("St. Laurent") to be held at the Sheraton Centre, 1201 Rene-Levesque Boulevard
West, Ballroom West, Montreal, Quebec, on May, 26, 2000 at 10:00 a.m. (Montreal
time).
At the Meeting, you will be asked to approve, among other things, a
proposed plan of arrangement (the "Arrangement") involving St. Laurent and the
St. Laurent Securityholders pursuant to an Amended and Restated Pre-Merger
Agreement between St. Laurent, Smurfit-Stone Container Corporation
("Smurfit-Stone") and certain subsidiaries of Smurfit-Stone. The Arrangement
will result in St. Laurent becoming an indirect wholly-owned subsidiary of
Smurfit-Stone.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE ARRANGEMENT IS FAIR TO THE
ST. LAURENT SECURITYHOLDERS AND IS IN THE BEST INTERESTS OF ST. LAURENT.
ACCORDINGLY, THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMEND THAT YOU VOTE IN FAVOUR OF THE ARRANGEMENT.
Under the Arrangement, each St. Laurent common share will be exchanged for
U.S.$12.50 in cash and 0.5 shares of Smurfit-Stone Common Stock ("Smurfit-Stone
Common Stock"). Each St. Laurent option shall become vested and immediately
exercisable so that holders of St. Laurent Options may participate in the
Arrangement as holders of St. Laurent Common Shares or will be exchanged for an
option to purchase Smurfit-Stone Common Stock. Each St. Laurent restricted share
unit shall be fully vested and entitle its holder to receive U.S.$12.50 in cash
and 0.5 shares of Smurfit-Stone Common Stock with respect to each St. Laurent
Common Share subject to such St. Laurent restricted share unit.
A Letter of Transmittal printed on yellow paper for use by registered
holders of St. Laurent Common Shares and holders of St. Laurent RSUs is enclosed
with the attached Management Proxy Circular (the "Circular"). Holders of St.
Laurent Common Shares will not receive certificates for the Smurfit-Stone Common
Stock nor the cash portion of the Exchange Consideration to which they are
entitled under the Arrangement until they return a properly completed Letter of
Transmittal together with the certificates for their shares and any other
required documentation to Montreal Trust Company at one of the addresses
specified on the last page of the Letter of Transmittal. Also enclosed is an
Election Form (printed on green paper) for use by holders of St. Laurent
Options. Holders of St. Laurent Options should return a properly completed
Election Form to Montreal Trust Company at the address specified on the Election
Form.
For the Arrangement to proceed, it must be approved by not less than 66
2/3% of the votes cast by St. Laurent Securityholders who attend the Meeting, in
person or by proxy. The attached Management Proxy Circular (the "Circular")
contains a detailed description of the Arrangement and the Pre-Merger Agreement
and other information that may help you make an informed decision.
We hope you will be able to attend the Meeting. Whether or not you are able
to attend, it is still important that you be represented at the Meeting. WE
ENCOURAGE YOU TO COMPLETE THE ENCLOSED FORM OF PROXY AND RETURN IT, EXCEPT AS
PROVIDED IN THE CIRCULAR, NO LATER THAN 5:00 P.M. (MONTREAL TIME) ON MAY 25,
2000. Voting by proxy will not prevent you from voting in person if you attend
the Meeting, but will ensure that your vote will be counted if you are unable to
attend.
If you are a non-registered holder of St. Laurent Common Shares and have
received this letter and the Circular from your broker or another intermediary,
please complete and return the proxy or other authorization form provided to you
by your broker or other intermediary in accordance with the instructions
provided with it. Failure to do so may result in your St. Laurent Common Shares
not being eligible to be voted at the Meeting.
Sincerely,
/s/ Raymond R. Pinard
- ------------------------------
Raymond R. Pinard
Chairman
/s/ Joseph J. Gurandiano
- ------------------------------
Joseph J. Gurandiano
President and Chief Executive Officer
<PAGE>
ST. LAURENT LOGO
NOTICE OF SPECIAL MEETING
AND
MANAGEMENT PROXY CIRCULAR
ARRANGEMENT INVOLVING
ST. LAURENT PAPERBOARD INC.
AND
SMURFIT-STONE CONTAINER CORPORATION
AND
STONE CONTAINER CORPORATION
AND
3701174 CANADA INC.
AND
3038727 NOVA SCOTIA COMPANY
APRIL 20, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
GLOSSARY OF TERMS........................................... 1
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES.............. 7
CANADIAN/U.S. EXCHANGE RATES................................ 7
INFORMATION CONCERNING SMURFIT-STONE AND ITS AFFILIATES..... 7
SUMMARY..................................................... 8
GENERAL PROXY INFORMATION................................... 14
General................................................... 14
Solicitation of Proxies................................... 14
Record Date and Entitlement to Vote....................... 14
Signing and Deposit of Proxies............................ 14
Revocation of Proxies..................................... 14
Voting of Proxies......................................... 14
Voting Shares............................................. 15
Required Votes to Approve the Arrangement................. 15
Interest of Management.................................... 15
THE ARRANGEMENT............................................. 16
Background of the Arrangement............................. 16
Joint Reasons of St. Laurent and Smurfit-Stone for the
Transaction............................................ 17
St. Laurent's Reasons for the Transaction and
Recommendation of the Board of Directors............... 17
Court Approval and Completion of the Arrangement.......... 18
Opinions of St. Laurent's Financial Advisors.............. 19
Transaction Mechanics..................................... 26
Procedures to Receive Exchange Consideration.............. 27
Description of Smurfit-Stone Capital Stock................ 28
Stock Exchange Listing.................................... 29
Affiliate's Letters....................................... 29
Resale of Smurfit-Stone Common Stock Received in the
Arrangement............................................ 29
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT............. 30
THE PRE-MERGER AGREEMENT.................................... 32
Effective Date of the Arrangement......................... 32
Representations and Warranties............................ 32
Covenants of St. Laurent.................................. 32
Covenants of the Smurfit-Stone Parties.................... 35
Covenants of St. Laurent Regarding Non-Solicitation....... 36
Continuation of Benefits, Employee Plan and Accrued
Vacation and Participation and Benefit Plans........... 37
Indemnification........................................... 38
St. Laurent Rights Plan................................... 38
Conditions to Closing..................................... 38
Amendment and Waiver...................................... 40
Termination............................................... 41
Break Fee................................................. 42
Confidentiality Agreements................................ 42
INVESTMENT CONSIDERATIONS AND OTHER RISK FACTORS............ 43
REGULATORY MATTERS.......................................... 47
INCOME TAX CONSIDERATIONS TO HOLDERS OF ST. LAURENT COMMON
SHARES.................................................... 48
INFORMATION CONCERNING ST. LAURENT.......................... 54
Business Segments......................................... 54
Sales and Marketing....................................... 56
Competition............................................... 57
Research and Development.................................. 57
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
Environmental Compliance.................................. 57
Trading History........................................... 58
Recent Developments....................................... 59
Selected Consolidated Financial Information............... 59
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 59
Directors and Executive Officers.......................... 66
Granting of St. Laurent Options, St. Laurent RSUs,
Performance Shares and Retention Bonuses............... 70
Acceleration of St. Laurent Options and St. Laurent
RSUs................................................... 70
Share Capital Matters..................................... 71
Exercise of Warrants to Acquire St. Laurent Common
Shares................................................. 71
Auditors, Transfer Agent and Registrar.................... 72
Documents Incorporated by Reference....................... 72
INFORMATION CONCERNING SMURFIT-STONE........................ 72
Description of Business................................... 72
Legal Proceedings......................................... 78
Recent Acquisitions and Dispositions...................... 80
Trading History........................................... 81
Dividend History.......................................... 81
Smurfit-Stone Selected Consolidated Financial
Information............................................ 81
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 83
Share and Loan Capital Structure.......................... 92
Capitalization............................................ 94
Smurfit-Stone 1998 Long Term Incentive Plan............... 94
Directors and Officers.................................... 94
Principal Holders of Smurfit-Stone Common Stock........... 101
Stock Performance......................................... 101
Interest of Management and Others in Material
Transactions........................................... 102
Transfer Agent and Registrar.............................. 103
COMPARISON OF SHAREHOLDERS' RIGHTS.......................... 103
DISSENTING SHAREHOLDER RIGHTS............................... 107
AVAILABLE INFORMATION....................................... 110
LEGAL MATTERS............................................... 110
EXPERTS..................................................... 110
APPROVAL OF PROXY CIRCULAR BY ST. LAURENT'S BOARD OF
DIRECTORS................................................. 110
</TABLE>
<TABLE>
<S> <C> <C> <C>
Appendix A -- Special Resolution of the St. Laurent Securityholders....... A-1
Appendix B -- Pre-Merger Agreement........................................ B-1
Appendix C -- Canada Business Corporations Act Section 190 [Dissent
Rights]..................................................... C-1
Appendix D -- Interim Order and Notice of Motion for Final Order.......... D-1
Appendix E -- Fairness Opinion of Bunting Warburg Dillon Read Inc......... E-1
Appendix F -- Fairness Opinion of Donaldson, Lufkin and Jenrette
Securities Corporation...................................... F-1
Appendix G -- Executive Compensation and Description of St. Laurent
Plans....................................................... G-1
Appendix H -- St. Laurent Rights Plan..................................... H-1
Appendix I -- St. Laurent Paperboard Inc. Consolidated Financial
Statements -- Years ended December 31, 1999 and 1998........ I-1
Appendix J -- Smurfit-Stone Consolidated Financial Statements as of
December 31, 1999 and 1998 and For the Three Years ended
December 31, 1999........................................... J-1
Appendix K -- Smurfit-Stone Container Corporation Unaudited Pro Forma
Condensed Consolidated Financial Data....................... K-1
</TABLE>
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<PAGE>
NOTICE OF SPECIAL MEETING OF ST. LAURENT SECURITYHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of holders of
common shares, options and restricted share units (collectively, the "St.
Laurent Securityholders") of St. Laurent Paperboard Inc. ("St. Laurent") will be
held at the Sheraton Centre, 1201 Rene-Levesque Boulevard West, Ballroom West,
Montreal, Quebec on May 26, 2000 at 10:00 a.m., Montreal time, for the following
purposes:
1. For the St. Laurent Securityholders to consider and, if deemed advisable,
to pass with or without variation, a special resolution (the "Arrangement
Resolution"), the form of which is set forth in Appendix A to the
accompanying Management Proxy Circular (the "Circular"), approving an
arrangement pursuant to Section 192 of the Canada Business Corporations
Act, all as more particularly described in the Circular (the
"Arrangement"); and
2. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
By Order of the Board of Directors
/s/ Marion Allaire
-------------------------------
Marion Allaire
Secretary
April 14, 2000
Montreal, Quebec
If you are not able to be present at the Meeting, please exercise your
right to vote by signing and returning the enclosed form of proxy to Montreal
Trust Company in the enclosed envelope so as to arrive not later than 5:00 p.m.
(Montreal time) on May 25, 2000 or, if the Meeting is adjourned, 24 hours
(excluding Saturdays, Sundays and holidays) before the time the adjourned
Meeting is to be reconvened. Proxies may also be deposited with the scrutineers
of the Meeting, to the attention of the Chairman of the Meeting, immediately
prior to the commencement of the Meeting, or any adjournment or postponement
thereof.
Pursuant to the order of the Superior Court of Quebec dated April 14, 2000
(the "Interim Order"), registered holders of common shares of St. Laurent have
been granted the right to dissent in respect of the resolution attached as
Appendix A to the Circular. If the Arrangement becomes effective, a registered
holder of common shares of St. Laurent who dissents will be entitled to be paid
the fair value of such common shares if the Secretary of St. Laurent, at 630
Rene-Levesque Boulevard West, Suite 3000, Montreal, Quebec, H3B 5C7, shall have
received from such dissenting shareholder prior to 5:00 p.m. (Montreal time) on
the business day preceding the Meeting a written objection to the Arrangement
Resolution (a "Notice of Dissent") and the dissenting shareholder shall have
otherwise complied with the dissent procedures (which are described in the
Circular under the heading "Dissenting Shareholder Rights" and in Appendix C to
the Circular). Failure to comply strictly with such dissent procedures may
result in the loss or unavailability of any right of dissent.
<PAGE>
GLOSSARY OF TERMS
Unless the context otherwise requires, when used in this Circular the following
terms shall have the meanings set forth below, words importing the singular
number shall include the plural and vice versa and words importing any gender
shall include all genders. These defined terms are not always used in the
financial statements and other financial information included herein.
"ACQUISITION PROPOSAL" means any bona fide proposal with respect to any merger,
amalgamation, arrangement, take-over bid, sale of assets (excluding inventory
sold in the ordinary course of business) or otherwise representing more than 20%
of the book value (on a consolidated basis) of St. Laurent's total assets (or
any lease, long-term supply agreement or other arrangement having the same
economic effect as a sale of assets (excluding inventory sold in the ordinary
course of business) or otherwise representing more than 20% of the book value
(on a consolidated basis) of St. Laurent's total assets), any sale of more than
20% of the St. Laurent Common Shares then outstanding or similar transactions
involving St. Laurent or any Subsidiary, or a proposal to do so, excluding the
Arrangement.
"AFFILIATE" has the meaning ascribed thereto in the Securities Act.
"AFFILIATE'S LETTER" means a letter, to be substantially in the form and content
of Schedule A to the Pre-Merger Agreement.
"APPROPRIATE REGULATORY APPROVALS" means those sanctions, rulings, consents,
orders, exemptions, permits and other approvals (including the lapse, without
objection, of a prescribed time under a statute or regulation that states that a
transaction may be implemented if a prescribed time lapses following the giving
of notice without an objection being made) of Governmental Entities, regulatory
agencies or self-regulatory organizations, as set out in Schedule B to the
Pre-Merger Agreement.
"ARRANGEMENT" means the arrangement under Section 192 of the CBCA on the terms
and subject to the conditions set out in the Plan of Arrangement.
"ARRANGEMENT RESOLUTION" means the special resolution of the St. Laurent
Securityholders, to be substantially in the form and content of Appendix A
attached hereto.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of St. Laurent in
respect of the Arrangement that are required by the CBCA to be sent to the
Director after the Final Order is made.
"BOARD OF DIRECTORS" means the board of directors of St. Laurent.
"BREAK FEE" means a cash fee of $30 million, payable by St. Laurent to
Smurfit-Stone in the circumstances described under "The Pre-Merger Agreement --
Break Fee".
"BREAK FEE EVENT" means any one of the following:
(a) St. Laurent shall have terminated the Pre-Merger Agreement in order to
enter into a definitive written agreement with respect to a Superior
Proposal, subject to compliance with Section 4.6 of the Pre-Merger
Agreement (which includes providing Smurfit-Stone with the opportunity
to amend the Pre-Merger Agreement);
(b) Smurfit-Stone shall have terminated the Pre-Merger Agreement if (i) as
a result of the Board of Directors having failed to recommend or
having withdrawn or modified or changed in a manner adverse to
Smurfit-Stone its approval or recommendation of the Pre-Merger
Agreement or the Arrangement or shall have recommended an Acquisition
Proposal or, (ii) through the fault of St. Laurent, the Arrangement is
not, prior to 14 days prior to the Drop Dead Date, submitted for the
approval of the St. Laurent Securityholders at the Meeting; and
(c) St. Laurent or Smurfit-Stone shall have terminated the Pre-Merger
Agreement if the approval of St. Laurent Securityholders has not been
obtained by reason of the failure to obtain the required vote at the
Meeting, and (i) a bona fide Acquisition Proposal has been made by any
Person other than a Smurfit-Stone Party prior to the Meeting and not
withdrawn more than five days prior to the vote of the St. Laurent
Securityholders, and (ii) St. Laurent enters into an agreement with
respect to an Acquisition Proposal, or an Acquisition Proposal is
consummated, after the termination of the Pre-Merger Agreement and
prior to the expiration of 12 months following termination of the
Pre-Merger Agreement, unless at the time of the Meeting a Specified
Smurfit-Stone Event has occurred and is continuing.
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<PAGE>
"BUSINESS DAY" means any day on which commercial banks are generally open for
business in Montreal, Quebec and Chicago, Illinois other than a Saturday, a
Sunday or a day observed as a holiday in Montreal, Quebec under the laws of the
Province of Quebec or the federal laws of Canada or in Chicago, Illinois under
the laws of the State of Illinois or the federal laws of the United States of
America.
"BWDR" means Bunting Warburg Dillon Read Inc.
"BWDR FAIRNESS OPINION" means the opinion dated February 23, 2000 from BWDR to
the Board of Directors in connection with the Transaction, a copy of which is
attached hereto as Appendix E.
"CANADIAN GAAP" means Canadian generally accepted accounting principles.
"CANADIAN RESIDENT" means a resident of Canada for the purposes of the Canadian
Tax Act.
"CANADIAN TAX ACT" means the Income Tax Act (Canada), as amended.
"CANCO" means 3701174 Canada Inc., a corporation existing under the CBCA and an
indirect wholly-owned Subsidiary of Smurfit-Stone.
"CBCA" means the Canada Business Corporations Act, as amended.
"CDN.$" or "CDN. DOLLAR" means Canadian dollars.
"CDS" means The Canadian Depository for Securities Limited.
"CIRCULAR" means, collectively, the Notice of Special Meeting and this
Management Proxy Circular, including all appendices hereto, sent to St. Laurent
Securityholders in connection with the Meeting.
"CLOSING" means the execution and delivery of the documents required as a
condition to the completion of, or to complete, the Arrangement contemplated by
the Pre-Merger Agreement and the completion of the Arrangement.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMPETITION ACT" means the Competition Act (Canada), as amended.
"COMPETITION COMMISSIONER" means the Commissioner of Competition under the
Competition Act.
"COMPETITION TRIBUNAL" means the Competition Tribunal under the Competition Act.
"CONFIDENTIALITY AGREEMENTS" means the confidentiality and stand-still letter
agreements dated November 29, 1999 from Smurfit-Stone to St. Laurent and St.
Laurent to Smurfit-Stone, respectively.
"COURT" means the Superior Court of Quebec, District of Montreal.
"DEMAND FOR PAYMENT" means a written notice to St. Laurent by a Dissenting
Shareholder demanding payment of the fair value of its St. Laurent Common Shares
in compliance with the Dissent Procedures.
"DEPOSITARY" means Montreal Trust Company at its offices set out in the Letter
of Transmittal and the Election Form.
"DGCL" means the Delaware General Corporation Law, as amended.
"DIRECTOR" means the Director appointed pursuant to Section 260 of the CBCA.
"DISSENT PROCEDURES" means the dissent procedures described under the heading
"Dissenting Shareholder Rights" and set out in Appendix C attached hereto.
"DISSENT RIGHTS" means the rights of a St. Laurent Registered Shareholder to
dissent from the Arrangement Resolution in compliance with the Dissent
Procedures.
"DISSENTING SHAREHOLDER" means a St. Laurent Registered Shareholder who complies
with the Dissent Procedures.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"DLJ FAIRNESS OPINION" means the opinion dated February 23, 2000, from DLJ to
the Board of Directors in connection with the Transaction, a copy of which is
attached hereto as Appendix F.
"DROP DEAD DATE" means September 30, 2000, or such later date as may be mutually
agreed by the Smurfit-Stone Parties and St. Laurent.
"EFFECTIVE DATE" means the date shown on the certificate of arrangement to be
issued by the Director under the CBCA giving effect to the Arrangement provided
that such date occurs on or prior to the Drop Dead Date.
"EFFECTIVE TIME" means 12:00 a.m. (Montreal time) on the Effective Date.
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<PAGE>
"ELECTION FORM" means the Election Form sent to holders of St. Laurent Options
(printed on green paper) with this Circular with respect to the election to be
made by such holders of St. Laurent Options to either exercise their existing
St. Laurent Options, conditional upon the completion of the Arrangement, or to
receive Replacement Options to acquire Smurfit-Stone Common Stock and, if
applicable, with respect to the exercise price of Replacement Options which such
holder has elected to receive under the Arrangement.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended.
"EXCHANGE CONSIDERATION" means U.S.$12.50 payable in cash and 0.5 shares of
Smurfit-Stone Common Stock.
"FINAL ORDER" means the final order of the Court approving the Arrangement as
such order may be amended by the Court at any time prior to the Effective Date
or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed.
"GOVERNMENTAL ENTITY" means any (i) multinational, federal, provincial, state,
regional, municipal, local or other government, governmental or public
department, central bank, court, tribunal, arbitral body, commission, board,
bureau or agency, domestic or foreign, (ii) any subdivision, agent, commission,
board, or authority of any of the foregoing, or (iii) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the foregoing.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"INTERIM ORDER" means the interim order of the Court, in respect of the
Arrangement dated April 14, 2000, a copy of which is attached hereto as Appendix
D.
"INVESTMENT CANADA ACT" means the Investment Canada Act (Canada), as amended.
"IRS" means the United States Internal Revenue Service.
"JSC(U.S.)" means Jefferson Smurfit Corporation (U.S.), a Delaware corporation
and an indirect wholly-owned Subsidiary of Smurfit-Stone.
"JS GROUP" means Jefferson Smurfit Group plc, a public corporation organized
under the laws of the Republic of Ireland.
"LETTER OF TRANSMITTAL" means the letter of transmittal printed on yellow paper
sent to St. Laurent Registered Shareholders and holders of St. Laurent RSUs with
this Circular.
"MSF" means thousand square feet.
"MMSF" means million square feet.
"MSLEF" means The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware
limited partnership.
"MATERIAL ADVERSE CHANGE", when used in connection with Smurfit-Stone or St.
Laurent, means any change, effect, event or occurrence with respect to its
condition (financial or otherwise), properties, assets, liabilities, obligations
(whether absolute, accrued, conditional or otherwise), businesses, operations or
results of operations or those of its Subsidiaries that is, or would reasonably
be expected to be, material and adverse to the business, operations or financial
condition of such Person and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT", when used in connection with Smurfit-Stone or St.
Laurent, means any effect that is, or would reasonably be expected to be,
material and adverse to the business, results of operations, prospects or
condition (financial or otherwise) of such Person and its Subsidiaries taken as
a whole.
"MEETING" means the special meeting of St. Laurent Securityholders, including
any adjournment thereof, to be called and held in accordance with the Interim
Order to consider the Arrangement.
"NASDAQ" means The Nasdaq National Market.
"NEWCO" means Canco or such other direct or indirect Subsidiary of Smurfit-Stone
designated by Smurfit-Stone to acquire all of the outstanding St. Laurent Common
Shares.
"1933 ACT" means the United States Securities Act of 1933, as amended.
"NON-REGISTERED HOLDER" means a Person who is a beneficial owner, and not a
registered holder, of St. Laurent Common Shares.
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<PAGE>
"NON-U.S. HOLDER" means any beneficial owner of St. Laurent Common Shares other
than a U.S. Holder.
"NOON SPOT RATE" means, on any day, the Noon Spot Rate on such day of the Bank
of Canada for one U.S. dollar expressed in Canadian dollars.
"NOTICE OF DISSENT" means a written objection to the Arrangement Resolution by a
St. Laurent Registered Shareholder.
"NOTICE OF SPECIAL MEETING" means the notice of special meeting of St. Laurent
Securityholders dated April 14, 2000, to be held to consider the Arrangement.
"NOTIFIABLE TRANSACTION" means a transaction subject to the pre-merger
notification requirements under the Competition Act.
"NOVACO" means 3038727 Nova Scotia Company, an unlimited liability company
incorporated under the laws of the Province of Nova Scotia and an indirect
wholly-owned Subsidiary of Smurfit-Stone.
"NYSE" means the New York Stock Exchange.
"OCC" means old corrugated containers.
"OFFER TO PAY" means a written offer to a Dissenting Shareholder by St. Laurent
to pay to such Person the fair value of such Person's St. Laurent Common Shares.
"PERSON" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other entity,
whether or not having legal status.
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in the form
and content of Schedule D to the Pre-Merger Agreement attached hereto and any
amendments or variations thereto made in accordance with Section 6.1 of the
Pre-Merger Agreement or Article 5 of the Plan of Arrangement or made at the
direction of the Court in the Final Order.
"PRE-MERGER AGREEMENT" means the pre-merger agreement dated as of February 23,
2000, between Smurfit-Stone, certain Subsidiaries of Smurfit-Stone and St.
Laurent, as amended and restated as of April 13, 2000, a copy of which is
attached hereto as Appendix B.
"PROPOSED AMENDMENTS" means the proposals to amend the Canadian Tax Act and the
regulations thereunder publicly announced by or on behalf of the Minister of
Finance (Canada) prior to the date hereof.
"RECORD DATE" means April 19, 2000.
"REPLACEMENT OPTION" means an option to purchase shares of Smurfit-Stone Common
Stock issued in exchange for a St. Laurent Option as described in "The
Arrangement -- Transaction Mechanics".
"ST. LAURENT" means St. Laurent Paperboard Inc., a corporation existing under
the CBCA.
"ST. LAURENT AFFILIATE" means an affiliate (as such term is defined for purposes
of Rule 145 under the 1933 Act) of St. Laurent.
"ST. LAURENT ARTICLES" means the articles of incorporation of St. Laurent, as
amended from time to time.
"ST. LAURENT BY-LAWS" means the by-laws of St. Laurent, as amended from time to
time.
"ST. LAURENT COMMON SHARES" means the outstanding common shares in the capital
of St. Laurent.
"ST. LAURENT DIRECTORS' STOCK OPTION AND SHARE PURCHASE PLAN" means that certain
Directors Stock Option and Share Purchase Plan of St. Laurent in effect as of
the date hereof.
"ST. LAURENT DISCLOSURE LETTER" means that certain letter dated as of February
23, 2000, as amended, and delivered by St. Laurent to the Smurfit-Stone Parties
pursuant to Section 3.1 of the Pre-Merger Agreement.
"ST. LAURENT EMPLOYEE SHARE PURCHASE PLAN" means the employee share purchase
plan of St. Laurent in effect as of the date hereof.
"ST. LAURENT FINANCIAL STATEMENTS" means the audited consolidated financial
statements (including, in each case, any notes thereto) of St. Laurent as at and
for the 12 month periods ended December 31, 1999, December 31, 1998, December
31, 1997 and December 31, 1996.
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<PAGE>
"ST. LAURENT LONG-TERM INCENTIVE PLAN" means the long-term incentive plan of St.
Laurent in effect as of the date hereof.
"ST. LAURENT MANAGERS' SHARE PURCHASE PLAN" means the managers' share purchase
plan of St. Laurent in effect as of the date hereof.
"ST. LAURENT MANAGERS' STOCK OPTION PLAN" mean the managers' stock option plan
of St. Laurent in effect as of the date hereof.
"ST. LAURENT MATERIAL SUBSIDIARY" means each Subsidiary of St. Laurent, the
total assets of which constituted more than ten percent (10%) of the
consolidated assets of St. Laurent, the total revenues of which constituted more
than ten percent (10%) of the consolidated revenues of St. Laurent or the total
operating income of which constituted more than ten percent of the consolidated
operating income of St. Laurent, in each case as set out in the financial
statements of St. Laurent as of and for the year ended December 31, 1998 and
including each affiliate of St. Laurent that directly or indirectly holds an
equity interest in each such Subsidiary and any other Subsidiary of St. Laurent
identified in the St. Laurent Disclosure Letter.
"ST. LAURENT OPTIONS" means the options to purchase St. Laurent Common Shares
granted under the St. Laurent Directors' Stock Option and Share Purchase Plan,
the St. Laurent Long-Term Incentive Plan and the St. Laurent Managers' Stock
Option Plan and being outstanding and unexercised.
"ST. LAURENT PARTIALLY OWNED ENTITIES" means Fibre Innovations, LLC, Grafx
Packaging Corp., Innovative Packaging Corp. and Oncorr Innovations Inc.
"ST. LAURENT PERFORMANCE SHARE PLAN" means the performance share plan of St.
Laurent in effect as of the date hereof;
"ST. LAURENT REGISTERED SHAREHOLDER" means a registered holder of St. Laurent
Common Shares.
"ST. LAURENT RIGHTS PLAN" means the Shareholder Rights Plan of St. Laurent
approved on February 1, 1995, as amended on April 28, 1995, on March 5, 1998, on
May 7, 1998 and on February 23, 2000.
"ST. LAURENT RSUS" means the restricted share units granted by St. Laurent to
certain officers and managers pursuant to the St. Laurent Managers' Share
Purchase Plan and being outstanding and unexercised on the Effective Date.
"ST. LAURENT SECURITYHOLDERS" means the holders of St. Laurent Common Shares,
St. Laurent Options and St. Laurent RSUs, collectively.
"ST. LAURENT SHARE PURCHASE PLANS" means, collectively, the St. Laurent
Directors' Stock Option and Share Purchase Plan, the St. Laurent Employee Share
Purchase Plan, the St. Laurent Subsidiary Employee Stock Purchase Plan (U.S.)
and the St. Laurent Managers' Share Purchase Plan.
"ST. LAURENT SUBSIDIARY EMPLOYEE STOCK PURCHASE PLAN (U.S.)" means that certain
Employee Stock Purchase Plan (U.S.) of a subsidiary of St. Laurent in effect as
of the date hereof.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act (Quebec) and the rules, regulations
and policies made thereunder, as amended.
"SECURITY PORTION OF THE EXCHANGE CONSIDERATION" means 0.5 shares of
Smurfit-Stone Common Stock.
"SIBV" means Smurfit International B.V., an entity organized under the laws of
The Netherlands and an indirect wholly-owned Subsidiary of JS Group.
"SMURFIT-STONE" means Smurfit-Stone Container Corporation, a Delaware
corporation.
"SMURFIT-STONE BOARD OF DIRECTORS" means the board of directors of
Smurfit-Stone.
"SMURFIT-STONE BYLAWS" means the Second Amended and Restated Bylaws of
Smurfit-Stone, as amended from time to time.
"SMURFIT-STONE CHARTER" means the Restated Certificate of Incorporation of
Smurfit-Stone, as amended from time to time.
"SMURFIT-STONE CLOSING PRICE" means the closing price on NASDAQ of Smurfit-Stone
Common Stock on the day immediately preceding the Effective Date.
5
<PAGE>
"SMURFIT-STONE COMMON STOCK" means the common stock, par value $0.01 per share,
of Smurfit-Stone.
"SMURFIT-STONE DISCLOSURE LETTER" means that certain letter dated as of February
23, 2000 and delivered by Smurfit-Stone to St. Laurent pursuant to Section 3.2
of the Pre-Merger Agreement.
"SMURFIT-STONE MATERIAL SUBSIDIARY" means each Subsidiary of Smurfit-Stone, the
total assets of which constituted more than ten percent (10%) of the
consolidated assets of Smurfit-Stone, the total revenues of which constituted
more than ten percent (10%) of the consolidated revenues of Smurfit-Stone or the
total operating income of which constituted more than ten percent (10%) of the
consolidated operating income of Smurfit-Stone, in each case as set out in the
financial statements of Smurfit-Stone for the year ended December 31, 1998 and
including each Affiliate of Smurfit-Stone that directly or indirectly holds an
equity interest in each such Subsidiary.
"SMURFIT-STONE OPTION SHARES" has the meaning ascribed thereto under the heading
"The Arrangement -- Transaction Mechanics".
"SMURFIT-STONE PARTIES" means Smurfit-Stone, Stone, Canco, Novaco and, where the
context so requires, Newco.
"SMURFIT-STONE STOCKHOLDERS" means the holders of Smurfit-Stone Common Stock.
"SMURFIT-STONE TRADING PRICE" means the average of the closing prices of
Smurfit-Stone Common Stock on NASDAQ during a period of 20 consecutive trading
days ending on the Business Day immediately preceding the Effective Date.
"SPECIFIED SMURFIT-STONE EVENT" means the occurrence of a Material Adverse
Change with respect to Smurfit-Stone, or a breach by a Smurfit-Stone Party of
its obligations under the Pre-Merger Agreement, if by reason thereof, and taking
into account the notice and cure provisions in Section 5.4 of the Pre-Merger
Agreement, St. Laurent would be entitled to rely on the failure of a condition
to Closing set forth in Sections 5.3(1)(a), (b), (c), (e) or (f) of the Pre-
Merger Agreement as a reason not to complete the Arrangement.
"STONE" means Stone Container Corporation, a Delaware corporation and
wholly-owned Subsidiary of Smurfit-Stone.
"SUBSIDIARY" means, with respect to a specified body corporate, any body
corporate of which more than 50% of the outstanding shares ordinarily entitled
to elect a majority of the board of directors thereof (whether or not shares of
any other class or classes shall or might be entitled to vote upon the happening
of any event or contingency) are at the time owned directly or indirectly by
such specified body corporate and includes any body corporate, partnership,
joint venture or other entity over which it exercises direction or control or
which is in a like relation to a subsidiary.
"SUPERIOR PROPOSAL" means any bona fide proposal by a third party to, directly
or indirectly, acquire assets representing more than 20% of the book value (on a
consolidated basis) of St. Laurent's total assets or more than 20% of the
outstanding St. Laurent Common Shares, whether by way of merger, amalgamation,
arrangement, take-over bid, sale of assets or otherwise, and that in the good
faith determination of the Board of Directors after consultation with financial
advisors and outside counsel (a) is reasonably capable of being completed,
taking into account all legal, financial, financing, regulatory and other
aspects of such proposal and the party making such proposal, and (b) would, if
consummated in accordance with its terms, result in a transaction more
favourable to the St. Laurent Securityholders than the Transaction.
"TRANSACTION" means the transactions contemplated by the Plan of Arrangement,
whereby, among other things, Smurfit-Stone will become, indirectly through
Newco, the sole beneficial holder of all of the St. Laurent Common Shares
outstanding after giving effect to the Arrangement.
"TRANSFER AGENT" means Chase Mellon Shareholder Services, L.L.C. or such other
Person as may from time to time be appointed by Smurfit-Stone as the registrar
and transfer agent for the shares of Smurfit-Stone Common Stock.
"TSE" means The Toronto Stock Exchange.
"U.S. GAAP" means United States generally accepted accounting principles.
"U.S. HOLDER" has the meaning ascribed to such term under the heading "Income
Tax Considerations to Holders of St. Laurent Common Shares -- United States
Federal Income Tax Considerations".
6
<PAGE>
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
IN THIS CIRCULAR, ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS, UNLESS
INDICATED OTHERWISE.
THE HISTORICAL FINANCIAL STATEMENTS OF ST. LAURENT CONTAINED IN THIS
CIRCULAR HAVE BEEN PREPARED IN ACCORDANCE WITH CANADIAN GAAP. THE HISTORICAL
FINANCIAL STATEMENTS OF SMURFIT-STONE CONTAINED IN THIS CIRCULAR HAVE BEEN
PREPARED IN ACCORDANCE WITH U.S. GAAP. THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF SMURFIT-STONE CONTAINED IN THIS CIRCULAR,
INCLUDING 1999 HISTORICAL DATA OF ST. LAURENT, HAVE BEEN PREPARED IN ACCORDANCE
WITH U.S. GAAP.
CANADIAN/U.S. EXCHANGE RATES
The following table sets forth, for each period indicated, the high and low
exchange rates for one U.S. dollar expressed in Canadian dollars, the average
exchange rate for such period, and the exchange rate at the end of such annual
period, in each case, based upon the Noon Spot Rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
High........................................................ 1.4413 1.5845 1.5470
Low......................................................... 1.3373 1.4037 1.4420
Average..................................................... 1.3844 1.4831 1.4858
Annual Period Ended......................................... 1.4305 1.5305 1.4433
</TABLE>
On February 17, 2000, February 23, 2000 and April 13, 2000, the exchange
rate for one U.S. dollar expressed in Canadian dollars was Cdn.$1.4522,
Cdn.$1.4644 and Cdn.$1.4661, respectively, based on the Noon Spot Rate.
INFORMATION CONCERNING SMURFIT-STONE AND ITS AFFILIATES
ALL INFORMATION IN THIS CIRCULAR RELATING TO SMURFIT-STONE AND/OR ITS
AFFILIATES IS BASED SOLELY UPON PUBLICLY AVAILABLE INFORMATION OR OTHER
INFORMATION PROVIDED TO ST. LAURENT BY SMURFIT-STONE. AS SUCH, ST. LAURENT
ASSUMES NO RESPONSIBILITY FOR THE INFORMATION IN THIS CIRCULAR RELATING TO
SMURFIT-STONE AND/OR ITS AFFILIATES.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Circular, such as statements
concerning Smurfit-Stone's anticipated financial performance and other factors
that could affect future operations or financial position, and other
non-historical facts, are "forward-looking statements" within the meaning of
Section 21E of the Exchange Act. Such statements often include the words,
"believes," "expects," "anticipates," "intends," "plans," "estimates," or
similar expressions. Since these statements are based on factors that involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such factors include,
among others, Smurfit-Stone's ability to integrate into its existing operations
St. Laurent's business; the impact of general economic conditions in the U.S.,
Canada and other countries in which Smurfit-Stone does business (including
Europe and Latin America); industry conditions, including competition and
product and raw material prices; fluctuations in exchange rates and currency
values; capital expenditure requirements; legislative or regulatory
requirements, particularly concerning environmental matters; interest rates; and
access to capital markets.
7
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Circular. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Circular. St. Laurent
Securityholders should read the entire Circular, including the Appendices.
Capitalized terms used in this summary are defined in the Glossary of Terms or
elsewhere in this Circular. Unless the context otherwise dictates,
"Smurfit-Stone" refers to Smurfit-Stone and its Subsidiaries and "St. Laurent"
refers to St. Laurent, its Subsidiaries and the St. Laurent Partially Owned
Entities.
BUSINESS OF ST. LAURENT
St. Laurent is a leading North American manufacturer, supplier and
converter of high-quality, value-added paperboard products, serving a diverse
customer base in North America and selected international markets. St. Laurent
has two primary business segments: paperboard and paperboard converting and
packaging.
BUSINESS OF SMURFIT-STONE
Smurfit-Stone is an integrated producer of containerboard, corrugated
containers and other packaging products. Smurfit-Stone is the industry's leading
manufacturer of paper and paper-based packaging, including containerboard,
corrugated containers, industrial bags and clay-coated recycled boxboard, and is
the world's largest paper recycler. In addition, Smurfit-Stone is a leading
producer of solid bleached sulfate, folding cartons, paper tubes and cores, and
labels.
DATE, PLACE AND PURPOSE OF THE MEETING
The Meeting will be held at the Sheraton Centre, 1201 Rene-Levesque
Boulevard West, Ballroom West, Montreal, Quebec on May 26, 2000 at 10:00 a.m.,
Montreal time. The purpose of the Meeting is to consider and, if thought
advisable, to approve the Arrangement.
ST. LAURENT SECURITYHOLDERS ENTITLED TO VOTE
Each St. Laurent Registered Shareholder at the close of business (Montreal
time) on April 19, 2000 is entitled to attend the Meeting in person or by proxy
and to cast one vote for each St. Laurent Common Share held by it on such date.
Each holder of St. Laurent Options at the close of business (Montreal time) on
April 19, 2000 is entitled to attend the Meeting in person or by proxy and to
cast one vote for each St. Laurent Common Share that such holder would have
received upon a valid exercise of its St. Laurent Options. Each holder of St.
Laurent RSUs at the close of business (Montreal time) on April 19, 2000 is
entitled to attend the Meeting in person or by proxy and to cast one vote for
each St. Laurent Common Share that such holder would have received upon the
vesting of such holder's St. Laurent RSUs.
On April 14, 2000, the total number of votes entitled to be cast at the
Meeting was 50,742,401.
VOTE REQUIRED
The Arrangement must be approved by at least 66 2/3% of the votes cast by
St. Laurent Securityholders present in person or by proxy and entitled to vote
at the Meeting (excluding spoiled, illegible and/or defective votes and
abstentions).
To the best knowledge of the management of St. Laurent, on April 14, 2000,
no Person beneficially owned or exercised control or direction over St. Laurent
Common Shares, St. Laurent Options or St. Laurent RSUs carrying, in the
aggregate, more than 10% of the votes entitled to be cast at the Meeting.
On April 14, 2000, the directors and officers of St. Laurent as a group
beneficially owned or exercised control or direction over approximately 135,112
St. Laurent Common Shares or were the beneficial holders of St. Laurent Options
and St. Laurent RSUs entitling them to receive 745,390 St. Laurent Common
Shares, equal to an aggregate of approximately 2% of the votes entitled to be
cast at the Meeting. To the knowledge of management of St. Laurent, each of the
directors and officers of St. Laurent intends to vote in favour of the
Arrangement.
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<PAGE>
REASONS FOR THE TRANSACTION
In addition to enhancing the strategic position of Smurfit-Stone,
Smurfit-Stone and St. Laurent believe that the Transaction will:
(a) strengthen Smurfit-Stone's position as one of the world's premier
manufacturers of paperboard and paper-based packaging products:
The combination of Smurfit-Stone with St. Laurent, a producer of
high-quality, premium packaging products, will strengthen
Smurfit-Stone's position as one of the world's premier producers of
containerboard, corrugated containers and folding cartons. Based on
the unaudited pro forma data appearing elsewhere in this Circular,
the combined company had pro forma net sales of approximately $8.0
billion and income from continuing operations before extraordinary
item of approximately $154 million for 1999;
(b) enable Smurfit-Stone to expand its customer base and provide its
customers with better service and a broader range of paper-based
packaging products:
The Transaction will further diversify Smurfit-Stone's product mix
(particularly in the area of premium packaging products) and
geographic reach, which will enable Smurfit-Stone to expand its
customer base and better service the needs of its existing customers;
and
(c) create opportunities for significant cost savings and other financial
and operating benefits through the integration of St. Laurent's and
Smurfit-Stone's operations:
Smurfit-Stone and St. Laurent have identified significant
opportunities to enhance operating efficiencies and achieve cost
savings in excess of those savings that could be achieved by
operating the two companies independently.
THE ARRANGEMENT
The Arrangement provides for the combination of Smurfit-Stone and St.
Laurent in a transaction in which:
(a) each outstanding St. Laurent Common Share (other than St. Laurent
Common Shares held by any Smurfit-Stone Party or any Affiliate
thereof) will be transferred by the holder thereof to Newco in
exchange for the Exchange Consideration (or, in the case of Dissenting
Shareholders, to St. Laurent for the fair value of its St. Laurent
Common Shares);
(b) each St. Laurent Option shall be exchanged for a Replacement Option to
purchase that number of shares of Smurfit-Stone Common Stock equal to
the sum of (i) the Security Portion of the Exchange Consideration
times the number of St. Laurent Common Shares subject to the St.
Laurent Option; plus (ii) the quotient of (A) U.S.$12.50 times the
number of St. Laurent Common Shares subject to the St. Laurent Option,
divided by (B) the Smurfit-Stone Closing Price; the exercise price per
share of Smurfit-Stone Common Stock for each Replacement Option shall
be the quotient of (x) an aggregate amount equal to the number of St.
Laurent Common Shares subject to the St. Laurent Option exchanged for
such Replacement Option times the original exercise price per St.
Laurent Common Share pursuant to such St. Laurent Option, at the
option of the holder (i) converted into its U.S. dollar equivalent
based on the Noon Spot Rate on the day immediately preceding the
Effective Date, or (ii) expressed in Canadian dollars, the whole
divided by (y) the Smurfit-Stone Option Shares subject to such
Replacement Option; and
(c) each St. Laurent RSU shall be fully vested and entitle its holder to
receive at the Effective Time, with respect to each St. Laurent Common
Share subject to such St. Laurent RSU, the Exchange Consideration.
HOLDERS OF ST. LAURENT OPTIONS HAVE A CHOICE WHETHER TO RECEIVE REPLACEMENT
OPTIONS UNDER THE ARRANGEMENT OR TO EXERCISE THEIR ST. LAURENT OPTIONS PRIOR TO
CLOSING AND RECEIVE THE EXCHANGE CONSIDERATION UNDER THE ARRANGEMENT. SUBJECT TO
REGULATORY APPROVAL, ALL OUTSTANDING ST. LAURENT OPTIONS SHALL BECOME VESTED AND
IMMEDIATELY EXERCISABLE (CONDITIONAL UPON THE ARRANGEMENT BEING COMPLETED) SO
THAT HOLDERS OF ST. LAURENT OPTIONS MAY PARTICIPATE IN, AND BENEFIT FROM, THE
ARRANGEMENT AS HOLDERS OF ST. LAURENT COMMON SHARES.
As a result of the Arrangement, Newco will become the sole beneficial owner
of all of the outstanding St. Laurent Common Shares.
9
<PAGE>
Under the Arrangement, Smurfit-Stone, through Newco, will be required to
issue up to approximately 25.4 million shares of Smurfit-Stone Common Stock and
pay up to $634 million in the aggregate to the St. Laurent Securityholders. On
March 31, 2000, there were approximately 220.5 million shares of Smurfit-Stone
Common Stock outstanding on a fully diluted basis. Consequently, after
completion of the Arrangement, existing St. Laurent Securityholders will
beneficially own or have the right to acquire up to 10% of the outstanding
Smurfit-Stone Common Stock on a fully diluted basis.
EFFECTIVE TIME
It is anticipated that the Arrangement will become effective after the
required approvals of the St. Laurent Securityholders, the Court and the
Appropriate Governmental Approvals have been obtained and all other conditions
to Closing have been satisfied or waived. As of the date hereof, St. Laurent
anticipates that the Arrangement will become effective on or about May 31, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has determined unanimously that the Arrangement is
fair to the St. Laurent Securityholders and is in the best interests of St.
Laurent. Accordingly, disinterested members of the Board of Directors
unanimously recommend that the St. Laurent Securityholders vote to approve the
Arrangement.
OPINIONS OF ST. LAURENT'S FINANCIAL ADVISORS
On February 23, 2000 each of BWDR and DLJ delivered its opinion to the
Board of Directors to the effect that, as of that date, based upon and subject
to, the various assumptions, limitations and qualifications set forth therein,
the Exchange Consideration to be received by the holders of St. Laurent Common
Shares pursuant to the Arrangement is fair to such holders from a financial
point of view. The full text of the BWDR Fairness Opinion is reproduced as
Appendix E to this Circular and the full text of the DLJ Fairness Opinion is
reproduced as Appendix F to this Circular. See "The Arrangement -- Opinions of
St. Laurent's Financial Advisors -- The BWDR Fairness Opinion" and "The
Arrangement -- Opinions of St. Laurent's Financial Advisors -- The DLJ Fairness
Opinion".
COURT APPROVAL AND COMPLETION OF THE ARRANGEMENT
An arrangement under the CBCA requires the approval of a court of competent
jurisdiction. On April 14, 2000, St. Laurent obtained the Interim Order
providing for the calling and holding of the Meeting and other procedural
matters.
Subject to the approval of the Arrangement by the St. Laurent
Securityholders at the Meeting, the hearing in respect of the Final Order is
scheduled to take place on May 30, 2000 at 9:00 a.m. (Montreal time) in the
Court at 1 Notre-Dame Street East, Montreal, Quebec. Any St. Laurent
Securityholder who wishes to present evidence or arguments at such hearing must
file and deliver an appearance, and any affidavits on which it relies, in
accordance with the rules of the Court and the provisions of the Interim Order.
The Court will consider, among other things, the fairness and reasonableness of
the Arrangement. The Court may approve the Arrangement unconditionally or
subject to compliance with any conditions the Court specifies.
DISSENT RIGHTS
St. Laurent Registered Shareholders have the right to dissent from the
Arrangement Resolution and any St. Laurent Registered Shareholders who dissent
in compliance with Section 190 of the CBCA and the Plan of Arrangement will be
entitled, if the Arrangement becomes effective, to be paid by St. Laurent the
fair value of the St. Laurent Common Shares they hold. ANY ST. LAURENT
REGISTERED SHAREHOLDER WHO WISHES TO DISSENT MUST PROVIDE A NOTICE OF DISSENT TO
THE SECRETARY OF ST. LAURENT PRIOR TO 5:00 P.M. (MONTREAL TIME) ON THE BUSINESS
DAY PRECEDING THE DATE OF THE MEETING. See "Dissenting Shareholders Rights".
REGULATORY MATTERS
The completion of the Arrangement is subject to obtaining certain
governmental consents and approvals including those under the Competition Act
and the Investment Canada Act, exemption orders from the registration and
prospectus requirements with respect to the issuance and first resale of
Smurfit-Stone Common Stock and the approval of NASDAQ regarding the listing of
the Smurfit-Stone Common Stock to be issued under the Arrangement or upon
exercise of the Replacement Options.
10
<PAGE>
CONDITIONS TO CLOSING
The Pre-Merger Agreement provides that the parties' obligations to complete
the Arrangement are subject to the satisfaction, on or before the Effective
Date, of certain conditions precedent, each of which may only be waived by the
mutual consent of Smurfit-Stone and St. Laurent. These conditions include, among
others:
(a) the Arrangement shall have been approved at the Meeting by not less
than 66 2/3% of the votes cast by the St. Laurent Securityholders who
are present or represented at the Meeting;
(b) the Arrangement shall have been approved at the Meeting in accordance
with any additional conditions which may be imposed by the Interim
Order;
(c) the Interim Order and the Final Order shall each have been obtained in
form and terms satisfactory to each of St. Laurent and Smurfit-Stone,
acting reasonably, and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
(d) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by the
Pre-Merger Agreement and there shall be no proceeding (other than an
appeal made in connection with the Arrangement), of a judicial or
administrative nature or otherwise, brought by a Governmental Entity
in progress or threatened that relates to or results from the
transactions contemplated by the Pre-Merger Agreement that would, if
successful, result in an order or ruling that would preclude
completion of the transactions contemplated by the Pre-Merger
Agreement in accordance with the terms thereof or would otherwise be
inconsistent with the Appropriate Regulatory Approvals which have been
obtained; and
(e) the absence of any Material Adverse Change with respect to either St.
Laurent or Smurfit-Stone between the date of the Pre-Merger Agreement
and the Effective Date.
TERMINATION AND BREAK FEE
Smurfit-Stone or St. Laurent may terminate the Pre-Merger Agreement if any
condition precedent to completion of the Arrangement in its favour has not been
satisfied at or prior to the Effective Date other than as a result of a material
default by it, subject in some cases to notice and a cure period. In addition,
the Pre-Merger Agreement may be terminated prior to the Effective Date, among
other things, (i) by the mutual agreement of St. Laurent and the Smurfit-Stone
Parties; (ii) by either St. Laurent or Smurfit-Stone, if any law or regulation
is passed that makes completion of the Arrangement illegal or if there is a
final court order preventing Smurfit-Stone or St. Laurent from completing the
Arrangement; (iii) by Smurfit-Stone if (a) the Board of Directors fails to
recommend or withdraws or modifies or changes in a manner adverse to
Smurfit-Stone its approval or recommendation of the Pre-Merger Agreement or the
Arrangement or recommends an Acquisition Proposal, or (b) St. Laurent materially
and willfully breaches its covenant not to initiate or encourage or enter into
any form of agreement, arrangement or understanding with regard to an
Acquisition Proposal, or (c) St. Laurent accepts a Superior Proposal in
violation of the terms of the Pre-Merger Agreement, (iv) by St. Laurent in order
to enter into a definitive written agreement with respect to a Superior
Proposal, provided Smurfit-Stone has been given the opportunity, pursuant to
Section 4.6 of the Pre-Merger Agreement, to amend the Pre-Merger Agreement and
any Break Fee required to be paid pursuant to the Pre-Merger Agreement has been
paid (no Break Fee is required if, at the time of such termination, a Specified
Smurfit-Stone Event has occurred and is continuing); or (v) by St. Laurent or
Smurfit-Stone if the St. Laurent Securityholders do not approve the Arrangement
at the Meeting.
If the Effective Date does not occur on or prior to the Drop Dead Date,
then the Pre-Merger Agreement will terminate.
The Break Fee of $30 million is payable by St. Laurent to Smurfit-Stone
upon the occurrence of a Break Fee Event in certain circumstances where the
Pre-Merger Agreement will be terminated including if (i) St. Laurent enters into
a definitive written agreement with respect to a Superior Proposal, (ii) the
Board of Directors fails to recommend or withdraws, modifies or changes in a
manner adverse to Smurfit-Stone its approval or recommendation of the Pre-
Merger Agreement or the Arrangement or recommends an Acquisition Proposal, or
(iii) the required vote at the Meeting is not obtained and an Acquisition
Proposal is entered into or consummated within a period of 12 months following
the termination of the Pre-Merger Agreement, unless a Specified Smurfit-Stone
Event has occurred and is continuing.
11
<PAGE>
SMURFIT-STONE COMMON STOCK
Holders of Smurfit-Stone Common Stock are entitled to receive from funds
legally available for the payment thereof, dividends when, as and if declared by
the Smurfit-Stone Board of Directors at any regular or special meeting, subject
to any preferential dividend rights granted to the holders of any outstanding
shares of preferred stock. In the event of liquidation, each share of
Smurfit-Stone Common Stock will be entitled to share pro rata in any
distribution of Smurfit-Stone's assets after payment or providing for the
payment of liabilities and the liquidation preference of any outstanding shares
of preferred stock. Each holder of Smurfit-Stone Common Stock will be entitled
to one vote for each share of Smurfit-Stone Common Stock held of record on the
applicable record date on all matters submitted to a vote of stockholders,
including the election of directors.
Holders of Smurfit-Stone Common Stock generally have no cumulative voting
rights or preemptive rights to purchase or subscribe for any stock or other
securities and there are no conversion rights or redemption rights or sinking
fund provisions with respect to Smurfit-Stone Common Stock. See "Information
Concerning Smurfit-Stone -- Share and Loan Capital Structure -- Subscription
Agreement".
STOCK EXCHANGE LISTING
Smurfit-Stone Common Stock is listed on NASDAQ. Smurfit-Stone will file an
application with NASDAQ to have the Smurfit-Stone Common Stock to be issued
pursuant to the Arrangement or upon exercise of the Replacement Options listed
on NASDAQ.
DIVIDEND HISTORY AND POLICY
St. Laurent has not paid dividends since its incorporation, and does not
currently intend to pay dividends on the St. Laurent Common Shares. St.
Laurent's credit facilities contain restrictive covenants including a
restriction on the declaration or payment of aggregate cash dividends on the
outstanding St. Laurent Common Shares if certain defaults or events of default
have occurred and are continuing or if the payment of such dividends would
result in a default or event of default. In connection with the Arrangement,
Smurfit-Stone will repay all amounts owed by St. Laurent under such credit
facilities.
Smurfit-Stone has not paid cash dividends on Smurfit-Stone Common Stock and
does not intend to pay dividends on such shares in the foreseeable future. The
ability of Smurfit-Stone to pay dividends is restricted by certain provisions
contained in various agreements and indentures relating to outstanding
indebtedness of Smurfit-Stone and its Subsidiaries.
CERTAIN TAX CONSIDERATIONS
Holders of St. Laurent Common Shares should carefully read the information
under "Income Tax Considerations to Holders of St. Laurent Common Shares" which
qualifies the information set forth below. The following summary of income tax
considerations is intended as a general summary and does not discuss all of the
facts and circumstances that may affect the tax liability of particular holders
of St. Laurent Common Shares. Therefore, all holders of St. Laurent Common
Shares are urged to consult their tax advisors. No advance income tax rulings
have been sought or obtained with respect to any of the transactions described
herein.
For Canadian federal income tax purposes, a holder of St. Laurent Common
Shares who is a Canadian Resident, holds St. Laurent Common Shares as capital
property and who receives Smurfit-Stone Common Stock and cash pursuant to the
Arrangement, will realize a capital gain (or a capital loss) equal to the amount
by which the sum of the fair market value of the Smurfit-Stone Common Stock and
cash (and any cash in lieu of a fractional share of Smurfit-Stone Common Stock)
received by such holder on the exchange, net of any reasonable costs of
disposition, exceeds (or is less than) the adjusted cost base to such holder of
the St. Laurent Common Shares exchanged. A holder of St. Laurent Common Shares
who is not a Canadian Resident generally will not be subject to tax in respect
of any capital gain realized on the exchange of such shares for Smurfit-Stone
Common Stock and cash pursuant to the Arrangement unless those St. Laurent
Common Shares constitute "taxable Canadian property" to such holder within the
meaning of the Canadian Tax Act and that gain is not otherwise exempt from tax
under the Canadian Tax Act pursuant to an exemption contained in an applicable
income tax convention.
The exchange by a U.S. Holder of St. Laurent Common Shares for
Smurfit-Stone Common Stock and cash will be a taxable event for United States
federal income tax purposes.
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INVESTMENT CONSIDERATIONS AND RISK FACTORS
St. Laurent Securityholders should consider certain factors in evaluating
whether to approve the Arrangement including, among others, risks relating to
the Canadian and United States federal income tax treatment of the Exchange
Consideration, the fixed nature of the Exchange Consideration despite potential
changes in stock prices, the integration of operations and realization of
synergies, the highly leveraged capital structure of Smurfit-Stone, the ability
of Smurfit-Stone to service debt and liquidity, the limited ability of
Smurfit-Stone to incur indebtedness, the cyclicality of the industries in which
Smurfit-Stone and St. Laurent compete, the influence of a significant
stockholder of Smurfit-Stone, competition and certain environmental matters. See
"Investment Considerations and Other Risk Factors".
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information of St.
Laurent (reconciled to U.S. GAAP) and Smurfit-Stone for the year ended December
31, 1999 and unaudited pro forma financial information of Smurfit-Stone for the
year ended December 31, 1999, after giving effect to the Transaction, and should
be read in conjunction with the Consolidated Financial Statements of St.
Laurent, the Consolidated Financial Statements of Smurfit-Stone and the
unaudited Pro Forma Condensed Consolidated Financial Statements of Smurfit-Stone
appearing elsewhere in this Circular.
<TABLE>
<CAPTION>
SMURFIT-STONE ST. LAURENT
HISTORICAL(1) HISTORICAL PRO FORMA
------------- ----------- ---------
(in $ millions)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999
Net sales................................................. $7,151 $ 916 $ 8,014
Income (loss) from continuing operations before
extraordinary item..................................... 163 37 154
Basic income (loss) per common share from continuing
operations before extraordinary item................... $ .75 $ .75 $ .64
Diluted income (loss) per common share from continuing
operations before extraordinary item................... $ .74 $ .75 $ .63
AS OF DECEMBER 31, 1999
Total assets.............................................. $9,859 $1,158 $11,527
Long-term debt............................................ 4,793 386 5,843
Deferred income tax liability............................. 839 16 904
Stockholders' equity...................................... 1,847 607 2,240
</TABLE>
- ---------------
(1) Results for Smurfit-Stone include after-tax gains on asset sales of $269
million.
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GENERAL PROXY INFORMATION
GENERAL
This Circular is furnished in connection with the solicitation of proxies
by and on behalf of the management of St. Laurent and the Board of Directors.
SOLICITATION OF PROXIES
THE MANAGEMENT OF ST. LAURENT IS SOLICITING PROXIES FOR USE AT THE MEETING
AND HAS DESIGNATED THE INDIVIDUALS LISTED ON THE ENCLOSED FORM OF PROXY AS
PERSONS WHOM ST. LAURENT SECURITYHOLDERS MAY APPOINT AS THEIR PROXYHOLDERS. IF A
ST. LAURENT SECURITYHOLDER WISHES TO APPOINT AN INDIVIDUAL NOT LISTED ON THE
ENCLOSED FORM OF PROXY TO REPRESENT HIM OR HER AT THE MEETING, THE ST. LAURENT
SECURITYHOLDER MAY DO SO EITHER BY CROSSING OUT THE NAMES ON THE ENCLOSED FORM
OF PROXY AND INSERTING THE NAME OF THAT OTHER INDIVIDUAL IN THE BLANK SPACE
PROVIDED ON THE ENCLOSED FORM OF PROXY OR BY COMPLETING ANOTHER ACCEPTABLE FORM
OF PROXY. A proxy nominee need not be a St. Laurent Securityholder. If the St.
Laurent Securityholder is a corporation, it must execute the proxy by an officer
or properly appointed attorney.
RECORD DATE AND ENTITLEMENT TO VOTE
The record date for the purpose of determining St. Laurent Registered
Shareholders and holders of St. Laurent Options and St. Laurent RSUs entitled to
receive the Circular has been fixed as the close of business (Montreal time) on
April 19, 2000.
Each St. Laurent Registered Shareholder at the close of business (Montreal
time) on the Record Date is entitled to attend the Meeting in person or by proxy
and to cast one vote for each St. Laurent Common Share held by it on the Record
Date. Each holder of St. Laurent Options at the close of business (Montreal
time) on the Record Date is entitled to attend the Meeting in person or by proxy
and to cast one vote for each St. Laurent Common Share such holder would have
received upon a valid exercise of the St. Laurent Options held by it on the
Record Date. Each holder of St. Laurent RSUs on the Record Date is entitled to
attend the Meeting in person or by proxy and to cast one vote for each St.
Laurent Common Share such holder would have received upon vesting of such St.
Laurent RSUs.
SIGNING AND DEPOSIT OF PROXIES
For a proxy to be valid, a St. Laurent Securityholder (or the St. Laurent
Securityholder's attorney, who must be authorized in writing) must sign and date
it, and must either return it in the envelope provided or deposit it at the
offices of Montreal Trust Company at 1800 McGill College Avenue, 6(th) floor,
Montreal, Quebec H3A 3K9 not later than 5:00 p.m. (Montreal time) on May 25,
2000 or, if the Meeting is adjourned, 24 hours (excluding Saturdays, Sundays and
holidays) before the time the adjourned Meeting is to be reconvened. An undated
but executed proxy will be deemed to be dated the date of this Circular.
REVOCATION OF PROXIES
A St. Laurent Securityholder may revoke a proxy at any time before the
Meeting by executing a valid form of revocation and delivering it to St.
Laurent's registered office or the offices of Montreal Trust Company, at the
address referred to above, at any time up to and including the last Business Day
preceding the day of the Meeting, or any adjournment thereof, or to the Chairman
of the Meeting at any time before the Meeting or any adjournment thereof, or in
any other manner provided by law. If the St. Laurent Securityholder attends the
Meeting and votes on a poll, it will automatically be revoking any valid proxy
previously delivered by it.
VOTING OF PROXIES
On any poll, the individuals named in the enclosed form of proxy will vote
the St. Laurent Common Shares, St. Laurent Options or St. Laurent RSUs
represented by proxy in accordance with the instructions of the St. Laurent
Securityholder who appointed them. If there are no instructions or the
instructions are not certain, on any poll they will vote the St. Laurent Common
Shares, St. Laurent Options and St. Laurent RSUs in favour of the Arrangement
Resolution. The enclosed form of proxy, when properly completed and signed,
confers discretionary authority on the appointed individuals to vote as they see
fit on any amendment or variation to any of the matters identified in the Notice
of Special Meeting and on any other matter that may properly be brought before
the Meeting. At the date hereof, neither the Board of Directors nor management
of St. Laurent is aware of any variation, amendment or other matter to be
presented for a vote at the Meeting.
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<PAGE>
VOTING SHARES
On April 14, 2000 there were outstanding (i) 49,806,080 St. Laurent Common
Shares, (ii) 924,502 St. Laurent Options entitling the holders thereof to
receive upon the valid exercise of such options 924,502 St. Laurent Common
Shares and (iii) 11,819 St. Laurent RSUs entitling the holders thereof to
receive 11,819 St. Laurent Common Shares. Each St. Laurent Common Share entitles
the holder thereof to the right to one vote at the Meeting. Each holder of St.
Laurent Options and St. Laurent RSUs shall have the right to one vote at the
Meeting for each St. Laurent Common Share the holder thereof is entitled to
receive upon the valid exercise of same.
To the best knowledge of management of St. Laurent, on April 14, 2000, no
Person beneficially owned or exercised control or direction over, directly or
indirectly, St. Laurent Common Shares, St. Laurent Options and St. Laurent RSUs
carrying in the aggregate more than 10% of the votes entitled to be cast at the
Meeting.
REQUIRED VOTES TO APPROVE THE ARRANGEMENT
Subject to any further order of the Court, the Arrangement Resolution must
be approved by the affirmative vote of at least 66 2/3% of the votes cast
thereon (and for this purpose, any spoiled votes, illegible votes, defective
votes and abstentions shall be considered not to be votes cast).
INTEREST OF MANAGEMENT
Except as set forth under "Interests of Certain Persons in the
Arrangement", management of St. Laurent is unaware of any material interest of
any director or officer of St. Laurent, or any associate or Affiliate of any
such individual or of St. Laurent in any transaction since January 1, 1999 or in
any proposed transaction or in connection with the Arrangement that has
materially adversely affected or could materially adversely affect St. Laurent.
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<PAGE>
THE ARRANGEMENT
BACKGROUND OF THE ARRANGEMENT
On November 13, 1999, Mr. Ray Curran, the President and Chief Executive
Officer of Smurfit-Stone, met with Mr. Joseph J. Gurandiano, the President and
Chief Executive Officer of St. Laurent, to inquire whether St. Laurent would be
interested in pursuing a possible business combination with Smurfit-Stone.
On November 15, 1999, management of St. Laurent consulted with BWDR, its
financial advisor, and retained Goodman Phillips & Vineberg, its legal advisor,
with a view to determining whether a possible business combination with
Smurfit-Stone could be developed and, contemporaneously therewith, DLJ was also
informed of the inquiry.
On November 26, 1999, the Board of Directors was informed of the inquiry
made by Mr. Curran and of management's interest in pursuing discussions
regarding a possible business combination with Smurfit-Stone.
On November 29, 1999, St. Laurent and Smurfit-Stone entered into the
Confidentiality Agreements, following which the parties commenced preliminary
due diligence during the month of December 1999.
In early January 2000, St. Laurent informed DLJ that it would be retained
as an additional financial advisor and DLJ was formally retained on February 10,
2000.
During the months of January and February 2000, representatives of St.
Laurent and Smurfit-Stone, and their respective financial and legal advisors,
met on several occasions to discuss a possible transaction, including the review
of structural and tax matters, discuss valuation considerations, complete due
diligence and negotiate the Pre-Merger Agreement.
On February 1, 2000, Smurfit-Stone sent to St. Laurent a written,
non-binding "expression of interest" relating to a business combination of St.
Laurent with Smurfit-Stone. The Board of Directors met on February 1 and 2, 2000
to discuss the Smurfit-Stone non-binding "expression of interest". At the
conclusion of the meeting, the Board of Directors authorized management to
continue discussions with Smurfit-Stone with a view to determining whether a
possible transaction could be completed and to resolve open business issues,
including assessment of value and consideration.
On February 7, 2000, the Board of Directors met to receive a preliminary
financial overview presentation from St. Laurent's financial advisors, BWDR and
DLJ, and to discuss value and consideration.
On February 18 and 21, 2000, certain members of the Board of Directors met
on an informal basis with St. Laurent's financial and legal advisors to review
the status of ongoing negotiations and open business points, including
assessment of value and consideration.
On February 22, 2000, the Board of Directors met and received detailed
presentations on the proposed transaction, including as to financial and legal
matters.
On February 23, 2000, the Board of Directors met and received a final
financial overview from St. Laurent's financial advisors and a final legal
review from St. Laurent's legal advisors. Each of St. Laurent's financial
advisors, BWDR and DLJ, provided a separate opinion as to the fairness, from a
financial point of view, of the Exchange Consideration offered to holders of St.
Laurent Common Shares. At such meeting, the Board of Directors determined that
the Arrangement was fair to the St. Laurent Securityholders and in the best
interest of St. Laurent. The Pre-Merger Agreement and related documentation was
executed by Smurfit-Stone and St. Laurent after the meeting.
On April 4, 2000, Smurfit-Stone publicly announced that the United States
Federal Trade Commission (the "FTC") had granted early termination of the
waiting period with respect to the filings of St. Laurent and Smurfit-Stone
under the HSR Act in connection with the proposed business combination of St.
Laurent and Smurfit-Stone.
On April 12, 2000, the Board of Directors met to consider certain
non-material amendments to the Pre-Merger Agreement. At the meeting, the Board
of Directors unanimously approved the entering into of an amended and restated
Pre-Merger Agreement.
16
<PAGE>
JOINT REASONS OF ST. LAURENT AND SMURFIT-STONE FOR THE TRANSACTION
In addition to enhancing the strategic position of Smurfit-Stone,
Smurfit-Stone and St. Laurent believe that the Transaction will:
(a) strengthen Smurfit-Stone's position as one of the world's premier
manufacturers of paperboard and paper-based packaging products:
The combination of Smurfit-Stone with St. Laurent, a producer of
high-quality, premium packaging products, will strengthen
Smurfit-Stone's position as one of the world's premier producers of
containerboard, corrugated containers and folding cartons. Based on
the unaudited pro forma data appearing elsewhere in this Circular,
the combined company had net sales of approximately $8.0 billion and
income from continuing operations before extraordinary item of
approximately $154 million for 1999;
(b) enable Smurfit-Stone to expand its customer base and provide its
customers with better service and a broader range of paper-based
packaging products:
The Transaction will further diversify Smurfit-Stone's product mix
(particularly in the area of premium packaging products) and
geographic reach, which will enable Smurfit-Stone to expand its
customer base and better service the needs of its existing customers;
and
(c) create opportunities for significant cost savings and other financial
and operating benefits through the integration of St. Laurent's and
Smurfit-Stone's operations:
Smurfit-Stone and St. Laurent have identified significant
opportunities to enhance operating efficiencies and achieve cost
savings in excess of those savings that could be achieved by
operating the two companies independently.
ST. LAURENT'S REASONS FOR THE TRANSACTION AND RECOMMENDATION OF THE BOARD OF
DIRECTORS
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE ARRANGEMENT IS FAIR TO THE
ST. LAURENT SECURITYHOLDERS AND IS IN THE BEST INTERESTS OF ST. LAURENT AND THE
DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT THE
ST. LAURENT SECURITYHOLDERS VOTE IN FAVOUR OF THE ARRANGEMENT RESOLUTION AT THE
MEETING.
In reaching its determination and making this recommendation, the Board of
Directors considered a number of factors, including the following:
(a) the Exchange Consideration results in St. Laurent Securityholders
receiving, after the Effective Time, an appropriate proportion of the
equity of the combined company;
(b) the combined business which results after the Arrangement will have
significantly greater financial and business resources which may
enable the combined business to compete more effectively with
competitors having greater resources than St. Laurent alone;
(c) St. Laurent Securityholders will receive securities of Smurfit-Stone
such that they will continue to participate in the forest products
industry through Smurfit-Stone, which will have a significantly larger
market capitalization and liquidity than St. Laurent alone;
(d) the risks and potential rewards associated with, as an alternative to
the Arrangement, continuing to execute St. Laurent's strategic plan as
an independent entity;
(e) the separate opinions dated February 23, 2000 of BWDR and DLJ,
respectively as to the fairness, from a financial point of view, of
the Exchange Consideration to be received by the holders of St.
Laurent Common Shares pursuant to the Arrangement;
(f) the terms and conditions of the Pre-Merger Agreement, including the
restrictions on the conduct of St. Laurent's business pending Closing;
(g) the Board of Directors retains the right to participate in any
unsolicited discussions or negotiations with, and provide information
(subject to entering into a confidentiality agreement) to, a party if
the Board of Directors determines in good faith, after consultation
with financial advisors and outside counsel, that such party's
proposal is reasonably likely to result in a Superior Proposal (see
"The Pre-Merger Agreement -- Covenants of St. Laurent Regarding
Non-Solicitation");
17
<PAGE>
(h) the amount of the Break Fee and the circumstances in which it is
payable and the circumstances in which the Pre-Merger Agreement may be
terminated;
(i) the Arrangement must be approved by a special resolution passed by not
less than 66 2/3% of votes cast at the Meeting by St. Laurent
Securityholders, and by the Court which, St. Laurent is advised, will
consider, among other things, the fairness of the Arrangement to the
St. Laurent Securityholders;
(j) the fact that St. Laurent Securityholders will become securityholders
of Smurfit-Stone. See "Investment Considerations and Other Risk
Factors"; and
(k) under the Arrangement, St. Laurent Registered Shareholders have the
right to dissent.
In reaching its determination, the Board of Directors also considered and
evaluated, among other things: (i) information concerning the business,
operations, property, assets, financial condition, operating results and
prospects of St. Laurent and Smurfit-Stone; (ii) the results and scope of the
due diligence review conducted by St. Laurent's management and financial
advisors with respect to Smurfit-Stone's business and operations; (iii) current
industry, economic and market conditions and trends and its informed
expectations of the future of the forest products industry; (iv) historical
market prices and trading information with respect to St. Laurent Common Shares
and Smurfit-Stone Common Stock; (v) the expected likelihood of receiving
regulatory clearance for the Transaction; (vi) the anticipated challenges
associated with successfully integrating the businesses of two major
corporations; (vii) the anticipated synergies, cost reductions, increased
geographic diversity, improved balance sheet and other operational advantages
and efficiencies as a result of the combination; (viii) the enhanced market
position of the combined company; and (ix) the expected tax effect of the
Arrangement on the St. Laurent Securityholders.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive but is
believed to include certain material factors considered by the Board of
Directors. In addition, in reaching the determination to approve and recommend
the Arrangement, the Board of Directors did not assign any relative or specific
weights to the foregoing factors which were considered, and individual directors
may have given different weights to different factors. The disinterested members
of the Board of Directors are unanimous in their recommendation that the St.
Laurent Securityholders vote in favour of the Arrangement Resolution at the
Meeting.
The Board of Directors realizes that there are certain risks associated
with the Transaction, including those set forth under "Investment Considerations
and Other Risk Factors". However, the Board of Directors believes that the
positive factors should outweigh those risks, although there cannot be any
assurances in this regard.
COURT APPROVAL AND COMPLETION OF THE ARRANGEMENT
An arrangement under the CBCA requires approval by a court of competent
jurisdiction. Prior to the mailing of this Circular, St. Laurent obtained the
Interim Order providing for the calling and holding of the Meeting and other
procedural matters. A copy of the Interim Order is attached hereto as Appendix
D.
Subject to the approval of the Arrangement by the St. Laurent
Securityholders at the Meeting, the hearing in respect of the Final Order is
scheduled to take place on May 30, 2000 at 9:00 a.m. (Montreal time) in the
Court at 1 Notre-Dame St. East, Montreal, Quebec. Any St. Laurent Securityholder
who wishes to present evidence or argument at such hearing must file and deliver
an appearance, and all materials on which it relies, in accordance with the
rules of the Court and the provisions of the Interim Order. The Court will
consider, among other things, the fairness and reasonableness of the
Arrangement. The Court may approve the Arrangement in any manner the Court may
direct, subject to compliance with such terms and conditions, if any, as the
Court deems fit.
Assuming the Final Order is granted and the other conditions to Closing
contained in the Pre-Merger Agreement are satisfied or waived, it is anticipated
that the following will occur: the steps set forth in the Plan of Arrangement
will be completed; Articles of Arrangement for St. Laurent will be filed with
the Director under the CBCA to give effect to the Arrangement and the various
other documents necessary to consummate the Transaction contemplated under the
Pre-Merger Agreement will be executed and delivered.
Subject to the foregoing, it is expected that the Effective Time will occur
as soon as practicable after the requisite St. Laurent Securityholder approval
has been obtained.
18
<PAGE>
OPINIONS OF ST. LAURENT'S FINANCIAL ADVISORS
The information set out below under the headings "The BWDR Fairness
Opinion" and "The DLJ Fairness Opinion" describes the fairness opinions of BWDR
and DLJ, respectively, and summarizes in material respects the related financial
analyses performed by these financial advisors in connection with the rendering
of their respective opinions.
The BWDR Fairness Opinion
St. Laurent, under the direction of the Board of Directors, retained BWDR
to act as a financial advisor in connection with evaluating St. Laurent's
stand-alone and strategic transaction alternatives and as financial advisor to
provide advice and assistance to the Board of Directors in evaluating the
Arrangement and to provide an opinion with respect to the fairness, from a
financial point of view, of the Exchange Consideration to the holders of St.
Laurent Common Shares. BWDR is to be paid a fee contingent upon the completion
of the Arrangement. In addition, St. Laurent has agreed to reimburse BWDR for
its reasonable out-of-pocket expenses and to indemnify BWDR and certain related
persons in certain circumstances.
BWDR has delivered to the Board of Directors its written opinion dated
February 23, 2000, a copy of which is attached to this Circular as Appendix E
and incorporated herein by reference. Holders of St. Laurent Common Shares are
urged to, and should, read the full text of the BWDR Fairness Opinion for a
complete description of the factors considered, the assumptions made and the
limitations on the review undertaken by BWDR in rendering its opinion.
The BWDR Fairness Opinion addresses only the fairness of the Exchange
Consideration from a financial point of view and does not constitute a
recommendation to any holder of St. Laurent Common Shares as to how to vote at
the Meeting. The summary of the BWDR Fairness Opinion set forth in this Circular
is qualified in its entirety by references to the full text of such opinion.
In forming its opinion, BWDR has reviewed, considered, and relied upon,
among other things, the following:
(i) audited financial statements, including related notes to the audited
financial statements, of St. Laurent for each of the five years ended
December 31, 1998;
(ii) audited financial statements of St. Laurent for the year ended
December 31, 1999;
(iii) consolidated statements of operations of Smurfit-Stone for the year
ended December 31, 1999 as disclosed in a Smurfit-Stone press release
dated January 24, 2000;
(iv) audited financial statements, including related notes to the audited
financial statements, of Smurfit-Stone for the year ended December 31,
1998;
(v) the unaudited interim reports of St. Laurent and Smurfit-Stone for the
1999 fiscal year;
(vi) the annual reports of St. Laurent for each of the five years ended
December 31, 1998;
(vii) the annual report of Smurfit-Stone for the year ended December 31,
1998;
(viii) a review of recent industry research reports on St. Laurent and
Smurfit-Stone and selected comparable companies and general industry
reports;
(ix) a copy of the Pre-Merger Agreement;
(x) certain internal financial information and other data relating to the
business and financial prospects of St. Laurent, including estimates
and financial forecasts prepared by St. Laurent management that were
provided to BWDR by St. Laurent and not publicly available;
(xi) discussions with Smurfit-Stone management with respect to
Smurfit-Stone's current business operations, financial conditions,
financial results and intentions regarding St. Laurent's operations;
(xii) a review of current debt and equity markets conditions and an
analysis of the impact on Smurfit-Stone of the Arrangement;
(xiii) discussions with internal and external legal counsel of St. Laurent
and Smurfit-Stone with respect to various matters;
(xiv) discussions with the financial advisors to Smurfit-Stone;
19
<PAGE>
(xv) a discounted cash flow analysis of St. Laurent using different
scenarios as to commodity prices, foreign exchange rates, production
and sales volumes, cost structures, and the potential synergies and
one-time costs related to the Arrangement;
(xvi) a financial analysis of Smurfit-Stone and St. Laurent on a combined
basis taking into account the potential synergies and one time costs
associated with the Arrangement;
(xvii) a review of the financial and operating performance and market
multiples of Smurfit-Stone and St. Laurent and other selected public
companies that BWDR considered relevant;
(xviii) a review of historical trading statistics and relative stock market
capitalisation of Smurfit-Stone and St. Laurent;
(xix) an analysis over a range of periods of the premium offered to St.
Laurent's shareholders within the context of relevant take-over
premiums in the Canadian market place as well as within the forest
products industry;
(xx) an analysis of comparable containerboard and forest products
transactions which BWDR believed to be relevant;
(xxi) site visits to certain of St. Laurent's facilities; and
(xxii) such other information, investigations and analyses as BWDR
considered necessary or appropriate in the circumstances.
BWDR's access to Smurfit-Stone was limited to a review of publicly
available information only and verbal due diligence sessions with certain
members of Smurfit-Stone's senior management team.
BWDR relied upon, and assumed the completeness, accuracy and fair
presentation of all financial and other information, data, advice, opinions and
representations obtained from public sources or provided by St. Laurent,
Smurfit-Stone and their respective associates, affiliates, consultants, advisors
and representatives. The BWDR Fairness Opinion is conditional upon such
completeness, accuracy and fair presentation of such information, data, advice,
opinions and representations. Subject to the exercise of professional judgement
and except as expressly described in BWDR Fairness Opinion, BWDR did not attempt
to verify independently the accuracy or completeness of such information, data,
advice, opinions and representations. The BWDR Fairness Opinion is rendered on
the basis of securities markets, economic, financial and general business
conditions prevailing as at the date of the BWDR Fairness Opinion and the
condition and prospects, financial and otherwise, of St. Laurent, Smurfit-Stone
and their respective Subsidiaries and Affiliates, as they were reflected in the
information, data, advice, opinions and representations and documents reviewed
and as they were represented to BWDR in discussions with the management of St.
Laurent, Smurfit-Stone and their respective advisors. In its analysis and in
preparing the BWDR Fairness Opinion, BWDR made numerous assumptions with respect
to industry performance, general business, market and economic conditions and
other matters, many of which are beyond the control of BWDR or any party
involved in the Arrangement.
BWDR's Fairness Opinion and analyses were only one of the many factors
considered by the Board of Directors in its evaluation of the Arrangement and
should not be viewed as determinative of the views of the Board of Directors or
management of St. Laurent with respect to the proposed Arrangement.
Summary of Financial Analysis by BWDR
The following is a summary of the material financial analyses used by BWDR
in connection with providing its opinion to the Board of Directors.
1) Discounted Cash Flow Analysis
BWDR conducted a discounted cash flow ("DCF") analysis of St.
Laurent for the period commencing fiscal 2000 up to and including
fiscal 2009 based upon the business plan and projections for the
year 2000 prepared by St. Laurent management and using St. Laurent
management's business plan and commercially available projections of
commodity prices for the fiscal years 2001 to 2009 in conjunction
with BWDR's own projections of commodity prices. Based on the
foregoing, BWDR calculated the unlevered free cash flows projected
to be generated by St. Laurent for the fiscal years 2000 to 2009.
BWDR also estimated a range of values of St. Laurent at the end of
fiscal 2009 using both a perpetual growth rate approach and a
multiple of earnings before interest, taxes, depreciation and
amortization ("EBITDA") approach. For the purpose of the perpetual
growth rate approach, BWDR used growth rates ranging from 1% to 2%
while a
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multiple ranging from 5.5x to 6.5x was used for the purpose of the
multiple EBITDA approach. In both cases, BWDR discounted the
unlevered free cash flows projected in fiscal years 2000 to 2009 and
the estimated value of St. Laurent at the end of fiscal 2009 using
discount rates ranging from 10% to 11%. In addition, BWDR considered
a number of sensitivity analyses regarding, among other things,
variations in: (i) the US$/CDN$ exchange rate; (ii) commodity
prices; (iii) production and sales volumes; (iv) certain components
of St. Laurent's cost structure; and (v) the inclusion of synergies
expected to be realised from the Arrangement for the benefit of St.
Laurent. BWDR noted that the DCF analysis generated results that are
consistent with the Exchange Consideration offered.
2) Precedent Transactions Analysis
BWDR analysed, using publicly available information, six precedent
transactions directly related to the paper packaging industry in
North America from 1996 to 1999. In reviewing these precedent
transactions, BWDR was able to derive, among other things, the
multiples of enterprise value to "peak of cycle EBITDA", enterprise
value to last twelve months ("LTM") EBITDA as well as prices paid
per unit of production capacity. BWDR concluded that the multiple of
enterprise value to peak of cycle EBITDA, the multiple of enterprise
value to LTM EBITDA and the price paid per unit of production
capacity implied by the Exchange Consideration offered are
consistent with the multiples observed from selected precedent
transactions.
3) Public Market Analysis
BWDR analysed, using publicly available information, the market
values and trading multiples based on years 1999 and 2000 of seven
selected U.S. publicly traded companies in the paper packaging
sector. Only U.S. based companies were selected as St. Laurent has
more than 50% of its assets in the United States and the selected
companies were determined to have, for the purposes of BWDR's
analysis, operations and product offerings the most comparable to
those of St. Laurent. Multiples taken into consideration included
share price/earnings per share ratios and enterprise value/EBITDA
ratios calculated using publicly available EBITDA and earnings per
share forecasts from BWDR and equity research analysts of certain
other firms. BWDR noted that the multiples implied by the Exchange
Consideration offered are consistent with the multiples of the
selected comparable public companies.
4) Precedent Premiums Paid Analysis
The Exchange Consideration offered per St. Laurent Common Share
includes $12.50 cash plus 0.5 shares of Smurfit-Stone Common Stock.
Based upon the closing price of the Smurfit-Stone Common Stock on
NASDAQ on February 22, 2000, the day prior to the announcement of
the execution of the Pre-Merger Agreement (the "Announcement Date"),
of $16.00, and the weighted average trading price on NASDAQ of the
Smurfit-Stone Common Stock for the 20 trading days prior to the
Announcement Date, of $18.72, the Consideration offered represents a
price ranging from $20.50 to $21.86 per St. Laurent Common Share or
Cdn$29.97 to Cdn$31.96, converted using the Noon Spot Rate of 1.462
on February 22, 2000.
This price range represents a premium of 68.6% to 74.7% over the
closing price of the St. Laurent Common Shares on February 16, 2000
(the day prior to the announcement by St. Laurent that it was in
discussions concerning a possible transaction) and the weighted
average trading price of the St. Laurent Shares for the 20 trading
days up to and including February 16, 2000. BWDR noted that this
level of premium compares favourably with the average premium
historically offered in transactions in the forest products
industry.
5) Liquidity Analysis of Smurfit-Stone Common Stock
BWDR considered the liquidity of Smurfit-Stone Common Stock given
that the holders of St. Laurent Common Shares, as a group, will own
up to 10% of the outstanding Smurfit-Stone Common Stock subsequent
to the completion of the Arrangement. Over the 254 trading days
during the twelve month period up to and including February 16,
2000, approximately 394.8 million shares of Smurfit-Stone Common
Stock were traded on NASDAQ, representing an average daily trading
volume of 1.55 million shares and an average daily trading value of
approximately $33.4 million. Over the same period, approximately
38.9 million St. Laurent Shares were traded on the various stock
exchanges on which the
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St. Laurent Shares are listed, representing an average daily trading
volume of 0.15 million shares and an average daily trading value of
approximately Cdn$2.6 million. BWDR noted that the Arrangement would
provide the holders of St. Laurent Common Shares with improved
liquidity.
6) Pro forma Analysis
BWDR analysed the potential pro forma impact of the Arrangement on
Smurfit-Stone's results from operations and balance sheets for
fiscal years 1999, 2000 and 2001. This analysis was performed using
audited 1999 financial statements of St. Laurent, Smurfit-Stone's
consolidated statement of operations, and various commodity prices
and exchange rates forecasts commercially available for fiscal years
2000 and 2001. This pro forma analysis also took into account up to
US$50 million of potential annual synergies estimated as achievable
by the managements of St. Laurent and Smurfit-Stone resulting from
the Arrangement.
The results of BWDR's analysis showed that for fiscal years 1999,
2000 and 2001, assuming the purchase method of accounting, the
Arrangement could be accretive to Smurfit-Stone's earnings per
share, cash earnings per share, cash flow per share and free cash
flow per share. BWDR's analysis also indicated that Smurfit-Stone's
balance sheet and credit ratios would not be materially negatively
impacted by the proposed Arrangement. However, actual results
achieved by Smurfit-Stone after the Arrangement may vary from
estimated results and such variations may be material.
The summary of the material financial analysis used by BWDR presented above
is not a complete description of the analyses, procedures or tasks performed by
BWDR in connection with the issuance of the BWDR Fairness Opinion or taken into
account by the Board of Directors in relation to assessing the Arrangement.
BWDR believes that its analysis must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the BWDR Fairness Opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Any attempt to do so could lead to undue
emphasis on any particular factor or analysis. The BWDR Fairness Opinion is not
to be construed as a recommendation to holders of St. Laurent Common Shares as
to how to vote at the Meeting.
The DLJ Fairness Opinion
St. Laurent asked DLJ, in its role as financial advisor to St. Laurent, to
provide an opinion to the Board of Directors as to the fairness, from a
financial point of view, of the Exchange Consideration to be received by the
holders of St. Laurent Common Shares pursuant to the Arrangement. On February
23, 2000, DLJ delivered its written opinion to the Board of Directors to the
effect that, as of such date and based upon and subject to the assumptions,
limitations and qualifications set forth in the DLJ Fairness Opinion, the
Exchange Consideration to be received by the holders of St. Laurent Common
Shares pursuant to the Arrangement was fair to such holders from a financial
point of view.
THE FULL TEXT OF THE DLJ FAIRNESS OPINION, DATED AS OF FEBRUARY 23, 2000,
IS REPRODUCED IN THIS CIRCULAR AS APPENDIX F. THE SUMMARY OF THE DLJ FAIRNESS
OPINION IN THIS CIRCULAR IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE DLJ FAIRNESS OPINION. ST. LAURENT SECURITYHOLDERS ARE URGED TO READ
THE DLJ FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY FOR THE DETAIL OF THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS OF
THE REVIEW CONDUCTED BY DLJ IN CONNECTION WITH ITS OPINION.
The DLJ Fairness Opinion was prepared for the Board of Directors, and
addresses only the fairness, from a financial point of view, of the Exchange
Consideration to be received by holders of St. Laurent Common Shares pursuant to
the Arrangement. The DLJ Fairness Opinion does not contain or imply any opinion
as to the prices at which shares of Smurfit-Stone Common Stock would actually
trade at any time, nor does it otherwise address any other aspect of the
Arrangement or the Transaction, the relative merits of the Arrangement and the
other business strategies considered by the Board of Directors, or the decision
by the Board of Directors to proceed with the Arrangement. The DLJ Fairness
Opinion does not, and should not be construed as, a recommendation to any St.
Laurent Securityholder as to how such holder should vote with respect to the
Arrangement Resolution.
St. Laurent selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience providing strategic advisory services. DLJ was not retained as an
advisor or agent to the St. Laurent Securityholders or any other Person other
than St. Laurent. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions,
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underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
In arriving at its opinion, DLJ reviewed a draft dated February 11, 2000 of
the Pre-Merger Agreement and of the exhibits thereto. DLJ also reviewed
financial and other information that was publicly available or furnished to DLJ
by St. Laurent and Smurfit-Stone, including information provided during due
diligence discussions with their respective management. Included in the
information provided during these discussions were financial projections of St.
Laurent and the budgets of Smurfit-Stone for the period beginning January 1,
2000 and ending December 31, 2000 prepared by their respective management. DLJ
also reviewed certain financial projections of Smurfit-Stone for the period
beginning January 1, 2000 and ending December 31, 2001 prepared by DLJ's equity
research department and certain financial projections of St. Laurent for the
same period based upon assumptions provided by DLJ's equity research department.
In addition, DLJ compared certain financial and securities data of St. Laurent
and Smurfit-Stone with publicly available information concerning various other
companies whose securities are traded in public markets, reviewed the historical
prices and trading volumes of the St. Laurent Common Shares and of the shares of
Smurfit-Stone Common Stock, reviewed prices and premiums paid in certain other
business combinations and conducted such other financial studies, analyses and
investigations as DLJ deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by St. Laurent and Smurfit-Stone
or their respective representatives, or that was otherwise reviewed by DLJ. In
particular, DLJ relied upon the estimates of management of St. Laurent of the
operating synergies achievable as a result of the Arrangement and upon DLJ's
discussion of these synergies with management of Smurfit-Stone. With respect to
the financial projections and budgets supplied to DLJ, DLJ relied on
representations that they were reasonably prepared on bases reflecting the best
currently available estimates and judgements of the management of St. Laurent
and Smurfit-Stone as to the future operating and financial performance of St.
Laurent and Smurfit-Stone. With respect to the financial projections prepared
by, or based upon assumptions provided by, DLJ's equity research department, DLJ
relied on representations that they have been reasonably prepared on bases not
materially different from the best currently available estimates and judgements
of the management of St. Laurent and Smurfit-Stone and as to the future
operating and financial performance of St. Laurent and Smurfit-Stone,
respectively. DLJ did not assume any responsibility for making any independent
evaluation of any assets or liabilities or for making any independent
verification of the information reviewed by DLJ.
The DLJ Fairness Opinion was necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to DLJ as of, the date the opinion was delivered. The DLJ Fairness
Opinion states that, although subsequent developments may affect the DLJ
Fairness Opinion, DLJ does not have any obligation to update, revise or reaffirm
its opinion.
Summary of Financial Analyses Performed by DLJ
The following is a summary of the financial analyses presented by DLJ to
the Board of Directors on February 23, 2000 in connection with rendering the DLJ
Fairness Opinion. The information summarized in the tables which follow should
be read in conjunction with the accompanying text. No company or transaction
used in the analyses that follow is directly comparable to St. Laurent or the
Arrangement. In addition, mathematical analyses such as determining the mean or
median are not in themselves meaningful methods of using selected company or
transaction data. The analyses performed by DLJ are not necessarily indicative
of actual values or future results, which may be significantly more or less
favourable than suggested by the analyses. The equity values per share of St.
Laurent were based on: (i) 49,398,968 St. Laurent Common Shares outstanding,
(ii) options outstanding to purchase 932,374 St. Laurent Common Shares at a
weighted average exercise price of Cdn$16.01, (iii) warrants outstanding to
purchase 380,000 St. Laurent Common Shares at a weighted average exercise price
of Cdn$10.95, and (iv) RSUs outstanding to purchase 13,742 St. Laurent Common
Shares. The equity values per share of St. Laurent were also based on $386
million total debt outstanding and $15 million in cash and temporary investments
as of December 31, 1999.
Comparable Publicly Traded Company Analysis -- DLJ reviewed and compared
certain financial information relating to St. Laurent to corresponding financial
information, ratios and public market multiples for selected publicly
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traded companies (the "Comparable Companies") which DLJ believed were reasonably
comparable to St. Laurent in certain respects. The companies selected were as
follows:
(a) four paper and forest products companies with primary focus in the
containerboard sector (the "Key Comparable"), namely:
- Gaylord Container Corporation,
- Packaging Corporation of America,
- Smurfit-Stone, and
- Willamette Industries, Incorporated; and
(b) five other paper and forest products companies (the "Other
Comparables"), namely:
- Georgia Pacific Group,
- International Paper Company,
- Longview Fibre Company,
- Temple-Inland Incorporated, and
- Weyerhaeuser Company.
The multiples and ratios for each of the Comparable Companies were based on
the most recently publicly available information, including estimates for 2000
and 2001 from DLJ's equity research department, and share prices as of February
18, 2000.
DLJ considered the enterprise value of each of the Comparable Companies as
a multiple of EBITDA for each of calendar year 1995 and 2000. All historical
data for 1995 was derived from publicly available sources and was used as a
proxy of a paper company's cash flow and earnings potential at the peak of the
industry cycle. All projected data for 2000 was based on estimates available
from DLJ's equity research department. The enterprise value of a company is
equal to the value of its fully-diluted common equity plus debt and the
liquidation value of outstanding preferred stock, if any, minus cash and the
value of certain other assets including minority interests in other entities.
EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization.
DLJ also considered the share price of each of the Comparable Companies as
a multiple of EPS for each of calendar year 2000 and 2001, based on estimates
available from DLJ's equity research department. EPS is defined as fully-diluted
earnings per share.
Based on an analysis of the Comparable Companies and on projected data for
St. Laurent for comparable periods, DLJ estimated an equity value per share of
St. Laurent which compared favourably to the implied equity value per share of
St. Laurent in the Transaction of $20.50, based on the closing price per share
of Smurfit-Stone Common Stock of $16.00 as of February 22, 2000.
Comparable Transaction Analysis -- DLJ reviewed five selected merger and
acquisition transactions involving North American paperboard producers which DLJ
believed were reasonably comparable to St. Laurent in certain respects (the "Key
Comparable Transactions"). Those transactions were:
- Westvaco's acquisition of Temple Inland's Evadale, Texas bleached
board mill,
- Packaging Corporation of America's sale to an investor group led by
Madison Dearborn Partners L.P.,
- Jefferson Smurfit Corporation's merger with Stone Container
Corporation,
- Cascades's joint venture of its packaging operations with Domtar
Packaging to form Norampac, and
- St. Laurent's acquisition of Chesapeake Corporation's kraft paper
business.
DLJ also reviewed five other significant mergers and acquisitions involving
companies in the paper and forest products industry (the "Other Significant
Transactions"). Those transactions consisted of:
- International Paper Company's proposed acquisition of Shorewood
Packaging,
- UPM-Kymmene's proposed acquisition of Champion International,
- Abitibi-Consolidated Inc.'s proposed acquisition of Donohue Inc.,
- International Paper Company's acquisition of Union Camp Corporation,
and
- Weyerhaeuser Company's acquisition of MacMillan Bloedel Limited.
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In examining these comparable transactions, DLJ calculated, among other
things, the enterprise value of the acquired company implied by each of these
transactions as a multiple of 1995 and 1999 EBITDA and as a multiple of daily
production capacity measured in short tons.
Based on an analysis of the comparable data and on projected data for St.
Laurent, DLJ calculated an equity value per St. Laurent Common Share which
compared favourably to the implied equity value per share of St. Laurent in the
Transaction of $20.50, based on the closing price per share of Smurfit-Stone
Common Stock of $16.00 as of February 22, 2000.
Premiums Paid Analysis -- DLJ determined the premiums paid over the common
stock trading prices for one week prior to the announcement date in connection
with 100 recent merger and acquisition transactions involving U.S. public
company targets having enterprise values between $1 billion and $2 billion,
excluding companies in the financial sector. Applying these premiums to the
"unaffected" closing price of St. Laurent Common Shares of $12.13 on February
15, 2000, DLJ estimated an equity value per St. Laurent Common Share which
compared favourably to the implied equity value per St. Laurent Common Share in
the Transaction of $20.50, based on the closing price per share of Smurfit-Stone
Common Stock of $16.00 as of February 22, 2000.
Pro Forma Combined Accretion/Dilution Analysis -- Using the projected
earnings and cash flow of each of St. Laurent and Smurfit-Stone prepared by, or
based upon assumptions provided by, DLJ's equity research department for the
calendar years 2000 and 2001, DLJ compared the projected EPS, Cash EPS and CFPS
of Smurfit-Stone on a stand-alone basis to the projected pro forma combined EPS,
Cash EPS and CFPS after the Arrangement. Cash EPS is defined as EPS before
amortization of goodwill. CFPS is defined as cash flow per share which consists
of Cash EPS before depreciation and other amortization.
This analysis showed that, with anticipated synergies and cost savings, the
Arrangement would be accretive to holders of Smurfit-Stone Common Stock in 2000
and 2001, as measured by EPS, Cash EPS and CFPS.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation made by DLJ to the Board of Directors on February
23, 2000. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Each of the
analysis conducted by DLJ was carried out in order to provide a different
perspective on the Transaction and to add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness from a financial point of view. Rather, in reaching its conclusion, DLJ
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole. DLJ
did not place any particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, DLJ has indicated to St. Laurent that it believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favourable than
suggested by such analyses.
Engagement Letter
Pursuant to the terms of an engagement agreement dated February 10, 2000,
St. Laurent agreed to pay DLJ a fee for its services that is customary in
transactions of this nature, a substantial portion of which is contingent upon
the consummation of the Arrangement. In addition, St. Laurent agreed to
reimburse DLJ, upon request by DLJ from time to time, for all out-of-pocket
expenses, including the reasonable fees and expenses of counsel, incurred by DLJ
in connection with its engagement and to indemnify DLJ and some related persons
against specified liabilities in connection with its engagement.
Other Relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of St. Laurent and Smurfit-Stone for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in securities of St. Laurent or
Smurfit-Stone. DLJ has performed investment banking and other services for St.
Laurent and Smurfit-Stone in the past and has received usual and customary
compensation for such
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services. DLJ acted as financial advisor to Smurfit-Stone in the sale of certain
timberlands in the fourth quarter of 1999. In addition, Josiah O. Low III,
Managing Director of DLJ, is a director of St. Laurent.
TRANSACTION MECHANICS
The Arrangement
Pursuant to the terms of the Plan of Arrangement, commencing at the
Effective Time, the following events will occur in the order set forth below:
(a) each outstanding St. Laurent Common Share (other than St. Laurent
Common Shares held by any Smurfit-Stone Party or any Affiliate
thereof), will be transferred by the holder thereof to Newco in
exchange for the Exchange Consideration, and the name of each such
holder of St. Laurent Common Shares will be removed from the register
of holders of St. Laurent Common Shares and added to the register of
holders of Smurfit-Stone Common Stock, and Newco will be recorded as
the registered holder of such St. Laurent Common Shares so exchanged
and will be deemed to be the legal and beneficial owner thereof (in
the case of Dissenting Shareholders, such shareholder's St. Laurent
Common Shares will be returned to St. Laurent for the fair value of
such Dissenting Shareholders' St. Laurent Common Shares);
(b) each St. Laurent Option shall be exchanged for a Replacement Option to
purchase that number of shares of Smurfit-Stone Common Stock equal to
the sum of (i) the Security Portion of the Exchange Consideration
times the number of St. Laurent Common Shares subject to the St.
Laurent Option; plus (ii) the quotient of (A) U.S.$12.50 times the
number of St. Laurent Common Shares subject to the St. Laurent Option,
divided by (B) the Smurfit-Stone Closing Price ("Smurfit-Stone Option
Shares"); the exercise price per share of Smurfit-Stone Common Stock
for each Replacement Option shall be the quotient of (x) an aggregate
amount equal to the number of St. Laurent Common Shares subject to the
St. Laurent Option exchanged for such Replacement Option times the
original exercise price per St. Laurent Common Share pursuant to such
St. Laurent Option, at the option of the holder (i) converted into its
U.S. dollar equivalent based on the Noon Spot Rate on the day
immediately preceding the Effective Date, or (ii) expressed in
Canadian dollars, the whole divided by (y) the Smurfit-Stone Option
Shares subject to such Replacement Option; and
(c) each St. Laurent RSU shall be fully vested and entitle its holder to
receive, at the Effective Time, with respect to each St. Laurent
Common Share subject to such St. Laurent RSU, the Exchange
Consideration.
At the Effective Time, each St. Laurent Option will be exchanged for a
Replacement Option. On April 14, 2000, there were approximately 924,502 St.
Laurent Options outstanding which, when vested, would be exercisable to acquire
a total of approximately 924,502 St. Laurent Common Shares at prices between
Cdn.$13.50 to Cdn.$23.63 with various expiry dates to May 5, 2009. Assuming no
exercise of St. Laurent Options after April 14, 2000, immediately following the
Effective Time, St. Laurent's outstanding capital stock will consist of
49,817,899 St. Laurent Common Shares, all of which will be held by Newco. The
St. Laurent Securityholders will beneficially own or have the right to acquire
up to 10% of the shares of Smurfit-Stone Common Stock, on a fully diluted basis,
after giving effect to the Arrangement.
See "The Arrangement -- Procedures to Receive Exchange Consideration" for
procedures to be followed in order to obtain certificates representing the
Smurfit-Stone Common Stock issuable in the Arrangement.
Fractional Shares
No certificates representing fractional shares of Smurfit-Stone Common
Stock will be delivered in connection with the Arrangement. In lieu of any such
fractional securities, each Person otherwise entitled to a fractional interest
in a share of Smurfit-Stone Common Stock will receive a cash payment equal to
the product of such fractional interest and the Smurfit-Stone Trading Price.
Smurfit-Stone, Stone or Newco shall from time to time and as necessary provide
the Depositary with funds sufficient to satisfy those obligations.
Withholding Rights
Smurfit-Stone, Stone, Newco and such other agent of the Smurfit-Stone
Parties will be entitled to deduct and withhold from any dividends or
consideration otherwise payable to any holder of Smurfit-Stone Common Stock such
amounts as Smurfit-Stone, Stone, Newco or such other agent of the Smurfit-Stone
Parties is required to deduct and withhold with respect to such payment under
the Canadian Tax Act, the Code or any provision of provincial, state, local or
foreign tax law. Any amounts withheld will be treated for all purposes as having
been paid to the holder of the
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shares in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the Exchange
Consideration otherwise payable to the holder, Smurfit-Stone, Newco and such
other agent of the Smurfit-Stone Parties may sell or otherwise dispose of such
portion of the Security Portion of the Exchange Consideration as is necessary to
provide sufficient funds to Smurfit-Stone, Newco or such other agent of the
Smurfit-Stone Parties, as the case may be, to enable it to comply with such
deduction or withholding requirement. Smurfit-Stone, Newco or such other agent
of the Smurfit-Stone Parties must notify the holder of any such sale and remit
to such holder any unapplied balance of the net proceeds of such sale.
Lost Certificates
In the event any certificate which immediately prior to the Effective Time
represented one or more outstanding St. Laurent Common Shares that were
exchanged under the Arrangement shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such certificate
to be lost, stolen or destroyed, the Depositary will issue in exchange for such
lost, stolen or destroyed certificate, the Exchange Consideration to which such
holder of St. Laurent Common Shares is entitled. As a condition precedent to the
issuance of such Exchange Consideration, the holder of such St. Laurent Common
Shares must give a bond satisfactory to Newco, Smurfit-Stone and their
respective transfer agents in such sum as Newco or Smurfit-Stone may direct or
otherwise indemnify Newco and Smurfit-Stone against any claim that may be made
against them with respect to the certificate alleged to have been lost, stolen
or destroyed.
Extinction of Rights
Any certificate which immediately prior to the Effective Time represented
outstanding St. Laurent Common Shares that were exchanged pursuant to the
Arrangement that is not deposited with all other instruments required to be
deposited by the holder thereof prior to the sixth anniversary of the Effective
Date shall cease to represent a claim or interest of any kind or nature as a
shareholder or creditor for the cash portion of the Exchange Consideration. On
such date, the Security Portion of the Exchange Consideration and the cash
portion of the Exchange Consideration to which such former holder of a
certificate for St. Laurent Common Shares was ultimately entitled shall be
deemed to have been surrendered for no consideration, together with all
entitlements to dividends, distributions and interest in respect thereof held
for such former holder.
PROCEDURES TO RECEIVE EXCHANGE CONSIDERATION
IN ORDER TO RECEIVE THE EXCHANGE CONSIDERATION, A HOLDER OF ST. LAURENT
COMMON SHARES OR ST. LAURENT RSUS MUST RETURN TO THE DEPOSITARY A PROPERLY
COMPLETED LETTER OF TRANSMITTAL, TOGETHER WITH A CERTIFICATE OR CERTIFICATES FOR
ST. LAURENT COMMON SHARES, IN THE CASE OF ST. LAURENT REGISTERED SHAREHOLDERS.
THE LETTER OF TRANSMITTAL FOR USE BY HOLDERS OF ST. LAURENT COMMON SHARES AND
HOLDERS OF ST. LAURENT RSUS IS PRINTED ON YELLOW PAPER AND ENCLOSED WITH THIS
CIRCULAR.
ALSO ENCLOSED WITH THIS CIRCULAR IS AN ELECTION FORM (PRINTED ON GREEN
PAPER) FOR USE BY HOLDERS OF ST. LAURENT OPTIONS. HOLDERS OF ST. LAURENT OPTIONS
MUST ELECT EITHER TO EXERCISE THEIR ST. LAURENT OPTIONS, AND PAY THE EXERCISE
PRICE IN RESPECT THEREOF, CONDITIONAL UPON COMPLETION OF THE ARRANGEMENT, OR TO
RECEIVE REPLACEMENT OPTIONS TO REPLACE THEIR EXISTING ST. LAURENT OPTIONS.
HOLDERS OF ST. LAURENT OPTIONS MUST RETURN A PROPERLY COMPLETED ELECTION FORM TO
THE DEPOSITARY AT THE ADDRESS SPECIFIED ON THE ELECTION FORM INDICATING WHETHER
SUCH HOLDER OF ST. LAURENT OPTIONS CHOOSES TO EXERCISE ITS ST. LAURENT OPTIONS
OR, INSTEAD, TO RECEIVE REPLACEMENT OPTIONS UNDER THE ARRANGEMENT, AND, IN SUCH
CASE, INDICATING WHETHER THE EXERCISE PRICE FOR ITS REPLACEMENT OPTIONS IS TO BE
EXPRESSED IN EITHER CANADIAN OR U.S. DOLLARS. THE EXERCISE PRICE OF A HOLDER'S
REPLACEMENT OPTIONS WILL BE, AT THE OPTION OF THE HOLDER, EITHER: (I) CONVERTED
INTO ITS U.S. DOLLAR EQUIVALENT BASED ON THE NOON SPOT RATE ON THE DAY
IMMEDIATELY PRECEDING THE EFFECTIVE DATE REPORTED BY THE BANK OF CANADA FOR
CANADIAN DOLLARS EXPRESSED IN U.S. DOLLARS, OR (II) EXPRESSED IN CANADIAN
DOLLARS. OPTIONHOLDERS WHO DO NOT COMPLETE AND RETURN THE ELECTION FORM TO THE
DEPOSITARY BY NO LATER THAN 5:00 P.M. (MONTREAL TIME) ON MAY 25, 2000 WILL BE
DEEMED NOT TO HAVE EXERCISED THEIR ST. LAURENT OPTIONS AND, INSTEAD, TO HAVE
ELECTED TO RECEIVE REPLACEMENT OPTIONS TO REPLACE THEIR EXISTING ST. LAURENT
OPTIONS PURSUANT TO THE ARRANGEMENT AND HAVE THE EXERCISE PRICE OF SUCH
REPLACEMENT OPTIONS EXPRESSED IN CANADIAN DOLLARS.
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Any use of the mails to transmit a certificate for St. Laurent Common
Shares, and a related Letter of Transmittal is at the risk of the holder
thereof. If these documents are mailed, it is recommended that REGISTERED MAIL,
with return receipt requested, properly insured, be used.
Certificates representing the appropriate number of shares of Smurfit-Stone
Common Stock issuable to a St. Laurent Securityholder (other than a holder of
St. Laurent Options who has elected not to exercise his St. Laurent Options) who
has complied with the procedures set out above, together with a cheque in the
amount of the cash, if any, to which it is entitled under the terms of the
Arrangement, including the amount, if any, payable in lieu of fractional shares
of Smurfit-Stone Common Stock will, as soon as practicable after the Effective
Date, subject to any applicable withholdings (i) be forwarded to the holder of
St. Laurent Common Shares at the address specified in the Letter of Transmittal
by insured first class mail, or (ii) be made available for pick up by the holder
as requested by the holder in the Letter of Transmittal at the office of the
Depositary specified by the holder in the Letter of Transmittal.
DESCRIPTION OF SMURFIT-STONE CAPITAL STOCK
Common Stock
Holders of Smurfit-Stone Common Stock are entitled to receive, from funds
legally available for the payment thereof, dividends when, as and if declared by
the Smurfit-Stone Board of Directors at any regular or special meeting, subject
to any preferential dividend rights granted to the holders of any outstanding
shares of preferred stock. In the event of liquidation, each share of
Smurfit-Stone Common Stock will be entitled to share pro rata in any
distribution of Smurfit-Stone's assets after payment or providing for the
payment of liabilities and the liquidation preference of any outstanding shares
of preferred stock. Each holder of Smurfit-Stone Common Stock is entitled to one
vote for each share of Smurfit-Stone Common Stock held of record on the
applicable record date on all matters submitted to a vote of stockholders,
including the election of directors.
Holders of Smurfit-Stone Common Stock generally have no cumulative voting
rights or preemptive rights (except as set forth in "Subscription Agreement"
below) to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption rights or sinking fund provisions with
respect to Smurfit-Stone Common Stock. The outstanding shares of Smurfit-Stone
Common Stock are, and the shares of Smurfit-Stone Common Stock to be issued
pursuant to the Arrangement or upon exercise of Replacement Options will be,
duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock
As of the date of this Circular, no shares of preferred stock of
Smurfit-Stone were issued or outstanding. Under the Smurfit-Stone Charter, the
Smurfit-Stone Board of Directors has the authority, without further stockholder
approval but subject to certain limitations set forth in the Smurfit-Stone
Charter, to create one or more series of preferred stock, and to determine the
preferences, rights, privileges and restrictions of any such series, including
the dividend rights, voting rights, rights and terms of redemption, liquidation
preferences, the number of shares constituting any such series and the
designation of such series. Pursuant to this authority, the Smurfit-Stone Board
of Directors could create and issue a series of preferred stock with rights,
privileges or restrictions, and adopt a stockholder rights plan, having the
effect of discriminating against an existing or prospective holder of such
securities as a result of such security holder's beneficially owning or
commencing a tender offer for a substantial amount of Smurfit-Stone Common
Stock. One of the effects of authorized but unissued and unreserved shares of
capital stock may be to render more difficult or discourage an attempt by a
potential acquirer to obtain control of Smurfit-Stone by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
Smurfit-Stone's management. The issuance of such shares of capital stock may
have the effect of delaying, deferring or preventing a change in control of
Smurfit-Stone without any further action by the stockholders of Smurfit-Stone.
Smurfit-Stone has no present intention to adopt a stockholder rights plan, but
could do so without stockholder approval at any future time.
Stone has approximately 4.6 million shares of $1.75 Series E Cumulative
Convertible Exchangeable Preferred Stock, $0.01 par value (the "Stone Preferred
Stock") issued and outstanding. Each share of Stone Preferred Stock is entitled
to one vote on all matters submitted to a vote of Stone's stockholders. The
Stone Preferred Stock is convertible, at the option of the holder, into shares
of Smurfit-Stone Common Stock at a conversion price of $34.28 (equivalent to a
conversion rate of 0.729 shares of Smurfit-Stone Common Stock for each share of
Stone Preferred Stock), subject to adjustment based on certain events. The Stone
Preferred Stock, subject to certain conditions, may alternatively be exchanged,
at the option of Stone, for new 7% Convertible Subordinated Exchange Debentures
of Stone due
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February 15, 2007 in a principal amount equal to $25.00 per share of Stone
Preferred Stock so exchanged. Additionally, the Stone Preferred Stock is
redeemable at the option of Stone, in whole or in part, from time to time. At
March 31, 2000, Stone had accumulated dividend arrearages on the Stone Preferred
Stock of $24 million. As a result of Stone's accumulated dividend arrearage, the
holders of the Stone Preferred Stock are entitled to, and have elected, two
individuals (the "Stone Preferred Directors") to the Stone board of directors,
which consists of a total of five directors. The payment of dividends on the
Stone Preferred Stock is prohibited by covenants in certain of the agreements
and indentures relating to indebtedness of Stone. However, the accumulated
dividend arrearages on the preferred stock are payable upon their conversion,
exchange or redemption. Upon a payment of the cumulative dividend arrearage, the
holders of the Stone Preferred Stock will no longer have the right to elect the
Stone Preferred Directors.
Subscription Agreement
Pursuant to a Stock Subscription Agreement dated as of May 3, 1994 among
Smurfit-Stone, JSC (U.S.) and SIBV, Smurfit-Stone has granted SIBV certain
contractual rights which generally allow SIBV to maintain its percentage
ownership of Smurfit-Stone Common Stock in the event of public or private
issuances of Smurfit-Stone Common Stock (or securities of Smurfit-Stone
convertible into or exchangeable for Smurfit-Stone Common Stock). See
"Information Concerning Smurfit-Stone -- Share and Loan Capital Structure --
Subscription Agreement".
STOCK EXCHANGE LISTING
Smurfit-Stone Common Stock is traded on NASDAQ. Smurfit-Stone will apply to
NASDAQ to have the Smurfit-Stone Common Stock to be issued pursuant to the
Arrangement or upon exercise of the Replacement Options listed on NASDAQ.
AFFILIATE'S LETTERS
St. Laurent has agreed to use its reasonable efforts to ensure that on or
before the Effective Date each St. Laurent Affiliate executes and delivers an
Affiliate's Letter.
Each Affiliate's Letter to be signed by a St. Laurent Affiliate will
provide that the St. Laurent Affiliate agrees not to sell, transfer or otherwise
dispose of any share of Smurfit-Stone Common Stock received by it in exchange
for St. Laurent Common Shares or St. Laurent RSUs in connection with the
Arrangement except: (i) pursuant to an effective registration statement under
the 1933 Act; (ii) in conformity with Rule 145 promulgated under the 1933 Act;
or (iii) in a transaction which, in the opinion of counsel reasonably acceptable
to Smurfit-Stone, is not required to be registered under the 1933 Act.
Each Affiliate's Letter will provide that execution by a St. Laurent
Affiliate will not be deemed to be an admission by that St. Laurent Affiliate
that it is in fact an "affiliate" of St. Laurent, within the meaning of United
States securities laws and the applicable rules and regulations made thereunder.
RESALE OF SMURFIT-STONE COMMON STOCK RECEIVED IN THE ARRANGEMENT
United States
The Smurfit-Stone Common Stock to be issued to holders of St. Laurent
Common Shares and St. Laurent RSUs pursuant to the Arrangement will not be
registered under the 1933 Act. Such shares will instead be issued in reliance
upon the exemption from registration provided by Section 3(a)(10) of the 1933
Act. Section 3(a)(10) exempts securities issued in exchange for one or more
outstanding securities from the general requirement of registration under the
1933 Act where the terms and conditions of the issuance and exchange of such
securities have been approved by an appropriate court, after a hearing upon the
fairness of the terms and conditions of the issuance and exchange at which all
Persons to whom such securities will be issued have the right to appear. The
Court is authorized to conduct a hearing to determine the fairness of the terms
and conditions of the Arrangement. The Court entered the Interim Order on April
14, 2000 and, subject to the approval of the Arrangement by the St. Laurent
Securityholders, a hearing on the fairness of the Arrangement will be held on
May 30, 2000 by the Court. See "The Arrangement -- Court Approval and Completion
of the Arrangement".
The Smurfit-Stone Common Stock to be received pursuant to the Arrangement
will be freely transferable under United States federal securities laws, except
for Smurfit-Stone Common Stock held by Persons who are deemed to be "affiliates"
(as such term is defined under the 1933 Act) of St. Laurent prior to the
Transaction which may be resold by them only in transactions permitted by the
resale provisions of Rule 145(d)(1), (2), or (3) promulgated under the 1933
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Act or as otherwise permitted under the 1933 Act. Rule 145(d) provides a safe
harbour for resales of securities received by certain Persons in transactions
such as the Arrangement. Pursuant to Rule 145(d)(1), "affiliates" of St. Laurent
may sell securities of Smurfit-Stone received pursuant to the Arrangement if
such sale is effected pursuant to the volume, current public information and
manner of sale limitations of Rule 144 promulgated under the 1933 Act, including
Regulation S thereunder. These limitations generally require that any sales made
by such an affiliate in any three month period shall not exceed the greater of
1% of the outstanding shares of the securities being sold or the average weekly
trading volume over the four calendar weeks preceding the placement of the sell
order and that such sales be made in unsolicited, open market "brokers
transactions". Pursuant to Rules 145(d)(2) and (3), the foregoing limitations
will lapse for non-affiliates of Smurfit-Stone after a period of one or two
years, respectively, depending upon whether certain currently available
information continues to be available with respect to Smurfit-Stone. Persons who
may be deemed to be affiliates of an issuer generally include individuals or
entities that control, are controlled by, or are under common control with, such
issuer and may include certain officers and directors of such issuer as well as
principal shareholders of such issuer.
Canada
Smurfit-Stone has advised St. Laurent that it is applying for rulings or
orders of securities regulatory authorities in Canada to permit the issuance of
Smurfit-Stone Common Stock issuable under the Arrangement and upon exercise of
the Replacement Options. Application is also being made to permit resale of such
stock in various jurisdictions without restriction by Persons other than a
"control person", provided that no unusual effort is made to prepare the market
for any such resale or to create a demand for the securities which are the
subject of any such resale and no extraordinary commission or consideration is
paid in respect thereof. The obligations of St. Laurent to conclude the
Transaction is subject to, among other things, receipt of such orders, rulings
and approvals.
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT
St. Laurent has signed agreements with approximately 20 senior executives
and officers providing each of them with certain severance payments and benefits
in the event such individuals' employment with St. Laurent is terminated either
without cause or within a period between one and three years, depending on the
individual, of a change in control of St. Laurent. Such agreements define a
"change of control" with respect to St. Laurent as any Person becoming the owner
of more than 30% of the total voting rights attaching to the shares in the
capital of St. Laurent or if the individuals who, at the date of entering into
such agreements, constituted the Board of Directors cease, for any reason, to
constitute a majority of the members of the Board of Directors. Payments to
senior executives and officers in the case of termination or on a change of
control of St. Laurent under such agreements would amount to approximately $4
million in the aggregate.
Each senior executive and officer covered by an agreement dealing with the
termination of such senior executive or officer in the case of a change of
control of St. Laurent is entitled, among other things, in the case of
termination of such individual's employment, to receive: (i) a lump sum payment
equal to a multiple of such individual's basic annual salary; (ii) the
continuation, if any, of any loan from St. Laurent to such individual as though
such individual had not been terminated for a certain period of time following
termination; (iii) a lump sum payment equal to the actuarial value of such
individual's pension arrangements under the St. Laurent Supplementary Employee
Retirement Plan, taking into account the value of the additional pension
benefits thereunder which such individual would have earned from additional
pensionable service through to the end of the change of control severance period
for such individual; (iv) the extension of the exercise period for any options
which such individual had a right to purchase under the St. Laurent Option Plans
for a certain period of time following such individual's termination; (v) the
immediate expiry of any retention period for St. Laurent Common Shares purchased
by such individual under the St. Laurent Long-Term Incentive Plan and their
release from escrow; (vi) the forfeiture by St. Laurent of any penalty for early
withdrawal by such individual of his St. Laurent Common Shares purchased under
the St. Laurent Manager's Share Purchase Plan; and (vii) the continuation of all
of such individual's benefits at the same level to which such individual was
entitled as part of such individual's employment and position with St. Laurent
immediately prior to the change of control for a certain period of time
following such individual's termination (however short term and long-term
disability insurance plans shall cease to apply to such individual at the date
of such individual's termination). In addition, in the event that St. Laurent or
its successors shall award payments under the St. Laurent Short-Term Incentive
Plan or other equivalent short-term incentive plans or arrangements of St.
Laurent or its successors to any other officer of St. Laurent or its successor
or if such award payments are made after the change in control severance period
for such individual but in respect of service during the change of control
severance period for such individual, such individual is entitled to
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receive an award established on the basis of the weighted average percentage of
award payments made to the five highest paid officers of St. Laurent or its
successor based on the basic annual salary of such officers, with such
percentage being applied to the basic annual salary of such individual.
In the majority of cases, the executive or officer is entitled to two times
his or her basic annual salary, with the relevant severance period for such
individual being two years. In certain other cases, the relevant severance
period and multiple of basic salary is one year (and in certain other cases, 18
months). In the case of Mr. Joseph J. Gurandiano, President and Chief Executive
Officer of St. Laurent, the relevant severance period is three years with Mr.
Gurandiano being entitled to a lump sum equal to three times his basic annual
salary in the case of termination. In the case of a change of control of St.
Laurent where Mr. Gurandiano remains the President and Chief Executive Officer
of St. Laurent for at least six months following such change of control and,
prior to the expiry of two years following such change of control, he elects to
leave the employment of St. Laurent for any reason whatsoever, he will be
entitled to a lump sum payment equal to 1 1/2 times his annual salary and all
other benefits as set forth above calculated on the basis of a 1 1/2 year
severance period.
Subject to regulatory approval, all outstanding St. Laurent Options shall
become vested and immediately exercisable (conditional upon the Arrangement
being completed) so that holders of St. Laurent Options may participate in, and
benefit from, the Arrangement as holders of St. Laurent Common Shares. In
addition, the two year period following the termination of employment with St.
Laurent or any Subsidiary or Affiliate of St. Laurent, as well as the penalty
which would otherwise be payable by an employee in the case of a sale, transfer
or assignment of such employee's shares without such employee ceasing to be
employed by St. Laurent, or a Subsidiary or an Affiliate of St. Laurent under
St. Laurent Managers' Share Purchase Plan, will be waived. Furthermore, the
three year period following which holders of St. Laurent RSUs are entitled to
receive St. Laurent Common Shares under the St. Laurent Managers' Share Purchase
Plan, without payment of any further consideration, will be accelerated and St.
Laurent Common Shares will be issued to the holders of St. Laurent RSUs so that
holders of St. Laurent RSUs may participate in the Arrangement as holders of St.
Laurent Common Shares and receive the Exchange Consideration under the
Arrangement.
The Board of Directors has resolved that a cash settlement be made to
optionees that would otherwise have benefited from an option grant in May 2000
under the St. Laurent Directors' Stock Option and Share Purchase Plan (with
respect to the option component of the annual grant of rights thereunder), the
St. Laurent Long-Term Incentive Plan and the St. Laurent Managers' Stock Option
Plan for an amount equal to the full economic value of such options calculated
on the basis of an "all-cash transaction price", less the deemed exercise price
of such options representing the market value of St. Laurent Common Shares as
calculated on January 24, 2000 (the date upon which the compensation committee
of the Board of Directors began to consider the issue of making an annual grant
of options). It was also resolved, with respect to "Performance Shares" to be
issued to Mr. Gurandiano, President and Chief Executive Officer of St. Laurent,
and his direct reports, as per the terms of eligibility of the St. Laurent Share
Performance Plan, that a cash settlement be made to Mr. Gurandiano and such
other executives on the Effective Date for an amount equivalent to the full
economic value of the "Performance Shares" held by each such Person and
calculated on the basis of an "all-cash transaction price". With respect to the
share component of the rights granted to directors of St. Laurent under the St.
Laurent Stock Option and Share Purchase Plan that would otherwise have been
granted to directors of St. Laurent in May of 2000, it was resolved that a cash
settlement be made to such directors then in office on the Effective Date for an
amount equivalent to the full economic value of such shares calculated on the
basis of an "all-cash transaction price".
It was further resolved by the Board of Directors that a retention bonus be
paid at Closing to nine senior executives of St. Laurent who, in the opinion of
the Board of Directors, are instrumental in the day-to-day running of the
business of St. Laurent who must be kept in their positions in the event the
Arrangement is not completed and who will be instrumental in the closing of the
Transaction. Such retention bonus will be comprised of a percentage of the
annual base salary of each such senior executive, ranging from 125% to 75%. See
"Information Concerning St. Laurent -- Granting of St. Laurent Options, St.
Laurent RSUs, Performance Shares and Retention Bonuses".
Mr. Joseph J. Gurandiano will become Chief Operating Officer of
Smurfit-Stone effective on Closing. Mr. Gurandiano's compensation package will
be increased after Closing to reflect his increased responsibilities.
Josiah O. Low III, a director of St. Laurent, is also a director of DLJ.
DLJ will receive a fee for providing its fairness opinion in connection with the
Transaction. See "The Arrangement -- Opinions of St. Laurent's Financial
Advisors -- The DLJ Fairness Opinion". Jean Turmel, a director of St. Laurent is
an officer of a Canadian chartered 31
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bank that is a lender to St. Laurent. In connection with the Transaction, all
existing indebtedness of St. Laurent to such Canadian chartered bank will be
repaid.
THE PRE-MERGER AGREEMENT
The following paragraphs summarize, among other things, the material terms
of the Pre-Merger Agreement. St. Laurent Securityholders are urged to read the
Pre-Merger Agreement in its entirety for a more complete description of the
Arrangement.
EFFECTIVE DATE OF THE ARRANGEMENT
After obtaining the Final Order and subject to the satisfaction or waiver
of the conditions set forth in the Pre-Merger Agreement, including receipt of
all Appropriate Regulatory Approvals (see "Regulatory Matters"), St. Laurent
will file with the Director the Articles of Arrangement and such other documents
as may be required under the CBCA to give effect to the Arrangement. The
Arrangement will become effective upon such filing.
REPRESENTATIONS AND WARRANTIES
The Pre-Merger Agreement contains various representations and warranties of
St. Laurent relating to, among other things, (i) the corporate existence and
organization of St. Laurent and the St. Laurent Material Subsidiaries; (ii) the
capitalization of St. Laurent; (iii) authorization, execution, delivery and
enforceability of the Pre-Merger Agreement; (iv) the absence of a default under
any contract, agreement, license or franchise which would, if terminated due to
such a default, cause a Material Adverse Effect on St. Laurent; (v) the absence
of certain events and any Material Adverse Change with respect to St. Laurent
since December 31, 1998 other than those which have been publicly disclosed by
St. Laurent; (vi) employment agreements and labour matters; (vii) financial
statements; (viii) books and records; (ix) the absence of undisclosed
liabilities, (x) the absence of litigation that, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on St. Laurent; (xi)
environmental matters; (xii) the filing of tax returns and payment of taxes;
(xiii) pension and employee benefit matters; (xiv) compliance with laws; (xv)
the absence of restrictions on the business activities of St. Laurent and the
St. Laurent Material Subsidiaries; (xvi) the existence of necessary licenses and
permits; (xvii) the intellectual property of St. Laurent and the St. Laurent
Material Subsidiaries; and (xviii) certain insurance matters.
The Pre-Merger Agreement also contains various representations and
warranties of the Smurfit-Stone Parties relating to, among other things, (i) the
corporate existence and organization of the Smurfit-Stone Parties and the
material Subsidiaries thereof; (iii) the capitalization of Smurfit-Stone; (iii)
authorization, execution, delivery and enforceability of the Pre-Merger
Agreement; (iv) the absence of certain events and any Material Adverse Change
with respect to Smurfit-Stone since December 31, 1998 other than those which
have been publicly disclosed by Smurfit-Stone; (v) financial statements; (vi)
absence of undisclosed liabilities; (vii) compliance with laws; and (viii) the
absence of litigation that, if adversely determined, could reasonably be
expected to have a Material Adverse Effect on Smurfit-Stone.
COVENANTS OF ST. LAURENT
Pursuant to the Pre-Merger Agreement, St. Laurent agreed, among other
things, that until the earlier of the termination of the Pre-Merger Agreement or
the Effective Time, except as contemplated by the Pre-Merger Agreement or as
disclosed in the St. Laurent Disclosure Letter or with the consent of
Smurfit-Stone, which shall not be unreasonably withheld, St. Laurent will:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as the same has been conducted in the
past and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business
organization and keep available the services of its present officers
and employees and others having business dealings with it to the end
that its goodwill and business shall be maintained;
(b) not commence to undertake a substantial or unusual expansion of its
business facilities or an expansion that is out of the ordinary and
regular course of business;
(c) not split, combine or reclassify any of the outstanding shares of St.
Laurent nor declare, set aside or pay any dividends on or make any
other distributions on or in respect of the outstanding shares of St.
Laurent;
(d) not amend the St. Laurent Articles or St. Laurent By-laws or
materially amend the articles or by-laws of any Subsidiary;
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(e) not sell, pledge, hypothecate, encumber, allot, reserve, set aside or
issue, authorize or propose the sale, pledge, encumbrance, allotment,
reservation, setting aside or issuance of, or purchase or redeem or
propose the purchase or redemption of, any shares in its capital stock
or of any Subsidiary thereof or any class of securities convertible or
exchangeable into, or rights, warrants or options to acquire, any such
shares or other convertible or exchangeable securities, except for (i)
transactions between two or more wholly-owned St. Laurent Subsidiaries
or between a wholly-owned Subsidiary of St. Laurent and St. Laurent,
and (ii) the issuance of St. Laurent Common Shares pursuant to fully
vested St. Laurent Options or pursuant to the exercise of St. Laurent
RSUs or warrants to acquire shares of St. Laurent granted prior to the
date of the Pre-Merger Agreement; and (iii) the purchase of St.
Laurent Common Shares with respect to the St. Laurent Directors' Stock
Option and Purchase Plan, St. Laurent Employee Share Purchase Plan
and/or St. Laurent Subsidiary Stock Purchase Plan (U.S.);
(f) not, whether through the Board of Directors or otherwise, accelerate
the vesting of any unvested St. Laurent Options or accelerate the
release of, or the expiry date of any hold period relating to, any St.
Laurent Common Shares held in the St. Laurent Employee Share Purchase
Plans, or otherwise amend, vary or modify such plans or the St.
Laurent Stock Option Plan;
(g) not reorganize, amalgamate or merge St. Laurent or any of its
Subsidiaries with any other Person, nor acquire or agree to acquire by
amalgamating, merging or consolidating with, purchasing substantially
all of the assets of or otherwise, any business of any corporation,
partnership, association or other business organization or division
thereof, which acquisition would be material to its business or
financial condition on a consolidated basis (other than relating to
transactions between two or more wholly-owned St. Laurent Subsidiaries
or between a wholly-owned Subsidiary of St. Laurent and St. Laurent);
(h) except with respect to the sale of assets of St. Laurent or any
Subsidiary in the ordinary and regular course of business consistent
with past practice, not sell, pledge, hypothecate, encumber, lease or
otherwise dispose of any material assets (other than relating to
transactions between two or more wholly-owned St. Laurent Subsidiaries
or between a wholly-owned Subsidiary of St. Laurent and St. Laurent)
or create or cause to be created any lien, except in the ordinary and
regular course of business;
(i) not guarantee the payment of material indebtedness of Persons other
than its Subsidiaries or incur material indebtedness for money
borrowed or issue or sell any debt securities except in the ordinary
and regular course of business;
(j) carry out the terms of the Interim Order and the Final Order
applicable to it and use its reasonable efforts to comply promptly
with all requirements which applicable laws may impose on St. Laurent
or its Subsidiaries with respect to the transactions contemplated by
the Pre-Merger Agreement and by the Arrangement;
(k) not, and cause each of its Subsidiaries not to, other than in the
usual, ordinary and regular course of business and consistent with
past practice or pursuant to existing employment, pension,
supplemental pension, termination, compensation arrangements or
policies, enter into or materially modify any employment, severance,
collective bargaining or similar agreements, policies or arrangements
with, or grant any material bonuses, salary increases, stock options,
pension or supplemental pension benefits, profit sharing, retirement
allowances, deferred compensation, incentive compensation, severance
or termination pay to, or make any loan to, any officers or directors
of it; or except in the usual, ordinary and regular course of business
or pursuant to existing employment, pension, supplemental pension,
termination, compensation arrangements or policies in the case of
employees who are not officers or directors, take any action with
respect to the entering into or modifying of any material employment,
severance, collective bargaining or similar agreements, policies or
arrangements with respect to the grant of any material bonuses, salary
increases, stock options, pension or supplemental pension benefits,
profit-sharing, retirement allowances, deferred compensation,
incentive compensation, severance or termination pay or any other form
of compensation or profit-sharing or with respect to any increase of
benefits payable;
(l) subject to the terms of the Pre-Merger Agreement, not, except in the
usual, ordinary and regular course of business and consistent with
past practice: (i) satisfy or settle any claims or liabilities prior
to the same being due, except such as have been reserved against in
the St. Laurent Financial Statements or disclosed in the St. Laurent
Disclosure Letter, which are, individually or in the aggregate,
material; (ii) grant any waiver, exercise any option or relinquish any
contractual rights which are, individually or in the aggregate,
material;
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or (iii) enter into any interest rate, currency or commodity swaps,
hedges or other similar financial instruments;
(m) use its reasonable commercial efforts (or cause each of its
Subsidiaries to use reasonable commercial efforts) to cause its
current insurance (or re-insurance) policies not to be cancelled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and re-insurance
companies of nationally recognized standing providing coverage equal
to or greater than the coverage under the cancelled, terminated or
lapsed policies for substantially similar premiums are in full force
and effect;
(n) except for the settlement or compromise agreements representing not
more than $1 million in the aggregate, not, and cause its Subsidiaries
not to, settle or compromise any claim brought by any present, former
or purported holder of any of its securities in connection with the
transactions contemplated by the Pre-Merger Agreement or the
Arrangement prior to the Effective Date;
(o) except when disclosure would violate any confidentiality agreements or
result in the loss of any client/solicitor privilege, keep
Smurfit-Stone fully informed as to the status of discussions or any
developments concerning certain matters referred to in the St. Laurent
Disclosure Letter and not settle or compromise any penalty or fine
imposed by a Governmental Entity in connection therewith except for
the settlement or compromise in respect of which St. Laurent and its
Subsidiaries, as the case may be, shall have been indemnified;
(p) not, and cause its Subsidiaries not to, enter into or modify in any
material respect any contract, agreement, commitment or arrangement
which new contract or series of related new contracts or modification
to an existing contract or series of related existing contracts would
have a Material Adverse Effect on St. Laurent;
(q) incur or commit to capital expenditures prior to the Effective Date
only in the ordinary course consistent with past practice and not, in
any event, exceeding $12 million, individually or in the aggregate;
(r) not make any changes to existing accounting practices relating to St.
Laurent or any subsidiary except as required by law or required by
Canadian GAAP or make any material tax election or file any tax return
inconsistent with past practice; and
(s) promptly advise Smurfit-Stone in writing:
(i) of any event occurring subsequent to the date of the Pre-Merger
Agreement that would render any representation or warranty of St.
Laurent contained in the Pre-Merger Agreement (except any such
representation or warranty which speaks as of a date prior to the
occurrence of such event), if made on or as of the date of such
event or the Effective Date, untrue or inaccurate in any material
respect;
(ii) of any Material Adverse Change in respect of St. Laurent; and
(iii) of any material breach by St. Laurent of any covenant or
agreement contained in the Pre-Merger Agreement.
St. Laurent also agreed to perform, and to cause its Subsidiaries to
perform, all obligations required or desirable to be performed by St. Laurent or
any of its Subsidiaries under the Pre-Merger Agreement, co-operate with
Smurfit-Stone in connection therewith, and do all such other acts and things as
may be necessary or desirable in order to consummate and make effective, as soon
as reasonably practicable, the transactions contemplated in the Pre-Merger
Agreement and, without limiting the generality of the foregoing to:
(a) use all reasonable efforts to obtain the approvals of St. Laurent
Securityholders to the Arrangement including, without limitation, by
including in this Circular the unanimous recommendation of the
disinterested members of the Board of Directors that St. Laurent
Securityholders vote in favour of the Arrangement Resolution, subject,
however, to the exercise by the Board of Directors of St. Laurent of
its fiduciary duties as provided by the Pre-Merger Agreement;
(b) waive the application of the provisions of the St. Laurent Rights Plan
(including the separation of the rights thereunder) with respect to
the Transaction contemplated by the Arrangement;
(c) apply for and use all reasonable best efforts to obtain all
Appropriate Regulatory Approvals relating to St. Laurent or any of its
Subsidiaries and, in doing so, to keep Smurfit-Stone reasonably
informed as to the status of the proceedings related to obtaining the
Appropriate Regulatory Approvals, including, but not
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limited to, providing Smurfit-Stone with copies of all related
applications and notifications, in draft form, in order for
Smurfit-Stone to provide its reasonable comments;
(d) apply for and use all reasonable efforts to obtain the Interim Order
and the Final Order;
(e) use its reasonable best efforts to defend and in defending all
lawsuits or other legal, regulatory or other proceedings challenging
or affecting the Pre-Merger Agreement or the consummation of the
transactions contemplated thereby;
(f) use its reasonable best efforts to have lifted or rescinded any
injunction or restraining order or other order which may adversely
affect the ability of the parties to consummate the transactions
contemplated by the Pre-Merger Agreement;
(g) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from St. Laurent or any
of its Subsidiaries; and
(h) use its reasonable efforts to obtain all necessary waivers, consents
and approvals required to be obtained by St. Laurent or a Subsidiary
from other parties to loan agreements, leases or other contracts.
St. Laurent also agreed to provide or to cause its Subsidiaries to provide
all necessary cooperation in connection with the arrangement of any financing by
the Smurfit-Stone Parties to be consummated in connection with the Transaction,
any amendments or waivers required under Smurfit-Stone's existing credit
facilities and a reorganization of St. Laurent and its Subsidiaries to be made
or implemented at the request of the Smurfit-Stone Parties to satisfy financing
requirements and to affect tax and other efficiencies for the Smurfit-Stone
Parties on or prior to the Effective Time (provided however prior to any such
reorganization, Smurfit-Stone and St. Laurent shall agree upon the terms of an
indemnity agreement in favour of St. Laurent and its Subsidiaries in the event
that the Arrangement is not consummated and any losses, costs or expenses
incurred by St. Laurent or any of its Subsidiaries which would not have been so
incurred but for the reorganization and any transactions effected pursuant to
such a reorganization shall not be governed by St. Laurent's representations and
warranties or St. Laurent's covenants under the Pre-Merger Agreement or in any
other way expand St. Laurent's liability under the Pre-Merger Agreement).
COVENANTS OF THE SMURFIT-STONE PARTIES
Each of the Smurfit-Stone Parties agreed (and, if applicable, agreed to
cause its Subsidiaries) to do all acts and things as may be necessary or
desirable in order to consummate and make effective, as soon as reasonably
practicable, the Transaction including, among other things, to:
(a) apply for and use all reasonable best efforts to obtain all
Appropriate Regulatory Approvals relating to the Smurfit-Stone
Parties, and, in doing so, to keep St. Laurent reasonably informed as
to the status of the proceedings related to obtaining the Appropriate
Regulatory Approvals, including, but not limited to, providing St.
Laurent with copies of all related applications and notifications, in
draft form, in order for St. Laurent to provide its reasonable
comments;
(b) use its reasonable best efforts to defend and in defending all
lawsuits or other legal, regulatory or other proceedings to which it
is a party challenging or affecting the Pre-Merger Agreement or the
consummation of the transactions contemplated thereby;
(c) use all reasonable best efforts to have lifted or rescinded any
injunction or restraining order or other order relating to the
Smurfit-Stone Parties which may adversely affect the ability of the
parties to consummate the Transactions;
(d) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from the Smurfit-Stone
Parties or their Subsidiaries;
(e) cause Smurfit-Stone to reserve a sufficient number of shares of
Smurfit-Stone Common Stock for issuance upon the completion of the
Arrangement and the exercise from time to time of Replacement Options;
(f) carry out the terms of the Interim Order and Final Order applicable to
it and use its reasonable efforts to comply promptly with all
requirements which applicable Laws may impose on Smurfit-Stone or its
Subsidiaries with respect to the transactions contemplated hereby and
by the Arrangement; and
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(g) use its reasonable efforts to obtain all necessary waivers, consents
and approvals required to be obtained by Smurfit-Stone or a subsidiary
of Smurfit-Stone from other parties to loan agreements, leases or
other contracts.
Until the Effective Date or the earlier termination of the Pre-Merger
Agreement, except (a) with the consent of St. Laurent to any deviation
therefrom, which shall not be unreasonably withheld; (b) with respect to any
matters which were disclosed by Smurfit-Stone to St. Laurent in writing in the
Smurfit-Stone Disclosure Letter; or (c) with respect to any matter contemplated
by the Pre-Merger Agreement or the Plan of Arrangement, including the
transactions involving the businesses of St. Laurent and Smurfit-Stone
contemplated hereby, Smurfit-Stone agreed:
(a) not to split, combine or reclassify any of the outstanding shares of
Smurfit-Stone nor declare, set aside or pay any dividends on or make
any other distributions on or in respect of the outstanding shares of
Smurfit-Stone;
(b) to promptly advise St. Laurent in writing:
(i) of any event occurring subsequent to the date of the Pre-Merger
Agreement that would render any representation or warranty of
Smurfit-Stone contained in the Pre-Merger Agreement (except any
such representation or warranty which speaks as of a date prior
to the occurrence of such event), if made on or as of the date of
such event or the Effective Date, untrue or inaccurate in any
material respect;
(ii) of any Material Adverse Change in respect of Smurfit-Stone; and
(iii) of any material breach by Smurfit-Stone of any covenant or
agreement contained in the Pre-Merger Agreement;
(c) not to make any changes to existing accounting practices related to
Smurfit-Stone except as required by a change in United States
generally accepted accounting practice or by applicable law;
(d) not to reorganize, amalgamate, or merge Smurfit-Stone with any other
Person, nor acquire by amalgamating, merging or consolidating with,
purchasing a majority of voting securities or substantially all of the
assets of or otherwise, any business or Person which acquisition would
result in Smurfit-Stone's financing commitment for the Arrangement
being terminated or withdrawn and not being replaced; and
(e) to apply for and use all reasonable efforts to obtain all Appropriate
Regulatory Approvals relating to the Smurfit-Stone Parties.
COVENANTS OF ST. LAURENT REGARDING NON-SOLICITATION
Pursuant to the Pre-Merger Agreement, St. Laurent has agreed not to
directly or indirectly, and to use its best efforts to cause its representatives
not to, (i) solicit, initiate or knowingly encourage (including by way of
furnishing information or entering into any form of agreement, arrangement or
understanding) the initiation of any inquiries or proposals regarding an
Acquisition Proposal, (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal, (iii) withdraw or modify in a manner adverse
to Smurfit-Stone the approval of the St. Laurent Board of Directors of the
transactions contemplated by the Pre-Merger Agreement, (iv) approve or recommend
any Acquisition Proposal or (v) enter into any agreement, arrangement or
understanding related to any Acquisition Proposal.
However, the Board of Directors, prior to the issuance of the Final Order,
may consider, participate in any discussions or negotiations, or enter into a
confidentiality agreement and provide information regarding an unsolicited bona
fide written Acquisition Proposal that does not otherwise result from a breach
of the provisions of the Pre-Merger Agreement and that the Board of Directors
determines in good faith, after consultation with financial advisors and outside
counsel, is reasonably likely to result in a Superior Proposal. St. Laurent has
also agreed not to consider, negotiate, accept, approve or recommend an
Acquisition Proposal after the date of the issuance of the Final Order and to
cause the officers, directors, employees, representatives and agents of St.
Laurent and its Subsidiaries to, cease immediately all discussions and
negotiations regarding any proposal received prior to the execution of the
Pre-Merger Agreement that constitutes, or may reasonably be expected to lead to,
an Acquisition Proposal.
St. Laurent has agreed to promptly notify Smurfit-Stone, at first orally
and then in writing, of any Acquisition Proposal and any inquiry that could
reasonably be expected to lead to an Acquisition Proposal, or any amendments to
the foregoing, or any request for non-public information relating to St. Laurent
or any St. Laurent Material Subsidiary in connection with an Acquisition
Proposal or for access to the properties, books or records of St. Laurent or any
St. Laurent Material Subsidiary by any Person that informs St. Laurent or such
Subsidiary that it is considering making,
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or has made, an Acquisition Proposal. Such notice must include a description of
the material terms and conditions of any proposal (including a copy of any
written proposal), the identity of the Person making such proposal, inquiry or
contact and provide such other details available to St. Laurent of the proposal,
inquiry or contact as Smurfit-Stone may reasonably request. St. Laurent is to
keep Smurfit-Stone fully informed of the status, including any change to the
material terms of any such Acquisition Proposal or inquiry, and to provide to
Smurfit-Stone, as soon as practicable after receipt or delivery thereof, with
copies of all correspondence and other written material sent or provided to St.
Laurent or any Subsidiary from any Person in connection with any Acquisition
Proposal sent or provided by St. Laurent to any Person in connection with any
Acquisition Proposal. Smurfit-Stone has agreed to treat any such documents
received by it from St. Laurent as confidential information in accordance with
the provisions of the Confidentiality Agreements.
If St. Laurent receives a request for material non-public information from
a Person who has made an unsolicited bona fide written Acquisition Proposal and
St. Laurent is permitted to negotiate the terms of such Acquisition Proposal,
then, and only in such case, the Board of Directors may, subject to the
execution by such Person of a confidentiality agreement containing a standstill
provision substantially similar to that contained in the Confidentiality
Agreements, provide such Person with access to information regarding St.
Laurent; provided, however, that St. Laurent sends a copy of any such
confidentiality agreement to Smurfit-Stone promptly upon its execution and
Smurfit-Stone is provided with a list of or copies of the information provided
to such Person and immediately provided with access to similar information to
which such Person was provided.
Notwithstanding any of the foregoing, the Board of Directors may withdraw
or modify in a manner adverse to Smurfit-Stone the approval by the Board of
Directors of the Transaction if a Specified Smurfit-Stone Event has occurred and
is continuing.
Subject to the foregoing, St. Laurent may accept, approve, recommend or
enter into any agreement, understanding or arrangement in respect of a Superior
Proposal if, and only if, (i) it has provided Smurfit-Stone with a copy of the
Superior Proposal document, (ii) five Business Days shall have elapsed from the
later of the date Smurfit-Stone received written notice advising Smurfit-Stone
that the Board of Directors has resolved to accept, approve, recommend or enter
into an agreement in respect of such Superior Proposal, specifying the terms and
conditions of such Superior Proposal and identifying the Person making such
Superior Proposal, and the date Smurfit-Stone received a copy of such Superior
Proposal and (iii) it has previously or concurrently will have (A) paid to
Smurfit-Stone the Break Fee, if any, payable under the Pre-Merger Agreement and
(B) terminated the Pre-Merger Agreement.
During the five Business Day period referred to above, Smurfit-Stone shall
have the right, but not the obligation, to offer to amend the terms of the
Pre-Merger Agreement. The Board of Directors will review any offer by
Smurfit-Stone to amend the terms of the Pre-Merger Agreement in good faith in
order to determine, in its discretion in the exercise of its fiduciary duties,
whether Smurfit-Stone's offer upon acceptance by St. Laurent would result in
such Superior Proposal ceasing to be a Superior Proposal. If the Board of
Directors so determines, it will enter into an amended agreement with
Smurfit-Stone reflecting Smurfit-Stone's amended proposal. If the Board of
Directors continues to believe, in good faith and after consultation with
financial advisors and outside counsel, that such Superior Proposal remains a
Superior Proposal and therefore rejects Smurfit-Stone's amended proposal, St.
Laurent may terminate the Pre-Merger Agreement provided, however, that St.
Laurent must concurrently pay or cause to be paid to Smurfit-Stone the Break
Fee, if any, payable to Smurfit-Stone under the Pre-Merger Agreement, and must
concurrently with such termination enter into a definitive agreement with
respect to such Acquisition Proposal. St. Laurent acknowledged and agreed that
payment of the Break Fee, if any, is a condition to the valid termination of the
Pre-Merger Agreement.
St. Laurent has also acknowledged and agreed that each successive
modification of any Acquisition Proposal relating to an increase of any such
proposal or any other material provision of any Acquisition Proposal shall
constitute a new Acquisition Proposal for purposes of the Pre-Merger Agreement.
CONTINUATION OF BENEFITS, EMPLOYEE PLAN AND ACCRUED VACATION AND PARTICIPATION
AND BENEFIT PLANS
Smurfit-Stone has agreed to maintain or to cause St. Laurent and its
Subsidiaries to maintain, for a period of not less than one year following the
Effective Date, compensation and employee benefit plans, welfare benefit plans
and arrangements for employees of St. Laurent and its Subsidiaries that are, in
the aggregate, no less favourable than as provided under the existing St.
Laurent plans, including providing severance pay and other severance benefits to
affected St. Laurent employees as of the Effective Date that are no less
favourable than under the current St. Laurent plans. However, Smurfit-Stone
shall have the right following the Effective Date to transfer to one or more
employee
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benefit plans maintained by Smurfit-Stone any employee of St. Laurent or any
Subsidiary who becomes an employee of Smurfit-Stone or any of its Subsidiaries
and to terminate the employment of any employee pursuant to a good faith
exercise of its managerial discretion.
Smurfit-Stone has undertaken to honour or to cause St. Laurent or its
Subsidiaries to honour all St. Laurent plans or other contractual commitments in
effect immediately prior to the Effective Date between St. Laurent or its
Subsidiaries and affected employees of St. Laurent or former employees of St.
Laurent or its Subsidiaries, including, honouring all vacations, holiday,
sickness and personal days accrued by such affected employees and, to the extent
applicable, former employees of St. Laurent and its Subsidiaries as of the
Effective Date. Employees and, to the extent applicable, former employees of St.
Laurent and its Subsidiaries shall be given credit for all service rendered to
St. Laurent or its Subsidiaries under all employee benefit plans and
arrangements currently maintained by Smurfit-Stone or any of its Subsidiaries in
which they are or become participants for the purpose of eligibility and vesting
to the same extent as if such services had been rendered to Smurfit-Stone or any
of its Subsidiaries. Smurfit-Stone agreed to cause to be waived any pre-existing
condition or limitation under its welfare plans that might otherwise apply to an
affected employee of St. Laurent or its Subsidiaries, or, to the extent
applicable, a former employee of same.
INDEMNIFICATION
Smurfit-Stone has agreed that all rights to indemnification now existing in
favour of the directors or officers of St. Laurent or any Subsidiary, as
provided in its articles of incorporation or by-laws which were in effect on the
date of the Pre-Merger Agreement, will survive the Arrangement and continue in
full force and effect for a period of not less than six years from the Effective
Time.
It has also been agreed that, for not less than six years from the
Effective Time, there would be maintained coverage equivalent to that in effect
under the current policies of directors' and officers' liability insurance
maintained by St. Laurent or any of its Subsidiaries, as the case may be, which
shall be no less advantageous, and with no gaps or lapses in coverage with
respect to matters occurring prior to the Effective Time provided that
Smurfit-Stone will not be required to pay an annual premium in excess of 200% of
the last annual premium paid by St. Laurent.
ST. LAURENT RIGHTS PLAN
The Board of Directors will waive the application of the St. Laurent Rights
Plan, including the deferral of the "separation time" thereunder with respect to
the Transaction. St. Laurent has agreed not to redeem the rights issued under
the St. Laurent Rights Plan or terminate the St. Laurent Rights Plan until
immediately prior to the Effective Time, unless St. Laurent is required to do so
by a court of competent jurisdiction or any applicable regulatory authority.
For a description of the St. Laurent Rights Plan, see Appendix H -- St.
Laurent Rights Plan, attached to this Circular.
CONDITIONS TO CLOSING
Mutual Conditions Precedent
The Pre-Merger Agreement provides that the respective obligations of each
party to complete the Transaction are subject to the satisfaction, on or before
the Effective Date, of certain conditions precedent, including the following,
each of which may only be waived by the mutual consent of Smurfit-Stone and St.
Laurent:
(a) the Arrangement shall have been approved at the Meeting by not less
than 66 2/3% of the votes cast by St. Laurent Securityholders who are
represented at the Meeting;
(b) the Arrangement shall have been approved at the Meeting in accordance
with any additional conditions which may be imposed by the Interim
Order;
(c) the Interim Order and the Final Order shall each have been obtained in
form and terms satisfactory to each of St. Laurent and Smurfit-Stone,
acting reasonably, and shall not have been set aside or modified in a
manner unacceptable to such parties on appeal or otherwise;
(d) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by the
Pre-Merger Agreement and there shall be no proceeding (other than an
appeal made in connection with the Arrangement), of a judicial or
administrative nature or otherwise, brought by a Governmental Entity
in progress or threatened that relates to or results from the
transactions contemplated by the Pre-Merger Agreement that would, if
successful, result in an order or ruling that would preclude
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completion of the transactions contemplated by the Pre-Merger
Agreement in accordance with the terms thereof or would otherwise be
inconsistent with the Appropriate Regulatory Approvals which have been
obtained; and
(e) the Pre-Merger Agreement shall not have been otherwise terminated in
accordance with its terms.
Conditions Precedent for the Benefit of St. Laurent
The Pre-Merger Agreement provides that the obligation of St. Laurent to
complete the Transaction is subject to the satisfaction or waiver, where
permissible, of a number of additional conditions, including the following:
(a) all covenants of the Smurfit-Stone Parties under the Pre-Merger
Agreement to be performed on or before the Effective Date shall have
been duly performed by the Smurfit-Stone Parties in all material
respects;
(b) the representations and warranties of the Smurfit-Stone Parties shall
be true and correct in all material respects as of the Effective Date
as if made on and as of such date (except to the extent such
representations and warranties speak as of an earlier date, in which
event such representations and warranties shall be true and correct in
all material respects as of such earlier date) and St. Laurent shall
have received a certificate of each of the Smurfit-Stone Parties
addressed to St. Laurent and dated the Effective Date, signed on
behalf of each of the Smurfit-Stone Parties by two senior executive
officers of the relevant Smurfit-Stone Party, confirming the same as
at the Effective Date;
(c) between the date of the Pre-Merger Agreement and the Effective Date,
there shall not have occurred a Material Adverse Change to
Smurfit-Stone;
(d) the boards of directors of the Smurfit-Stone Parties shall have
adopted all necessary resolutions, and all other necessary corporate
action shall have been taken by the Smurfit-Stone Parties to permit
the consummation of the Arrangement and the issuance of Smurfit-Stone
Common Stock pursuant to the Arrangement and upon the exercise from
time to time of the Replacement Options;
(e) the Smurfit-Stone Common Stock issuable pursuant to the Arrangement or
upon exercise of the Replacement Options from time to time shall have
been approved for listing on NASDAQ, subject to notice of issuance;
and
(f) the issuance and first resale of the shares of Smurfit-Stone Common
Stock to be issued to the holders of St. Laurent Common Shares as of
the Effective Time shall be permitted without qualification with or
approval of or the filing of any document under any securities
legislation, except (i) with respect to the Affiliates who shall
receive Smurfit-Stone Common Stock subject to the terms and
restrictions of the Affiliate's Letter, and (ii) any restrictions or
transfer by reason of a holder being a "control person" of any
Smurfit-Stone Party or St. Laurent for the purposes of Canadian,
federal, provincial or territorial securities legislation.
St. Laurent may not rely on the failure to satisfy any of the above
conditions precedent as a basis for non-compliance by St. Laurent with its
obligations under the Pre-Merger Agreement if the condition precedent would have
been satisfied but for a material default by St. Laurent in complying with its
obligations under the Pre-Merger Agreement.
Conditions Precedent for the Benefit of the Smurfit-Stone Parties
The Pre-Merger Agreement provides that the obligation of the Smurfit-Stone
Parties to complete the Transaction is subject to the satisfaction or waiver,
where permissible, of a number of additional conditions, including the
following:
(a) all covenants of St. Laurent under the Pre-Merger Agreement to be
performed on or before the Effective Date shall have been duly
performed by St. Laurent in all material respects;
(b) the representations and warranties of St. Laurent shall be true and
correct in all material respects as of the Effective Date as if made
on and as of such date (except to the extent such representations and
warranties speak as of an earlier date, in which event such
representations and warranties shall be true and correct in all
material respects as of such earlier date) or except as affected by
transactions contemplated as permitted by the Pre-Merger Agreement and
the Smurfit-Stone Parties shall have received a certificate of St.
Laurent addressed to the Smurfit-Stone Parties and dated the Effective
Date, signed on behalf of St. Laurent by the
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Chief Executive Officer and Chief Financial Officer of St. Laurent,
confirming the same as at the Effective Date;
(c) between the date of the Pre-Merger Agreement and the Effective Date,
there shall not have occurred a Material Adverse Change to St.
Laurent; and
(d) the Board of Directors shall have adopted all necessary resolutions
and all other necessary corporate action shall have been taken by St.
Laurent and the St. Laurent Subsidiaries to permit the consummation of
the Arrangement.
The Smurfit-Stone Parties may not rely on the failure to satisfy any of the
conditions precedent set forth above as a basis for non-compliance by the
Smurfit-Stone Parties with their obligations under the Pre-Merger Agreement if
the condition precedent would have been satisfied but for a material default by
the Smurfit-Stone Parties in complying with their obligations under the
Pre-Merger Agreement.
Notice and Cure Provisions
The Smurfit-Stone Parties and St. Laurent must each give prompt notice to
the other of the occurrence, or failure to occur, at any time from the date of
the Pre-Merger Agreement until the Effective Date, of any event or state of
facts which occurrence or failure would, or would be likely to: (i) cause any of
the representations or warranties of the other party contained in the Pre-Merger
Agreement to be untrue or inaccurate in any material respect on the date of the
Pre-Merger Agreement or on the Effective Date; or (ii) result in the failure in
any material respect to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by the other party under the
Pre-Merger Agreement prior to the Effective Date.
Neither the Smurfit-Stone Parties nor St. Laurent may elect not to complete
the Transaction pursuant to the conditions precedent contained in the Pre-Merger
Agreement, or exercise any termination right arising therefrom, unless forthwith
and in any event prior to the filing of the Final Order, the Smurfit-Stone
Parties or St. Laurent, as the case may be, have delivered a written notice to
the other specifying in reasonable detail all breaches of covenants,
representations and warranties or other matters which the Smurfit-Stone Parties
or St. Laurent, as the case may be, are asserting as the basis for the
non-fulfillment of the applicable condition precedent or the exercise of the
termination right, as the case may be. If any such notice is delivered, provided
that the Smurfit-Stone Parties or St. Laurent, as the case may be, are
proceeding diligently to cure such matter, if such matter is susceptible to
being cured using commercially reasonable efforts, the other may not terminate
the Pre-Merger Agreement as a result thereof until the later of August 30, 2000
and the expiration of a period of 30 days from such notice. If such notice has
been delivered prior to the date of the Meeting, the Meeting will be postponed
until the expiry of such period. If such notice has been delivered prior to the
making of the application for the Final Order or the filing of the Articles of
Arrangement with the Director, such application and such filing will be
postponed until the expiry of such period. In the event that such matter is
cured within the time period referred to herein, the Pre-Merger Agreement may
not be terminated.
Satisfaction of Conditions
The conditions precedent set out in the Pre-Merger Agreement will be
conclusively deemed to have been satisfied, waived or released when, with the
agreement of Smurfit-Stone and St. Laurent, a certificate of arrangement in
respect of the Arrangement is issued by the Director.
The parties to the Pre-Merger Agreement agreed that no condition to the
obligation of the Smurfit-Stone Parties to complete the transactions
contemplated by the Pre-Merger Agreement with respect to the covenants of St.
Laurent thereunder having been performed, the representations and warranties of
St. Laurent or the absence of a Material Adverse Change in respect of St.
Laurent will be deemed not to have been satisfied as a result of any occurrence
or circumstance directly or indirectly related to the effect of the existence or
performance of the Pre-Merger Agreement or the transactions contemplated thereby
on any existing agreements of St. Laurent or its Affiliates relating to the St.
Laurent Partially-Owned Entity or its Affiliates or St. Laurent's relations with
such Persons referred to in the St. Laurent Disclosure Letter.
AMENDMENT AND WAIVER
The Pre-Merger Agreement may, at any time and from time to time before and
after the holding of the Meeting but not later than the Effective Date, be
amended by mutual written agreement of St. Laurent and the Smurfit-Stone Parties
to:
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(a) change the time for performance of any of the obligations or acts of
the parties;
(b) waive any inaccuracies or modify any representations contained in the
Pre-Merger Agreement or in any document delivered pursuant to the
Pre-Merger Agreement;
(c) waive any compliance with or modify any of the covenants in the
Pre-Merger Agreement and waive or modify performance of any of the
obligations of the parties; or
(d) waive compliance with or modify any conditions precedent contained in
the Pre-Merger Agreement provided, however, that any such change,
waiver or modification does not invalidate any security holder
approval of the Arrangement.
TERMINATION
Smurfit-Stone or St. Laurent may terminate the Pre-Merger Agreement if any
condition to Closing in the respective party's favour has not been satisfied at
or prior to the Effective Date other than as a result of a material default by
the terminating party subject in some cases (as described above under
"Conditions to Closing -- Notice and Cure Provisions") to a cure period. In
addition, the Pre-Merger Agreement may be terminated, in each case, prior to the
Effective Date:
(a) by the mutual agreement of St. Laurent and the Smurfit-Stone Parties
(without further action on the part of the St. Laurent Securityholders
if terminated after the holding of the Meeting);
(b) by either St. Laurent or Smurfit-Stone, if there shall be passed any
law or regulation applicable to Smurfit-Stone or St. Laurent, as the
case may be, that makes consummation of the transactions contemplated
by the Pre-Merger Agreement illegal or otherwise prohibited or if any
injunction, order or decree enjoining Smurfit-Stone or St. Laurent
from consummating the transactions contemplated by the Pre-Merger
Agreement is entered and such injunction, order or decree shall become
final and non-appealable;
(c) by Smurfit-Stone if (i) the Board of Directors of St. Laurent shall
have failed to recommend or shall have withdrawn or modified or
changed in a manner adverse to Smurfit-Stone its approval or
recommendation of the Pre-Merger Agreement or the Arrangement or shall
have recommended an Acquisition Proposal, or (ii) St. Laurent shall
have materially and wilfully breached its covenants contained in the
Pre-Merger Agreement or shall have accepted a Superior Proposal in
violation of Section 4.6 of the Pre-Merger Agreement, or (iii) through
the fault of St. Laurent (whether by commission or omission), the
Arrangement is not, prior to 14 days prior to the Drop Dead Date,
submitted for the approval of the St. Laurent Securityholders at the
Meeting;
(d) by St. Laurent in order to enter into a definitive written agreement
with respect to a Superior Proposal, subject to the payment of the
Break Fee, if any, and compliance with the notice requirements of
Section 4.6 of the Pre-Merger Agreement; or
(e) by St. Laurent or Smurfit-Stone if St. Laurent Securityholder approval
shall not have been obtained by reason of the failure to obtain the
required vote at the Meeting;
in each case, prior to the Effective Date.
If the Effective Date does not occur on or prior to the Drop Dead Date,
then the Pre-Merger Agreement will terminate automatically.
If the Pre-Merger Agreement is terminated by either Smurfit-Stone or St.
Laurent, the Pre-Merger Agreement will forthwith become null and void and there
will be no liability or obligation on the part of either Smurfit-Stone or St.
Laurent (or any of their respective directors, officers, representatives or
Affiliates) for any liability except for a willful breach of a party's
representations, warranties, covenants or agreements contained in the Pre-Merger
Agreement or the provisions of the Pre-Merger Agreement dealing with the payment
of the Break Fee and the payment of expenses by St. Laurent to Smurfit-Stone in
certain circumstances, which provisions shall survive the termination of the
Pre-Merger Agreement.
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BREAK FEE
If:
(a) St. Laurent shall have terminated the Pre-Merger Agreement in order to
enter into a definitive written agreement with respect to a Superior
Proposal, after having provided Smurfit-Stone with the opportunity,
pursuant to Section 4.6 of the Pre-Merger Agreement, to amend the
Pre-Merger Agreement;
(b) Smurfit-Stone shall have terminated the Pre-Merger Agreement as result
of (i) the Board of Directors having failed to recommend or having
withdrawn, modified or changed in a manner adverse to Smurfit-Stone
its approval or recommendation of the Pre-Merger Agreement or the
Arrangement or having recommended an Acquisition Proposal, or (ii)
through the fault of St. Laurent (whether by commission or omission),
the Arrangement is not, prior to 14 days prior to the Drop Dead Date,
submitted for the approval of the St. Laurent Securityholders at the
Meeting; or
(c) St. Laurent or Smurfit-Stone shall have terminated the Pre-Merger
Agreement if St. Laurent Securityholder approval has not been obtained
by reason of the failure to obtain the required vote at the Meeting,
and (i) a bona fide Acquisition Proposal has been made by any Person
other than a Smurfit-Stone Party prior to the Meeting and not
withdrawn more than five days prior to the vote of the St. Laurent
Securityholders, and (ii) St. Laurent enters into an agreement with
respect to an Acquisition Proposal, or an Acquisition Proposal is
consummated, after the date of the Pre-Merger Agreement and prior to
the expiration of 12 months following termination of the Pre-Merger
Agreement, unless at the time of the Meeting a Specified Smurfit-Stone
Event has occurred and is continuing; then in any such case St.
Laurent must pay to Smurfit-Stone $30 million in immediately available
funds. Such payment shall be due (i) in the case of a termination
specified in paragraph (a) above prior to the termination of the
Pre-Merger Agreement, (ii) in the case of a termination specified in
paragraph (b) above within five Business Days after written notice of
termination by Smurfit-Stone, or (iii) in the case of a termination
specified in paragraph (c) above at or prior to the earlier of the
entering into of the agreement and the consummation of the transaction
referred to therein. If St. Laurent pays the Break Fee to
Smurfit-Stone as a result of the occurrence of any of the events
referred to in paragraphs (a), (b) or (c) above, the Smurfit-Stone
Parties will have no other remedy for breach of the Pre-Merger
Agreement by St. Laurent.
CONFIDENTIALITY AGREEMENTS
In accordance with the Confidentiality Agreements, each of Smurfit-Stone
and St. Laurent has acknowledged that certain information provided to it will be
non-public and/or proprietary in nature (the "Information"). Except as set forth
below, each of Smurfit-Stone and St. Laurent agreed to keep the Information
confidential and not to, without the prior written consent of the other,
disclose it, in any manner whatsoever, in whole or in part, to any other Person,
and not to use it for any purpose other than to evaluate the transactions as
contemplated by the Pre-Merger Agreement. Each of Smurfit-Stone and St. Laurent
has agreed to make all reasonable, necessary and appropriate efforts to
safeguard the Information from disclosure to anyone other than as permitted by
the Confidentiality Agreements and to control the copies, extracts or
reproductions made of the Information. The Information may be provided to the
representatives of each of Smurfit-Stone and St. Laurent who require access to
the same to assist it in proceeding in good faith with the transactions as
contemplated by the Pre-Merger Agreement and whose assistance is required for
such purposes, provided that it has first informed such representatives to whom
Information is provided that the representative has the same obligations,
including as to confidentiality, restricted use and otherwise, that it has with
respect to such Information.
The foregoing confidentiality obligations do not apply to such portions of
the Information that: (i) are or become generally available to the public
otherwise than as a result of disclosure by Smurfit-Stone or St. Laurent or its
representatives; (ii) become available to Smurfit-Stone or St. Laurent on a
non-confidential basis from a source other than, directly or indirectly, the
other party or its representatives, provided that such source is not, to the
knowledge of the first party or its representatives, aware of the
confidentiality obligations set forth in the Confidentiality Agreements or other
legal, contractual or fiduciary confidentiality obligations; or (iii) were known
to Smurfit-Stone or St. Laurent or were in its possession on a non-confidential
basis prior to being disclosed to it by the other party or by someone on its
behalf, provided that such source is not aware of the confidentiality
obligations set forth in the Confidentiality Agreements or other legal,
contractual or fiduciary confidentiality obligations. Each of St. Laurent and
Smurfit-Stone has agreed that for a period of two years from the date of the
Confidentiality Agreements, each company and its
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respective representatives would not, directly or indirectly, for the benefit of
either company or that of a third party, employ, solicit for employment or
attempt to employ or divert any officer or key employee of the other company or
any of its subsidiaries or affiliates. In the event that either St. Laurent or
Smurfit-Stone, or their respective representatives are requested or required to
disclose any confidential information, prompt written notice of such request or
requirement must be given to the other party so that such party may seek an
appropriate protective order or other remedy and/or waive compliance with the
provisions of the Confidentiality Agreements. In the event that a protective
order or other remedy is obtained or one party waives compliance with the
relevant provisions of the Confidentiality Agreements, the party requested or
ordered to make disclosure of the Information will furnish only a portion of the
Information which, in the written opinion of counsel to such party is legally
required to be disclosed.
Pursuant to the Pre-Merger Agreement, St. Laurent and Smurfit-Stone have
acknowledged that certain Information may be competitively sensitive and that
disclosure thereof shall be limited to that which is reasonably necessary for
the purpose of (i) preparing submissions or applications in order to obtain the
Appropriate Regulatory Approvals, (ii) preparing this Circular, (iii) avoiding
conflicts, (iv) integrating the operations of Smurfit-Stone and St. Laurent and
(v) arranging the financing necessary to consummate the transactions
contemplated in the Pre-Merger Agreement.
INVESTMENT CONSIDERATIONS AND OTHER RISK FACTORS
The following investment considerations and risk factors should be
considered by St. Laurent Securityholders in evaluating whether to approve the
Arrangement. These investment considerations should be considered in conjunction
with the other information included in this Circular.
U.S. AND CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF ST. LAURENT
COMMON SHARES
The exchange by U.S. and Canadian Holders of St. Laurent Common Shares for
Smurfit-Stone Common Stock and cash will be a taxable event for United States
and Canadian federal income tax purposes for a more detailed discussion, see
"Income Tax Considerations for St. Laurent Securityholders".
FIXED EXCHANGE CONSIDERATION DESPITE POTENTIAL CHANGES IN STOCK PRICES
Each St. Laurent Common Share (other than shares held in the treasury of
St. Laurent) will be exchanged at the Effective Time for $12.50 payable in cash
plus 0.5 shares of Smurfit-Stone Common Stock. The Security Portion of the
Exchange Consideration is a fixed number and will not be adjusted in the event
of any increases or decreases in the price of either Smurfit-Stone Common Stock
or St. Laurent Common Shares. Accordingly, holders of St. Laurent Common Shares
will not be able to determine at the time they vote on the Arrangement the value
of the Smurfit-Stone Common Stock they will receive at the Effective Time. In
addition, St. Laurent will not have the right to terminate the Pre-Merger
Agreement or elect not to consummate the Arrangement as a result of changes in
the market prices of either company's common stock. The prices of Smurfit-Stone
Common Stock and St. Laurent Common Shares at the Effective Time may vary from
their respective prices at the date of this Circular and at the date of the
Meeting. Such variations may be the result of changes in the business,
operations or prospects of Smurfit-Stone or St. Laurent, market assessments of
the likelihood that the Arrangement will be consummated, the timing thereof and
the prospects of the Arrangement and post-Arrangement operations, regulatory
considerations, general market and economic conditions and other factors.
Because the Effective Time may occur at a date later than the date on which the
Meeting occurs, there can be no assurance that the prices of Smurfit-Stone
Common Stock and St. Laurent Common Shares on the date of the Meeting will be
indicative of their respective prices at the Effective Time. In addition,
historical market prices are not indicative of future market prices. St. Laurent
Securityholders are urged to obtain current market quotations for Smurfit-Stone
Common Stock and St. Laurent Common Shares.
RISKS RELATING TO INTEGRATION OF OPERATIONS; REALIZATION OF SYNERGIES
Smurfit-Stone and St. Laurent expect to realize significant cost savings
and other synergies from the Arrangement, but there can be no assurance
regarding when or the extent to which these will be achieved or the costs
associated therewith. Smurfit-Stone and St. Laurent will face significant
challenges in integrating their operations. The integration will require
substantial attention from management. The diversion of management's attention
from the existing businesses of Smurfit-Stone and St. Laurent could have an
adverse impact on Smurfit-Stone's operating results and financial condition and
the value of its Smurfit-Stone Common Stock.
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SUBSTANTIAL LEVERAGE
Smurfit-Stone has a highly leveraged capital structure. As of March 31,
2000, Smurfit-Stone and St. Laurent had approximately $4.9 billion and $386
million of outstanding indebtedness, respectively. In addition, Smurfit-Stone
intends to incur additional indebtedness of $1.05 billion to finance the
Transaction and to repay St. Laurent's indebtedness under existing credit
agreements.
The level of Smurfit-Stone's indebtedness could have significant
consequences for Smurfit-Stone and its stockholders, including the following:
(i) Smurfit-Stone may be required to seek additional sources of capital,
including additional borrowings under its existing credit facilities, other
private or public debt or equity financings to service or refinance its
indebtedness, none of which may be available on favourable terms, (ii) a
substantial portion of Smurfit-Stone's cash flow from operations will be
necessary to meet the payment of principal and interest on its indebtedness and
other obligations and will not be available for Smurfit-Stone's working capital,
capital expenditures and other general corporate purposes, (iii) Smurfit-Stone's
level of indebtedness could make it more vulnerable to economic downturns, and
reduce its operational and business flexibility in responding to changing
business and economic conditions and (iv) Smurfit-Stone will be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage. In addition, borrowings under Smurfit-Stone's credit agreements
are, and borrowings under its new credit agreements to be entered into in
connection with the financing of the Transaction will be at variable rates of
interest, which will expose Smurfit-Stone to the risk of increased interest
rates. See "Information Concerning Smurfit-Stone -- Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources".
ABILITY TO SERVICE DEBT; LIQUIDITY
Assuming completion of the Arrangement, Smurfit-Stone will have scheduled
principal payments for indebtedness of approximately $55 million, $70 million
and $1.4 billion in 2000, 2001 and 2002, respectively.
The ability of Smurfit-Stone and its Subsidiaries to meet their obligations
and to comply with the financial covenants contained in their respective debt
instruments will be largely dependent upon the future performance of
Smurfit-Stone and its Subsidiaries, which will be subject to financial, business
and other factors affecting them. Many of these factors will be beyond
Smurfit-Stone's control, such as the state of the economy, the financial
markets, demand for and selling prices of its products, costs of its raw
materials and legislation and other factors relating to the paperboard and
packaging products industries generally or to specific competitors.
In the event that net proceeds from borrowings or other financing sources
and from operating cash flows and any divestitures do not provide sufficient
liquidity for Smurfit-Stone to meet its operating and debt service requirements,
Smurfit-Stone will be required to pursue other alternatives to repay
indebtedness and improve liquidity, including sales of other assets, cost
reductions, deferral of certain discretionary capital expenditures and seeking
amendments or waivers to their debt instruments. No assurance can be given that
such measures could be successfully completed or would generate the liquidity
required by Smurfit-Stone to operate its business and service its obligations.
If Smurfit-Stone is not able to generate sufficient cash flow or otherwise
obtain funds necessary to make required debt payments, or if Smurfit-Stone fails
to comply with the various covenants in its various debt instruments, it would
be in default under the terms thereof, which would permit the debtholders
thereunder to accelerate the maturity of such indebtedness and would cause
defaults under other indebtedness of Smurfit-Stone.
INDUSTRY CONDITIONS; CYCLICALITY
Smurfit-Stone's and St. Laurent's operating results reflect the general
cyclical pattern of the industry. The vast majority of Smurfit-Stone's and St.
Laurent's products are commodities, resulting in extreme price competition. The
industry in which Smurfit-Stone and St. Laurent compete has had substantial
over-capacity for several years. In addition, the industry is capital intensive,
which leads to high fixed costs and generally results in continued production as
long as prices are sufficient to cover marginal costs. These conditions have
contributed to substantial price competition and volatility in the industry. In
the event of a recession, demand and prices are likely to drop substantially.
The sales and profitability of Smurfit-Stone and St. Laurent have
historically been more sensitive to price changes than changes in volume. Future
decreases in price for Smurfit-Stone's and St. Laurent's products would
adversely affect their operating results. These factors, coupled with
Smurfit-Stone's highly leveraged financial position, may adversely impact
Smurfit-Stone's ability to respond to competition and to other market conditions
or to otherwise take advantage of business opportunities.
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RESTRICTIVE COVENANTS; LIMITED ABILITY TO INCUR INDEBTEDNESS
Smurfit-Stone's ability to incur additional indebtedness, and in certain
cases refinance outstanding indebtedness, is, and upon consummation of the
Transaction will be, significantly limited or restricted under the agreements
relating to the existing indebtedness of Smurfit-Stone and its Subsidiaries. The
agreements contain covenants that restrict, among other things, the ability of
Smurfit-Stone and its Subsidiaries to incur indebtedness, pay dividends,
repurchase or redeem capital stock, engage in transactions with stockholders and
affiliates, issue capital stock, create liens, sell assets, engage in mergers
and consolidations and make investments in unrestricted subsidiaries. In
addition, Smurfit-Stone is, and upon consummation of the Transaction will be,
limited in its ability to move capital freely within Smurfit-Stone and its
Subsidiaries. The limitations contained in such agreements, together with the
highly leveraged capital structure of Smurfit-Stone and its Subsidiaries, could
limit the ability of Smurfit-Stone and its Subsidiaries to effect future debt or
equity financings and may otherwise restrict their corporate activities,
including their ability to avoid defaults, provide for capital expenditures,
take advantage of business opportunities or respond to advantageous market
conditions.
INFLUENCE OF SIGNIFICANT STOCKHOLDER
SIBV, a significant stockholder of Smurfit-Stone, has and, upon
consummation of the Arrangement will continue to have, by reason of its direct
and indirect ownership of shares of Smurfit-Stone Common Stock, a significant
effect on the outcome of the vote on all matters submitted to a vote of holders
of Smurfit-Stone Common Stock. The presence of SIBV as a significant stockholder
may deter a potential acquirer from making a tender offer or otherwise
attempting to obtain control of Smurfit-Stone, even if such events might be
favourable to Smurfit-Stone or its stockholders. See "Information Concerning
Smurfit-Stone -- Directors and Officers", "Information Concerning Smurfit-Stone
- --Principal Holders of Smurfit-Stone Common Stock" and "Information Concerning
Smurfit-Stone -- Interest of Management and Others in Material Transactions --
Subscription Agreement".
COMPETITION
The paperboard and packaging products industries are highly competitive,
and no single company is dominant. Smurfit-Stone's and St. Laurent's competitors
include large, vertically integrated paperboard and packaging products companies
and numerous smaller companies. Because these products are globally traded
commodities, the industries in which Smurfit-Stone and St. Laurent compete are
particularly sensitive to price fluctuations as well as other factors including
innovation, design, quality and service, with varying emphasis on these factors
depending on the product line. To the extent that one or more of Smurfit-Stone's
and St. Laurent's competitors become more successful with respect to any key
competitive factor, Smurfit-Stone's and St. Laurent's businesses could be
materially adversely affected. The market for folding cartons and market pulp
are also highly competitive. Many of Smurfit-Stone's and St. Laurent's
competitors are less leveraged and have financial and other resources greater
than those of Smurfit-Stone and St. Laurent and are able to better withstand the
adverse nature of the business cycle.
No assurance can be given that Smurfit-Stone will be able to maintain all
or a substantial majority of the sales volume to Smurfit-Stone's and St.
Laurent's customers, due in part to the tendency of certain customers to
diversify their suppliers.
RAW MATERIALS
Wood fiber and recycled fiber, the principal raw materials used in the
manufacture of Smurfit-Stone's and St. Laurent's products, are purchased in
highly competitive, price sensitive markets. These raw materials have
historically exhibited price and demand cyclicality. In addition, the supply and
price of wood fiber in particular is dependent upon a variety of factors over
which Smurfit-Stone and St. Laurent have no control, including environmental and
conservation regulations, natural disasters, such as forest fires and
hurricanes, and weather. A decrease in the supply of wood fiber has caused, and
likely will continue to cause, higher wood fiber costs in some of the regions in
which Smurfit-Stone and St. Laurent procure wood. In addition, the increase in
demand of products manufactured, in whole or in part, from recycled fiber has
caused from time to time a tightness in the supply of recycled fiber and at
those times a significant increase in the cost of such fiber used in the
manufacture of recycled containerboard and related products. Such costs are
likely to continue to fluctuate based upon demand/supply characteristics. While
Smurfit-Stone and St. Laurent have not experienced any significant difficulty in
obtaining wood fiber and recycled fiber in economic proximity to their mills,
there can be no assurance that this will continue to be the case for any or all
of their mills.
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ENVIRONMENTAL MATTERS
Federal, state, provincial, foreign and local environmental requirements,
particularly relating to air and water quality, are a significant factor in
Smurfit-Stone's and St. Laurent's businesses. Smurfit-Stone and St. Laurent in
the past have had, and Smurfit-Stone in the future may face, environmental
liability for the costs of remediating soil or groundwater that is or was
contaminated by Smurfit-Stone or St. Laurent or by a third party at various
sites which are now or were previously owned or operated by Smurfit-Stone or St.
Laurent. There also may be similar liability at sites with respect to which
either Smurfit-Stone or St. Laurent has received notice that it may be a
potentially responsible party ("PRP") and which are the subject of cleanup
activity under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), analogous state laws and other laws concerning
hazardous substance contamination. St. Laurent has received a notice of
violation under the Clean Air Act for its mill located in West Point, Virginia
pursuant to which remediation work may need to be conducted and fines and
penalties paid. Smurfit-Stone and St. Laurent have incurred in the past, and may
incur in the future, civil and criminal fines and penalties relating to
environmental matters and costs relating to the damage of natural resources,
lost property values and toxic tort claims. Smurfit-Stone and St. Laurent in the
past have made significant expenditures to comply with environmental regulations
and expect to make significant expenditures in the future. Smurfit-Stone and St.
Laurent have reserves based on current information to address environmental
liabilities; however, additional significant expenditures could be required due
to changes in law or the discovery of new information, and those expenditures
could have a material adverse effect on Smurfit-Stone's financial condition. In
addition, Smurfit-Stone and St. Laurent are required to make significant
environmental capital expenditures on an annual basis, and those expenditures
are expected to increase significantly in the next several years. The United
States Environmental Protection Agency ("EPA") has finalized parts of a
comprehensive rule governing the pulp, paper and paperboard industry (the
"Cluster Rule"). In order to comply with those parts of the Cluster Rule that
have been finalized, Smurfit-Stone estimates that it may require the incurrence
of approximately $310 million in capital expenditures, the majority of which
will be spent over the next three to five years and St. Laurent estimates
capital expenditures of approximately $20 million during the period 2000 through
2003 to meet the Cluster Rule requirements. The ultimate cost of complying with
the parts of the regulations that have been finalized, or with regulations that
have not yet been finalized, cannot be predicted with certainty, however, until
further engineering studies are completed, and non-final regulations are
finalized. There can be no assurance that the foregoing costs and liabilities,
either individually or in the aggregate, will not have a material adverse effect
on Smurfit-Stone's financial condition in the future. See "Information
Concerning Smurfit-Stone -- Legal Proceedings" and "Information Concerning St.
Laurent -- Environmental Compliance".
FOREIGN CURRENCY/EXCHANGE RATE FLUCTUATION RISKS
Smurfit-Stone does not currently engage in, nor does Smurfit-Stone
currently anticipate engaging in, hedging or other transactions intended to
manage foreign currency exchange risks. See "Information Concerning
Smurfit-Stone -- Management's Discussion and Analysis of Financial Condition and
Results of Operations." Smurfit-Stone has operations throughout the United
States, Canada, Europe and Latin America and St. Laurent has operations
throughout the United States and Canada. For both Smurfit-Stone and St. Laurent,
the functional currency for the majority of its operations is the applicable
local currency, other than for operations in highly inflationary economies where
the functional currency is the U.S. dollar. These factors substantially mitigate
any potential foreign currency exchange risk. Nonetheless, Smurfit-Stone's
stockholders' equity is directly affected by exchange rates by (i) translations
into U.S. dollars for financial reporting purposes of the assets and liabilities
of its foreign operations conducted in local currencies and (ii) gains or losses
from foreign operations conducted in U.S. dollars. In addition, Smurfit-Stone
and St. Laurent compete with foreign producers, particularly in Northern Europe.
Any revaluation of the U.S. dollar relative to Northern European currencies or
the European common currency would cause Smurfit-Stone's and St. Laurent's
products to be less cost competitive.
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REGULATORY MATTERS
INVESTMENT CANADA ACT
Under the Investment Canada Act, certain transactions involving the
acquisition of control of a Canadian business by a non-Canadian are subject to
review and cannot be implemented unless the Minister responsible for the
Investment Canada Act (the "Minister") is satisfied that the transaction is
likely to be of net benefit to Canada. If a transaction is subject to the review
requirement (a "Reviewable Transaction"), an application for review must be
filed with the Investment Review Division of Industry Canada prior to the
implementation of the Reviewable Transaction. The Minister is then required to
determine whether the Reviewable Transaction is likely to be of net benefit to
Canada taking into account, among other things, certain factors specified in the
Investment Canada Act and any written undertakings that may have been given by
the applicant. The Investment Canada Act contemplates an initial review period
of 45 days after filing; however, the Minister may unilaterally extend the
initial review period prior to its expiration by up to 30 days (or such longer
period as may be agreed to by the applicant) to permit completion of the review.
The prescribed factors of assessment to be considered by the Minister
include, among other things, the effect of the investment on the level and
nature of economic activity in Canada (including the effect on employment,
resource processing, utilization of Canadian products and services and exports),
the degree and significance of participation by Canadians in the acquired
business, the effect of the investment on productivity, industrial efficiency,
technological development, product innovation and product variety in Canada,
the\effect of the investment on competition within any industry in Canada, the
compatibility of the investment with national industrial, economic and cultural
policies (taking into consideration corresponding provincial policies), and the
contribution of the investment to Canada's ability to compete in world markets.
If the Minister determines that he is not satisfied that a Reviewable
Transaction is likely to be of net benefit to Canada, the Reviewable Transaction
may not be implemented.
As the Transaction is a Reviewable Transaction, Stone filed an application
with the Investment Review Division of Industry Canada on March 31, 2000. The
Minister may unilaterally extend the initial review period at any time on or
prior to May 15, 2000 to a further 30 days or such other period as may be
mutually agreed upon with the applicant to permit the completion of the review.
The obligations of St. Laurent and Smurfit-Stone to consummate the Transaction
are subject to the condition that the Minister has concluded that the
Transaction is of net benefit to Canada.
COMPETITION ACT (CANADA)
Under the Competition Act, the acquisition of voting shares of a
corporation that carries on an operating business in Canada with respect to
which certain financial thresholds are passed requires prior notification to the
Competition Commissioner. If a transaction is a Notifiable Transaction,
notification must be made either on the basis of a short-form filing (in respect
of which there is a 14 day statutory waiting period) or a long-form filing (in
respect of which there is a 42 day statutory waiting period). The decision as to
whether to make a short-form or long-form filing is at the discretion of the
parties. If a short-form filing is made, the Competition Commissioner may,
within the 14 day waiting period, require that the parties make a long-form
filing, thereby extending the waiting period for a further 42 days following
receipt of the long-form filing.
A Notifiable Transaction may not be completed until the applicable
statutory waiting period has expired. However, the Competition Commissioner's
review of a Notifiable Transaction may take longer than the statutory waiting
period. Upon completion of the Competition Commissioner's review of a Notifiable
Transaction, the Competition Commissioner may decide to:
(a) challenge the Notifiable Transaction, if the Competition Commissioner
concludes that it is likely to substantially lessen or prevent
competition and seek an order of the Competition Tribunal: (i)
prohibiting the completion of the Notifiable Transaction on an interim
or permanent basis if the parties insist on proceeding with it without
addressing the Competition Commissioner's concerns; (ii) requiring the
divestiture of shares or assets or the dissolution of the Notifiable
Transaction, if it has been completed; and (iii) with the consent of
the person against whom the order is directed, requiring that person
to take any other action;
(b) issue a letter (a "No Action Letter") or an advisory opinion stating
that the Competition Commissioner does not intend to challenge the
Notifiable Transaction at that time but retains the authority to do so
for three years after completion of the Notifiable Transaction; or
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(c) issue an advance ruling certificate (an "ARC"). Where an ARC is issued
and the Notifiable Transaction to which the ARC relates is
substantially completed within one year after the ARC is issued, the
Competition Commissioner cannot seek an order of the Competition
Tribunal in respect of the Notifiable Transaction solely on the basis
of information that is the same or substantially the same as the
information on the basis of which the ARC was issued.
The Transaction is a Notifiable Transaction. The obligations of St. Laurent
and Smurfit-Stone to consummate the Transaction are subject to the condition
that the applicable statutory waiting period following notification under the
Competition Act has expired and that the Competition Commissioner has issued an
ARC or a No Action Letter in respect of the Arrangement.
The parties completed the filing of a short-form notification with the
Competition Commissioner on March 29, 2000. The 14 day statutory waiting period
expired on April 12, 2000.
HART-SCOTT RODINO ACT
Under the HSR Act, certain transactions, including the Transaction, may not
be consummated unless notification has been given and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the specified waiting period either
expires or is terminated prior to the expiration date by the FTC and the
Antitrust Division. St. Laurent and Smurfit-Stone filed the required
Notification and Report Forms under the HSR Act with the FTC and the Antitrust
Division on March 6, 2000. The waiting period under the HSR Act was terminated
on April 3, 2000. Notwithstanding the foregoing, there can be no assurance that
a challenge to the consummation of the Transaction on antitrust grounds will not
be made or that, if such a challenge were made, St. Laurent and Smurfit-Stone
would prevail or would not be required to accept certain conditions, possibly
including certain divestitures, in order to consummate the Transaction.
INCOME TAX CONSIDERATIONS TO HOLDERS OF ST. LAURENT COMMON SHARES
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Goodman Phillips & Vineberg, Canadian counsel for St.
Laurent, the following is a summary of the principal Canadian federal income tax
considerations under the Canadian Tax Act with respect to receiving, holding and
disposing of Smurfit-Stone Common Stock and cash pursuant to the Arrangement
generally applicable to holders of St. Laurent Common Shares who, for purposes
of the Canadian Tax Act and at all relevant times, hold and will hold their St.
Laurent Common Shares as capital property and deal and will deal at arm's length
and are not and will not be affiliated with St. Laurent, Smurfit, Newco or
Stone. This summary does not apply to holders of St. Laurent Common Shares with
respect to whom Smurfit is or will be a foreign affiliate within the meaning of
the Canadian Tax Act.
St. Laurent Common Shares will generally be considered to be capital
property to holders of St. Laurent Common Shares unless held in the course of
carrying on a business or in an adventure in the nature of trade for purposes of
the Canadian Tax Act. Holders of St. Laurent Common Shares who are Canadian
Residents and whose St. Laurent Common Shares might not otherwise qualify as
capital property may be entitled to obtain such qualification by making an
irrevocable election permitted by subsection 39(4) of the Canadian Tax Act.
Holders of St. Laurent Common Shares who do not hold their St. Laurent Common
Shares as capital property should consult their own tax advisors regarding their
particular circumstances, as this summary does not apply to such holders. This
summary does not take into account the potential application to certain
"financial institutions" of the "mark-to-market" rules (as defined in the
Canadian Tax Act).
This summary is based on the Canadian Tax Act, the regulations thereunder
and counsel's understanding of published administrative practices and policies
of the Canada Customs and Revenue Agency, all in effect as of the date of this
Circular. This summary takes into account all Proposed Amendments to the
Canadian Tax Act, including the February 28, 2000 federal budget measures,
although no assurances can be given that the Proposed Amendments will be enacted
in the form proposed, or at all. This summary does not take into account or
anticipate any other changes in law, whether by judicial, governmental or
legislative action or decision, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. No
advance income tax ruling has been sought or obtained from the Canada Customs
and Revenue Agency to confirm the tax consequences of any of the transactions
described herein.
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THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
HOLDER OF ST. LAURENT COMMON SHARES. HOLDERS OF ST. LAURENT COMMON SHARES SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE DESCRIBED
TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.
For the purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of Smurfit-Stone Common Stock (including
dividends, adjusted cost base and proceeds of disposition) must be expressed in
Canadian dollars; amounts denominated in United States dollars must be converted
into Canadian dollars based on the United States dollar exchange rate generally
prevailing at the time such amounts arise. In computing a holder of St. Laurent
Common Shares' liability for tax under the Canadian Tax Act, any cash amounts
received by such holder in United States dollars must be converted into the
Canadian dollar equivalent, and the amount of any non-cash consideration
received by such holder must be expressed in Canadian dollars at the time such
consideration is received.
HOLDERS OF ST. LAURENT COMMON SHARES RESIDENT IN CANADA
The following portion of the summary is applicable to a holder of St.
Laurent Common Shares who is or is deemed to be a Canadian Resident at all
relevant times.
Exchange of St. Laurent Common Shares for Smurfit-Stone Common Stock and Cash
Any holder of St. Laurent Common Shares who exchanges St. Laurent Common
Shares for Smurfit-Stone Common Stock and cash under the Arrangement will be
considered to have disposed of the St. Laurent Common Shares exchanged for
proceeds of disposition equal to the sum of (i) the fair market value of
Smurfit-Stone Common Stock acquired by such holder on the exchange; and (ii) the
cash received as part of the consideration for such St. Laurent Common Shares
(including any cash received by such holder in respect of a fractional
Smurfit-Stone Common Stock) and, as a result, such holder will in general
realize a capital gain (or capital loss) to the extent that such proceeds of
disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base to such holder of the St. Laurent Common Shares
immediately before the exchange. See "Taxation of Capital Gain or Capital Loss"
below. The cost to the holder of St. Laurent Common Shares of Smurfit-Stone
Common Stock acquired on the exchange of St. Laurent Common Shares will be equal
to the fair market value of the Smurfit-Stone Common Stock at the time of the
exchange received under the Arrangement, to be averaged with the adjusted cost
base to such holder of any other Smurfit-Stone Common Stock held by such holder
as capital property.
Dividends on Smurfit-Stone Common Stock
Dividends received or deemed to be received on Smurfit-Stone Common Stock,
including the amount of any taxes withheld therefrom, will be required to be
included in the recipient's income for the purposes of the Canadian Tax Act.
Such amounts received or deemed to be received by an individual stockholder will
not be subject to the gross-up and dividend tax credit rules generally
applicable to taxable dividends received from corporations resident in Canada. A
holder of Smurfit-Stone Common Stock that is a corporation will include such
amounts in computing its income and generally will not be entitled to deduct
such amounts in computing its taxable income. A holder of Smurfit-Stone Common
Stock that is a Canadian-controlled private corporation may be liable to pay an
additional tax of 6 2/3% on such amounts. United States withholding tax on such
amounts will be treated as a foreign income tax eligible for credit against such
holder's Canadian federal income taxes or for deduction in computing such
holder's income in the circumstances and to the extent prescribed in the
Canadian Tax Act. See "United States Federal Income Tax Considerations --
Non-U.S. Holders -- Dividends on Smurfit-Stone Common Stock" below.
Disposition of Smurfit-Stone Common Stock
In general, a holder of Smurfit-Stone Common Stock that disposes of (or is
deemed to dispose of) such stock will realize a capital gain (or capital loss)
to the extent that the proceeds of disposition received (or deemed to be
received) by such holder in respect of such disposition, net of any reasonable
costs of disposition, exceed (or are less that) the adjusted cost base of such
stock to such holder immediately before such disposition, all for the purposes
of the Canadian Tax Act. See "Taxation of Capital Gain or Capital Loss" below.
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Taxation of Capital Gain or Capital Loss
Generally, three-quarters of the amount of any capital gain (the "taxable
capital gain") realized by a holder of St. Laurent Common Shares must be
included in computing the holder of St. Laurent Common Shares' income for the
year of disposition, and three-quarters of the amount of any capital loss (the
"allowable capital loss") realized by the holder of St. Laurent Common Shares in
a taxation year may be deducted from any taxable capital gains realized by the
holder of St. Laurent Common Shares in the year. Under the February 28, 2000
federal budget measures, the inclusion and deduction rate for capital gains and
capital losses, respectively, will be reduced from three-quarters to two-thirds
for capital gains and capital losses realized after February 27, 2000, subject
to transitional rules for dispositions that occur during a taxation year which
includes February 27, 2000.
Any excess of allowable capital losses over taxable capital gains for a
taxation year may generally be carried back and deducted in any of the preceding
three taxation years or carried forward and deducted in any following taxation
year against net taxable capital gains realized in such years to the extent and
subject to the limitations prescribed in the Canadian Tax Act. Generally, where
such allowable capital losses are used to offset net taxable capital gains in
another taxation year for which the capital gains inclusion rate is different,
the amount of the allowable capital losses are adjusted to match the inclusion
rate in effect for the taxation year in which the losses are being applied.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Canadian Tax Act. A
Canadian-controlled private corporation may be liable to pay an additional
refundable tax of 6 2/3% on taxable capital gains.
If the holder of a St. Laurent Common Share is a corporation, the amount of
any capital loss arising on a disposition or deemed disposition of any such
share may be reduced by the amount of dividends received or deemed to have been
received by it on such share to the extent and under circumstances prescribed by
the Canadian Tax Act. Similar rules may apply where a corporation is a member of
a partnership or a beneficiary of a trust that owns a St. Laurent Common Share
or where a trust or a partnership of which a corporation is a beneficiary or a
member is a member of a partnership or a beneficiary of a trust that owns any
such share.
Foreign Property Information Reporting
In general, a "specified Canadian entity", as defined in the Canadian Tax
Act, for a taxation year or fiscal period whose total cost amount of "specified
foreign property", as defined in the Canadian Tax Act, at any time in the year
or fiscal period exceeds Cdn.$100,000, is required to file an information return
for the year or period disclosing certain information including particulars of
the holder's investment in such property. A specified Canadian entity means a
taxpayer resident in Canada in the year, other than a corporation or a trust
exempt from tax under Part I of the Canadian Tax Act, a non-resident-owned
investment corporation, a mutual fund corporation, a mutual fund trust and
certain other entities. Smurfit-Stone Common Stock will be specified foreign
property to a holder. Accordingly, holders of such specified foreign property
should consult their own tax advisors in connection with any requirement they
may have to file such an information return.
Eligibility for Investment
Qualified Investments. Smurfit-Stone Common Stock will be qualified
investments for trusts governed by RRSPs, RRIFs, DPSPs and "registered education
savings plans", as defined in the Canadian Tax Act, provided such shares remain
listed on NASDAQ (or are listed on another prescribed stock exchange).
Foreign Property. Smurfit-Stone Common Stock will be foreign property to a
holder under the Canadian Tax Act. Accordingly, holders of such foreign property
should consult with their own tax advisors in connection with the consequences
to them under the Canadian Tax Act of holding such foreign property.
Dissenting Shareholders
A Dissenting Shareholder is entitled, if the Arrangement becomes effective,
to receive the fair value of St. Laurent Common Shares held by the Dissenting
Shareholder. The Dissenting Shareholder will be considered to have disposed of
the St. Laurent Common Shares for proceeds of disposition equal to the amount
received by the Dissenting Shareholder less the amount of any deemed dividend
referred to below and any interest awarded by the Court. See "Taxation of
Capital Gain or Capital Loss" above. Where the amount is received from St.
Laurent, the holder of St. Laurent Common Shares also will be deemed to receive
a taxable dividend equal to the amount by which the amount received (other than
in respect of interest awarded by the Court) exceeds the paid-up capital of such
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shareholder's St. Laurent Common Shares. In the case of a holder of St. Laurent
Common Shares that is a corporation, in some circumstances, the amount of any
such deemed dividend may be treated as proceeds of disposition and not as a
dividend. Any interest awarded to a Dissenting Shareholder by the Court will be
included in the Dissenting Shareholder's income for the purposes of the Canadian
Tax Act. Pursuant to the Proposed Amendments, a Dissenting Shareholder will not
be entitled to the benefit of the "replacement property" provisions of the
Canadian Tax Act.
HOLDERS OF ST. LAURENT COMMON SHARES NOT RESIDENT IN CANADA
The following portion of the summary is generally applicable to a holder of
St. Laurent Common Shares who, for purposes of the Canadian Tax Act, has not
been and will not be resident (or deemed resident) in Canada at any time while
such holder of St. Laurent Common Shares has held St. Laurent Common Shares and
will hold Smurfit-Stone Common Stock and to whom such shares are not "taxable
Canadian property" (as defined in the Canadian Tax Act) and who does not and is
not deemed to carry on a business in Canada. Special rules, which are not
discussed in this summary, may apply to a non-resident that is an insurer
carrying on business in Canada and elsewhere.
Generally, St. Laurent Common Shares and Smurfit-Stone Common Stock will
not be taxable Canadian property provided that the holder does not use or hold,
and is not deemed to use or hold, such shares in connection with carrying on a
business in Canada and, in the case of the St. Laurent Common Shares such shares
are listed on a prescribed stock exchange (which currently includes the TSE) and
the holder, persons with whom the holder does not deal at arm's length or the
holder together with all such persons has not owned (taking into account any
interest in or option in respect of the shares) 25% or more of the issued shares
of any class or series of the capital stock of St. Laurent at any time during
the 60-month period preceding the date of disposition.
Exchange of St. Laurent Common Shares for Smurfit-Stone Common Stock and Cash
A holder of St. Laurent Common Shares who is not resident in Canada will
not be subject to tax under the Canadian Tax Act on the exchange of St. Laurent
Common Shares for Smurfit-Stone Common Stock and cash under the Arrangement or
the sale or other disposition of, or any dividends received on, the
Smurfit-Stone Common Stock.
Dissenting Shareholders
Dividends (including deemed dividends) paid or credited (or deemed to be
paid or credited) to holders of St. Laurent Common Shares will be subject to
non-resident withholding tax under the Canadian Tax Act at the rate of 25%
unless such rate is reduced under the provisions of an applicable income tax
treaty.
Where a holder of St. Laurent Common Shares is deemed to have received a
taxable dividend or interest consequent upon the exercise of Dissent Rights (see
"Income Tax Considerations to Holders of St. Laurent Common Shares -- Holders of
St. Laurent Common Shares Resident in Canada -- Dissenting Shareholders"), such
amounts will be subject to Canadian withholding tax at a rate of 25% unless the
rate is reduced under the provisions of an applicable tax treaty.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations generally applicable to U.S. Holders (as defined below) who
receive Smurfit-Stone Common Stock and cash and Non-U.S. Holders (as defined
below) who receive Smurfit-Stone Common Stock and cash pursuant to the
Arrangement. For purposes of this discussion, a "U.S. Holder" is a beneficial
owner of St. Laurent Common Shares that is (i) a citizen or resident of the
United States, (ii) a corporation or other entity taxable as a corporation
organized under the laws of the United States or any state thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of source or (iv) a trust if a United States court is able to
exercise primary supervision over the administration of such trust and one or
more U.S. Persons have authority to control all substantial decisions of the
trust. A "Non-U.S. Holder" is a beneficial owner of St. Laurent Common Shares
that is not a U.S. Holder.
This summary does not address all aspects of United States federal income
taxation that may be applicable to U.S. Holders and Non-U.S. Holders
(collectively, "Holders") in light of their particular circumstances or to
Holders subject to special treatment under United States federal income tax laws
(including, without limitation, certain financial institutions or financial
services entities, insurance companies, tax-exempt entities, dealers in
securities or traders in securities that elect to use a mark-to-market method of
accounting, certain United States expatriates, Persons who hold St. Laurent
Common Shares as part of a straddle, hedge, conversion transaction or other
integrated investment, U.S. Holders who hold St. Laurent Common Shares as part
of a transaction where the U.S. Holders' expected economic profit, after
non-U.S. taxes, is insubstantial, U.S. Holders that actually or constructively
own or owned 10% or more of the voting stock of St. Laurent, U.S. Holders whose
functional currency is not the U.S. dollar, and Holders who acquire
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St. Laurent Common Shares through exercise of employee stock options or
otherwise as compensation and U.S. Holders liable for alternative minimum tax).
This discussion is limited to Holders who hold their St. Laurent Common Shares
as capital assets and does not consider the tax treatment of Holders who hold
St. Laurent Common Shares through a partnership or other pass-through entity. In
addition, this summary does not discuss aspects of United States federal income
taxation that may be applicable to holders of St. Laurent Options or St. Laurent
RSUs, nor does it address any aspect of state, local or foreign taxation.
This discussion is based on current law, which is subject to change,
possibly with retroactive effect. No advance income tax ruling has been sought
or obtained regarding the U.S. federal income tax consequences of the
Transaction.
EACH HOLDER IS ADVISED TO CONSULT ITS TAX ADVISOR REGARDING THE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ARRANGEMENT.
U.S. Holders
The following discussion applies only to U.S. Holders who receive
Smurfit-Stone Common Stock and cash in exchange for their St. Laurent Common
Shares.
Exchange of St. Laurent Common Shares for Smurfit-Stone Common Stock
The exchange of St. Laurent Common Shares for Smurfit-Stone Common Stock
and cash pursuant to the Arrangement will be a taxable event for United States
federal income tax purposes. Consequently, a U.S. Holder will recognize a gain
or loss equal to the difference between (i) the sum of (a) the fair market value
on the date of the exchange of the Smurfit-Stone Common Stock received in the
exchange and (b) any cash received as partial consideration for the
Smurfit-Stone Common Stock and (c) any cash received in lieu of fractional
shares and (ii) such U.S. Holder's tax basis in its St. Laurent Common Shares.
In the case of a U.S. Holder who dissents from the Arrangement, such gain or
loss will be equal to the difference between the amount of cash received and
such U.S. Holder's tax basis in its St. Laurent Common Shares surrendered in the
exchange. Gain or loss on the exchange of St. Laurent Common Shares will be
long-term capital gain or loss if the U.S. Holder held its St. Laurent Common
Shares for more than one year at the time of the exchange. However, if St.
Laurent is or has been a Passive Foreign Investment Company ("PFIC") at any time
since 1986, gain recognized by a U.S. Holder may be treated as ordinary income,
and the tax due on such income may be subject to an interest charge, under
certain circumstances. In general under Section 1297 of the Code, a foreign
corporation may be a PFIC if 75% or more of its gross income is passive or if at
least 50% of its assets produce or are held for the production of passive
income. U.S. Holders are urged to consult their tax advisors regarding the
specific tax consequences if St. Laurent is or was a PFIC. The tax basis of
Smurfit-Stone Common Stock received by a U.S. Holder will be equal to the fair
market value of such shares on the date of the exchange. The holding period for
such shares will begin on the day after the date of the exchange. Any gain
recognized by a U.S. Holder on a disposition of St. Laurent Common Shares
generally will be treated as U.S. source income, and any loss recognized by a
U.S. Holder generally will be allocated against U.S. source income, for U.S.
foreign tax credit purposes.
Non-U.S. Holders
Exchange of St. Laurent Common Shares
Non-U.S. Holders will not be subject to United States federal income tax as
a result of an exchange of St. Laurent Common Shares, Smurfit-Stone Common Stock
and cash pursuant to the Arrangement, unless such gain is effectively connected
with a United States trade or business of the Non-U.S. Holder (or, if a tax
treaty applies, is attributable to a permanent establishment of the Non-U.S.
Holder in the United States) or, in the case of gain recognized by an individual
Non-U.S. Holder, such individual is present in the United States for 183 days or
more during the taxable year of disposition and certain other conditions are
satisfied.
Smurfit-Stone Common Stock
Dividends on Smurfit-Stone Common Stock. Dividends paid to a Non-U.S.
Holder of Smurfit-Stone Common Stock will generally be subject to withholding of
United States federal income tax at a rate of 30% (or such lower rate as may be
specified by an applicable income tax treaty) unless the dividend is (a)
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States or (b) if a tax treaty applies, attributable to
a United States permanent establishment of the Non-U.S. Holder or a fixed base
in the United States from which the Non-U.S. Holder performs personal services,
in which case the dividend will be taxed at ordinary United States federal
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income tax rates applicable to such Non-U.S. Holder. A Non-U.S. Holder may be
required to satisfy certain certification requirements to claim treaty benefits
or otherwise claim a reduction of, or exemption from, the United States
withholding tax described above. If the Non-U.S. Holder is a corporation, any
effectively connected income may also be subject to an additional "branch
profits tax."
Sale or Exchange of Smurfit-Stone Common Stock. A Non-U.S Holder generally
will not be subject to United States federal income or withholding tax in
respect of any gain recognized on the sale or other disposition of Smurfit-Stone
Common Stock unless (a) the gain is effectively connected with the conduct of a
trade or business by the Non-U.S. Holder within the United States, or if a tax
treaty applies, is attributable to a permanent establishment of the Non-U.S.
Holder in the United States; (b) in the case of a Non-U.S. Holder who is an
individual, the Non-U.S. Holder is present in the United States for 183 or more
days during the taxable year of the sale or other disposition and certain other
conditions are satisfied; or (c) Smurfit-Stone is or has been a "U.S. real
property holding corporation" ("USRPHC") for United States federal income tax
purposes during the five year period preceding such sale or other disposition
(or if shorter, the period that the Non-U.S. Holder held such shares) (the
"USRPHC Period"), as discussed below. A USRPHC is a corporation organized under
the laws of the United States or any state thereof 50% or more of the assets of
which (including assets held indirectly through Subsidiaries) consist of United
States real property interests. Smurfit-Stone has advised St. Laurent that it
has not determined whether Smurfit-Stone is or will become a USRPHC for United
States federal income tax purposes. If Smurfit-Stone were determined to be a
USRPHC at any time during the USRPHC Period, a Non-U.S. Holder who owned
(actually or constructively) more than 5% of the Smurfit-Stone Common Stock at
any time during such period would generally be subject to United States federal
income tax on any gain recognized on the sale or other disposition of the
Smurfit-Stone Common Stock as if such gain were effectively connected with the
conduct of a United States trade or business. A Non-U.S. Holder who meets the 5%
ownership criteria set forth above should consult its tax advisor concerning the
United States federal income tax consequences to it if Smurfit-Stone were
determined to be a USRPHC.
Backup Withholding and Information Reporting
Dividends. United States backup withholding tax generally will not apply to
dividends paid prior to January 1, 2001, on Smurfit-Stone Common Stock to a
Non-U.S. Holder at an address outside the United States. Smurfit-Stone must
report annually to the IRS and to each Non-U.S. Holder the amount of dividends
paid to, and the tax withheld with respect to, such Non-U.S. Holder, regardless
of whether any tax was actually withheld. This information may also be made
available to the tax authorities in the Non-U.S. Holder's country of residence.
Sale or Exchange of Smurfit-Stone Common Stock. Upon the sale or other
disposition of Smurfit-Stone Common Stock by a Non-U.S. Holder to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the Non-U.S. Holder certifies its
Non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other disposition of Smurfit-Stone Common Stock by a
Non-U.S. Holder to or through the foreign office of a United States broker, or a
foreign broker with certain types of relationships to the United States, the
broker must report the sale to the IRS (but not backup withhold), unless the
broker has documentary evidence in its files that the seller is a Non-U.S.
Holder and/or certain other conditions are met, or the Non-U.S. Holder otherwise
establishes an exemption.
Amounts withheld under the backup withholding rules are generally allowable
as a credit against such Non-U.S. Holder's United States federal income tax
liability, if any, which may entitle such Non-U.S. Holder to a refund, provided
that certain required information is furnished to the IRS.
The IRS issued regulations relating to withholding obligations generally
effective January 1, 2001 (the "Final Regulations"), which provide for
information, reporting and backup withholding on certain payments made to
Non-U.S. Holders. The Final Regulations alter the procedures for claiming
benefits under an income tax treaty and may also alter the procedures for
otherwise claiming a reduction of, or exemption from, the withholding
obligations described above. In addition, the Final Regulations eliminate the
current legal presumption that dividends paid to an address outside the United
States are paid to Non-U.S. residents. Each Non-U.S. Holder is urged to consult
its tax advisor as to the effect, if any, of the Final Regulations on its
ownership and disposition of Smurfit-Stone Common Stock.
The discussion of United States federal income tax consequences set forth
above is for general information only and does not purport to be a complete
analysis or listing of all potential tax effects that may apply to a Holder.
Each
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Holder is strongly urged to consult its tax advisor to determine the particular
tax consequences to it of the Transaction, including the application and effect
of United States federal, state local and foreign tax laws.
INFORMATION CONCERNING ST. LAURENT
St. Laurent was incorporated pursuant to a certificate of incorporation
dated March 19, 1993, under the name 2905566 Canada Inc. pursuant to the Canada
Business Corporations Act, to acquire the paperboard business of Avenor Inc.
("Avenor"). Pursuant to a Certificate of Amendment dated January 27, 1994, its
name was changed to its present form. In June 1994, St. Laurent completed the
acquisition of Avenor paperboard business which was comprised of two primary
mills located at La Tuque and Matane, Quebec, and three paperboard converting
plants located in the Greater Toronto Area, Ontario and in Montreal, Quebec. St.
Laurent also acquired from Avenor in June 1994, approximately 904,000 acres of
private timberlands located in the St. Maurice region of Quebec, north of its La
Tuque mill.
St. Laurent is a leading North American manufacturer, supplier and
converter of high quality, value-added paperboard products, serving a diverse
customer base in North America and selected international markets. St. Laurent
has two primary business segments: Paperboard and Paperboard Converting and
Packaging.
BUSINESS SEGMENTS
Paperboard
The Paperboard segment is comprised of white top linerboard, corrugating
medium, unbleached kraft linerboard and solid bleached paperboard (foodboard and
linerboard) produced at four primary mills located in Canada and the United
States. Approximately 54% of St. Laurent's primary mill capacity is dedicated to
the production of high-quality, value-added grades of paperboard. St. Laurent is
the leading North American producer of white top linerboard with an estimated
North American market share of 32%.
In 1999, paperboard comprised approximately 57% of St. Laurent's total net
sales to third parties. The St. Laurent paperboard mills produced in the
aggregate in 1999 approximately 1,533,000 short tons of paperboard comprised of
683,300 short tons of white top linerboard, 443,300 short tons of corrugating
medium, 295,000 short tons of unbleached linerboard and 110,800 short tons of
solid bleached paperboard (foodboard and linerboard). Shipments of paperboard
from St. Laurent's primary mills to third parties increased by 46,000 short
tons, or 3.6%, despite the permanent shutdown of the West Point, Virginia mill's
pulp machine during the fourth quarter of 1998.
The West Point, Virginia mill, St. Laurent's largest, produces white top
linerboard, corrugating medium and unbleached kraft linerboard. The West Point
mill's annual production capacity is approximately 800,000 short tons of which
approximately 340,000 short tons are dedicated to the production of white top
linerboard. A key initiative for the mill in 1999 was its successful switch from
an acid to an alkaline papermaking process enabling the mill to improve the
appearance of its white top linerboard without adding any additional cost to its
production process.
The La Tuque, Quebec mill, St. Laurent's second largest facility, produces
mainly white top linerboard, solid bleached foodboard and solid bleached
linerboard. Its annual production capacity is approximately 463,000 short tons
of which approximately 352,000 short tons are dedicated to white top linerboard.
The mill produced a record 457,000 short tons of paperboard in 1999, an increase
of 6% over 1998 production figures. In May 1999, St. Laurent announced an
investment of approximately $25 million to reinforce the La Tuque mill's
position as the leading manufacturing facility of value-added paperboard grades.
The investment will allow the mill to convert part of its existing white top
linerboard production capacity into lightly coated white top linerboard offering
enhanced quality and printing characteristics. According to St. Laurent's
research, the consumption of this grade of white top linerboard has increased at
a compounded annual growth rate of more than 40% since 1995. As a result of this
investment, St. Laurent will become one of the first North American paperboard
manufacturers to produce a coated white top linerboard. Commercial production is
scheduled to begin during the second quarter of 2000 ramping-up capacity over a
period of two to three years to 50,000 short tons annually. Another key
initiative for the La Tuque mill in 1999 was its successful switch from an acid
to an alkaline papermaking process enabling the mill to cut its fiber usage and
fiber costs by approximately $3.6 million.
St. Laurent's Matane, Quebec corrugating medium mill has an annual
production capacity of approximately 152,000 short tons. Total production output
in 1999 was 146,400 short tons, a 2.3% increase over 1998 production figures.
St. Laurent's fourth primary mill is located in Thunder Bay, Ontario. The
Thunder Bay mill produces lightweight and featherweight corrugating medium in
basis weights as low as 14 lbs. Production of featherweight
54
<PAGE>
corrugating medium increased by 8% in 1999 to approximately 25,000 short tons,
representing 22% of the mill's total production output. The Thunder Bay mill has
an annual production capacity of approximately 140,000 short tons. Despite its
increased production of featherweight corrugating medium, the Thunder Bay mill's
overall productivity climbed to 138,554 short tons, a 10.3% increase compared to
1998.
Paperboard Converting and Packaging
St. Laurent currently owns and operates seventeen converting plants located
in the provinces of Ontario and Quebec and the states of Maryland,
Massachusetts, New York, Ohio, North Carolina, South Carolina, Virginia and
Wisconsin. Each plant serves a broad range of customers with highly specialized
products and is equipped with design capabilities and production equipment to
provide superior packaging products and solutions to its customers. The
converting production consists mainly of corrugated containers and sheets,
litho-labeled and direct-printed retail packaging, point-of-purchase displays,
post-print, specialty and protective packaging products, cupstock and
baconboard. These converting plants consume the equivalent of approximately 37%
of St. Laurent's primary mill paperboard production. In 1999, approximately 40%
of St. Laurent's total net sales to third parties were of converted paperboard
and packaging products manufactured by its converting plants.
During 1999, St. Laurent continued to grow its paperboard converting and
packaging operations with significant acquisitions and investments in new and
existing facilities. During the fourth quarter of 1998, St. Laurent began an
expansion program of its Latta, South Carolina specialty packaging and display
plant. This program was completed during the second quarter of 1999 at a cost of
approximately $9.8 million. This investment has enabled the plant to offer
high-end, one-stop-shop services and products to meet the packaging needs of
those of St. Laurent's customers who are active in, and require, specialty
consumer packaging such as multi-colour printing, point-of-purchase displays,
litho-laminating and labelling, expert structural and graphic design, digital
imaging capabilities, and fulfillment services.
On February 1, 1999, a 49% owned affiliate of St. Laurent ("Acquisitionco")
completed the acquisition of all of the assets of Eastern Container Corporation,
a privately held corporation headquartered in Springfield, Massachusetts
("Eastern") for a purchase price of $46.8 million. Eastern's assets consist of,
among other things, three packaging converting facilities serving the New
England states and greater New York markets, and are used to produce high
quality specialty and protective packaging (triple wall/wood/foam packaging),
corrugated sheets and containers, industrial and consumer packaging, and point
of purchase displays and packaging for the retail and high tech industries.
Combined, the Eastern facilities employ approximately 560 people, and produce
approximately 830 million square feet of industrial and consumer packaging. St.
Laurent and an independent institutional investor invested $9.6 million and
$10.0 million respectively with the balance of purchase price for the assets
being financed with Acquisitionco debt. As part of the consideration to finance
the acquisition, St. Laurent agreed to issue a maximum of 705,000 warrants to
the independent institutional investor which, when vested over a three year
period, give it the right to acquire St. Laurent Common Shares. At closing of
the transaction, 380,000 warrants were issued to the independent institutional
investor. St. Laurent also negotiated various rights to acquire the 51% interest
in Acquisitionco. At closing, Acquisitionco then changed its name to Eastern
Container Corporation. Finally, on December 3, 1999, St. Laurent acquired the
remaining 51% interest and, as a result, all unissued warrants were cancelled.
On February 23, 2000, the independent institutional investor exercised its
rights to convert the 380,000 warrants into 380,000 St. Laurent Common Shares.
On May 28, 1999, St. Laurent completed the acquisition of the assets of
Castle Rock Container Company, a division of Consolidated Papers, Inc. This
acquisition also fit with St. Laurent's strategic objectives of focusing on
value-added niche products, and maximising shareholder value by increasing its
vertical integration through growth in value-added converting capacity. Castle
Rock Container is a leading custom manufacturer of high-quality corrugated
packaging, point of purchase displays and communication kits, operating a
350,000 square foot facility located in Adams, Wisconsin. The facility employs
approximately 240 people.
During the fourth quarter of 1999, St. Laurent began production at Grafx
Packaging Corp., its new sheet plant located in Columbus, Ohio. This sheet plant
is the first of its kind in North America, currently producing microfluted
corrugated packaging for both the folding carton and corrugated segment of the
packaging industry, providing innovative packaging solutions to St. Laurent's
customers from corrugated, microfluted sheets manufactured at St. Laurent's
state-of-the-art sheet feeding facility located in Milwaukee, Wisconsin,
Innovative Packaging Corp.
On December 22, 1999, St. Laurent completed the acquisition of the assets
of The Kimball Companies through its wholly-owned Subsidiary, Eastern Container
Corporation. The Kimball Companies is a leading manufacturer of
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<PAGE>
protective packaging including triple wall, wood, foam and corrugated packaging
serving the Northeast United States market. As a result of the acquisition, St.
Laurent through Eastern Container Corporation has become the leading supplier of
protective packaging in this market.
During the first quarter of 1999, St. Laurent sold its Markham, Ontario
building and real estate and opened, in January 2000, a new packaging facility
located in Pickering, Ontario. The new facility's production is focused on
high-end, value-added packaging products and solutions including
point-of-purchase displays, graphics packaging, litho laminating and labelling.
St. Laurent's newest Subsidiary and initiative is NextPak.com, Corp. which
began operating in December 1999. NextPak.com is tailored to focus on internet
retailers, a segment of electronic commerce that has seen rapid growth. Now
fully operational, NextPak.com offers a full range of packaging products and
services, providing e-tailers with integrated packaging solutions enabling them
to market and fulfil their products more cost-efficiently.
Finally, to increase its bulk packaging production capacity, St. Laurent
invested $1.1 million to acquire a new bulk box laminator for its Baltimore,
Maryland bulk packaging plant. This custom-built machine is scheduled to be
operational by the third quarter, 2000 giving the Baltimore plant additional
production capacity and flexibility in this packaging segment. This investment
will effectively double the plant's production capacity of laminated bulk boxes.
Through this initiative, St. Laurent will enhance its leadership position in the
production of bulk packaging solutions to its customers.
In January 2000, St. Laurent completed the sale to Elopak Canada of its
liquid packaging plant located in St. Leonard, Quebec. The plant produces
approximately 400 million gable top cartons annually supplied to dairy and juice
producers. St. Laurent will continue to supply the coated milk carton board
required by Elopak Canada from its La Tuque primary mill and
Pointes-aux-Trembles, Quebec coating and converting plant under an 18-month
supply agreement. This divestiture corresponds with St. Laurent's strategic
objective of focusing on its core, value-added quality niche packaging and
paperboard products.
Other Operations
In July 1999, in order to reduce the West Point mill's fiber costs and
enhance its competitiveness, St. Laurent acquired the building products assets
and business of Chesapeake Corporation. The acquired assets include two pine
sawmills located in West Point, Virginia and Princess Anne, Maryland; a hardwood
lumber re-processing facility located in Milford, Virginia as well as a chip
mill located in Pocomoke City, Maryland. The two sawmills have a combined annual
capacity of 60 million board feet while the chip mill has an annual capacity of
300,000 short tons. As a result of this acquisition, St. Laurent, owns and
operates three sawmills with a total capacity of 70 million board feet. St.
Laurent also owns and manages approximately 920,000 acres of private timberlands
in the Province of Quebec north of its La Tuque, Quebec mill which are used to
secure fiber for the mill by granting cutting rights to third parties in return
for long term wood chips and sawdust fiber supply agreements. St. Laurent also
operates a recycled fiber procurement division which ensures the OCC supply
requirements of its Matane, Quebec, Thunder Bay, Ontario and West Point,
Virginia mills.
SALES AND MARKETING
In order to support St. Laurent's new products, better serve its customers
and explore new sales opportunities to increase its share of value-added sales
of high-quality paperboard substrates in North America and selected
international markets, St. Laurent reorganised its paperboard marketing and
sales group in 1999 into three areas of responsibility: containerboard sales,
foodboard sales, and graphic and specialty sales. St. Laurent has also
implemented a more comprehensive marketing communications strategy focused on
re-launching the St. Laurent brand by increasing the level of awareness in its
various markets and optimising the sales process. Beginning during the first
quarter of 2000, this marketing and communication strategy calls for print
advertising in trade magazines, trade show participation, brochures, direct
mail, ongoing public relations efforts and a point-of-sale system. A key
component of this reorganisation is the creation of St. Laurent's graphic and
specialty sales team. Its goal is to grow St. Laurent's high-end bleached and
coated white top linerboard business by increasing sales to the pre-print,
high-end post-print, display design and packaged goods segments of the packaging
industry.
In 1999, approximately 15% of St. Laurent's net sales of paperboard were to
its own converting facilities. St. Laurent also uses trading arrangements with
other producers of containerboard to secure additional white top linerboard
sales, to procure unbleached kraft linerboard and corrugating medium for its own
converting plants and to
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<PAGE>
reduce the costs associated with shipping paperboard to its converting plants
and third party customers. Approximately 33% of St. Laurent's total sales of
white top linerboard in 1999 were transacted under such arrangements.
On the paperboard converting and packaging side of its business, St.
Laurent relies primarily on the sales force located at each of its converting
facilities to introduce and deliver a wide range of proven products and services
custom-tailored to its customers' needs. To assist the packaging marketing and
sales forces reach their goals, each of St. Laurent's containerboard converting
plants has been designed to offer new packaging products and services by, among
other things, upgrading or expanding their design and graphics capabilities and
competencies. Furthermore, in 1999, St. Laurent opened three new sales offices
with expanded design capabilities to ensure a greater presence in the key
Atlanta, Georgia, Charlotte, North Carolina and Milwaukee, Wisconsin markets. In
2000, St. Laurent plans to establish a new design and graphics centre in
Richmond, Virginia to maximise the ability of St. Laurent's Baltimore, Maryland,
Roanoke and Richmond, Virginia converting plants to fully meet the
ever-expanding customer requirements for multi-colour graphics,
point-of-purchase displays, co-packing and fulfilment.
COMPETITION
St. Laurent generally competes against a number of North American producers
in each of its product lines. St. Laurent considers its principal competitors in
white top linerboard to be International Paper, Green Bay Packaging and
Smurfit-Stone. In its other product lines, St. Laurent considers its principal
competitors to be Norampac, Georgia-Pacific, Smurfit-Stone, International Paper,
Mead and Visy Industries. In corrugated containers, St. Laurent competes against
a number of producers who have converting facilities within a limited radius of
its customers. While the marketplace demands competitive pricing, quality and
service are often determining factors. St. Laurent believes that it is
positioned to compete effectively against other paperboard producers from
Canada, the United States and abroad in the production of its paperboard
products and against other corrugated container producers in its regional
markets for converted products and services.
RESEARCH AND DEVELOPMENT
St. Laurent has built a team of researchers and applied scientists to
continue to develop state-of-the-art products and technologies for its primary
mills and packaging plants. St. Laurent's research and development team is
located in Montreal (Quebec). In addition to this group, St. Laurent has
established a research organisation network to support its ongoing product
development initiatives in the coating and paper technology, packaging printing,
coating and fiber, coating technology, and coating machinery fields of
expertise. In February 1999, St. Laurent's Marketing and Technical Centre (MTC)
began operations to support St. Laurent's packaging business. Located in
Richmond (Virginia), this marketing-focused R&D centre is a full-featured TAPPI
laboratory equipped to handle most corrugated packaging tests. The MTC works
closely with St. Laurent's customers to ensure that their expectations are met.
The MTC is also dedicated to the development of new specialty packaging products
and production techniques. The MTC has also developed training services for St.
Laurent's customers and employees to keep them up-to-date on new industry
initiatives.
ENVIRONMENTAL COMPLIANCE
St. Laurent's operations are subject to a wide range of federal,
provincial, state and local environmental laws and regulations dealing, among
other things, with air emissions, wastewater discharge, waste management and
landfill sites. Except as may be otherwise discussed herein, all of St.
Laurent's facilities are in material compliance with current environmental laws
and regulations.
On April 19, 1999, the U.S. Environmental Protection Agency ("EPA") and the
Virginia Department of Environmental Quality ("DEQ") each issued a Notice of
Violation (the "NOVs") under the Clean Air Act ("CAA") to St. Laurent's primary
mill located in West Point (Virginia), which was acquired from Chesapeake
Corporation in May, 1997. St. Laurent is part of a group of pulp and paper
companies that were served at the same period of time with notices of violations
by EPA for alleged violations of the CAA. In general, the NOVs allege from 1984
to the present that the West Point mill installed certain equipment and modified
certain production processes without obtaining the required permits. In the 1997
Purchase Agreement, Chesapeake Corporation agreed to indemnify St. Laurent for
remediation work resulting from violations of applicable laws (including the
CAA) that existed at the mill prior to and as of the date of the Purchase
Agreement, as to which Chesapeake Corporation had "knowledge", as defined in the
Purchase Agreement. Chesapeake Corporation's maximum indemnification obligation
to St. Laurent with respect to
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<PAGE>
this matter is $50 million. While such costs cannot be estimated with certainty
at this time, based on presently available information, St. Laurent believes
that the cost of remediation work, which represents capital expenditures
comprising engineering, procurement and construction work of mill modifications
(including the installation of air emission controls, etc.) associated with the
NOVs may approximate $25.4 million. See Note 10 to the Consolidated Financial
Statements of St. Laurent, attached as Appendix I to this Circular.
In addition, civil or criminal penalties may be pursued by EPA and DEQ;
however, the consequences associated with any such penalties cannot be
determined at this time as St. Laurent and Chesapeake Corporation are continuing
discussions with EPA and DEQ with respect to these matters. Based upon
discussions with EPA and DEQ to date, St. Laurent believes that the total cost
of remediation work associated with the NOVs and fines and penalties that may be
imposed by EPA and DEQ will not exceed the maximum amount of Chesapeake
Corporation's indemnification obligation. St. Laurent and Chesapeake Corporation
have agreed to appoint a third party to decide the scope and timing of future
remediation work that is the subject of the indemnification in the Purchase
Agreement. The third party ruled on February 25, 2000 that the indemnification
period be extended to May 8, 2000, with the possibility of future extensions on
terms that may be determined by the third party. In the interim, St. Laurent and
Chesapeake Corporation, with the assistance of the third party, under certain
conditions, are working together in attempting to develop and implement a
remediation plan which will provide for a cost-effective resolution of the
issues raised by the NOVs. St. Laurent believes that Chesapeake Corporation has
the financial ability to honour its indemnification obligation under the
Purchase Agreement. It is not certain that all of the costs of remediation,
fines or penalties will be covered by the Chesapeake Corporation indemnity. St.
Laurent is cooperating with Chesapeake Corporation to analyse, respond to, and
defend against the matters alleged in the NOVs. Based upon an initial review of
the NOVs, St. Laurent believes that it has substantial defenses against the
alleged violations. St. Laurent and Chesapeake Corporation are working with the
EPA and DEQ to address the matters subject to the NOVs; however, St. Laurent
will vigorously defend itself against these allegations, if necessary.
TRADING HISTORY
The following table sets forth, for the calendar periods indicated, the
high and low, closing prices and volumes for the St. Laurent Common Shares as
reported on the TSE and NYSE and the Montreal Exchange (where such shares were
also previously listed until December 3, 1999).
<TABLE>
<CAPTION>
TSE ME
-------------------------------------------------------- -----
CALENDAR YEAR HIGH LOW VOLUMES HIGH
- ------------- ----- ----- ---------- -----
(IN CDN.$) (IN CDN.$)
<S> <C> <C> <C> <C>
1999
First Quarter.............. 14.00 9.85 8,446,789 14.00
Second Quarter............. 18.70 13.20 8,150,424 18.75
Third Quarter.............. 22.50 18.25 6,238,427 22.30
Fourth Quarter............. 19.25 16.50 5,031,057 20.20
2000
January.................... 20.50 18.25 2,936,903 n/a
February................... 26.40 16.35 27,145,670 n/a
March...................... 28.00 25.15 22,191,706 n/a
April (until April 13,
2000).................... 30.05 28.65 16,711,607 n/a
<CAPTION>
ME
--------------------------------
CALENDAR YEAR LOW VOLUMES
- ------------- ----- ---------
(IN CDN.$)
<S> <C> <C>
1999
First Quarter.............. 9.85 1,594,575
Second Quarter............. 13.20 2,728,069
Third Quarter.............. 18.25 1,907,700
Fourth Quarter............. 16.55 906,482
2000
January.................... n/a n/a
February................... n/a n/a
March...................... n/a n/a
April (until April 13,
2000).................... n/a n/a
<CAPTION>
NYSE
-----------------------------------------------------------
CALENDAR YEAR HIGH LOW VOLUMES
- ------------- ------- ------- ---------
<S> <C> <C> <C>
1999
First Quarter.............. n/a n/a n/a
Second Quarter............. 12.6875 12.6875 2,700
Third Quarter.............. 15.25 12.3125 201,200
Fourth Quarter............. 13.125 11.4375 101,600
2000
January.................... 14.1875 12.875 16,300
February................... 18.3125 11.125 1,247,200
March...................... 19.6875 17.0625 2,818,700
April (until April 13,
2000).................... 20.125 19.6875 576,600
</TABLE>
On February 17, 2000, being the last full trading day prior to the public
announcement that St. Laurent was in discussions regarding a potential
transaction, the closing price per share of Smurfit-Stone Common Stock as
reported on NASDAQ was $17.916 and the closing sale prices per St. Laurent
Common Share as reported on the TSE and the NYSE were Cdn.$20.65 and $14.125,
respectively. On February 22, 2000, the last full trading day prior to the
public announcement of the entering into of the Pre-Merger Agreement, the
closing price per share of Smurfit-Stone Common Stock as reported on NASDAQ was
$16.00 and the closing prices per St. Laurent Common Share on the TSE and NYSE
were Cdn.$25.10 and $17.25, respectively. On April 13, 2000, the closing price
per share of Smurfit-Stone Common Stock as reported on NASDAQ was $16.5625 and
the closing sale prices per St. Laurent Common Share as reported on the TSE and
NYSE were Cdn.$29.50 and $20.25, respectively.
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<PAGE>
RECENT DEVELOPMENTS
On March 15, 2000 St. Laurent received notice from the Council of the
Atikamekw Nation that the Council had sent letters to the Ministre des
ressources naturelles (Quebec) and the Ministre responsable des affaires
autochtones et responsable de la faune et des parcs (Quebec) as well as to the
Minister responsible for Aboriginal Affairs and North Canada. The letters
indicated that the Council for the Atikamekw Nation was informed of a
transaction between St. Laurent and Smurfit-Stone whereby the assets of St.
Laurent would be acquired by Smurfit-Stone. The letters alleged that these
assets include two parcels of land, which the Atikamekw Nation recognizes as St.
Laurent private lands, aggregating more than 4,000 square kilometres which are
situated in the territory which is the subject of land claims by the Council of
the Atikamekw Nation and where the Atikamekw people have ancestral rights. The
letters state that any such transaction must accommodate the exercise of such
ancestral rights in the context of the on-going negotiations and requested that
it be ensured that such lands be subject to a common forest management plan and
to "forestry intervention norms". On March 30, 2000 representatives of St.
Laurent met with the Associate General Secretary of Indian Affairs and the
Deputy Minister of Natural Resources in order to clarify the position that the
Government of Quebec will take with respect to the demands of the Atikamekw
Nation. The representatives of St. Laurent were informed that discussions are
taking place between the Atikamekw Nation and the Government of Quebec with
respect to land claims. St. Laurent was informed that the Government of Quebec
has always excluded private lands from any settlement with aboriginal peoples.
It was confirmed to St. Laurent that the settlement proposal to date, tabled by
the Government, excluded St. Laurent's private lands. St. Laurent has scheduled
further meetings with the Ministry of Indian Affairs with respect to this
matter.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements of St. Laurent and related notes thereto
appearing elsewhere in this Circular.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS OF $)
<S> <C> <C> <C>
FINANCIAL POSITION
Total assets............................................. $1,155,543 $1,050,413 $1,080,921
Long term debt (net of current portion).................. 338,206 356,455 368,543
Shareholders' equity..................................... 615,985 576,111 597,600
RESULTS OF OPERATIONS
Net sales................................................ 915,797 791,907 590,442
Net earnings (loss) from continuing operation............ 38,337 (23,263) (30,441)
Net earnings (loss)...................................... 38,337 (23,263) (30,441)
Net earnings (loss) attributable to common
shareholders........................................... 38,337 (23,263) (33,535)
Per common share
Net earnings (loss) from continuing operations
Basic............................................... 0.78 (0.47) (0.89)
Fully diluted....................................... 0.77 (1) (1)
Net earnings (loss) attributable to common share
Basic............................................... 0.78 (0.47) (0.98)
Fully diluted....................................... 0.77 (1) (1)
Common shareholders' equity............................ 12.47 11.70 12.19
Cash dividends on common shares........................ -- -- --
</TABLE>
- ---------------
(1) Anti-dilutive
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 Compared to 1998
Results
St. Laurent reported net earnings of $38.3 million, or $0.78 per share, on
net sales of $915.8 million for the year ended December 31, 1999, compared to a
net loss of $23.3 million, or $0.47 per share, on net sales of $791.9 million
for the same period in 1998. The 1999 net earnings include unusual gains of $9.0
million after tax, or $0.18 per share including a $5.8 million after tax gain or
$0.12 per share resulting from the renegotiation of fiber supply agreements
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<PAGE>
with Chesapeake Corporation, and a gain of $3.2 million after tax or $0.06 per
share resulting from the sale of the land and buildings of St. Laurent's
Markham, Ontario converting plant. In 1998, St. Laurent incurred a special
charge of $8.3 million after tax, or $0.17 per share, for a major restructuring
at the West Point, Virginia paperboard mill. Without these unusual items, 1999's
earnings per share would have been $0.60 compared to a loss of $0.30 per share
in 1998, an improvement of $0.90 per share.
Operating Results
Net Sales
Net sales amounted to $915.8 million in 1999, compared to $791.9 million
for the previous year, representing an increase of $123.9 million. This increase
reflects selling price increases and shipment improvements for St. Laurent's
products and sales from new businesses acquired in 1999. Net price realizations
increased by 4.9% for containerboard products and by 3.3% for corrugated
products. Net price realizations for St. Laurent's liquid and food packaging
products decreased slightly compared to 1998. Shipments from St. Laurent's
paperboard mills to third parties increased by 46,000 tons or 3.6% in spite of
the permanent shutdown of the West Point mill's pulp machine which shipped
101,000 tons in 1998. Shipments of corrugated products increased by 400 MMSF, an
improvement of 8.5% over 1998. The new facilities acquired during 1999 added
another 383 MMSF to corrugated products shipments. The sawmills and the lumber
re-manufacturing facility, acquired in August 1999, contributed to an increase
in net sales of $10.5 million.
The 1999 sales variance compared to 1998 is explained as follows:
<TABLE>
<CAPTION>
1999-1998 VARIANCE
------------------------------------
MILL CONVERTING OTHER TOTAL
---- ---------- ----- -----
(in millions of $)
<S> <C> <C> <C> <C>
Net price realization on all products....................... 28.3 13.7 -- 42.0
Volume increase............................................. 17.1 22.2 0.9 40.2
Business acquisitions....................................... -- 31.2 10.5 41.7
---- ---- ---- -----
45.4 67.1 11.4 123.9
==== ==== ==== =====
</TABLE>
Net Sales Summary
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
$ TONS / MSF $ TONS / MSF $ TONS / MSF
------- ---------- ------- ---------- ------- ----------
(Dollar amounts in thousands of $)
<S> <C> <C> <C> <C> <C> <C>
Primary Mills (Tons)
Canada................................ 250,034 625,342 209,911 559,135 186,572 512,163
US.................................... 273,498 713,572 268,193 733,507 176,864 455,000
Converting Facilities (MSF)
Canada................................ 57,191 1,027,636 52,276 1,053,693 52,318 1,221,247
US.................................... 246,306 4,490,869 190,520 3,682,025 109,973 2,151,057
Liquid and Food Facilities (Tons)....... 59,681 69,898 53,242 60,243 57,834 59,050
Others.................................. 29,087 -- 17,765 -- 6,881 --
------- --------- ------- --------- ------- ---------
TOTAL................................. 915,797 791,907 590,442
======= ======= =======
</TABLE>
St. Laurent's primary mills increased their shipments of containerboard by
approximately 152,000 tons, or 11%, due to better operating efficiency and
inventory reduction.
Daily primary production volume increased over 1998 by 5.7% at the La Tuque
mill, 3.2% at the Matane mill, 10.3% at the Thunder Bay mill and 2.1% at the
West Point mills resulting in an additional 58,000 tons.
At the converting level, the higher shipment volume is mostly due to the
strong performance of the Milwaukee sheet feeder which increased its shipments
by about 80% compared to the same period in 1998.
Cost of Sales
In 1999, cost of sales increased by $45.9 million to a total of $711.0
million, compared to $665.1 million for the same period in 1998. The increase is
attributable to the following items: $15 million to higher shipments of
containerboard products, $22 million to higher shipments from converting
facilities, and $34 million to shipments from converting and sawmill facilities
acquired in 1999. Cost of sales increases related to higher shipments were
partially offset by lower manufacturing costs at the primary mills, which
reduced the cost of sales by approximately $25 million.
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<PAGE>
The primary mills' manufacturing costs were $19 per ton lower than in 1998,
mainly due to lower manufacturing costs for white top products at both the La
Tuque and the West Point mills and a product mix change as a result of the
shutdown of the market pulp machine. Increased productivity and a reduction of
hedging opportunity loss of $11.3 million also contributed to lower costs and
helped offset higher prices for OCC and fuel.
Lower manufacturing costs of white top products were principally
attributable to replacement of purchased softwood market pulp by bleached
hardwood pulp produced internally, a change in the chemistry which contributed
to lower variable costs and to increased production at the La Tuque mill, and
supply chain management initiatives which helped reduce the cost of chemical
products and other operating supplies.
As the Canadian dollar remained approximately at the same level in 1999 as
in 1998, the currency rate did not have any material effect on manufacturing
costs compared to 1998.
As a result of higher costs for linerboard and corrugating medium,
manufacturing costs at St. Laurent's converting facilities were slightly higher
in 1999 than in 1998. Higher production volume however partially offset higher
board costs.
Amortization
Amortization expense increased by $3.5 million in 1999, when compared to
1998, mainly due to additions to property, plant and equipment and to the new
facilities acquired in 1999.
Selling and Administrative Expenses
Selling and administrative expenses increased to $62.7 million in 1999,
from $51.9 million in 1998. Expressed as a percentage of net sales, selling and
administrative expenses increased slightly from 6.6% to 6.8%. The $10.8 million
increase is attributable to the addition of the facilities acquired in 1999 and
the various initiatives undertaken to support St. Laurent's growth to enhance
its long-term profitability.
A supply chain management program was implemented during the year with an
objective to enter into long-term relationships with selected suppliers in order
to optimize prices, quality, usage and availability of most of the products,
supplies and services needed for the operations.
Another initiative undertaken in 1999 was a branding advertising campaign
launched to reinforce St. Laurent's position in the containerboard market. The
containerboard sales and marketing organizations were also restructured to
enhance focus on both the graphics and the containerboard markets.
Other Income
Other income of $13.8 million was realized in 1999 compared to $0.5 million
in 1998. This variance is attributable to a gain of $9.5 million resulting from
the renegotiation of fiber supply agreements with Chesapeake Corporation, and a
gain of $4.3 million resulting from the sale of the land and buildings of St.
Laurent's Markham, Ontario converting plant, which was closed at the end of the
year.
The key amendment to the supply agreements with Chesapeake pertains to the
term of the agreements, which was reduced from 15 years to two years. St.
Laurent renegotiated the supply agreements in conjunction with the acquisition
of two sawmills, a re-manufacturing facility and a chip mill owned by Chesapeake
Corporation. This series of transactions contributed to reducing the cost of
hardwood and softwood chips supplied to the paperboard mill located in West
Point, Virginia. St. Laurent believes that these transactions will help reduce
the mill's overall fiber cost in the future.
61
<PAGE>
Operating Results
In 1999, St. Laurent reported $75.1 million in operating earnings, compared
to operating earnings before restructuring charges of $11.4 million, and an
operating loss of $1.5 million after restructuring charges in 1998. The positive
variance of $63.7 million before restructuring charges can be summarized as
follows:
<TABLE>
<CAPTION>
1999-1998 VARIANCE
-------------------------------------
MILL CONVERTING OTHER TOTAL
----- ---------- ----- -----
(in millions of $)
<S> <C> <C> <C> <C>
Net price realization on all products....................... 33.7 13.7 -- 47.4
Cost reduction.............................................. 14.1 (7.8) 0.5 6.8
Volume increase............................................. 3.8 7.7 0.9 12.4
Foreign exchange opportunity loss........................... 11.3 -- -- 11.3
Selling and administration.................................. (6.7) (7.0) 3.0 (10.7)
Depreciation................................................ (1.7) (1.4) (0.4) (3.5)
----- ---- ---- -----
54.5 5.2 4.0 63.7
===== ==== ==== =====
</TABLE>
Interest Expense
Interest expense amounted to $28.6 million in 1999 compared to $29.4
million in 1998. This $0.8 million decrease is attributable to lower interest
costs on St. Laurent's $224.3 million secured term loan. The effective interest
rate in 1999 was approximately 70 basis points lower than in 1998. The interest
decrease was partially offset by a charge of $0.4 million resulting from the
pre-payment of a debt due by a subsidiary of St. Laurent to Abitibi-Consolidated
Inc. ("Abitibi"). The level of debt outstanding in 1999 was higher than in 1998,
due to the inclusion in December 1999 of Eastern Container's long-term debt
following its acquisition. The impact of this additional indebtedness on the
interest expense for 1999 was $0.3 million.
Provision for (Recovery of) Income Taxes
The $21.8 million income tax provision represents an effective tax rate of
36.2% in 1999, compared to an income tax recovery rate of 23.5% in 1998, which
was affected by non-deductible items related to the translation into U.S.
dollars of assets and liabilities denominated in Canadian dollars.
1998 Compared to 1997
Operating Results
Net sales increased by $201.5 million in 1998 compared to 1997. U.S. assets
acquired in May 1997 contributed to the full year in 1998 compared to seven
months in 1997. Shipments at the West Point mill increased St. Laurent's total
primary shipments by 315,000 tons, while shipments of the 1997 acquired U.S.
converting plants increased the St. Laurent's total converting shipments by
890,000 MSF, increasing net sales by $108 million and $45 million respectively.
The Milwaukee converting operations, started in the fourth quarter of 1997, also
contributed approximately $19 million to the 1998 sales increase with shipments
increasing by 527,000 MSF.
St. Laurent's Canadian primary mills increased their shipments by
approximately 55,000 tons, or 8.9%, due to operating efficiency improvements and
continuous operation in 1998. This volume increase resulted in a net sales
increase of $11.4 million. In 1997, the Matane and Thunder Bay mills took 28
days and 35 days of market related downtime, respectively.
In 1998, cost of sales increased by $155.9 million to a total of $665.1
million, compared to $509.2 million for the same period in 1997. Of this
increase, $97 million is attributable to higher shipments of containerboard
products, and $56 million is due to increased shipments at St. Laurent's
converting facilities.
Manufacturing costs at the primary mills were lower than in 1997, mainly
due to synergies, profitability improvement programs, and lower OCC costs.
Increased productivity also contributed to lower fixed costs per ton, while
lower prices on OCC helped reduce variable costs.
The weakness of the Canadian dollar in 1998 reduced the primary mills' cash
manufacturing costs denominated in Canadian, by $15.3 million, while $12.7
million in hedging opportunity loss reduced the benefits of the lower Canadian
dollar.
62
<PAGE>
Total manufacturing cost per ton decreased by 7.6% at the La Tuque mill,
15.9% at the Matane mill and 19.8% at the Thunder Bay mill. Costs fell by 1% at
the West Point mill, despite the pulp machine shutdown in October of 1998.
As a result of higher costs for linerboard and corrugating medium,
manufacturing costs at St. Laurent's converting facilities were higher in 1998
than in 1997. A number of initiatives were undertaken in 1998 to reduce
converting costs, including the elimination of approximately 67 jobs and the
reduction of waste which reduced costs by approximately $3 million.
Amortization expense increased by $15.9 million in 1998, when compared to
1997, mainly due to a full year amortization for the facilities acquired in May
1997.
Selling and administrative expenses increased to $51.9 million in 1998,
from $42.6 million in 1997, mainly due to the full year operation of the
facilities acquired in May of 1997. Expressed as a percentage of net sales,
these expenses decreased from 7.2% to 6.6%.
In 1998, St. Laurent undertook a major restructuring at its West Point
mill. A $12.9 million restructuring cost was incurred in 1998, but a significant
portion of this amount will be paid out of St. Laurent's pension plan assets
over future years.
In 1998, St. Laurent reported $11.4 million in operating earnings before
restructuring charge and an operating loss of $1.5 million after restructuring
charge, compared to an operating loss of $8.9 million in 1997. The positive
variance of $20.3 million before restructuring charge can be summarized as
follows:
<TABLE>
<CAPTION>
1998-1997 VARIANCE
-------------------------------------
MILL CONVERTING OTHER TOTAL
----- ---------- ----- -----
(in millions of $)
<S> <C> <C> <C> <C>
Net price realization on all products....................... (3.5) 18.3 14.8
Cost reduction.............................................. 30.3 (8.2) (0.4) 21.7
Volume increase............................................. 19.1 2.0 1.6 22.7
Foreign exchange opportunity loss........................... (13.6) -- (13.6)
Selling and administration.................................. (0.7) (11.4) 2.7 (9.4)
Depreciation................................................ (14.7) (0.9) (0.3) (15.9)
----- ----- ---- -----
16.9 (0.2) 3.6 20.3
===== ===== ==== =====
</TABLE>
The decrease in interest expense of $4.4 million is attributable to the
1997 write-off of $8.4 million of debt issue costs and lower interest costs.
However, the level of debt outstanding in 1998 was higher than in 1997 due to
the acquisition of assets from Chesapeake Corporation, thereby reducing the
impact of the items mentioned above.
The $7.1 million income tax recovery represents an effective tax rate of
23.5% in 1998, compared to 28.3% in 1997. This lower effective income tax rate
in 1998 is attributable to non-deductible items related to the translation into
US dollars of assets and liabilities denominated in Canadian dollars.
Financial Condition and Liquidity
In 1999, St. Laurent's operating activities provided $145.0 million of cash
compared to $35.4 million in 1998. The $109.6 million increase is the result of
operating earnings improvement, the unusual gain resulting from the
renegotiation of fiber supply agreements, a decrease in finished products
inventory and an increase in St. Laurent's accounts payable.
Investing Activities
Investing activities amounted to $118.5 million in 1999 compared to $49.0
million in 1998. The increase of $69.5 million is attributable to higher capital
expenditures of $7.9 million and to business acquisitions amounting to $70.4
million completed during the year. Net proceeds from disposal of property, plant
and equipment was $9.1 million, including proceeds of approximately $5.1 million
from the disposal of property, plant and equipment mainly related to the sale of
the land and buildings of the St. Laurent Markham Ontario converting plant.
Business acquisitions of $70.4 million include the acquisitions of The
Kimball Companies for $6.5 million, Castle Rock Container for $24.8 million, two
sawmills, a chip mill and a lumber re-manufacturing facility for $13.8 million,
and the acquisition of Eastern Container Corp. for $25.3 million. Eastern
Container was acquired in two transactions. The first transaction occurred in
January 1999, when St. Laurent acquired an equity interest of 49% in Eastern for
63
<PAGE>
$9.6 million. St. Laurent acquired the remaining 51% interest in Eastern in
December 1999 for $10.9 million. St. Laurent also invested in the working
capital of Eastern during 1999, which increased the total cash consideration
paid for Eastern to $25.3 million. These acquisitions are part of St. Laurent's
strategy to increase its integration level as well as to ensure high-quality and
low-cost fiber supplies to its primary mills.
The capital expenditures of $57 million included two major projects at the
La Tuque mill amounting to $13.4 million. The first project, completed in
January 2000, will allow the mill to produce, subject to market demand,
approximately 50,000 tons of value-added coated white top linerboard while the
second project involved the modernization of the fiber receiving and handling
area. Capital expenditures also included an amount of $9.2 million invested in a
value-added graphics sheet plant project and a sheet feeder project. The
graphics sheet plant, Grafx Packaging Corp., located in Columbus, Ohio, began
commercial operation in December 1999. The sheet feeding facility, located in
Gilroy, California, is scheduled to start commercial operation in the third
quarter of 2000. The following table shows capital expenditures made by St.
Laurent in the last two years.
Capital Expenditures
<TABLE>
<CAPTION>
1999 1998
---- ----
(in millions
of $)
<S> <C> <C>
Maintenance of business..................................... 18.5 19.0
Value-added projects........................................ 35.2 27.8
Environment................................................. 3.4 2.4
---- ----
Total....................................................... 57.1 49.2
==== ====
</TABLE>
Before business acquisitions, St. Laurent invested in 1999 $6.6 million
less than its annual depreciation expense.
Financing Activities
During the third quarter of 1999, St. Laurent renegotiated certain
financial covenants to allow for more borrowing flexibility under its Cdn.$200
million or U.S. equivalent, five-year term revolving facility. As part of this
renegotiation, St. Laurent cancelled its Cdn.$70 million or U.S. equivalent
seven-year term facility.
Concurrent with the acquisition of the remaining 51% interest of Eastern
and with St. Laurent providing a guarantee to the lenders under Eastern's credit
facility, Eastern's existing credit agreement was also renegotiated in order to
have the covenants governing Eastern's $24 million, seven-year term facility
similar to those governing St. Laurent's 5-year term revolving facility. The
principal amount of Eastern's term loan is payable as follows: 12.5% in 2000,
2001, 2002 and 2003, 16.7% in 2004 and 27.1% in 2005 on the original amount of
$24 million. The credit facility is secured by Eastern's assets, and is
guaranteed by St. Laurent.
In connection with the acquisition of Eastern, a $8 million note was issued
as a balance of sale. The principal amount of the note payable will be repaid as
follows: one third in each of the years 2000, 2001 and 2002. This note bears
interest at a fixed rate of 8.25%, and a portion of this note ranks pari passu
with the lenders under Eastern's seven-year term facility. St. Laurent also
guaranteed the note.
In connection with the Transaction, all indebtedness under the five-year
term revolving facility, Eastern's credit agreement and the $8 million note will
be repaid, all of which facilities being subject to change of control
provisions.
The note due by a Subsidiary of St. Laurent to Abitibi was repaid in
December 1999. The payment of Cdn.$5.0 million also included the purchase of
Abitibi's economic interest in the results of the Subsidiary, which consisted of
potential payments up to 2005, calculated as a percentage of the Subsidiary's
earnings before taxes.
As of the end of 1999, St. Laurent had Cdn.$191 million available under its
five-year revolving facility, subject to meeting certain financial covenants.
Risk Management
Foreign Exchange
The results of St. Laurent are affected by the Canadian/U.S. dollar
exchange rate. Selling prices, for over 80% of its Canadian shipments are
denominated in U.S. dollar, while most of the expenses are in Canadian dollars.
Accordingly, an appreciation in the value of the Canadian dollar relative to the
U.S. dollar has the effect of increasing costs at the Canadian facilities.
64
<PAGE>
To protect against the negative impact of a strengthening Canadian dollar
on manufacturing costs, St. Laurent purchases forward up to 50% of its Canadian
dollar denominated costs for periods up to 48 months using a combination of
options and forwards. During 1999, the weak Canadian dollar effectively reduced
Canadian manufacturing costs, but the gain was partially offset by an
opportunity loss on option and forward contracts.
As of December 31, 1999, St. Laurent had entered into forward contracts to
purchase Cdn.$295 million at an average rate of $0.694.
Commodity Prices
St. Laurent's results are also dependent on the prices it receives for its
products. The prices for paperboard products are volatile and subject to
fluctuations based on a number of economic factors. St. Laurent maintains an
active risk management program to mitigate the financial impacts of decreasing
commodity prices. As of December 31, 1999, St. Laurent had entered into swap
agreements to sell 37,500 tons of corrugating medium and 18,000 tons of
unbleached kraft linerboard. St. Laurent also entered into swap agreement to buy
48,000 tons of old corrugated containers to protect against price increase. The
Board of Directors has authorized commodity-trading activities, provided that
total volume does not exceed 150,000 tons at any time.
Interest Rate
St. Laurent had approximately $245 million of debt outstanding at the end
of the year that is based on short-term interest rates. Consequently, St.
Laurent is exposed to interest rate fluctuations and its results could be
negatively impacted by interest rate increases. In order to reduce its exposure
to interest rate fluctuations, St. Laurent entered into interest swap agreements
on a notional amount of $55 million at a rate of 5.97%. These agreements expire
in 2003.
Year 2000
A successful and smooth transition into Year 2000 was achieved without any
material disruption during the rollover period. St. Laurent's cost to achieve
Year 2000 compliance was $6.4 million, of which $2.9 million has been
capitalized and $3.5 million has been expensed.
Earnings Sensitivities
St. Laurent's earnings are sensitive to fluctuations in commodity prices
and, to a lesser extent, to exchange rate. Based on 1999 annual capacity,
changes in prices and exchange rates affect earnings before and after tax as
follows:
<TABLE>
<CAPTION>
BEFORE TAX AFTER TAX
---------- ---------
(in millions of $)
<S> <C> <C>
PRODUCTS -- $50 SELLING PRICE CHANGE
White top................................................. 34 22
Kraft linerboard.......................................... 15 10
Corrugating medium........................................ 22 14
Solid bleached board...................................... 6 4
-- --
77 50
-- --
OCC -- $10 PURCHASE PRICE CHANGE............................ 5 3
-- --
EXCHANGE RATE -- US$0.01
Canadian operations....................................... 4 3
CONVERTING
Selling price change of $1 per MSF........................ 7 5
</TABLE>
Information Concerning Forward-Looking Statements
Forward-looking statements include statements evaluating market and general
economic conditions, outlook and uncertainties. Investors are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date thereof. Forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially.
65
<PAGE>
Uncertainties and Outlook
General
The continuous focus on value-added products and on the increase of its
level of integration should allow St. Laurent to take advantage of the
favourable market conditions. St. Laurent has also made some strategic
investments in 1999 that should increase its profitability in the coming years.
In 2000, St. Laurent will complete the restructuring initiatives undertaken at
its West Point mill, which should also contribute to higher profitability.
Moreover, St. Laurent expects benefits in 2000 from the favourable impact of
several partnership agreements negotiated by its Supply Management Team. The
expected improvement in selling prices and the continued focus on cost reduction
and value-added products should be the primary drivers of earnings improvement
in 2000.
Market
Demand for containerboard is expected to remain steady, as North American
economies continue to perform well. Asia's economic growth continues to improve,
which should translate into higher export volume for North American producers.
St. Laurent expects that price increase announcements of $50 per ton for kraft
linerboard and $60 per ton for corrugating medium for orders taken after
February 1, 2000, should be fully implemented during the second quarter of 2000.
DIRECTORS AND EXECUTIVE OFFICERS
On April 14, 2000 directors and officers of St. Laurent as a group
beneficially owned or had voting control or direction over 135,112 St. Laurent
Common Shares or approximately 0.3% of the issued and outstanding St. Laurent
Common Shares. In addition, on April 14, 2000, the directors and officers of St.
Laurent as a group owned St. Laurent Options and St. Laurent RSUs entitling them
to receive, 745,390 St. Laurent Common Shares. Consequently, on April 14, 2000,
the directors and officers of St. Laurent as a group beneficially owned or
controlled an aggregate of 880,502 votes at the Meeting, representing
approximately 2% of the total number of votes entitled to be cast at the
Meeting. To the knowledge of management of St. Laurent, each of the directors
and officers of St. Laurent intends to vote in favour of the Arrangement.
Directors
As of the date hereof, the name and municipality of residence of each
director of St. Laurent, the date when each became a director, the principal
occupation of each during the past five years and the number of St. Laurent
Common Shares beneficially owned, directly or indirectly, or over which such
director exercised control are as set out in the table below.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
ST. LAURENT COMMON SHARES
BENEFICIALLY OWNED,
PERIOD DURING WHICH DIRECTLY OR INDIRECTLY,
NOMINEE HAS SERVED AS A OR OVER WHICH CONTROL OR
NAME AND PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR OF ST. LAURENT DIRECTION IS EXERCISED (6)
- ------------------------------------------- ----------------------- --------------------------
<S> <C> <C>
JOSEPH J. GURANDIANO (1)(3)(5)........................... Since 1994 32,526
(Westmount, Quebec)
President and Chief Executive Officer of St. Laurent
BRENTON S. HALSEY (1)(3)................................. Since 1997 9,197
(Richmond, Virginia)
Chairman Emeritus, Fort James Corporation (pulp and paper
manufacturer) and Corporate Director
ROBERT LACROIX (2)(3).................................... Since 1994 2,385
(Montreal, Quebec)
Rector, University of Montreal
JOHN LEBOUTILLIER (1)(5)................................. Since 1995 4,206
(Montreal, Quebec)
Corporate Director
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
ST. LAURENT COMMON SHARES
BENEFICIALLY OWNED,
PERIOD DURING WHICH DIRECTLY OR INDIRECTLY,
NOMINEE HAS SERVED AS A OR OVER WHICH CONTROL OR
NAME AND PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR OF ST. LAURENT DIRECTION IS EXERCISED (6)
- ------------------------------------------- ----------------------- --------------------------
<S> <C> <C>
JOSIAH O. LOW III (2)(5)................................. Since 1995 4,122
(Riverside, Connecticut)
Managing Director of DLJ
GEORGE F. MICHALS (2)(4)................................. Since 1996 11,379
(Orangeville, Ontario)
President of Baymont Capital Resources Inc.
(investment and business development company)
RAYMOND R. PINARD (1)(5)................................. Since 1994 6,519
(Verdun, Quebec)
Chairman of the Board of St. Laurent
E.J. (WOODY) RICE (3)(4)................................. Since 1995 4,562
(Atlanta, Georgia)
Vice-President, Institute of Paper Science and Technology
(research university)
JEAN TURMEL (1)(4)....................................... Since 1994 6,124
(Outremont, Quebec)
President, Financial markets, Treasury and Investment
Banking of a Canadian chartered bank
JOSEPH H. WRIGHT (2)(4).................................. Since 1997 4,713
(Toronto, Ontario)
Managing Partner of Crosbie & Company Ltd.
(investment banking firm)
</TABLE>
- ---------------
(1) Member of the Human Resources, Management Development and Compensation
Committee.
(2) Member of the Pension Fund Review Committee.
(3) Member of the Environment, Health and Safety Committee.
(4) Member of the Audit Committee.
(5) Member of the Corporate Governance and Nominating Committee.
(6) Information as of April 14, 2000.
During the last five years, each of the directors of St. Laurent has held
the principal occupation identified above or has been engaged in other executive
capacities with the companies indicated opposite their names or with one of
their respective affiliates, with the following exceptions:
Robert Lacroix, who prior to June 1998, was President and Chief Executive
Officer of CIRANO (Centre for Inter-University Research and Analysis on
Organization);
John LeBoutillier, who prior to December 1996, was President and Chief
Executive Officer of Ispat Sidbec Inc. (a manufacturer of value-added steel
products) and who, prior to March 2000, was President and Chief Executive
Officer of Iron Ore Company of Canada (a mining company);
Joseph H. Wright, who from July 1997 to September 1997 was an independent
consultant, from April 1995 to June 1997 was President and Chief Executive
Officer of Swiss Bank Corporation (Canada), a banking institution; and from
September 1994 to March 1995 was an independent consultant.
The term of each director runs from the time of his election or appointment
to the next succeeding annual meeting of shareholders of St. Laurent.
67
<PAGE>
Executive Officers
As of the date hereof, the name and municipality of residence of each
executive officer of St. Laurent and the principal occupation of each during the
past five years were as follows:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE OFFICE WITH ST. LAURENT
---------------------------------- -----------------------
<S> <C>
MARION ALLAIRE........................ Vice President, Administration and Secretary
(Verdun, Quebec)
ALAIN BOIVIN.......................... Senior Vice President, Containerboard Operations
(Brossard, Quebec)
PIERRE BOURDAGES...................... Senior Vice President, Fibre
(Boucherville, Quebec)
DENIS CHARLEBOIS...................... Senior Vice President, Human Resources
(Brossard, Quebec)
LUC DUFOUR............................ Controller
(Longueuil, Quebec)
RICHARD L. ELLIS...................... Vice President, Technology & Research
(Williamsburg, Virginia)
RICHARD GARNEAU....................... Senior Vice President and Chief Financial Officer
(Beaconsfield, Quebec)
ROBERT J. GEIB........................ Senior Vice President, Packaging
(Midlothian, Virginia)
RONALD J. GLICK....................... Senior Vice President, Containerboard Sales & Marketing
(Williamsburg, Virginia)
JOSEPH J. GURANDIANO.................. President and Chief Executive Officer
(Westmount, Quebec)
DEAN JONES............................ Assistant Secretary
(Ste-Marthe, Quebec)
HELENE ST-PIERRE...................... Treasurer
(St. Lambert, Quebec)
BERT J. WAYLAND....................... Vice President and Chief Information Officer
(Williamsburg, Virginia)
</TABLE>
All of the officers of St. Laurent have held the office and principal
occupation identified above or another office or principal occupation with St.
Laurent for the last five years with the following exceptions:
Alain Boivin, who from May 1992 to May 1996 was Mill Manager of Donohue
Inc.'s (a pulp and paper company) Clermont, Quebec mill, and from June 1996 to
June 1999 was Mill Manager of Donohue Inc.'s Baie Comeau, Quebec mill.
Pierre Bourdages, who from July 1991 to September 1995, was President and
Chef Executive Officer of the Forest Engineering Research Institute of Canada (a
forestry research organization);
Luc Dufour, who from June 1990 to October 1996, was Assistant Treasurer of
Donohue Inc.; from November 1996 to April 1998, was Independent Consultant;
Richard L. Ellis, who from 1994 to 1995 was Professor of Chemistry and
Principal Research Scientist, Institute of Paper Science and Technology (IPST)
(a pulp and paper research organization), and from 1995 to 1999 was Senior Vice
President, Technology & Environmental Affairs, Inland Paperboard & Packaging (a
pulp and paper company);
Richard Garneau, who from October 1995 to August 1997, was President,
Finlay Forest Industries Inc.; and from April 1994 to September 1995, was
Executive Vice President and Chief Financial Officer, Finlay Forest Industries
(a forest products company);
Robert J. Geib, who from February 1992 to September 1997, was Vice
President and Regional Manager, Stone.
68
<PAGE>
Ronald J. Glick, who from July 1996 to March 1998 was retired from his
position of Vice President, Containerboard Packaging, Weyerhaeuser Company (a
pulp and paper and forest products company); from 1988 to June 1996 was Vice
President, Containerboard Packaging, Weyerhaeuser Company;
Dean Jones, who from June 1995 to July 1997 was legal counsel of St.
Laurent; and from April 1994 to April 1995 was an associate attorney with Boivin
O'Neill S.E.N.C. (a law firm); and
Bert J. Wayland, who from November 1997 to October 1998 was Executive
Consultant for CGI; and from 1989 to October 1997 was Vice President of Systems
for Repap Enterprises Inc. (a pulp and paper company).
Indebtedness of Directors and Senior Officers of St. Laurent
As at April 2, 2000, the aggregate amount owed to St. Laurent by all of the
officers, directors, employees and former officers, directors and employees of
St. Laurent and its Subsidiaries, in respect of interest-free loans to purchase
St. Laurent Common Shares made to them by St. Laurent, was approximately
Cdn.$1,340,060. The following table sets forth the particulars of such loans
made to individuals who are, or at any time during the financial year ended
December 31, 1999 were, directors, executive officers or senior officers of St.
Laurent and its Subsidiaries.
<TABLE>
<CAPTION>
NUMBER OF
LARGEST FINANCIALLY ST. LAURENT
AMOUNT ASSISTED COMMON
OUTSTANDING SECURITIES SHARES
INVOLVEMENT DURING LAST AMOUNT PURCHASES DURING PLEDGED AS
OF ISSUER OR COMPLETED OUTSTANDING AS AT LAST COMPLETED SECURITY FOR
NAME AND PRINCIPAL POSITION SUBSIDIARY FINANCIAL YEAR APRIL 14, 2000 FINANCIAL YEAR INDEBTEDNESS
--------------------------- -------------- -------------- ----------------- ---------------- ------------
(Cdn.$) (Cdn.$) (#) (#)
<S> <C> <C> <C> <C> <C>
MARION ALLAIRE.................. Lender 60,248 51,779 -- 7,000
Vice-President, Administration
and Secretary
WERNER BAERLOCHER............... Lender 174,289 174,289 -- 9,955
Senior Vice-President, Sales and
Marketing
PIERRE BOURDAGES................ Lender 125,492 114,568 -- 8,625
Senior Vice-President, Fibre
MATTHEW BLANCHARD............... Lender 30,875 22,024 -- 3,597
Vice-President, Supply Chain
Management
DENIS CHARLEBOIS................ Lender 29,268 19,957 -- 4,197
Senior Vice-President, Human
Resources
RICHARD GARNEAU................. Lender 199,983 182,126 -- 9,523
Senior Vice-President and Chief
Financial Officer
JOSEPH J. GURANDIANO............ Lender 246,919 200,631 -- 27,160
President and Chief Executive
Officer
HELENE ST-PIERRE................ Lender 93,600 89,554 -- 5,850
Treasurer
</TABLE>
Otherwise than in connection with its share purchase programs, St. Laurent
does not have any arrangements to extend financing to any of its employees or
senior executives and, except as set forth herein, there are no such loans or
other financing facilities outstanding on the date hereof which have been
extended by St. Laurent to any of its employees or senior executives during the
most recently completed financial year.
On July 10, 1997 St. Laurent made a loan in the amount of $20,000 to Mr.
Kenneth R. Gilbreath, then holding the position of Vice-President, Engineering,
Capital Projects and Optimization of St. Laurent. This loan matures on July 10,
2001 and bears interest at the rate prescribed by the IRS. The largest amount
outstanding under this loan during
69
<PAGE>
the last completed financial year was $13,062 and the amount outstanding as at
March 2, 2000 is $6,659. The loan is repayable by way of monthly payroll
deductions over the term of the loan.
As at the date hereof, the directors and officers of St. Laurent, as a
group, beneficially own, directly or indirectly, or exercise control or
direction over less than 1% of the outstanding St. Laurent Common Shares.
Directors' and Officers' Liability Insurance
St. Laurent subscribes to directors' and officers' liability insurance. The
policy provides coverage to St. Laurent for payments made on behalf of its
directors and officers under indemnity provisions of the St. Laurent By-laws and
to the individual directors and officers for insurable losses arising during the
performance of their duties for which they are not indemnified by St. Laurent.
The approximate amount of premiums paid by St. Laurent for the financial year
ended December 31, 1999 in respect of its directors and officers as a group was
Cdn.$140,000. The policy provides coverage with an aggregate limit of
Cdn.$80,000,000 for all policy participants in each policy year, subject to a
deductible of Cdn.$180,000 for each amount payable to St. Laurent.
GRANTING OF ST. LAURENT OPTIONS, ST.-LAURENT RSUS, PERFORMANCE SHARES AND
RETENTION BONUSES
On February 22, 2000, the Board of Directors passed resolutions with
respect St. Laurent Options that would otherwise have been granted to optionees
in May 2000 under the terms of the St. Laurent Directors' Stock Option and Share
Purchase Plan (with respect to the option component of the annual grant of
rights thereunder), the St. Laurent Long-Term Incentive Plan and the St. Laurent
Managers' Stock Option Plan providing that a cash settlement be made to
optionees under such plans on the Effective Date for an amount equivalent to the
full economic value of said options calculated on the basis of an "all-cash
transaction price" less the deemed exercise price of such options representing
the market value of St. Laurent Common Shares as calculated on January 24, 2000
(the date upon which the compensation committee of the Board of Directors began
to consider the issue of making an annual grant of options) and that, in order
for such cash settlement to be "tax neutral" to the optionees under such plans,
an additional cash payment in the form of a "gross-up" be paid on the Effective
Date to the eligible optionees under such plans so that all such payments will
be "tax-neutral" to such optionees.
The Board of Directors also resolved, with respect to "Performance Shares"
to be issued to Mr. Joseph J. Gurandiano, President and Chief Executive Officer
of St. Laurent and his direct reports, as per the terms of eligibility of the
St. Laurent Share Performance Plan, that a cash settlement be paid to Mr.
Gurandiano and such other executives on the Effective Date for an amount
equivalent to the full economic value of the "Performance Shares" held by each
such person and calculated on the basis of an "all-cash transaction price".
With respect to the share component of the rights granted to directors of
St. Laurent under the St. Laurent Directors' Stock Option and Share Purchase
Plans that would otherwise have been granted to directors of St. Laurent in May
2000, it was resolved that a cash settlement be paid to such directors then in
office on the Effective Date for an amount equivalent to the full economic value
of such shares calculated on the basis of an "all-cash transaction price".
It was further resolved by the Board of Directors that a retention bonus be
paid, at Closing, to nine senior executives of St. Laurent who, in the opinion
of the Board of Directors, are instrumental in the day-to-day running of the
business of St. Laurent, must be kept in their positions in the event the
Arrangement is not completed and who will be instrumental in the closing of the
Transaction. Such retention bonus will be comprised of a percentage of the
annual base salary of each such senior executive, ranging from 125% to 75%.
For a description of the various share incentive plans and arrangements
which St. Laurent has in place, as well as information regarding executive
compensation and other benefits awarded to executives of St. Laurent, see
Appendix G to this Circular entitled "Executive Compensation and Description of
St. Laurent Plans".
ACCELERATION OF ST. LAURENT OPTIONS AND ST. LAURENT RSUS
Subject to regulatory approval, all outstanding St. Laurent Options issued
under the St. Laurent Directors' Stock Option and Share Purchase Plan, the St.
Laurent Long-Term Incentive Plan and the St. Laurent Managers' Stock Option
Plan, whether vested or unvested, shall become immediately exercisable
(conditional upon the Arrangement being completed) so that holders of St.
Laurent Options may participate in and benefit from the Arrangement as holders
of St. Laurent Common Shares. Holders of St. Laurent Options will have the
choice of either exercising their St. Laurent Options for Replacement Options or
exercising their Options and participating in the Arrangement as a holder of St.
Laurent Common Shares and receiving the Exchange Consideration for their St.
Laurent Common Shares.
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In addition, subject to regulatory approval, the penalty which would otherwise
be payable by an employee in the case of a sale, transfer or assignment of such
employee's shares within two years following their grant without such employee
ceasing to be employed by St. Laurent, a Subsidiary or an Affiliate of St.
Laurent under the St. Laurent Managers' Share Purchase Plan, will be waived. If
the Arrangement is not completed, the two year period and penalty will be deemed
not to have been waived. Furthermore, the St. Laurent Managers' Share Purchase
Plan entitles an eligible employee to receive St. Laurent RSUs giving the right
to the holder thereof to receive St. Laurent Common Shares at the expiry of a
three year period following the date on which such eligible employee received
the St. Laurent RSUs without payment of any further consideration by the holder
of the St. Laurent RSU. Subject to regulatory approval, such three year period
will be accelerated so that holders of St. Laurent RSUs may participate in the
Arrangement and receive the Exchange Consideration under the Arrangement.
SHARE CAPITAL MATTERS
The authorized capital of St. Laurent consists of an unlimited number of
common shares and an unlimited number of Class A Preferred Shares issuable in
series.
St. Laurent Common Shares
As of April 14, 2000, 49,806,080 St. Laurent Common Shares were issued and
outstanding. Holders of St. Laurent Common Shares are entitled to one vote for
each share held at all meetings of shareholders, other than meetings at which
only holders of another specified class or series are entitled to vote and are
entitled to receive dividends as and when declared by the Board of Directors
from time to time. On the liquidation, dissolution or winding up of St. Laurent,
holders of St. Laurent Common Shares (subject to the rights of holders of any
shares ranking prior to the St. Laurent Common Shares) are entitled to receive
the remaining property of St. Laurent.
St. Laurent Preferred Shares
Class A Preferred Shares in the capital of St. Laurent are issuable in
series. The Board of Directors may from time to time fix, before issuance, the
designation, rights, privileges, restrictions, conditions and limitations to
attach to the Class A Preferred Shares of each series including, the rate,
amount or method of calculation of preferential dividends, whether cumulative or
non-cumulative or partially cumulative, and whether such rate, amount or method
of calculation shall be subject to change or adjustment in the future, the
redemption price and terms and conditions of redemption and the rights of
retraction, if any. The Class A Preferred Shares of St. Laurent are entitled to
preference over the St. Laurent Common Shares with respect to the payment of
dividends and may also be given such other preferences over the St. Laurent
Common Shares as may be fixed by the Board of Directors and are entitled to
participate in the liquidation, dissolution or winding-up of St. Laurent among
its shareholders in priority to the St. Laurent Common Shares.
There are no Class A Preferred Shares of St. Laurent issued and
outstanding.
Dividends
St. Laurent has not paid dividends since its incorporation, and does not
currently intend to pay dividends, on the St. Laurent Common Shares.
St. Laurent's credit facilities contain restrictive covenants including a
restriction on the declaration or payment of aggregate cash dividends on the
outstanding St. Laurent Common Shares if certain defaults or events of default
have occurred and are continuing or if the payment of such dividends would
result in a default or event of default. In connection with the Arrangement,
Smurfit-Stone will repay all amounts owed by St. Laurent under such credit
facilities.
Dividends paid to shareholders in the United States are subject to a 15%
Canadian non-resident withholding tax.
EXERCISE OF WARRANTS TO ACQUIRE ST. LAURENT COMMON SHARES
TD Capital Group Limited was the holder of a warrant to acquire 380,000 St.
Laurent Common Shares at an initial exercise price of Cdn.$10.95 pursuant to a
warrant issued on January 29, 1999 and a warrant indenture between St. Laurent
and Montreal Trust Company made as of the same date. On February 23, 2000, TD
Capital Group Limited exercised its warrant and was issued 380,000 St. Laurent
Common Shares. See "Information Concerning St. Laurent -- Business Segments --
Paperboard Converting and Packaging".
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AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of St. Laurent are PricewaterhouseCoopers LLP. The transfer
agent and registrar for the St. Laurent Common Shares is Montreal Trust Company.
DOCUMENTS INCORPORATED BY REFERENCE
THE FOLLOWING DOCUMENTS, FILED BY ST. LAURENT WITH THE CANADIAN SECURITIES
REGULATORY AUTHORITIES AND THE SEC, ARE SPECIFICALLY INCORPORATED BY REFERENCE
IN AND FORM AN INTEGRAL PART OF THIS CIRCULAR:
(A) ST. LAURENT'S ANNUAL INFORMATION FORM DATED MAY 5, 1999; AND
(B) ST. LAURENT'S MATERIAL CHANGE REPORT FILED WITH RESPECT TO THE
PRE-MERGER AGREEMENT AND DATED MARCH 3, 2000.
COPIES OF THESE DOCUMENTS MAY BE OBTAINED FROM THE SECRETARY OF ST. LAURENT
AT ITS HEAD OFFICE LOCATED AT 630 RENE-LEVESQUE BOULEVARD WEST, SUITE 3000,
MONTREAL, QUEBEC.
ANY DOCUMENTS OF THE TYPE REFERRED TO IN THE PRECEDING PARAGRAPH (EXCLUDING
CONFIDENTIAL MATERIAL CHANGE REPORTS) FILED BY ST. LAURENT WITH THE CANADIAN
SECURITIES REGULATORY AUTHORITIES AND THE SEC AFTER THE DATE OF THIS CIRCULAR
AND PRIOR TO THE EFFECTIVE TIME SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE
IN THIS CIRCULAR.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED
FOR THE PURPOSES OF THIS CIRCULAR TO THE EXTENT THAT A STATEMENT CONTAINED
HEREIN, OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED
TO BE INCORPORATED BY CONTAINED OR SUPERSEDES THAT STATEMENT. ANY STATEMENT SO
MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED
TO CONSTITUTE A PART OF THIS CIRCULAR. THE MAKING OF A MODIFYING OR SUPERSEDING
STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR
SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE
STATEMENT OF A MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS
REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN
LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE.
INFORMATION CONCERNING SMURFIT-STONE
The predecessor to Smurfit-Stone was founded in 1974 when JS Group
commenced operations in the United States by acquiring 40% of a small paperboard
and packaging products company. The remaining 60% of that company was acquired
in 1977. The company implemented a strategy to build a fully integrated, broadly
based, national packaging business, primarily through acquisitions. Jefferson
Smurfit Corporation was formed in 1983 to consolidate the operations of the
company.
On November 18, 1998, Jefferson Smurfit Corporation acquired Stone, which
was incorporated on April 14, 1987, pursuant to a merger of a wholly-owned
subsidiary of Jefferson Smurfit Corporation with and into Stone (the "Stone
Merger"). In connection with the Stone Merger, Jefferson Smurfit Corporation
changed its name to Smurfit-Stone Container Corporation. As a result of the
Stone Merger, Stone became a wholly-owned subsidiary of Smurfit-Stone. The head
office for each of Smurfit-Stone and Stone is located at 150 North Michigan
Avenue, Chicago, Illinois 60601.
Canco, an indirect wholly-owned Subsidiary of Smurfit-Stone, was
incorporated under the CBCA on April 13, 2000. Its head office is located at
1155 Rene-Levesque Blvd. West, Suite 4000, Montreal, Quebec H3B 3V2. Canco was
incorporated for the purpose of implementing the Transaction.
Novaco, an indirect wholly-owned Subsidiary of Smurfit-Stone, was
incorporated as an unlimited liability company under the laws of the Province of
Nova Scotia on February 18, 2000. Its head office is located at Suite 900,
Purdy's Wharf Tower One, 195 Upper Water Street, Halifax, Nova Scotia, Canada,
B3J 2X2. Novaco was organized for the purpose of implementing the Transaction.
DESCRIPTION OF BUSINESS
Smurfit-Stone is an integrated producer of containerboard, corrugated
containers and other packaging products. Smurfit-Stone is the industry's leading
manufacturer of paper and paper-based packaging, including containerboard,
corrugated containers, industrial bags and clay-coated recycled boxboard, and is
the world's largest paper recycler. In addition, Smurfit-Stone is a leading
producer of solid bleached sulfate, folding cartons, paper tubes and cores, and
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labels. For the year ended December 31, 1999, Smurfit-Stone had net sales of
$7,151 million and net income of $157 million.
Smurfit-Stone is a holding company with no business operations of its own.
Smurfit-Stone conducts its business operations through two wholly-owned
subsidiaries: JSCE, Inc., a Delaware corporation ("JSCE"), and Stone. JSCE
conducts all of its business operations through its wholly-owned subsidiary JSC
(U.S.). Smurfit-Stone's results contained herein reflect Stone's operations
after November 18, 1998 (the "Merger Date"). JSC (U.S.) and Stone collectively
have operations throughout the United States, Canada, Europe and Latin America.
Description of Products
Containerboard and Corrugated Containers Segment
The primary products of Smurfit-Stone's Containerboard and Corrugated
Containers segment include corrugated containers, containerboard, kraft paper,
solid bleached sulfate ("SBS") and pulp. This segment includes 15 paper mills
and 129 container plants located in the United States and three paper mills
located in Canada. Sales for Smurfit-Stone's Containerboard and Corrugated
Containers segment in 1999 were $4,829 million (including $193 million of
intersegment sales).
Production for Smurfit-Stone's paper mills and sales volume for its
corrugated container facilities for the last three years, including Stone's
operations subsequent to the Merger Date, are included in the table below.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tons produced (in thousands)
Containerboard............................................ 5,973 2,479 2,024
Kraft paper............................................... 437 63
Solid bleached sulfate.................................... 189 185 190
Market pulp............................................... 572 71
Corrugated containers sold (in billion sq. ft.)............. 79.2 35.2 31.7
</TABLE>
Smurfit-Stone's containerboard mills produce a full line of containerboard,
which for 1999 included 3,858,000 tons of unbleached kraft linerboard, 324,000
tons of mottled white linerboard and 1,791,000 tons of recycled medium.
Smurfit-Stone's containerboard mills and corrugated container operations are
highly integrated, with the majority of containerboard produced by Smurfit-Stone
used internally by its corrugated container operations. In 1999, Smurfit-Stone's
corrugated container plants consumed 5,755,000 tons of containerboard,
representing an integration level of approximately 84%. A significant portion of
the kraft paper production is consumed by Smurfit-Stone's industrial bag
operations.
Corrugated containers are sold to a broad range of manufacturers of
consumable goods. Corrugated containers are used to ship such diverse products
as home appliances, electric motors, small machinery, grocery products, produce,
books, tobacco and furniture and for many other applications, including point of
purchase displays. Smurfit-Stone provides innovative packaging solutions,
stressing the value-added aspects of its corrugated containers, including
labeling and multicolor graphics to differentiate its products and respond to
customer requirements. Smurfit-Stone's corrugated container plants are located
nationwide, serving local customers and large national accounts.
Sales volumes shown above include Smurfit-Stone's proportionate share of
the operations of Smurfit-MBI (formerly MacMillan Bathurst, Inc.), a Canadian
producer of corrugated containers, and other affiliates reported on an equity
ownership basis. Smurfit-Stone and JS Group each own a 50% interest in
Smurfit-MBI.
Smurfit-Stone also produces SBS, portions of which are consumed internally
by Smurfit-Stone's folding carton plants. In addition, Smurfit-Stone produces
bleached northern and southern hardwood pulp, which is sold to manufacturers of
paper products, including photographic and other specialty papers, as well as
the printing and writing sectors.
Boxboard and Folding Cartons Segment
The primary products of Smurfit-Stone's Boxboard and Folding Cartons
segment include coated recycled boxboard and folding cartons. Sales for
Smurfit-Stone's Boxboard and Folding Cartons segment in 1999 were $836 million.
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Production of coated recycled boxboard in 1999, 1998 and 1997 by
Smurfit-Stone's boxboard mills was 581,000, 582,000 and 585,000 tons,
respectively. Smurfit-Stone's boxboard and folding carton operations are
integrated, with the majority of tons produced by Smurfit-Stone's boxboard mills
used internally by its folding carton operations. In 1999, Smurfit-Stone's
folding carton plants consumed 637,000 tons of recycled boxboard, SBS and coated
natural kraft, representing an integration level of approximately 78%.
Folding cartons are sold to manufacturers of consumable goods, especially
food, beverage, detergents, paper products and other consumer products.
Smurfit-Stone's 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 tailored to
specific technical requirements, as well as photography for packaging, sales
promotion concepts, and point of purchase displays. Folding cartons are used
primarily to provide point of purchase advertising while protecting customers'
products. Smurfit-Stone makes folding cartons for a wide variety of
applications, including food and fast foods, detergents, paper products,
beverages, health and beauty aids and other consumer products. Customers range
from small local accounts to large national accounts. Smurfit-Stone's folding
carton plants are located throughout the United States. Folding carton sales
volumes for 1999, 1998 and 1997 were 583,000, 536,000 and 488,000
tons,\respectively.
Smurfit-Stone has focused its capital expenditures and its 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.
Other Products
Industrial Bags
Smurfit-Stone produces multiwall bags, consumer bags and intermediate bulk
containers that are designed to safely and effectively ship a wide range of
industrial and consumer products, including fertilizers, chemicals, concrete,
flour, sugar, feed, seed, pet foods, popcorn, charcoal and salt. Smurfit-Stone's
bag plants are located throughout the United States. Smurfit-Stone believes that
it is the largest producer of industrial bags in the United States. In 1999,
Smurfit-Stone's bag plants consumed approximately 45% of the kraft paper
produced by Smurfit-Stone's kraft paper mills. Bag shipments for 1999 and for
the period subsequent to the Merger Date in 1998 were 316,000 and 34,000 tons,
respectively. Smurfit-Stone's sales of industrial bags in 1999 were $513
million.
Specialty Packaging
Smurfit-Stone produces a wide variety of specialty packaging products,
including uncoated recycled boxboard, paper tubes and cores, solid fiber
partitions and consumer packaging. Paper tubes 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. Smurfit-Stone produces high-quality rotogravure
cylinders and has a full-service organization experienced in the production of
color separations and lithographic film for the commercial printing, advertising
and packaging industries. In 1999, Smurfit-Stone's sales of specialty packaging
products were $288 million (including $24 million of intersegment sales).
Reclamation Operations
Smurfit-Stone's reclamation operations procure fiber resources for
Smurfit-Stone's paper mills as well as other producers. Smurfit-Stone operates
reclamation facilities in the United States that collect, sort, grade and bale
recovered paper. Smurfit-Stone also collects aluminum and glass. In addition,
Smurfit-Stone operates a brokerage system throughout the United States whereby
it purchases and resells recovered paper to Smurfit-Stone's recycled paper mills
and other producers on a regional and national contract basis. Brokerage
contracts provide bulk purchasing, resulting in lower prices and cleaner
recovered paper. Many of the reclamation facilities are located close to
Smurfit-Stone's recycled paper mills, ensuring availability of supply with
minimal shipping costs. Domestic tons of recovered paper collected for 1999,
1998 and 1997 were 6,560,000, 5,155,000 and 4,832,000, respectively.
Smurfit-Stone's sales of recycled materials in 1999 were $563 million (including
$263 million of intersegment sales).
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International Operations
Smurfit-Stone produces containerboard, boxboard and corrugated containers
in Europe and Latin America. Smurfit-Stone's European operations include three
paper mills (located in Hoya and Viersen, Germany and Cordoba, Spain), 21
corrugated container plants (eleven located in Germany, three in Spain, three in
Belgium, two in France and two in the Netherlands) and six reclamation plants
(five located in Germany and one in Spain). In addition, Smurfit-Stone operates
four container plants in Mexico and several small affiliate operations which
also produce corrugated containers. Production for Smurfit-Stone's international
mills and sales volume for its foreign corrugated container facilities for 1999
and for the period subsequent to the Merger Date in 1998 were:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Tons produced (in thousands)
Containerboard............................................ 380 40
Recycled boxboard......................................... 79 8
Corrugated containers sold (in billion sq. ft.)............. 12.5 1.3
</TABLE>
In 1999, Smurfit-Stone's foreign corrugated container plants consumed
761,000 tons of containerboard. Smurfit-Stone's sales for its foreign operations
were $581 million.
Cladwood(R)
Cladwood(R) is a wood composite panel used by the housing industry,
manufactured from sawmill shavings and other wood residuals and overlaid with
recycled newsprint. Smurfit Newsprint Corporation, a wholly-owned subsidiary of
JSC(U.S.) ("SNC"), has two Cladwood(R) plants located in Oregon. Sales for
Cladwood(R) in 1999 were $21 million.
Newsprint
Smurfit-Stone is in the process of divesting the newsprint mills owned by
SNC, and accordingly its newsprint operations located in Newberg and Oregon
City, Oregon have been accounted for as a discontinued operation. The Newberg
mill was sold in November 1999. Smurfit-Stone is in negotiations to transfer
ownership of the Oregon City mill and does not expect to realize any significant
proceeds from the transaction.
In 1999, SNC produced approximately 510,000 metric tons and sold $235
million of newsprint. For the past three years, an average of approximately 42%
of SNC's newsprint production was sold to The Times Mirror Company pursuant to a
long-term newsprint agreement.
Fiber Resources
Wood fiber and recycled fiber are the principal raw materials used in the
manufacture of Smurfit-Stone's paper products. Smurfit-Stone satisfies virtually
all of its need for wood fiber through purchases on the open market or under
supply agreements and essentially all of its need for recycled fiber through the
operation of its reclamation facilities and nationwide brokerage system.
Wood fiber and recycled fiber are purchased in highly competitive,
price-sensitive markets, which have historically exhibited price and demand
cyclicality. Conservation regulations have caused, and will likely continue to
cause, a decrease in the supply of wood fiber and higher wood fiber costs in
some of the regions in which Smurfit-Stone procures wood fiber. Fluctuations in
supply and demand for recycled fiber have from time to time caused tight
supplies of recycled fiber, and at those times Smurfit-Stone has experienced an
increase in the cost of such fiber. While Smurfit-Stone has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in proximity
to its mills, there can be no assurances that this will continue to be the case
for any or all of its mills.
In October 1999, Smurfit-Stone sold 820,000 acres of owned timberland and
assigned its rights to 160,000 acres of leased timberland located in the
southeastern United States. As part of the sales agreement, JSC(U.S.) entered
into a two-year supply contract with the buyer to purchase 1.4 million tons of
timber each year during 2000 and 2001 at prevailing market prices. As of
December 31, 1999, Smurfit-Stone owned approximately 132,000 acres of timberland
in Canada and operates wood harvesting facilities.
Marketing
Smurfit-Stone's marketing strategy is to sell a broad range of paper-based
packaging products to marketers of industrial and consumer products. In managing
the marketing activities of its paperboard mills, Smurfit-Stone seeks to
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meet the quality and service needs of the customers of its package converting
plants at the most efficient cost, while balancing those needs against the
demands of its open market customers. Smurfit-Stone's converting plants focus on
supplying both specialized packaging with high value graphics that enhance a
product's market appeal and high-volume sales of commodity products.
Smurfit-Stone seeks to serve a broad customer base for each of its segments and
as a result serves thousands of accounts from its plants. Each plant has its own
sales force, and many have product design engineers and other service
professionals who are in close contact with customers to respond to their
specific needs. Smurfit-Stone complements the local plants' marketing and
service capabilities with regional and national design and service capabilities,
as well as 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.
Smurfit-Stone's business is not dependent upon a single customer or upon a
small number of major customers. Smurfit-Stone does not believe that the loss of
any one customer would have a material adverse effect on Smurfit-Stone.
Competition
The markets in which Smurfit-Stone sells its principal products are highly
competitive and comprised of many participants. Although no single company is
dominant, Smurfit-Stone does face significant competitors in each of its
businesses. Smurfit-Stone's competitors include large vertically integrated
companies as well as numerous smaller companies. The industries in which
Smurfit-Stone competes have historically been 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 Smurfit-Stone's 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. Smurfit-Stone does not have a significant backlog of
orders, as most orders are placed for delivery within 30 days.
Research and Development
Smurfit-Stone's research and development center located in Carol Stream,
Illinois uses state-of-the-art technology to assist all levels of the
manufacturing and sales processes from raw 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. Smurfit-Stone actively pursues
applications for patents on new inventions and designs and attempts to protect
its patents against infringement. Nevertheless, Smurfit-Stone believes that its
success and growth are more dependent on the quality of its products and its
relationships with its customers than on the extent of its patent protection.
Smurfit-Stone holds or is licensed to use certain patents, licenses, trademarks
and trade names on products, but does not consider that the successful
continuation of any material aspect of its business is dependent upon such
intellectual property. The cost of Smurfit-Stone's research and development
activities for 1999, 1998 and 1997 was approximately $7 million, $4 million and
$3 million, respectively.
Employees
Smurfit-Stone had approximately 36,300 employees at December 31, 1999, of
whom approximately 30,800 were employees of U.S. operations and the remainder
were employees of foreign operations. Of the employees of U.S. operations,
approximately 20,500 (67%) are represented by collective bargaining units. The
expiration dates of union contracts for Smurfit-Stone's major paper mill
facilities are as follows: the Hodge, Louisiana mill, expiring in June 2000; the
Missoula, Montana mill, expiring in May 2001; the Jacksonville, Florida
(Seminole) mill, expiring in June 2001; the Hopewell, Virginia mill, expiring in
July 2002; the Brewton, Alabama mill, expiring in October 2002; the Panama City,
Florida mill, expiring in March 2003; the Fernandina Beach, Florida mill,
expiring in June 2003; and the Florence, South Carolina mill, expiring in August
2003. Smurfit-Stone believes that its employee relations are generally good and
is currently in the process of bargaining with unions representing production
employees at a number of its operations. While the terms of these agreements may
vary, Smurfit-Stone believes that the material
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terms of its collective bargaining agreements are customary for the industry and
the type of facility, the classification of the employees and the geographic
location covered thereby.
Environmental Compliance
Smurfit-Stone's operations are subject to extensive environmental
regulation by federal, state, and local authorities. Smurfit-Stone in the past
has made significant capital expenditures to comply with water, air, solid and
hazardous waste and other environmental laws and regulations and expects to make
significant expenditures in the future for environmental compliance. Because
various environmental standards are subject to change, it is difficult to
predict with certainty the amount of capital expenditures that will ultimately
be required to comply with future standards. In particular, the United States
Environmental Protection Agency ("EPA") has finalized significant parts of the
Cluster Rule which will require substantial expenditures to achieve compliance.
Smurfit-Stone estimates, based on engineering studies done to date, that
compliance with these portions of the Cluster Rule could require up to $310
million in capital expenditures over the next several years. The ultimate cost
of complying with the regulations cannot be predicted with certainty until
further engineering studies are completed and additional regulations are
finalized.
In addition to Cluster Rule compliance, Smurfit-Stone also anticipates
additional capital expenditures related to environmental compliance. For the
past three years, Smurfit-Stone has spent an average of approximately $35
million annually on capital expenditures for environmental purposes. The
anticipated spending for such capital projects for fiscal 2000 is approximately
$200 million. A significant amount of the increased expenditures in 2000 will be
due to compliance with the Cluster Rule and is included in the estimate of up to
$310 million set forth above. Since Smurfit-Stone's principal 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
Smurfit-Stone's competitive position.
Properties
Smurfit-Stone maintains manufacturing facilities and sales offices
throughout North America, Europe and Latin America. Smurfit-Stone's facilities
are properly maintained and equipped with machinery suitable for their use.
Smurfit-Stone's manufacturing facilities, excluding the discontinued newsprint
operations, as of December 31, 1999 are summarized below.
<TABLE>
<CAPTION>
NUMBER OF FACILITIES
--------------------------- STATE
TOTAL OWNED(1) LEASED LOCATIONS
----- -------- ------ ---------
<S> <C> <C> <C> <C>
UNITED STATES
Paper mills.............................................. 23 23 0 16
Corrugated container plants.............................. 129 82 47 34
Folding carton plants.................................... 20 16 4 10
Bag packaging plants..................................... 15 8 7 13
Specialty packaging plants............................... 29 10 19 16
Reclamation plants....................................... 26 17 9 15
Cladwood(R) plants....................................... 2 2 0 1
Wood products plants..................................... 2 2 0 2
--- --- --
Subtotal.............................................. 246 160 86 39
CANADA
Paper mills.............................................. 3 3 0 N/A
Wood products plants..................................... 1 1 0 N/A
EUROPE AND OTHER
Paper mills.............................................. 3 3 0 N/A
Corrugated container plants.............................. 26 23 3 N/A
Reclamation plants....................................... 6 3 3 N/A
--- --- --
Total................................................. 285 193 92 N/A
=== === ==
</TABLE>
- ---------------
(1) Substantially all of these facilities are subject to security interests to
secure the debt obligations of JSC(U.S.) and Stone. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Reserves" and "Notes to the Consolidated Financial
Statements of Smurfit-Stone".
77
<PAGE>
Approximately 71% of Smurfit-Stone's investment in property, plant and
equipment is represented by its paper mills. In addition to its manufacturing
facilities, Smurfit-Stone owns approximately 132,000 acres of timberland in
Canada and also operates wood harvesting facilities.
The approximate annual tons of productive capacity of Smurfit-Stone's paper
mills, including the proportionate share of its affiliates' productive capacity,
at December 31, 1999 were:
<TABLE>
<CAPTION>
ANNUAL CAPACITY
-----------------------
(in thousand U.S. tons)
<S> <C>
UNITED STATES
Containerboard............................................ 5,620
Kraft paper............................................... 437
Solid bleached sulfate.................................... 192
Recycled boxboard......................................... 779
Market pulp............................................... 341
-----
Sub-total.............................................. 7,369
CANADA
Containerboard............................................ 477
Market pulp............................................... 240
EUROPE AND OTHER
Containerboard............................................ 418
Recycled boxboard......................................... 79
-----
Total.................................................. 8,583
=====
</TABLE>
LEGAL PROCEEDINGS
Litigation
Stone was a party to an Output Purchase Agreement (the "OPA") with Four M
Corporation ("Four M") and Florida Coast Paper Company, L.L.C. ("FCPC"), a joint
venture owned 50% by each of Stone and Four M. The OPA required that Stone and
Four M each purchase one-half of the linerboard produced at FCPC's mill in Port
St. Joe, Florida (the "FCPC Mill") at a minimum price sufficient to cover
certain obligations of FCPC. The OPA also required Stone and Four M to use their
best efforts to cause the FCPC Mill to operate at a production rate not less
than the reported average capacity utilization of the U.S. linerboard industry.
FCPC indefinitely discontinued production at the FCPC Mill in August 1998, and
FCPC and certain of its affiliates filed for Chapter 11 bankruptcy protection in
April 1999. Certain creditors of FCPC filed an adverse proceeding in the
bankruptcy against Stone and Four M, and certain of their officers and
directors, alleging, among other things, default with respect to the obligations
of Stone and Four M under the OPA. On October 20, 1999 FCPC and a committee
representing the holders of the FCPC debt securities filed a bankruptcy
reorganization plan (the "Plan") that provided for the settlement of all
outstanding claims in exchange for cash payments. Under the Plan, which was
confirmed and consummated in January 2000, Stone paid approximately $123 million
to satisfy the claims of creditors of FCPC, Stone received title to the FCPC
mill, and all claims under the OPA, as well as any obligations of Stone
involving FCPC or its affiliates, were released and discharged. In addition,
Four M issued $25 million of convertible preferred stock to Stone in connection
with the consummation of the Plan.
Subsequent to an understanding reached in December 1998, Smurfit-Stone and
SNC entered into a Settlement Agreement in January 1999 to implement a
nationwide class action settlement of claims involving Cladwood(R), a composite
wood siding product manufactured by SNC that has been used primarily in the
construction of manufactured or mobile homes. The class action claimants alleged
that Cladwood(R) siding on their homes prematurely failed. The settlement was
reached in connection with a class action pending in King County, Washington and
also resolved all other pending class actions. Pursuant to the settlement, SNC
paid $20 million into a settlement fund, plus up to approximately $6.5 million
of administrative costs, plaintiffs' attorneys' fees, and class representative
payments. Smurfit-Stone has established reserves that it believes will be
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 Smurfit-Stone to re-evaluate whether the liabilities in connection with
the Cladwood(R) cases could exceed established reserves.
78
<PAGE>
In 1998, seven putative class action complaints were filed in the United
States District Court for the Northern District of Illinois and the United
States District Court for the Eastern District of Pennsylvania alleging that
Stone reached agreements in restraint of trade that affected the manufacture,
sale and pricing of corrugated products in violation of antitrust laws. The
complaints have been amended to name several other defendants, including
JSC(U.S.) and Smurfit-Stone. The suits seek an unspecified amount of damages
arising out of the sale of corrugated products for the period from October 1,
1993 through March 31, 1995. Under the provisions of the applicable statutes,
any award of actual damages could be trebled. The Federal Multidistrict
Litigation Panel has ordered all of the complaints to be transferred to and
consolidated in the United States District Court for the Eastern District of
Pennsylvania. Stone, JSC(U.S.) and Smurfit-Stone believe they have meritorious
defenses and intend to vigorously defend these cases.
Smurfit-Stone 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
Smurfit-Stone cannot be predicted with certainty, the management of
Smurfit-Stone believes that the resolution of these matters will not have a
material adverse effect on its consolidated financial condition or results of
operations.
Environmental Matters
In March 1999, management of SNC's Oregon City, Oregon newsprint mill
became aware of possible alterations by one of its employees of data utilized in
determining compliance with the mill's National Pollutant Discharge Elimination
System ("NPDES") permit. SNC conducted a thorough internal investigation of this
matter and, based on this investigation, concluded that such alterations did
occur and, as a result, the mill may have violated its NPDES permit limits on
suspended solids on several occasions. SNC provided both the EPA and the Oregon
Department of Environmental Quality with a detailed report of its investigation,
and the agencies are conducting an additional investigation based on this
report. SNC is fully cooperating with the investigation. SNC is unable to
predict the potential consequences of this matter.
In October 1992, the Florida Department of Environmental Regulation,
predecessor to the Department of Environmental Protection ("DEP"), filed a civil
complaint in the Circuit Court of Bay County, FL against Stone seeking
injunctive relief, an unspecified amount of fines and civil penalties, and other
relief based on alleged groundwater contamination at Stone's Panama City,
Florida mill. In addition, the complaint alleged operation of a solid waste
facility without a permit and discrepancies in hazardous waste shipping
manifests. At the parties' request, the case was stayed pending the conclusion
of a related administrative proceeding petitioned by Stone in June 1992
following DEP's proposal to deny Stone a permit renewal to continue operating
its wastewater pretreatment facility at the mill site. The administrative
proceeding was referred to a hearing officer for an administrative hearing on
the consolidated issues of compliance with a prior consent order, denial of the
permit renewal, completion of a contamination assessment and denial of a sodium
exemption. In March 1999, DEP and Smurfit-Stone entered into a Consent Agreement
pursuant to which DEP issued an operating permit for the wastewater treatment
system, DEP granted the sodium exemption and Smurfit-Stone agreed to install and
operate a hydrologic barrier well system. As part of the settlement, the
enforcement action with respect to the groundwater contamination was dismissed.
In September 1997, Smurfit-Stone received a Notice of Violation (a "NOV")
and a Compliance Order from the EPA alleging noncompliance with air emissions
limitations for the smelt dissolving tank at Smurfit-Stone's Hopewell, Virginia
mill and for failure to comply with New Source Performance Standards applicable
to certain other equipment at the mill. In cooperation with the EPA,
Smurfit-Stone responded to information requests, conducted tests and took
measures to ensure continued compliance with applicable emission limits. In
December 1997 and November 1998, Smurfit-Stone received additional requests from
the EPA for information about past capital projects at the mill. In April 1999,
the EPA issued a NOV alleging that Smurfit-Stone "modified" the recovery boiler
and increased nitrogen oxide emissions without obtaining a required construction
permit. Smurfit-Stone responded to this NOV and indicated that the EPA's
allegations were without merit.
In August 1999, Smurfit-Stone received a Notice of Infraction from the
Ministry of Environment of the Province of Quebec (the "Ministry") alleging
noncompliance with specified environmental standards at Smurfit-Stone's New
Richmond, Quebec mill. The majority of the citations alleged that Smurfit-Stone
had discharged total suspended solids in the mill's treated effluent which
exceeded the regulatory limitations for the rolling 30-day average. The
remainder of the citations were for monitoring, reporting and administrative
deficiencies uncovered during an inspection performed by the Ministry earlier in
the year. The total fine demanded by the Ministry for all of the alleged
79
<PAGE>
violations is $6.5 million (Canadian). Smurfit-Stone entered a plea of "not
guilty" as to all of the citations and intends to vigorously defend itself
against these alleged violations.
Federal, state and local environmental requirements are a significant
factor in Smurfit-Stone's business. Smurfit-Stone employs processes in the
manufacture of pulp, paperboard and other products which result in various
discharges, emissions, and wastes and which are subject to numerous federal,
state and local environmental laws and regulations, including reporting and
disclosure obligations. Smurfit-Stone operates and expects to operate under
permits and similar authorizations from various governmental authorities that
regulate such discharges, emissions, and wastes.
Smurfit-Stone also faces potential liability as a result of releases, or
threatened releases, of hazardous substances into the environment from various
sites owned and operated by third parties at which company-generated wastes have
allegedly been deposited. Generators of hazardous substances sent to off-site
disposal locations at which environmental problems exist, as well as the owners
of those sites and certain other classes of Persons (generally referred to as
"potentially responsible parties" or "PRPs"), are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under CERCLA and analogous state laws, regardless of
fault or the lawfulness of the original disposal. Smurfit-Stone has received
notice that it is or may be a PRP at a number of federal and/or state sites
where response action may be required and as a result may have joint and several
liability for cleanup costs at such sites. However, liability for CERCLA sites
is typically shared with other PRPs and costs are commonly allocated according
to relative amounts of waste deposited. Smurfit-Stone's relative percentage of
waste deposited at a majority of these sites is quite small. In addition to
participating in remediation of sites owned by third parties, Smurfit-Stone has
entered into consent orders for investigation and/or remediation of certain
company-owned properties.
Based on current information, Smurfit-Stone believes that the probable
costs of the potential environmental enforcement matters discussed above,
response costs under CERCLA and similar state laws, and remediation of owned
property will not have a material adverse effect on Smurfit-Stone's financial
condition or results of operations. Smurfit-Stone believes that its liability
for these matters was adequately reserved at December 31, 1999.
RECENT ACQUISITIONS AND DISPOSITIONS
On November 18, 1998, Smurfit-Stone purchased the No. 2 paperboard machine
located in Smurfit-Stone's Fernandina Beach, Florida paperboard mill for $175
million from an affiliate of JS Group. Until that date, Smurfit-Stone and the
affiliate of JS Group were parties to an operating agreement whereby
Smurfit-Stone operated and managed the No. 2 paperboard machine.
On November 18, 1998, Jefferson Smurfit Corporation acquired Stone. See
"Information concerning Smurfit-Stone -- Management's Discussion and Analysis of
Financial Condition and Results of Operations".
In January 1999, Smurfit-Stone sold 7.8 million shares of its interest in
Abitibi for approximately $80 million and in April 1999, Smurfit-Stone sold its
remaining interest in Abitibi for approximately $414 million. In October 1999,
Smurfit-Stone sold 820,000 acres of owned timberland and assigned its rights to
160,000 acres of leased timberland to a third party for $710 million, comprised
of $225 million of cash and $485 million of installment notes. The installment
notes were monetized in a financing transaction completed in November 1999,
resulting in proceeds of $430 million. In November 1999, Smurfit-Stone sold its
Newberg, Oregon newsprint mill for approximately $211 million.
80
<PAGE>
TRADING HISTORY
Smurfit-Stone's Common Stock trades on NASDAQ under the symbol "SSCC". The
high and low trading prices and volumes of the stock for the periods indicated
below were:
<TABLE>
<CAPTION>
HIGH LOW VOLUME
------ ------ -----------
<S> <C> <C> <C>
1998
Third Quarter............................................. $16.75 $ 9.76 24,983,094
Fourth Quarter............................................ $16.44 $10.00 69,685,379
1999
First Quarter............................................. $20.13 $14.81 96,571,796
Second Quarter............................................ $25.31 $17.88 123,406,488
Third Quarter............................................. $25.75 $20.00 75,876,607
Fourth Quarter............................................ $25.63 $17.75 93,817,730
2000
January................................................... $25.00 $18.06 37,938,046
February.................................................. $21.19 $12.50 58,048,985
March..................................................... $18.81 $12.75 61,352,179
April (until April 13, 2000).............................. $18.63 $15.00 22,967,244
</TABLE>
DIVIDEND HISTORY
Smurfit-Stone has not paid cash dividends on Smurfit-Stone Common Stock and
does not intend to pay dividends on Smurfit-Stone Common Stock in the
foreseeable future. The ability of Smurfit-Stone to pay dividends in the future
is restricted by certain provisions contained in various agreements and
indentures relating to Smurfit-Stone's outstanding indebtedness.
SMURFIT-STONE SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial data should be read in conjunction with
"Information concerning Smurfit-Stone -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of Smurfit-Stone and related notes thereto appearing elsewhere in
this Circular. The selected financial information, with the exception of the
statistical data, is derived from audited consolidated financial information for
Smurfit-Stone.
81
<PAGE>
<TABLE>
<CAPTION>
1999 (1) 1998 (2)(3) 1997
----------- -------------- ----------
In millions, except per share and statistical data
<S> <C> <C> <C>
SUMMARY OF OPERATIONS (4)
Net sales................................................ $ 7,151 $ 3,485 $ 2,957
Income (loss) from operations............................ 423 (93) 176
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. 163 (211) (19)
Discontinued operations, net of income tax provision..... 6 27 20
Net income (loss)........................................ 157 (200) 1
Basic earnings per share of common stock
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. .75 (1.70) (.17)
Net income (loss)........................................ .72 (1.61) .01
Weighted average shares outstanding...................... 217 124 111
Diluted earnings per share of common stock
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. .74 (1.70) (.17)
Net income (loss)........................................ .71 (1.61) .01
Weighted average shares outstanding...................... 220 124 111
OTHER FINANCIAL DATA
Net cash provided by operating activities................ $ 183 $ 129 $ 88
Net cash provided by (used for) investing activities..... 1,487 (59) (175)
Net cash provided by (used for) financing activities..... (1,805) 73 87
Depreciation, depletion and amortization................. 430 168 127
Capital investments and acquisitions..................... 156 287 191
Working capital.......................................... 42 635 71
Property, plant, equipment and timberland, net........... 4,419 5,772 1,788
Total assets............................................. 9,859 11,631 2,771
Long-term debt........................................... 4,793 6,633 2,040
Stockholders' equity (deficit)........................... 1,847 1,634 (374)
STATISTICAL DATA (TONS IN THOUSANDS)
Containerboard, SBS and kraft production (tons).......... 6,979 2,767 2,214
Market pulp production (tons)............................ 572 71
Recycled boxboard production (tons)...................... 825 765 758
Corrugated shipments (billion sq. ft.)................... 91.7 36.5 31.7
Folding carton shipments (tons).......................... 583 536 488
Industrial bag shipments (tons).......................... 316 34
Fiber reclaimed and brokered (tons)...................... 6,560 5,155 4,832
Number of employees...................................... 36,300 38,000 15,800
</TABLE>
- ---------------
(1) Smurfit-Stone recorded $446 million of pretax gains on asset sales in 1999,
resulting from the sales of a majority of its timberlands and its interest
in Abitibi.
(2) On November 18, 1998, Stone merged with a wholly-owned Subsidiary of
Smurfit-Stone. Results for 1998 include Stone after the Merger Date.
Smurfit-Stone issued approximately 104 million shares of Smurfit-Stone
Common Stock in the Stone Merger, resulting in a total purchase price
(including the fair value of stock options and related fees) of
approximately $2,245 million.
(3) Smurfit-Stone recorded pretax charges of $310 million ($187 million after
tax) in the fourth quarter of 1998, including $257 million of restructuring
charges in connection with the Stone Merger, $30 million for settlement of
its Cladwood(R) litigation and $23 million of costs related to the Stone
Merger.
(4) SNC's newsprint operations are presented as a discontinued operation for
all periods.
82
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Market conditions and demand for containerboard and corrugated containers,
Smurfit-Stone's primary products, have historically been subject to cyclical
changes in the economy and changes in industry capacity, both of which can
significantly impact selling prices and Smurfit-Stone's profitability.
Market conditions were generally weak from 1996 to 1998 due primarily to
excess capacity within the industry. Linerboard prices, which peaked in 1995 at
approximately $535 per ton, declined dramatically thereafter, reaching a low of
$310 per ton in April 1997. Corrugated container prices followed this same
pricing trend during the period with somewhat less fluctuation. Prices remained
at reduced levels through the end of 1998.
During the second half of 1998, the containerboard industry took extensive
economic downtime, resulting in a significant reduction in inventory levels. In
addition, several paper companies, including Smurfit-Stone, permanently shut
down paper mill operations, approximating 6% of industry capacity. The balance
between supply and demand for containerboard improved as a result of the
shutdowns, and inventories remained low throughout 1999. Corrugated container
shipments for the industry were strong in 1999, increasing approximately 2%
compared to 1998. Based on these developments, Smurfit-Stone was able to
implement two price increases during 1999, totaling $90 per ton for linerboard,
bringing the price at the end of 1999 to $430 per ton. In addition,
Smurfit-Stone implemented a $50 per ton price increase in February 2000 for
linerboard.
Market pulp is also subject to the cyclical changes in the economy and
changes in industry capacity. The price of market pulp declined from 1996 to
1998 as a result of excess capacity worldwide. Mill closures, market related
downtime and the recovery of the Asian markets resulted in tighter supplies and
a recovery in prices in 1999. As a result, Smurfit-Stone was able to implement
price increases totaling approximately $160 per metric ton for market pulp
during 1999. In addition, Smurfit-Stone implemented a $30 per metric ton price
increase in January 2000 for market pulp.
Market conditions in the folding carton and boxboard mill industry, which
were weak in 1998, began to strengthen in the second half of 1999. Demand for
recycled boxboard and SBS improved gradually and Smurfit-Stone was able to
implement price increases in the fourth quarter of 1999. On average, prices were
lower in 1999 as compared to 1998. Shipments of folding cartons for the industry
increased 2% compared to 1998 and mill operating rates were higher.
Wood fiber and recycled fiber are the principal raw materials used in the
manufacture of Smurfit-Stone's products. Fiber supplies can vary widely at times
and are highly dependent upon the demand of paper mills. Wood fiber and
reclaimed fiber prices declined in 1998 due primarily to the lower demand
brought about by extensive economic downtime taken by the containerboard
industry in 1998. The price of OCC, the principal grade used in recycled
containerboard mills, declined in 1998 to its lowest level in five years.
Smurfit-Stone's average wood fiber cost in 1999 declined approximately 6%
compared to 1998 due primarily to the number of permanent mill closures in those
areas where Smurfit-Stone competes for wood. Recycled fiber prices increased
approximately 11% compared to 1998, primarily as a result of stronger export
demand.
Restructuring and Stone Merger
As previously discussed, a wholly-owned subsidiary of Smurfit-Stone merged
with Stone on November 18, 1998. In connection with the Stone Merger,
Smurfit-Stone restructured its operations. The restructuring included the
shutdown of approximately 1.1 million tons, or 15%, of Smurfit-Stone's North
American containerboard mill capacity and approximately 400,000 tons of
Smurfit-Stone's market pulp capacity. During the fourth quarter of 1998,
Smurfit-Stone recorded a pretax charge of $257 million for restructuring costs
related to the permanent shutdown on December 1, 1998 of certain JSC(U.S.) mill
operations and related facilities in connection with the Stone Merger. The
restructuring charge of $257 million included provisions for costs for JSC(U.S.)
associated with (i) adjustment of property, plant and equipment of closed
facilities to fair value less costs to sell of $179 million, (ii) facility
closure costs of $42 million, (iii) severance related costs of $27 million and
(iv) other Stone Merger-related costs of $9 million. As part of Smurfit-Stone's
continuing evaluation of all areas of its business in connection with its Stone
Merger integration, Smurfit-Stone recorded a $10 million restructuring charge in
1999 related to the permanent shutdown of eight additional JSC(U.S.) facilities.
The 1999 restructuring charge included restructuring expense of $15 million
related to the closures and a reduction in the 1998 exit liabilities of $5
million.
83
<PAGE>
The restructuring included the permanent shutdown on December 1, 1998 of
certain Stone containerboard mill and pulp mill facilities and five Stone
converting facilities during the allocation period in 1999. The adjustment to
fair value of property, plant and equipment associated with the permanent
shutdown of Stone's facilities, liabilities for the termination of certain Stone
employees and the liabilities for long-term commitments were included in the
allocation of cost to acquire Stone.
The allocation of the cost to acquire Stone was completed during the fourth
quarter of 1999 and included, among other things, adjustments for final
appraisals of assets, adjustments to exit liabilities, the resolution of
litigation related to Smurfit-Stone's investment in FCPC (see "Legal
Proceedings") and the related deferred taxes. The final allocation resulted in
acquired goodwill of $3,202 million, which is being amortized on a straight-line
basis over 40 years.
The exit liabilities remaining for JSC(U.S.) and Stone as of December 31,
1999 consisted of approximately $212 million of anticipated cash expenditures.
Since the Stone Merger, through December 31, 1999, approximately $83 million
(28%) of the cash expenditures were incurred, the majority of which related to
severance and facility closure costs. Future cash outlays under the
restructuring of Stone and JSC(U.S.) operations are anticipated to be $158
million (including the $123 million FCPC payment) in 2000, $11 million in 2001
and $43 million thereafter. The remaining cash expenditures will continue to be
funded through operations as originally planned. Additional restructuring
charges are expected in 2000 as management finalizes its plans.
Merger synergies of $350 million are targeted by the end of 2000.
Approximately half of this amount is projected to come from optimizing the
combined manufacturing systems of JSC(U.S.) and Stone. Merger synergies achieved
in 1999, including the benefits of mill shutdowns at the end of 1998 and staff
headcount reductions, totaled approximately $284 million. The cost to implement
the savings achieved was approximately $41 million in 1999.
Results of Operations
Smurfit-Stone's results include the results of Stone for 1999 and for the
period after November 18, 1998.
Segment Data
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
NET PROFIT/ NET PROFIT/ NET PROFIT/
SALES (LOSS) SALES (LOSS) SALES (LOSS)
------ ------- ------ ------- ------ -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Containerboard and corrugated containers.............. $4,636 $ 478 $2,014 $ 117 $1,607 $ 56
Boxboard and folding cartons.......................... 836 62 785 67 752 68
Other operations...................................... 1,679 101 686 40 598 39
------ ----- ------ ----- ------ -----
Total operations...................................... $7,151 641 $3,485 224 $2,957 163
====== ====== ======
Restructuring charge.................................. (10) (257)
Interest expense, net................................. (563) (247) (196)
Other, net............................................ 271 (56) 11
----- ----- -----
Income (loss) from continuing operations before income taxes, minority interest,
extraordinary item and
cumulative effect of accounting change.............. $ 339 $(336) $ (22)
===== ===== =====
</TABLE>
Other, net includes, among other things, corporate expenses and gains or
losses on asset sales.
84
<PAGE>
1999 Compared to 1998
Net sales of $7,151 million and operating profits of $641 million were
significantly higher in 1999 compared to 1998 due primarily to the Stone Merger
and improvements in sales prices. Other, net improved $327 million compared to
1998 due primarily to gains recorded on sales of assets in 1999. Income from
continuing operations before income taxes, minority interest, extraordinary item
and cumulative effect of accounting change was $339 million in 1999, as compared
to a loss of $336 million in 1998. The increases (decreases) in net sales for
each of Smurfit-Stone's segments are shown in the chart below.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998
---------------------------------------------------
CONTAINERBOARD BOXBOARD
& CORRUGATED & FOLDING OTHER
CONTAINERS CARTONS OPERATIONS TOTAL
-------------- --------- ---------- ------
(in millions)
<S> <C> <C> <C> <C>
Increase (decrease) due to:
Sales prices and product mix................... $ 78 $(9) $ 37 $ 106
Sales volume................................... 61 3 64
Stone merger................................... 2,624 971 3,595
1998 acquisition............................... 26 26
Sold or closed facilities...................... (106) (1) (18) (125)
------ --- ---- ------
Net increase..................................... $2,622 $51 $993 $3,666
====== === ==== ======
</TABLE>
Containerboard and Corrugated Containers Segment
Net sales of $4,636 million and profits of $478 million for 1999 increased
significantly compared to 1998 due primarily to the Stone Merger and improved
sales prices for containerboard and corrugated containers. Net sales and profits
for the Stone operations for 1999 were $2,902 million and $301 million,
respectively, as compared to $318 million and $10 million, respectively, for the
period from the Stone Merger Date to December 31, 1998. Smurfit-Stone was able
to implement two price increases for containerboard in 1999, totaling $90 per
ton for linerboard and $130 per ton for medium. On average, linerboard and
corrugated prices increased 8% and 9%, respectively, compared to 1998. The
increase in corrugated prices reflects the price increases implemented and
Smurfit-Stone's strategy to rationalize customer mix. SBS prices were lower than
1998 by 3%.
As a result of the Stone Merger, containerboard, kraft paper and market
pulp production increased significantly in 1999. Production was also favourably
impacted by the acquisition of a containerboard machine from JS Group in
November 1998. SBS shipments were higher than 1998 by 2%. Corrugated container
sales volume also increased compared to 1998 due primarily to the Stone Merger.
Corrugated container shipments were negatively impacted by the closure of four
JSC(U.S.) plants and the rationalization of customer mix. Cost of goods sold as
a percent of net sales decreased to 80% for 1999 compared to 86% for 1998 due to
higher sales prices, plant shutdowns and cost saving initiatives undertaken in
connection with the Stone Merger.
Boxboard and Folding Cartons Segment
Net sales for 1999 increased by 7% compared to 1998 while profits decreased
by $5 million to $62 million. The sales increase was due primarily to higher
sales volume of folding cartons, which increased by 9% compared to 1998.
Boxboard shipments increased by 1% compared to last year. On average, boxboard
prices were lower than 1998 by 9% and folding carton prices were comparable to
1998. Cost of goods sold as a percent of net sales increased from 83% in 1998 to
84% in 1999 due primarily to the effect of lower sales prices and higher
reclaimed fiber costs.
Other Operations
Net sales of $1,679 million for Smurfit-Stone's other operations for 1999
increased $993 million compared to 1998 and profits increased by $61 million to
$101 million due primarily to the industrial bag and international operations
acquired in the Stone Merger. Other operations also include Smurfit-Stone's
reclamation and specialty packaging operations. Reclamation benefited from
higher sales prices in 1999 as a result of increased demand. Compared to 1998,
the average price of OCC increased approximately 11% and the total tons of fiber
reclaimed and brokered increased 27% due to the additional fiber requirements
resulting from the Stone Merger.
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<PAGE>
Costs and Expenses
Cost of goods sold for 1999 in Smurfit-Stone's Consolidated Statements of
Operations increased compared to 1998 due primarily to the Stone Merger. The
increase was partially offset by elimination of cost for certain containerboard
mill operations which were permanently shut down in December 1998.
Smurfit-Stone's overall cost of goods sold as a percent of net sales decreased
from 85% in 1998 to 84% in 1999 due primarily to the effects of the Stone Merger
and higher sales prices.
Selling and administrative expenses for 1999 increased compared to 1998 due
primarily to the Stone Merger. Staff reductions and certain other merger
synergies achieved in 1999 had a favourable impact on Smurfit-Stone's
administrative expenses. Smurfit-Stone expensed $26 million related to the
cashless exercise of stock options under the Jefferson Smurfit Corporation stock
option plan in 1999. In 1998, Smurfit-Stone expensed $30 million for settlement
of certain litigation and $23 million of costs related to the Stone Merger.
Smurfit-Stone's overall selling and administrative expense as a percent of net
sales declined from 11% in 1998 to 10% in 1999 due primarily to the effects of
the Stone Merger and higher sales prices.
Interest expense, net for 1999 was higher than 1998 due primarily to the
higher levels of debt outstanding as a result of the Stone Merger. Average
effective interest rates for 1999 were comparable to last year.
Other, net in Smurfit-Stone's Consolidated Statements of Operations for
1999 included gains on the sale of Smurfit-Stone's timberlands of $407 million
and $39 million on the sale of shares of Abitibi.
Smurfit-Stone recorded income tax expense of $168 million in 1999. The
effective rate for the period differed from the federal statutory tax rate due
to several factors, the most significant of which were state income taxes and
the effect of permanent differences from applying purchase accounting. At
December 31, 1999, Smurfit-Stone had approximately $1,420 million of net
operating loss carryforwards for U.S. federal income tax purposes that expire
from 2009 through 2019, with a tax value of $497 million. A valuation allowance
of $152 million has been established for a portion of these deferred tax assets.
Further, Smurfit-Stone had net operating loss carryforwards for state purposes
with a tax value of $111 million, which expire from 2000 to 2019. A valuation
allowance of $56 million has been established for a portion of these deferred
assets. For information concerning income taxes as well as information regarding
differences between effective tax rates and statutory rates, see Note 8 of the
Notes to Consolidated Financial Statements of Smurfit-Stone.
Discontinued Operations
In February 1999, Smurfit-Stone adopted a formal plan to sell the operating
assets of its subsidiary, SNC. Smurfit-Stone subsequently decided to continue to
operate its Cladwood(R) business. Accordingly, SNC's newsprint results are
accounted for as a discontinued operation for all periods presented in
Smurfit-Stone's Consolidated Statements of Operations. In November 1999,
Smurfit-Stone sold its Newberg, Oregon newsprint mill for approximately $211
million (see "Liquidity and Capital Resources"). Smurfit-Stone is in
negotiations to transfer ownership of its Oregon City mill and does not expect
to realize any significant proceeds from the transaction. Transfer of the Oregon
City mill will complete Smurfit-Stone's disposition of its newsprint business.
The 1999 results of the discontinued operations included the realized gain
on the sale of the Newberg mill, an expected loss on the transfer of the Oregon
City mill, the actual results from the measurement date through December 31,
1999 and the estimated losses on the Oregon City mill through the expected
disposition date.
1998 Compared to 1997
Net sales of $3,485 million and operating profits of $224 million were
higher than 1997 by 18% and 37%, respectively, due primarily to the Stone Merger
and higher sales prices for containerboard and corrugated containers. The
increases (decreases) in net sales for each of Smurfit-Stone's segments are
shown in the chart below.
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<TABLE>
<CAPTION>
1998 COMPARED TO 1997
--------------------------------------------------
CONTAINERBOARD BOXBOARD
& CORRUGATED & FOLDING OTHER
CONTAINERS CARTONS OPERATIONS TOTAL
-------------- --------- ---------- -----
(in millions)
<S> <C> <C> <C> <C>
Increase (decrease) due to:
Sales prices and product mix..................... $146 $(13) $(53) $ 80
Sales volume..................................... (63) 45 22 4
Stone merger..................................... 318 1 128 447
Acquisition...................................... 9 9
Sold or closed facilities........................ (3) (9) (12)
---- ---- ---- ----
Net increase....................................... $407 $ 33 $ 88 $528
==== ==== ==== ====
</TABLE>
Containerboard and Corrugated Containers Segment
Net sales of the Containerboard and Corrugated Containers segment increased
25% compared to 1997 to $2,014 million and segment profits increased $61 million
over 1997 to $117 million. The increase in net sales was due primarily to the
Stone Merger and improved sales prices. The profit increase was due primarily to
the improvements in sales price. Net sales and profits for the Stone operations
included in this segment for the period after November 18, 1998 were $318
million and $10 million, respectively.
Containerboard and corrugated container prices were higher in 1998 by 16%
and 11%, respectively, compared to 1997. SBS prices declined 2% during the
period. Containerboard sales volume for Smurfit-Stone's mills in 1998 declined
2% compared to 1997 due to the closure of three JSC(U.S.) containerboard mills,
effective December 1, 1998 and higher levels of economic downtime. Smurfit-Stone
also had 28 days of downtime in 1997 at its Brewton, Alabama mill associated
with a rebuild and upgrade of its mottled white paper machine. Sales volume for
Smurfit-Stone's corrugated container facilities declined 5% compared to 1997 due
in part to Smurfit-Stone's strategy to rationalize customer mix. Cost of goods
sold as a percent of net sales decreased from 88% in 1997 to 86% 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 $785 million and segment profits declined $1 million compared to 1997
to $67 million. The increase in net sales was due 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.
Costs and Expenses
The increases in cost of goods sold and selling and administrative expenses
in 1998 compared to 1997 were due primarily to the Stone Merger. Smurfit-Stone's
overall cost of goods sold as a percent of net sales decreased from 86% in 1997
to 85% in 1998. Selling and administrative expenses in 1998 also included a $30
million pretax charge for the settlement of certain litigation (described below)
and $23 million of Stone Merger-related costs. Selling and administrative
expenses as a percent of net sales increased from 8% in 1997 to 11% in 1998.
Subsequent to an understanding reached in December 1998, Smurfit-Stone and
SNC entered into a Settlement Agreement in January 1999 to implement a
nationwide class action settlement of claims involving Cladwood(R).
Smurfit-Stone recorded a $30 million pretax charge in 1998 for amounts SNC
agreed to pay into a settlement fund for administrative costs, plaintiffs'
attorneys' fees, class representative payments and other costs (see "Legal
Proceedings"). Smurfit-Stone 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 Smurfit-Stone to
re-evaluate whether the liabilities in connection with the Cladwood(R) cases
could exceed established reserves.
Interest expense, net for 1998 was $247 million, an increase of $51 million
compared to 1997. The increase was due to higher levels of debt as a result of
the Stone Merger.
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Smurfit-Stone recorded an income tax benefit of $126 million in 1998. The
effective rate for the period differed from the federal statutory tax rate due
to several factors, the most significant of which were state income taxes and
the effect of permanent differences from applying purchase accounting.
Discontinued Operations
As explained above, SNC's newsprint results are reflected as discontinued
operations for all periods presented in Smurfit-Stone's Consolidated Statements
of Operations. Smurfit-Stone had income from discontinued operations, net of
tax, in 1998 of $27 million compared to $20 million in 1997. Net sales for
discontinued operations amounted to $303 million and $281 million for 1998 and
1997, respectively.
Liquidity And Capital Resources
General
In 1999, proceeds from the sale of assets of $1,643 million, net cash
provided by operating activities of $183 million, proceeds from the exercise of
stock options of $17 million and available cash of $131 million were used to
fund property additions of $156 million and net debt payments of $1,822 million.
In January 1999, Smurfit-Stone sold 7.8 million shares of its interest in
Abitibi for approximately $80 million and in April 1999, Smurfit-Stone sold its
remaining interest in Abitibi for approximately $414 million. Proceeds were
sufficient to prepay the entire outstanding balance of Stone's Tranche B term
loan and, in accordance with the Stone Credit Agreement (as defined below), the
revolving credit maturity date was extended from April 30, 2000 to December 31,
2000.
In October 1999, Smurfit-Stone sold 820,000 acres of owned timberland and
assigned its rights to 160,000 acres of leased timberland to a third party for
$710 million, comprised of $225 million of cash and $485 million of installment
notes. The installment notes were monetized in a financing transaction completed
in November 1999, resulting in proceeds of $430 million. The proceeds from the
sale were used to pay down borrowings under the JSC(U.S.) Credit Agreement. A
bankruptcy remote special purpose entity holds the installment notes. The
monetization transaction was accounted for under Statement of Financial
Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". Accordingly, the financial
assets transferred to this qualifying special purpose entity and the liabilities
of that entity are not included in the consolidated financial statements of
Smurfit-Stone (see Note 4 of the Notes to Consolidated Financial Statements of
Smurfit-Stone).
In November 1999, Smurfit-Stone sold its Newberg, Oregon newsprint mill.
Proceeds of approximately $211 million were used to pay down borrowings under
the JSC(U.S.) Credit Agreement.
Financing Activities
In January 1999, Stone obtained a waiver from its bank group for relief
from certain financial covenant requirements under the Stone Credit Agreement as
of December 31, 1998. Subsequently, on March 23, 1999, Stone and its bank group
amended the Stone Credit Agreement to further ease certain quarterly financial
covenant requirements for 1999.
In August 1999, Stone repaid its $120 million 11.0% senior subordinated
debentures at maturity with borrowings under its revolving credit facility.
In October 1999, JSC(U.S.) amended the JSC(U.S.) Credit Agreement to (i)
permit the sale of the timberland operations and the Newberg mill, (ii) permit
the cash proceeds from these asset sales to be applied as prepayments against
the JSC(U.S.) Credit Agreement, (iii) ease certain quarterly financial covenants
for 1999 and 2000 and (iv) permit certain prepayments of other indebtedness.
In October 1999, Stone entered into a new accounts receivable
securitization program (the "Stone Securitization Program"). The Stone
Securitization Program provides for certain trade accounts receivables to be
sold without recourse to Stone Receivables Corporation, a wholly-owned
non-consolidated bankruptcy remote qualified special purpose entity. The
proceeds from the transaction were used to prepay the borrowings under the prior
Stone accounts receivable securitization program.
The credit facilities of JSC (U.S.) and Stone (collectively, the "Credit
Agreements") contain various business and financial covenants including, among
other things, (i) limitations on dividends, redemptions and repurchases of
capital stock, (ii) limitations on the incurrence of indebtedness, (iii)
limitations on capital expenditures and (iv) maintenance of
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certain financial covenants. The Credit Agreements also require prepayments if
JSC(U.S.) or Stone have excess cash flows, as defined, or receive proceeds from
certain asset sales, insurance, issuance of certain equity securities or
incurrence of certain indebtedness. Stone generated excess cash flow in the
fourth quarter of 1999 of approximately $43 million, which is classified as
current maturities of long-term debt in Smurfit-Stone's December 31, 1999
Consolidated Balance Sheet. The obligations under the JSC(U.S.) Credit Agreement
are unconditionally guaranteed by Smurfit-Stone and certain of its subsidiaries.
The obligations under the JSC(U.S.) Credit Agreement are secured by a security
interest in substantially all of the assets of JSC(U.S.). The obligations under
the Stone Credit Agreement are secured by a security interest in substantially
all of the assets of Stone and 65% of the stock of its Canadian subsidiary. The
security interest excludes cash, cash equivalents, certain trade receivables,
four paper mills and the land and buildings of the corrugated container plants.
Such restrictions, together with the highly leveraged position of Smurfit-Stone,
could restrict corporate activities, including Smurfit-Stone's ability to
respond to market conditions, to provide for unanticipated capital expenditures
or to take advantage of business opportunities.
The declaration of dividends by the Smurfit-Stone Board of Directors is
subject to, among other things, certain restrictive provisions contained in the
Credit Agreements and certain note indentures. At December 31, 1999, Stone had
accumulated dividend arrearages of approximately $22 million related to a series
of its preferred stock.
Stone's senior notes, aggregating $1,698 million (the "Stone Senior Notes")
are redeemable in whole or in part at the option of Stone at various dates
beginning in February 1999, at par plus a weighted average premium of 2.57%. The
Stone senior subordinated debentures (the "Stone Senior Subordinated
Debentures"), aggregating $481 million, are redeemable as of December 31, 1999,
in whole or in part, at the option of Stone at par plus a weighted average
premium of .16%. The indentures governing the Stone Senior Notes and the Stone
Senior Subordinated Debentures (the "Stone Indentures") generally provide that
in the event of a change of control (as defined), Stone must, subject to certain
exemptions, offer to repurchase the Stone Senior Notes and the Stone Senior
Subordinated Debentures. The Stone Merger constituted such a change in control.
As a result, Stone is required to offer to repurchase the Stone Senior Notes and
the Stone Senior Subordinated Debentures at a price equal to 101% of the
principal amount, together with accrued interest. However, because the Stone
Credit Agreement prohibits Stone from making an offer to repurchase the Stone
Senior Notes and the Stone Senior Subordinated Debentures, Stone could not make
the offer. Although the terms of the Stone Senior Notes refer to an obligation
to repay the bank debt or obtain the consent of the bank lenders to such
repurchase, the terms do not specify a deadline, if any, following the Stone
Merger for repayment of bank debt or obtaining such consent. Smurfit-Stone
intends to actively seek commercially acceptable sources of financing to repay
the outstanding indebtedness under the Stone Credit Agreement or alternative
financing arrangements which would cause the bank lenders to consent to the
repurchase. There can be no assurance that Smurfit-Stone will be successful in
obtaining such financing or consents or as to the terms of such financing or
consents.
Based upon covenants in the Stone Indentures, Stone is required to maintain
certain levels of equity. If the minimum equity levels are not maintained for
two consecutive quarters, the applicable interest rates on the Stone Indentures
are increased by 50 basis points per semiannual interest period (up to a maximum
of 200 basis points) until the minimum equity level is attained. Stone's equity
level was below the minimum equity level during most of 1998. As a result, the
interest rates increased. The interest rates on the Stone Indentures returned to
the original interest rates on April 1, 1999 due to Stone's equity levels
exceeding the minimum on December 31, 1998. Stone's equity level exceeded the
minimum on December 31, 1999.
Smurfit-Stone expects that internally generated cash flows, proceeds from
asset divestitures and existing financing resources will be sufficient for the
next year to meet its obligations, including debt service, restructuring
payments, settlement of the FCPC reorganization plan, expenditures under the
Cluster Rule and capital expenditures. Scheduled debt payments in 2000 and 2001
are $174 million and $612 million, respectively, with increasing amounts
thereafter. Capital expenditures for 2000 are expected to be approximately $260
million. Smurfit-Stone expects to use any excess cash flow provided by
operations to make further debt reductions. As of December 31, 1999, JSC(U.S.)
had $485 million of unused borrowing capacity under the JSC(U.S.) Credit
Agreement and Stone had $447 million of unused borrowing capacity under the
Stone Credit Agreement.
On March 31, 2000, Stone amended and restated its existing credit agreement
(the "Stone Credit Agreement") pursuant to which a group of financial
institutions agreed to (i) provide an additional $575 million to Stone in the
form of a new F Tranche term loan maturing on December 31, 2005 and (ii) extend
the maturity dates of the revolving credit facilities under the Stone Credit
Agreement to December 31, 2005. On March 29, 2000, Stone issued a notice calling
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for the redemption on April 28, 2000 of all of Stone's outstanding 9 7/8% Senior
Notes due February 1, 2001. Stone intends to use the proceeds of the F Tranche
term loan to redeem the 9 7/8% Senior Notes due February 1, 2001.
On March 2, 2000, Stone entered into a commitment letter pursuant to which
certain financial institutions agreed, subject to certain conditions, to provide
Stone and Newco an aggregate of up to $1.15 billion of new senior secured credit
facilities consisting of (i) $1.05 billion of term loan facilities maturing on
December 31, 2006, and (ii) a $100 million revolving facility to Newco maturing
on December 31, 2005. Stone intends to utilize the proceeds of the new term
facilities to (i) fund the cash component of the Exchange Consideration, (ii)
refinance certain existing indebtedness of St. Laurent and (iii) pay fees and
expenses related to the Transaction. The proceeds of the new revolving facility
will be used for general corporate purposes in the ordinary course of Newco's
business.
Year 2000
The year 2000 problem concerned the inability of computer systems and
devices to properly recognize and process date-sensitive information when the
year changed to 2000. Smurfit-Stone depends upon its information technology
("IT") and non-IT (used to run manufacturing equipment that contain embedded
hardware and software that must handle dates) to conduct and manage
Smurfit-Stone's business.
Smurfit-Stone utilized both internal and external resources to evaluate the
potential impact of the year 2000 problem and established a year 2000 Program
Management Office to guide and coordinate the efforts of its operating units in
developing and executing its plan. The year 2000 Program Management Office
instituted a seven-phase approach, which enabled Smurfit-Stone to identify all
systems and devices, which were determined to be susceptible to the year 2000
problem. Corrective actions were initiated and affected systems or devices were
replaced, repaired or upgraded. Through December 31, 1999, Smurfit-Stone spent
approximately $54 million to correct the year 2000 problem. Smurfit-Stone does
not expect to spend any significant amounts in the future on year 2000 related
problems.
Subsequent to midnight on December 31, 1999 (the "Rollover Date"),
Smurfit-Stone's financial and administrative systems, communication links and
process control systems, which control and monitor production, power, emissions
and safety, were verified for operational capability. Only minor issues relating
to these systems were noted. Smurfit-Stone has conducted and managed normal
business operations as planned since the Rollover Date and has not experienced
any loss of production at any mill or converting facility as a result of the
year 2000 problem. Minor issues, which surfaced at mills and converting
facilities, were addressed and resolved typically within one day. Smurfit-Stone
was able to provide customers, upon request, verification of operational
capability on January 1, 2000. Furthermore, Smurfit-Stone was not adversely
impacted by any disruptions of raw materials, supplies or services provided by
key vendors or suppliers.
Smurfit-Stone's year 2000 Program Management Office continues to check for
year 2000 issues. However, given the amount of system activity since the
Rollover Date, Smurfit-Stone does not expect any major problems related to the
year 2000 issue.
Environmental Matters
Smurfit-Stone's operations are subject to extensive environmental
regulation by federal, state and local authorities in the United States and
regulatory authorities with jurisdiction over its foreign operations.
Smurfit-Stone has made, and expects to continue to make, significant capital
expenditures to comply with water, air and solid and hazardous waste and other
environmental laws and regulations. Capital expenditures for environmental
control equipment and facilities were approximately $18 million in 1998 and
approximately $29 million in 1999. Smurfit-Stone anticipates that environmental
capital expenditures will approximate $200 million in 2000. The majority of the
expenditures after 1999 relate to amounts that Smurfit-Stone currently
anticipates will be required to comply with the Cluster Rule. In November 1997,
the EPA issued the Cluster Rule, which made existing requirements for discharge
of wastewater under the Clean Water Act more stringent and imposed new
requirements on air emissions under the Clean Air Act for the pulp and paper
industry. Though the final rule is still not fully promulgated, Smurfit-Stone
currently believes it may be required to make additional capital expenditures of
up to $290 million during the next several years in order to meet the
requirements of the new regulations. Also, additional operating expenses will be
incurred as capital installations required by the Cluster Rule are put into
service.
In addition, Smurfit-Stone is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which compliance
action and injunctive and/or monetary relief are sought. Smurfit-Stone has been
named as a PRP at a number of sites, which are the subject of remedial activity
under CERCLA or comparable
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state laws. Although Smurfit-Stone is subject to joint and several liability
imposed under CERCLA, at most of the multi-PRP sites there are organized groups
of PRPs and costs are being shared among PRPs. Payments related to cleanup at
existing and former operating sites and CERCLA sites were not material to
Smurfit-Stone's liquidity during 1999. Future environmental regulations may have
an unpredictable adverse effect on Smurfit-Stone's operations and earnings, but
they are not expected to adversely affect Smurfit-Stone's competitive position.
Although capital expenditures for environmental control equipment and
facilities and compliance costs in future years will depend on engineering
studies and legislative and technological developments which cannot be predicted
at this time, such costs could increase as environmental regulations become more
stringent. Environmental expenditures include projects, which, in addition to
meeting environmental concerns, may yield certain benefits to Smurfit-Stone in
the form of increased capacity and production cost savings. In addition to
capital expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance (including
any remediation costs) represent ongoing costs to Smurfit-Stone.
Effects of Inflation
Although inflation has slowed in recent years, it is still a factor in the
economy and Smurfit-Stone continues 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 Smurfit-Stone's
financial position or operating results during the past three years.
Smurfit-Stone uses the last-in, first-out method of accounting for approximately
69% of its 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. As a result of
the Stone Merger, approximately 70% of consolidated property, plant and
equipment is valued at fair value. For the remainder of Smurfit-Stone's
property, plant and equipment, depreciation charges represent the allocation of
historical costs incurred over past years and are significantly less than if
they were based on the current cost of productive capacity being consumed.
Prospective Accounting Standards
In 1998, the Financial Accounting Standards Board issued 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. SFAS No. 133 is effective for all quarters of fiscal years beginning
after June 15, 2000. Smurfit-Stone is currently assessing what the impact of
SFAS No. 133 will be on Smurfit-Stone's future earnings and financial position.
Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
Smurfit-Stone is exposed to foreign currency rate risk. Smurfit-Stone's
foreign exchange exposures are the Canadian dollar and the German mark. In
general, a weakening of these currencies relative to the U.S. dollar has a
negative translation effect. Conversely, a strengthening of these currencies
would have the opposite effect. The average exchange rates for the Canadian
dollar and the German mark weakened against the U.S. dollar in 1999 by 0.2% and
4.4%, respectively.
Assets and liabilities outside the United States are primarily located in
Canada and Germany. Smurfit-Stone's investments in foreign Subsidiaries with a
functional currency other than the U.S. dollar are not hedged. The net assets in
foreign Subsidiaries translated into U.S. dollars using the year-end exchange
rates were approximately $640 million at December 31, 1999. The potential loss
in fair value resulting from a hypothetical 10% adverse change in foreign
currency exchange rates would be approximately $64 million at December 31, 1999.
Any loss in fair value would be reflected as a cumulative translation adjustment
in Accumulated Other Comprehensive Income and would not impact the net income of
Smurfit-Stone.
Smurfit-Stone has experienced foreign currency transaction gains and losses
on the translation of U.S. dollar denominated obligations of certain of its
Canadian subsidiaries, non-consolidated affiliates and a German mark obligation.
Smurfit-Stone incurred foreign currency transaction gains of $7 million in 1999
that have been recorded in Other, net on Smurfit-Stone's Consolidated Statements
of Operations. During 1998, the transaction gains and losses on this obligation
were immaterial to Smurfit-Stone.
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Smurfit-Stone also enters into foreign currency exchange agreements, the
amount of which was not material to the consolidated financial position of
Smurfit-Stone at December 31, 1999.
Interest Rate Risk
Smurfit-Stone's earnings and cash flows are significantly affected by the
amount of interest on its indebtedness. Smurfit-Stone's financing arrangements
include both fixed and variable rate debt in which changes in interest rates
will impact the fixed and variable debt differently. A change in the interest
rate of fixed rate debt will impact the fair value of the debt, whereas a change
in the interest rate on the variable rate debt will impact interest expense and
cash flows. Smurfit Stone's management's objective is to protect Smurfit-Stone
from interest rate volatility and reduce or cap interest expense within
acceptable levels of market risk. Smurfit-Stone periodically enters into
interest rate swaps, caps or options to hedge interest rate exposure and manage
risk within company policy. Smurfit-Stone does 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. The amount of interest rate swaps entered into by Smurfit-Stone was not
material to the consolidated financial position of Smurfit-Stone at December 31,
1999.
The table below presents principal amounts by year of anticipated maturity
for Smurfit-Stone's debt obligations and related average interest rates based on
the weighted average interest rates at the end of the period. Variable interest
rates disclosed do not attempt to project future interest rates. This
information should be read in conjunction with Note 6 to the Notes to
Consolidated Financial Statements of Smurfit-Stone.
SHORT AND LONG-TERM DEBT
<TABLE>
<CAPTION>
OUTSTANDING AS OF DECEMBER 31, 1999 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
----------------------------------- ---- ---- ------ ------ ---- ---------- ------ ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank term loans and revolver
9.4% average interest rate
(variable)...................... $136 $ 7 $ 58 $ 582 $ 76 $262 $1,121 $1,123
U.S. accounts receivable
securitization
5.9% average interest rate
(variable)...................... 224 224 224
U.S. senior and senior subordinated
notes
10.7% average interest rate
(fixed)......................... 10 566 1,054 503 503 444 3,080 3,145
U.S. industrial revenue bonds
8.5% average interest rate
(fixed)......................... 4 13 13 17 13 206 266 266
Other U.S............................ 11 11 12 6 3 7 50 50
German mark bank term loans
5.2% average interest rate
(variable)...................... 11 12 15 1 1 40 40
Other foreign........................ 2 3 2 2 2 1 12 12
---- ---- ------ ------ ---- ---- ------ ------
Total debt......................... $174 $612 $1,378 $1,111 $598 $920 $4,793 $4,860
==== ==== ====== ====== ==== ==== ====== ======
</TABLE>
SHARE AND LOAN CAPITAL STRUCTURE
Common Stock
Holders of Smurfit-Stone Common Stock are entitled to receive, from funds
legally available for the payment thereof, dividends when, as and if declared by
the Smurfit-Stone Board of Directors at any regular or special meeting, subject
to any preferential dividend rights granted to the holders of any outstanding
shares of preferred stock. In the event of liquidation, each share of
Smurfit-Stone Common Stock will be entitled to share pro rata in any
distribution of Smurfit-Stone's assets after payment or providing for the
payment of liabilities and the liquidation preference of any outstanding shares
of preferred stock. Each holder of Smurfit-Stone Common Stock will be entitled
to one vote for each share of Smurfit-Stone Common Stock held of record on the
applicable record date on all matters submitted to a vote of stockholders,
including the election of directors.
Holders of Smurfit-Stone Common Stock generally have no cumulative voting
rights or preemptive rights (except as set forth in "Subscription Agreement"
below) to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption rights or sinking fund provisions with
respect to Smurfit-Stone Common Stock. The Smurfit-Stone Common Stock to be
issued pursuant to the Arrangement and upon exercise of Replacement Options will
be duly authorized, validly issued, fully paid and nonassessable.
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Preferred Stock
As of the Smurfit-Stone Record Date, no shares of preferred stock were
issued or outstanding. Under the Smurfit-Stone Charter, the board of directors
has the authority, without further stockholder approval but subject to certain
limitations set forth in the Smurfit-Stone Charter, to create one or more series
of preferred stock, and to determine the preferences, rights, privileges and
restrictions of any such series, including the dividend rights, voting rights,
rights and terms of redemption, liquidation preferences, the number of shares
constituting any such series and the designation of such series. Pursuant to
this authority, the Smurfit-Stone Board of Directors could create and issue a
series of preferred stock with rights, privileges or restrictions, and adopt a
stockholder rights plan, having the effect of discriminating against an existing
or prospective holder of such securities as a result of such security holder's
beneficially owning or commencing a tender offer for a substantial amount of
Smurfit-Stone Common Stock. One of the effects of authorized but unissued and
unreserved shares of capital stock may be to render more difficult or discourage
an attempt by a potential acquirer to obtain control of Smurfit-Stone by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of Smurfit-Stone's management. The issuance of such shares of capital
stock may have the effect of delaying, deferring or preventing a change in
control of Smurfit-Stone without any further action by the stockholders of
Smurfit-Stone. Smurfit-Stone has no present intention to adopt a stockholder
rights plan, but could do so without stockholder approval at any future time.
Stone has approximately 4.6 million shares of Stone Preferred Stock, $.01
par value, (the "Stone Preferred Stock") issued and outstanding. Each share of
Stone Preferred Stock is entitled to one vote on all matters submitted to a vote
of holders of Stone common stock (all of which Stone common stock is presently
held by Smurfit-Stone). The Stone Preferred Stock is convertible, at the option
of the holder, into shares of Smurfit-Stone Common Stock at a conversion price
of $34.28 (equivalent to a conversion rate of .729 shares of Smurfit-Stone
Common Stock for each share of Stone Preferred Stock), subject to adjustment
based on certain events. The Stone Preferred Stock may alternatively be
exchanged, at the option of Stone, for new 7% Convertible Subordinated Exchange
Debentures of Stone due February 15, 2007 in a principal amount equal to $25.00
per share of Stone Preferred Stock so exchanged. Additionally, the Stone
Preferred Stock is redeemable at the option of Stone, in whole or in part, from
time to time. Stone paid cash dividends of $.4375 per share on the Stone
Preferred Stock in 1997. No cash dividends were paid in 1999 and 1998. The
declaration of dividends by the Stone Board of Directors is subject to, among
other things, certain restrictive provisions contained in Stone's credit
agreements and indentures. Due to these restrictive provisions, Stone cannot
declare or pay dividends on the Stone Preferred Stock or common stock until
Stone generates income or issues capital stock to replenish the dividend pool
under various of its debt instruments and total net worth equals or exceeds $750
million. At March 31, 2000, the dividend pool under Stone's Senior Subordinated
Indenture (which contains the most restrictive dividend pool provision) had a
deficit of approximately 1.0 billion and Net Worth (as defined) was $2.5
billion. Because more than 10 quarterly dividends remain unpaid on the Stone
Preferred Stock, the holders of the Stone Preferred Stock are currently entitled
to elect two members to the Stone Board of Directors until the accumulated
dividends on such Stone Preferred Stock have been declared and paid or set apart
for payment. Stone had accumulated dividend arrearages on the Stone Preferred
Stock of $24 million and $14 million at December 31, 1999 and 1998,
respectively. The accumulated dividend arrearages on the preferred stock are
payable upon their conversion, exchange or redemption.
Subscription Agreement
Pursuant to a Stock Subscription Agreement dated as of May 3, 1994 among
Smurfit-Stone, JSC(U.S.) and SIBV, (the "Subscription Agreement") Smurfit-Stone
has granted SIBV certain contractual rights which generally allow SIBV to
maintain its percentage ownership of Smurfit-Stone Common Stock in the event of
public or private issuances of Smurfit-Stone Common Stock (or securities of
Smurfit-Stone convertible into or exchangeable for Smurfit-Stone Common Stock).
The Arrangement is a transaction which would entitle SIBV to purchase up to
approximately 12,170,140 shares of Smurfit-Stone Common Stock pursuant to the
exercise of its preemptive rights under the Subscription Agreement. As of the
date hereof, SIBV has not notified Smurfit-Stone whether it will exercise its
preemptive rights. SIBV and Smurfit-Stone are negotiating a modification to the
Subscription Agreement pursuant to which SIBV would agree not to exercise its
preemptive rights with respect to the 12,170,140 shares prior to the
consummation of the Arrangement; provided, that Smurfit-Stone agrees that if
Smurfit-Stone consummates a transaction which would give rise to SIBV's
preemptive rights under the Subscription Agreement (any such transaction, a
"Covered Transaction") within an agreed upon period after the Effective Date,
then SIBV would be entitled to purchase the 12,170,140 shares plus the number of
shares of Smurfit-Stone Common Stock it would be
93
<PAGE>
entitled to purchase pursuant to such future Covered Transaction. Any such
modification to the Subscription Agreement would require the approval of the
Independent Committee of the Smurfit-Stone Board of Directors which reviews
transactions between Smurfit-Stone and JS Group and their respective affiliates.
CAPITALIZATION
Except where noted, the following table sets forth the capitalization of
Smurfit-Stone for December 31, 1999 and March 31, 2000. In addition, the table
shows the capitalization as of March 31, 2000 after giving effect to the
Transaction. This table should be read in conjunction with the Consolidated
Financial Statements and the unaudited pro forma financial information of
Smurfit-Stone appearing elsewhere in the Circular:
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
AFTER GIVING
AS OF AS OF EFFECT TO THE
AUTHORIZED DECEMBER 31, 1999 MARCH 31, 2000 TRANSACTION
----------- ----------------- -------------- --------------
(in millions of $, except share data)
<S> <C> <C> <C> <C>
Total debt........................... $ 4,793 $ 4,891 $ 5,941
Stockholders' equity
Preferred stock, par value $0.01
per share....................... 25,000,000
Common stock, par value $0.01 per
share........................... 400,000,000 2 2(1) 2
Additional paid in capital......... 3,436 3,442 3,835
Retained earnings.................. (1,586) (1,586)(2) (1,586)(2)
Accumulated other comprehensive
income (loss)................... (5) (5)(2) (5)(2)
------- -------- --------
Total stockholders' equity......... 1,847 1,853 2,246
------- -------- --------
Total capitalization................. $ 6,640 $ 6,744 $ 8,187
======= ======== ========
</TABLE>
- ---------------
(1) As of March 31, 2000, there were options to purchase 16,934,972 shares of
Smurfit-Stone Common Stock.
(2) As of December 31, 1999.
SMURFIT-STONE 1998 LONG TERM INCENTIVE PLAN
The Smurfit-Stone 1998 Long Term Incentive Plan (the "Incentive Plan")
provides for the granting of options and other equity awards in order to
facilitate the attraction, retention, and motivation of key employees, as well
as enabling such employees to participate in the long-term growth and financial
success of Smurfit-Stone and its affiliates. Under the Incentive Plan, any
officer or employee of or any advisor or consultant to Smurfit-Stone or any of
its affiliates or any member of the Smurfit-Stone Board of Directors may be a
participant in the Incentive Plan.
The Incentive Plan is administered by the Compensation Committee of the
Smurfit-Stone Board of Directors. The Compensation Committee has sole and
complete authority to grant to eligible participants one or more equity awards,
including options, and performance awards or any combination thereof (each an
"Award"); provided that grants of Awards to non-employee directors must be
approved by the Smurfit-Stone Board of Directors. The Compensation Committee has
the sole discretion to determine the number or amount of any Award to be awarded
to any participant.
DIRECTORS AND OFFICERS
On April 1, 2000 the directors and executive officers of Smurfit-Stone as a
group beneficially owned or had voting control or direction over 206,526 shares
of Smurfit-Stone Common Stock or approximately 0.1% of the issued and
outstanding shares of Smurfit-Stone Common Stock.
In addition, on April 1, 2000, the directors and executive officers of
Smurfit-Stone as a group owned Smurfit-Stone options entitling them to receive,
upon the valid exercise of such options, 4,334,753 shares of Smurfit-Stone
Common Stock.
Directors
As of the date hereof, the name and municipality of residence of each
director of Smurfit-Stone, the date when each became a director and the
principal occupation of each during the past five years are as set out in the
table below.
94
<PAGE>
<TABLE>
<CAPTION>
PERIOD DURING WHICH
NOMINEE HAS SERVED
NAME AND PRINCIPAL OCCUPATION OR EMPLOYMENT AS A DIRECTOR OF SMURFIT-STONE
- ------------------------------------------- ------------------------------
<S> <C>
RAY M. CURRAN............................................... Since 1998
Chicago, Illinois
President and Chief Executive Officer
RICHARD A. GIESEN(1)(3)(4).................................. Since 1998
Lake Forest, Illinois
Chairman of the Board and Chief Executive Officer of
Continental Glass & Plastic, Inc. and Chairman of the Board
and Chief Executive Officer of Continere Corporation
ALAN E. GOLDBERG(2)(3)(4)................................... Since 1989
Riverdale, New York
Chairman and Chief Executive Officer of Morgan Stanley Dean
Witter Private Equity
HOWARD E. KILROY(1)......................................... Since 1999
Dalkey Co., Dublin, Ireland
Director of JS Group and CRH plc and Governor of the Bank of
Ireland
JAMES J. O'CONNOR(1)(3)(4).................................. Since 1998
Chicago, Illinois
Director of Corning Incorporated, American National Can,
The Tribune Company and United Airlines
JERRY K. PEARLMAN(2)(3)..................................... Since 1998
Wilmette, Illinois
(Palm Beach, Florida)
Director of Ryerson-Tull, Inc., Nanophase, Inc. and Parsons
Group L.L.C
THOMAS A. REYNOLDS, III(2)(3)(4)............................ Since 1997
Winnetka, Illinois
Partner of Winston & Strawn
DERMOT F. SMURFIT........................................... Since 1998
Regents Park, London, England
Joint Deputy Chairman of JS Group
MICHAEL W.J. SMURFIT........................................ Since 1989
Dublin, Ireland
Chairman of the Board of Directors of Smufit-Stone and
Chairman
and Chief Executive Officer of JS Group
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
(4) Member of the Independent Committee.
During the last five years, each of the directors of Smurfit-Stone has held
the principal occupation identified above except for Mr. O'Connor who, prior to
March of 1998, was Chairman and Chief Executive Officer of Unicom Corporation.
Officers
As of the date hereof, the name and municipality of residence of each
officer of Smurfit-Stone and the principal occupation of each during the past
five years were as follows:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE OFFICE WITH SMURFIT-STONE
- ---------------------------------- -------------------------
<S> <C>
RAY M. CURRAN.......................... President and Chief Executive Officer
Chicago, Illinois
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE OFFICE WITH SMURFIT-STONE
- ---------------------------------- -------------------------
<S> <C>
PETER F. DAGES......................... Vice President and General Manager -- Corrugated Container
Glencoe, Illinois Division
JAMES D. DUNCAN........................ Vice President and General Manager -- Specialty Packaging
Wildwood, Missouri Division
DANIEL J. GARAND....................... Vice President of Supply Chain Operations
Burr Ridge, Illinois
EDWIN C. GOFFARD....................... Vice President
Lake Forest, Illinois
MICHAEL F. HARRINGTON.................. Vice President -- Employee Relations
Chesterfield, Missouri
CHARLES A. HINRICHS.................... Vice President and Treasurer
Town & Country, Missouri
CRAIG A. HUNT.......................... Vice President, Secretary and General Counsel
Webster Groves, Missouri
PAUL K. KAUFMANN....................... Vice President and Corporate Controller
Town & Country, Missouri
JAY D. LAMB............................ Vice President and General Manager of SNC
West Linn, Oregon
LESLIE T. LEDERER...................... Vice President -- Strategic Investment Dispositions
Lincolnwood, Illinois
F. SCOTT MACFARLANE.................... Vice President and General Manager -- Folding Carton and
Chesterfield, Missouri Boxboard Mill Division
TIMOTHY MCKENNA........................ Vice President -- Investor Relations and Communications
Chesterfield, Missouri
PATRICK J. MOORE....................... Vice President and Chief Financial Officer
Chesterfield, Missouri
MARK R. O'BRYAN........................ Vice President -- Procurement
Glencoe, Illinois
THOMAS A. PAGANO....................... Vice President -- Planning
Chesterfield, Missouri
JOHN M. RICONOSCIUTO................... Vice President and General Manager -- Bag Packaging Division
Wheaton, Illinois
DAVID C. STEVENS....................... Vice President and General Manager -- Smurfit Recycling
Chesterfield, Missouri Company
WILLIAM N. WANDMACHER.................. Vice President and General Manager -- Containerboard Mill
Ponte Vedra Beach, Florida Division
</TABLE>
During the last five years, each of the officers of Smurfit-Stone has held
the principal occupation identified above or has been engaged in other executive
capacities except:
Ray M. Curran, who from 1992 to February 1996 was Chief Financial Officer
of JS Group, and from February 1996 to November 1998 was Finance Director of JS
Group.
Daniel J. Garand, who from 1996 to 1999 held senior level positions in
global supply chain management with Allied Signal's Automotive Products Group,
and for twenty-six years prior thereto held a variety of management positions in
logistics, acquisitions and distribution for Digital Equipment Company.
Edwin C. Goffard, who from 1996 to 1999 was Director of Purchasing for
Pepsi-Cola Company, and from 1989 to 1996 was a consultant for McKinsey &
Company.
96
<PAGE>
Mark R. O'Bryan, who prior to October 1999 was employed for thirteen years
at General Electric Corporation where he held senior level positions in global
sourcing and materials management at several of General Electric Corporation's
manufacturing businesses.
Security Ownership of Management
The table below sets forth certain information regarding the beneficial
ownership of the Smurfit-Stone Common Stock as of March 1, 2000 for (i) each
director of Smurfit-Stone, (ii) each of the Named Executive Officers (as defined
below) and (iii) all directors and executive officers of Smurfit-Stone as a
group.
<TABLE>
<CAPTION>
SHARES OF SMURFIT-STONE COMMON STOCK
------------------------------------------------------
AMOUNT AND NATURE OF PERCENT OF SMURFIT-STONE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) COMMON STOCK(3)
- ---------------- -------------------------- ------------------------
<S> <C> <C>
Michael W. J. Smurfit(4)............................... 1,112,579 0.5%
Ray M. Curran.......................................... 696,879 0.3%
Roger W. Stone......................................... 1,437,753 0.7%
Richard A. Giesen...................................... 16,663 *
Alan E. Goldberg(5).................................... 0 --
Howard E. Kilroy(4).................................... 423,000 0.2%
James J. O'Connor...................................... 10,750 *
Jerry K. Pearlman...................................... 9,194 *
Thomas A. Reynolds, III................................ 4,000 *
Dermot F. Smurfit(4)................................... 91,000 *
Patrick J. Moore....................................... 553,299 0.3%
William N. Wandmacher.................................. 193,308 0.1%
David C. Stevens....................................... 91,862 *
All directors and executive officers as a group (30
persons)(4)(5)....................................... 5,979,032 2.7%
</TABLE>
- ---------------
(1) Shares shown as beneficially owned include shares of Smurfit-Stone Common
Stock that directors and executive officers have the right to acquire
within 60 days after March 1, 2000 pursuant to exercisable options under
stock option plans.
(2) Shares shown include shares of Smurfit-Stone Common Stock held in the
savings plans maintained by Smurfit-Stone as of December 31, 1999 that the
executive officers have the right to vote.
(3) Based upon a total of 218,183,257 shares of Smurfit-Stone Common Stock
issued and outstanding as of March 1, 2000. Percentages less than 0.1% are
indicated by an asterisk.
(4) Excludes shares of Smurfit-Stone Common Stock owned by JS Group. Dr.
Michael Smurfit, Dr. Dermot Smurfit and Mr. Kilroy beneficially owned 7.4%,
0.5%, and 0.8%, respectively, of the outstanding shares of JS Group as of
March 1, 2000. Dr. Michael Smurfit and Dr. Dermot Smurfit are officers and
directors of JS Group. Mr. Kilroy is a director of JS Group.
(5) Excludes shares of Smurfit-Stone Common Stock owned by MSLEF and related
entities.
Compensation of Directors and Officers
The following table sets forth the cash and non-cash compensation awarded
to or earned by each of the executive officers of Smurfit-Stone named below (the
"Named Executive Officers") for each of the last three fiscal years.
Executive Compensation Summary
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION OTHER ANNUAL ------------------ ------------ ALL OTHER
---------------------- COMPENSATION SECURITIES LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) UNDERLYING OPTIONS ($)(1) ($)(2)
- --------------------------- ---- ---------- --------- ------------ ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
MICHAEL W. J. SMURFIT(3)....... 1999 900,000 445,140 217,768 250,000 0 24,483
Chairman of the Board 1998 834,000 185,248 0 0 0 32,691
1997 834,000 0 0 0 0 26,757
RAY M. CURRAN (4)(6)........... 1999 1,206,252 1,274,970 4,213 0 0 5,000
President and 1998 102,567 0 0 910,000 0 0
Chief Executive Officer 1997 0 0 0 0 0 0
ROGER W. STONE (4)............. 1999 212,500 0 0 0 0 6,055,064
Former President and 1998 106,250 0 0 297,000 0 0
Chief Executive Officer 1997 0 0 0 0 0 0
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION OTHER ANNUAL ------------------ ------------ ALL OTHER
---------------------- COMPENSATION SECURITIES LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) UNDERLYING OPTIONS ($)(1) ($)(2)
- --------------------------- ---- ---------- --------- ------------ ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PATRICK J. MOORE (5)(6)........ 1999 761,250 573,752 0 0 0 11,257
Vice President and 1998 350,016 828,779 9,489 325,000 0 7,736
Chief Financial Officer 1997 305,000 0 70,333 200,000 337,671 6,987
WILLIAM N. WANDMACHER.......... 1999 340,008 167,395 6,215 0 0 15,084
Vice President and General 1998 291,000 99,778 1,178 75,000 0 12,767
Manager -- Containerboard 1997 279,000 0 532 54,000 498,674 11,616
Mill Division
DAVID C. STEVENS............... 1999 274,992 230,127 0 0 0 15,506
Vice President and General 1998 257,016 36,281 0 30,000 0 14,046
Manager -- Reclamation 1997 238,000 131,648 0 100,000 270,048 12,276
Division
</TABLE>
- ---------------
(1) Reflects amounts awarded under Smurfit-Stone's 1994 Long-Term Incentive
Plan. Amounts were either payable in cash or deferred into Smurfit-Stone's
Deferred Compensation Plan at the election of the Named Executive Officer.
(2) Amounts shown under "All Other Compensation" for 1999 include a $5,000
contribution to Smurfit-Stone's Savings Plan for each of the Named
Executive Officers (other than Dr. Smurfit) and company-paid split-dollar
term life insurance premiums for Dr. Smurfit ($24,483) and Messrs. Moore
($6,257), Wandmacher ($10,084) and Stevens ($10,506). Upon his retirement,
Mr. Stone received a payment of $5,833,747 under his severance agreement
with Stone. Mr. Stone also received $195,884 as a pension payment and
$20,433 as vacation pay.
(3) The amount shown in "Other Annual Compensation" for 1999 represents a
"gross-up" payment for a portion of Dr. Smurfit's federal and state income
tax liability.
(4) Ray M. Curran was named to succeed Mr. Stone as President and Chief
Executive Officer of Smurfit-Stone as of April 1, 1999. Mr. Stone served as
President and Chief Executive Officer of Smurfit-Stone upon completion of
the Stone Merger and retired from Smurfit-Stone as of March 31, 1999. All
of Mr. Stone's restricted stock and options were vested at the time of the
Stone Merger and converted into shares or options to acquire shares of
Smurfit-Stone Common Stock, adjusted to reflect the .99 to one ratio at
which shares of common stock of Stone were exchanged into shares of
Smurfit-Stone Common Stock in connection with the Stone Merger.
(5) The amount under Bonus for 1998 includes a one-time special bonus of
$750,000 awarded to Mr. Moore in recognition of his significant
contributions in connection with the Stone Merger.
(6) In addition to their awards under the MIP ($630,670 for Mr. Curran and
$378,402 for Mr. Moore), Messrs. Curran and Moore received additional
bonuses of $644,300 and $195,350, respectively, in recognition of
performance in significantly exceeding Smurfit-Stone's objectives in key
areas such as asset divestures, debt reduction and attainment of synergies
from the Stone Merger.
Option Grants in Last Fiscal Year
The following table provides information concerning stock options granted
to the Named Executive Officers during 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR BASE FOR OPTION TERMS ($)(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR(1) ($ PER SHARE) DATE 5% 10%
- ----------------------- ---------- --------------- ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael W. J.
Smurfit (3).......... 250,000 55.2% 17.19 3/3/09 2,702,282 6,848,112
Ray M. Curran.......... 0 N/A N/A N/A N/A N/A
Roger W. Stone......... 0 N/A N/A N/A N/A N/A
Patrick J. Moore....... 0 N/A N/A N/A N/A N/A
William N. Wandmacher.. 0 N/A N/A N/A N/A N/A
David C. Stevens....... 0 N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Reflects percentage of total options granted to employees in 1999 under
Smurfit-Stone's 1998 Long Term Incentive Plan.
(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates, as set by the SEC executive compensation disclosure rules.
Actual gains, if any, on stock option exercises depend on future
performance of Smurfit-Stone Common Stock and overall stock market
conditions. No assurance can be made that the amounts reflected in these
columns will be achieved.
(3) Upon exercise of these options, Dr. Smurfit is also entitled to receive an
additional cash payment equal to $2.19 per option exercised.
98
<PAGE>
As of December 31, 1999, there were approximately 18,317,149 shares of
Smurfit-Stone Common Stock reserved for issuance under all of the stock-based
incentive plans of Smurfit-Stone, including approximately 3,357,000 shares
available for future grants.
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Value
The following table summarizes the exercise of options and the value of
options held by the Named Executive Officers as of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE JANUARY 1, 2000 JANUARY 1, 2000($)(1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. J. Smurfit...... 0 0 1,026,000 250,000 14,879,000 1,828,125
Ray M. Curran.............. 0 0 393,333 606,667 4,850,204 7,090,421
Roger W. Stone............. 170,676 692,471 885,809 0 9,860,476 0
Patrick J. Moore........... 0 0 433,333 216,667 5,125,142 2,532,296
William N. Wandmacher...... 0 0 168,750 56,250 2,187,266 657,422
David C. Stevens........... 75,000 964,842 82,500 22,500 940,781 262,969
</TABLE>
- ---------------
(1) The closing market value of Smurfit-Stone Common Stock on December 31, 1999
was $24.50 per share. On that date, the exercise prices per share for
outstanding options held by the Named Executive Officers ranged from $10.00
to $19.82.
Salaried Employees' Pension Plan and Supplemental Income Pension Plan
Smurfit-Stone and its Subsidiaries maintain a non-contributory pension plan
for salaried employees (the "Pension Plan") and a non-contributory supplemental
income pension plan (the "SIP") for certain key executive officers, under which
benefits are determined by final average earnings and years of credited service
and are offset by a certain portion of social security benefits. For purposes of
the Pension Plan, final average earnings equals the participant's average
earnings for the five consecutive highest-paid calendar years of the
participant's last 10 years of service, including overtime and certain bonuses,
but excluding bonus payments under the Management Incentive Plan, deferred or
acquisition bonuses, fringe benefits and certain other compensation. For
purposes of the SIP, final average earnings equals the participant's average
earnings, including bonuses under the Management Incentive Plan, for the five
consecutive highest-paid calendar years of the participant's last 10 years of
service. SIP recognizes all years of credited service.
The pension benefits for the Named Executive Officers can be calculated
pursuant to the following table, which shows the total estimated single life
annuity payments (prior to adjustment for Social Security) that would be payable
to the Named Executive Officers participating in the Pension Plan and the SIP
after various years of service at selected compensation levels. Payments under
the SIP are an unsecured liability of Smurfit-Stone.
<TABLE>
<CAPTION>
REMUNERATION
- ---------------------- EACH YEAR IN EXCESS
FINAL AVERAGE EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS OF 20 YEARS
- ---------------------- -------- -------- -------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 25,000 $ 50,000 $ 75,000 $ 100,000 *
400,000 50,000 100,000 150,000 200,000 *
600,000 75,000 150,000 225,000 300,000 *
800,000 100,000 200,000 300,000 400,000 *
1,000,000 125,000 250,000 375,000 500,000 *
1,200,000 150,000 300,000 450,000 600,000 *
1,400,000 175,000 350,000 525,000 700,000 *
1,600,000 200,000 400,000 600,000 800,000 *
1,800,000 225,000 450,000 675,000 900,000 *
2,000,000 250,000 500,000 750,000 1,000,000 *
</TABLE>
- ---------------
* An additional 1% of earnings is accrued for each year in excess of 20 years.
Dr. Smurfit and Messrs. Moore, Wandmacher and Stevens participate in the
SIP and have 45, 14, 35, and 13 years of credited service, respectively. Current
average annual earnings as of December 31, 1999, for each of the Named Executive
Officers was as follows: Dr. Smurfit ($1,182,927); Mr. Moore ($505,190); Mr.
Wandmacher ($371,743) and
99
<PAGE>
Mr. Stevens ($354,467). Mr. Curran is not a participant in the SIP. He has one
year of credited service under the Pension Plan with average annual earnings of
$160,000.
Employment Agreements and Severance Agreements
Smurfit-Stone has entered into agreements (the "Employment Agreements")
with Messrs. Curran and Moore effective as of April 1, 1999. The Employment
Agreements require the executives to devote substantially all of their business
time to Smurfit-Stone's operations, each for a term expiring on April 1, 2002,
which term is automatically extended for a one-day period for each day that
passes after April 1, 1999, unless sooner terminated by either party in
accordance with the provisions of the Employment Agreements.
The Employment Agreements provide that Messrs. Curran and Moore shall be
eligible to participate in any annual performance bonus plans, long-term
incentive plans, and/or equity-based compensation plans established or
maintained by Smurfit-Stone for its senior executive officers, including the MIP
and the Long-Term Plan.
The Employment Agreements provide that if Smurfit-Stone terminates the
executive's employment "without cause" or the executive terminates his
employment with "good reason," Smurfit-Stone will: (i) pay the executive the
full amount of base salary and annual bonus that Smurfit-Stone would have paid
under the Employment Agreement had the executive's employment continued to the
end of the employment term; (ii) continue the executive's coverage under
Smurfit-Stone's medical, dental, life, disability, pension, profit sharing and
other executive benefit plans through the end of the employment term; (iii)
provide the executive with certain perquisites until the end of the employment
term, provided that these company-provided perquisites will be reduced to the
extent the executive receives comparable perquisites without cost during the 36
month period following his employment termination; (iv) continue to count the
period through the end of the employment term for purposes of determining the
executive's age and service with Smurfit-Stone with respect to (A) eligibility,
vesting and the amount of benefits under Smurfit-Stone's executive benefit
plans, and (B) the vesting of any outstanding stock options, restricted stock or
other equity-based compensation awards; and (v) provide outplacement services,
as elected by the executive (and with a firm elected by the executive), not to
exceed $50,000 in total.
The Employment Agreements also provide that if, within 24 months following
a "change of control" of Smurfit-Stone, Smurfit-Stone terminates the executive's
employment "without cause" or the executive terminates his employment with "good
reason, " Smurfit-Stone will (i) pay the executive three times the executive's
base salary, as in effect on the date of his termination; (ii) three times the
highest of (A) the average annual bonus paid for the three fiscal years
immediately preceding the executive's employment termination, (B) the target
bonus for the fiscal year in which such termination of employment occurs, or (C)
the actual bonus attained for the fiscal year in which such termination occurs;
(iii) continue the executive's coverage under Smurfit-Stone's medical, dental,
life, disability, pension, profit sharing and other executive benefit plans for
three years following employment termination; (iv) pay the value of three years
of continued coverage under any pension, profit sharing or other retirement plan
maintained by Smurfit-Stone; (v) continue to provide the executive with certain
perquisites, provided that these company-provided perquisites will be reduced to
the extent the executive receives comparable perquisites without cost during the
36 month period following his employment termination; (vi) immediately vest all
stock options, restricted stock and other equity-based awards; and (vii) pay for
outplacement services to the executive not to exceed $50,000. Smurfit-Stone
generally must make the payments described above within 10 days of the
executive's employment termination. If the payments and benefits described above
would be "excess parachute payments" as defined in Code Section 280G, with the
effect that the executive is liable for the payment of an excise tax, then
Smurfit-Stone will pay the executive an additional amount to "gross-up" the
executive for such excise tax.
The Employment Agreements for Messrs. Curran and Moore also forbid the
executives from: (i) disclosing Smurfit-Stone's confidential information,
inventions or developments; (ii) diverting any business opportunities or
prospects from Smurfit-Stone; and (iii) during their employment and for a period
of up to two years following termination of his employment, competing with any
business conducted by Smurfit-Stone or any of its affiliates, or soliciting any
employees, customers or suppliers of Smurfit-Stone, within the United States.
In general, each of the following transactions is considered a change of
control under the Employment Agreements: (i) a third party's acquisition of 20%
or more of the Smurfit-Stone Common Stock; (ii) a change in the majority of the
Board of Directors; (iii) completing certain reorganization, merger or
consolidation transactions or a sale of all or substantially all of
Smurfit-Stone's assets; or (iv) the complete liquidation or dissolution of
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Smurfit-Stone. The Stone Merger did not constitute a change of control for
purposes of the Employment Agreements because such agreements became effective
subsequent to the consummation of the Stone Merger.
Each of Messrs. Wandmacher and Stevens is a party to an Employment Security
Agreement (collectively, the "Severance Agreements"). Among other things, the
Severance Agreements provide for a lump sum payment based on a specified
multiple of salary and bonus plus the payment of certain fringe benefits under
certain circumstances within two years after a "change in control" (as such term
is defined in the Severance Agreements). The Stone Merger constituted a change
of control under the Severance Agreements.
The maximum severance benefit, including the value of pension and welfare
benefits, fringe benefits and perquisites payable under the Severance
Agreements, which would have been payable under the Severance Agreements to each
of Messrs. Wandmacher and Stevens in the event of termination of employment as
of December 31, 1999 by Smurfit-Stone without "cause" or resignation by the
executive officer for "good reason" is $1,024,101 for Mr. Wandmacher and
$846,588 for Mr. Stevens.
Mr. Stone retired as President and Chief Executive Officer of Smurfit-Stone
effective as of March 31, 1999. Upon his retirement, Mr. Stone received a
payment of $5,833,477 under his severance agreement with Stone. He also received
$195,884 as a pension payment and $20,433 as vacation pay.
PRINCIPAL HOLDERS OF SMURFIT-STONE COMMON STOCK
The table below sets forth certain information regarding the beneficial
ownership of the shares of Smurfit-Stone Common Stock by each person who is
known to Smurfit-Stone to be the beneficial owner of more than 5% of
Smurfit-Stone's voting stock as of March 21, 2000. The stockholders named below
have sole voting and investment power with respect to all shares of
Smurfit-Stone Common Stock shown as being beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP COMMON STOCK
-------------------- ------------
<S> <C> <C>
SIBV........................................................ 71,638,462 32.8%
Amsterdam, The Netherlands
MSLEF ASSOCIATED ENTITIES................................... 15,820,101 7.3%
New York, New York
</TABLE>
STOCK PERFORMANCE
The table below compares the cumulative total stockholder return on
Smurfit-Stone Common Stock, the S&P 500 Index, an index of the peer group of
paper companies used in Smurfit-Stone's Proxy Statement dated April 20, 1999
(the "1999 Peer Group"), and an index of a newly defined peer group of paper
companies (the "2000 Peer Group") for the five-year period ended December 31,
1999. The 2000 Peer Group comprises the following 10 medium to large sized
companies whose primary business is the manufacture and sale of paper products
and packaging: Caraustar Industries, Inc., Gaylord Container Corporation,
Georgia Pacific Corporation, International Paper Company, Mead Corporation,
Rock-Tenn Company, Sonoco Products Company, Temple-Inland Inc., Weyerhaeuser
Company and Willamette Industries, Inc. The 2000 Peer Group does not include the
following companies that were part of the 1999 Peer Group: Stone (subsequently
merged with a subsidiary of Smurfit-Stone), Union Camp Corporation (subsequently
acquired by International Paper Company) and Chesapeake Corporation. Caraustar
Industries, Inc. and Mead Corporation are the only two companies included in the
2000 Peer Group that were not part of the 1999 Peer Group. The revisions to the
peer group in 2000 were desirable, in Smurfit-Stone's view, in order to keep the
peer group list representative of Smurfit-Stone's lines of business. The table
assumes the value of an investment in the Smurfit-Stone Common Stock and each
index was $100.00 at December 31, 1994 and that all dividends were reinvested.
CUMULATIVE TOTAL RETURN (FROM DECEMBER 31, 1994 TO DECEMBER 31, 1999)
<TABLE>
<CAPTION>
DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31
COMPANY NAME/INDEX 1994 1995 1996 1997 1998 1999
- ------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Smurfit-Stone........................... 100 55.88 94.48 83.09 93.01 144.12
S&P 500 Index........................... 100 137.58 169.17 225.60 290.08 351.12
2000 Peer Group......................... 100 108.15 122.54 127.87 138.91 186.96
1999 Peer Group......................... 100 106.60 118.84 129.74 139.92 186.47
</TABLE>
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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Transactions with JS Group
Net sales by Smurfit-Stone to JS Group, its Subsidiaries and its Affiliates
were $45 million for the year ended December 31, 1999. Net sales by JS Group,
its Subsidiaries and its Affiliates to Smurfit-Stone were $21 million for the
year ended December 31, 1999. Product sales to and purchases from JS Group, its
Subsidiaries and its Affiliates were consummated on terms generally similar to
those prevailing with unrelated parties.
Smurfit-Stone provides certain Subsidiaries and Affiliates of JS Group with
general management and elective management services under separate management
services agreements. The elective services provided include, but are not limited
to, management information services, accounting, tax and internal auditing
services, financial management and treasury services, manufacturing and
engineering services, research and development services, employee benefit plan
and management services, purchasing services, transportation services and
marketing services. In consideration of general management services,
Smurfit-Stone is paid a negotiated fee, which amounted to approximately $0.7
million for 1999. In consideration for elective services provided in 1999,
Smurfit-Stone received reimbursements of approximately $2.7 million in 1999. In
addition, Smurfit-Stone paid JS Group and its Affiliates approximately $0.9
million in 1999 for certain other services.
Board Membership
The Smurfit-Stone Bylaws provide that for so long as MSLEF owns at least
1,000,000 shares of Smurfit-Stone Common Stock, adjusted for any stock dividend,
stock split or similar change, the Smurfit-Stone Board of Directors will
continue to nominate for election one designee of MSLEF, who shall be entitled
to serve as Chairman of the Compensation Committee and, until November 18, 2003,
shall also be entitled to serve on the Independent Committee. Pursuant to a
Voting Agreement dated as of May 10, 1998 among SIBV, MSLEF and Mr. Stone, SIBV
has agreed to vote all of its shares of Smurfit-Stone Common Stock in favour of
MSLEF's designee for so long as MSLEF has the right to nominate such individual.
Mr. Goldberg is the MSLEF designee on the Smurfit-Stone Board of Directors.
Standstill Agreement
JS Group, MSLEF and Smurfit-Stone are parties to a Standstill Agreement,
dated as of May 10, 1998, which provides, among other things, that prior to
November 18, 2003: (a) JS Group is prohibited from directly or indirectly
acquiring any voting securities if, after giving effect to such acquisition, it
would beneficially own more than 40% of the total voting power of the
outstanding securities of Smurfit-Stone; (b) MSLEF is prohibited from acquiring
any voting securities of Smurfit-Stone (except pursuant to a stock split, stock
dividend, rights offering, recapitalization, reclassification or similar
transaction); and (c) JS Group is prohibited from soliciting, seeking to effect,
negotiating with or providing any information to any other party with respect
to, or making any statement or proposal (except for any statement or proposal in
response to an acquisition or business combination proposal by a party other
than JS Group or its subsidiaries), whether written or oral, to the Board of
Directors of Smurfit-Stone or otherwise make any public announcement (except as
required by law or the requirements of any relevant stock exchange or in the
case of an acquisition or business combination proposal by a party other than JS
Group or its Subsidiaries) whatsoever with respect to, any form of acquisition
or business combination transaction involving Smurfit-Stone or any significant
portion of its assets, including, without limitation, a merger, tender offer,
exchange offer or liquidation, or any restructuring, recapitalization or similar
transaction with respect to Smurfit-Stone.
Registration Rights Agreement
In connection with the Stone Merger, Smurfit-Stone, SIBV, MSLEF and certain
other stockholders of Smurfit-Stone associated with MSLEF entered into a
Registration Rights Agreement dated as of May 10, 1998 (the "Registration Rights
Agreement") that grants to SIBV, MSLEF and such other stockholders
(collectively, the "Holders") certain rights to require that Smurfit-Stone
register shares of Smurfit-Stone Common Stock acquired by them prior to May 10,
1998 or issued thereafter in respect of such shares (collectively, the
"Registrable Securities"). The Registration Rights Agreement replaced a then
existing registration rights agreement.
Under the Registration Rights Agreement, and subject to certain limitations
contained therein, each of SIBV and MSLEF is entitled to two demand
registrations. Subject to certain exceptions specified therein, the Registration
Rights Agreement entitles each of SIBV, MSLEF and Smurfit-Stone to include
shares for its own account or, in the case of
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Smurfit-Stone, for the account of any holders of Smurfit-Stone Common Stock
other than the Holders, in the registrations initiated by the other parties.
In connection with any demand registration or piggyback registration,
Smurfit-Stone will be responsible for all expenses incurred in connection with
such registration, except that each Holder will pay any underwriting discounts
or commissions that may be payable in connection with the sale of its
Registrable Securities. In addition, JSC will indemnify each Holder and its
affiliates against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the Holders
may be required to make in respect thereof.
Subscription Agreement
Pursuant to the Subscription Agreement, Smurfit-Stone has granted SIBV
certain contractual rights which generally allow SIBV to maintain its percentage
ownership of Smurfit-Stone Common Stock in the event of public or private
issuances of Smurfit-Stone Common Stock (or securities of Smurfit-Stone
convertible into or exchangeable for Smurfit-Stone Common Stock). The
Arrangement is a transaction which would entitle SIBV to purchase up to
approximately 12,170,140 shares of Smurfit-Stone Common Stock pursuant to the
exercise of its preemptive rights under the Subscription Agreement. As of the
date hereof, SIBV has not notified Smurfit-Stone whether it will exercise its
preemptive rights. SIBV and Smurfit-Stone are negotiating a modification to the
Subscription Agreement pursuant to which SIBV would agree not to exercise its
preemptive rights with respect to the 12,170,140 shares prior to the
consummation of the Arrangement; provided, that Smurfit-Stone agrees that if
Smurfit-Stone consummates a Covered Transaction within an agreed upon period
after the Effective Date, then SIBV would be entitled to purchase the 12,170,140
shares plus the number of shares of Smurfit-Stone Common Stock it would be
entitled to purchase pursuant to such future Covered Transaction. Any such
modification to the Subscription Agreement would require the approval of the
Independent Committee of the Smurfit-Stone Board of Directors which reviews
transactions between Smurfit-Stone and JS Group and their respective affiliates.
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services, L.L.C. is the transfer agent and
registrar for the Smurfit-Stone Common Stock at their offices in Ridgefield
Park, New Jersey.
COMPARISON OF SHAREHOLDERS' RIGHTS
St. Laurent was incorporated under the CBCA and, accordingly, is governed
by the laws of Canada and the St. Laurent articles and the St. Laurent By-laws.
The rights of Smurfit-Stone stockholders are governed by the DGCL and the
Smurfit-Stone Charter and the Smurfit-Stone Bylaws. In the event that the
Transaction is consummated, holders of St. Laurent Common Shares at the
Effective Time will have their St. Laurent Common Shares exchanged for shares of
Smurfit-Stone Common Stock and cash.
While the rights and privileges of stockholders of a Delaware corporation
are, in many instances, comparable to those of shareholders of a CBCA
corporation, there are certain differences. The following is a summary of the
most significant differences in shareholder rights. These differences arise from
differences between Delaware and Canadian law, between the DGCL and CBCA and
between the Smurfit-Stone Charter and Smurfit-Stone Bylaws and the St. Laurent
Articles and St. Laurent By-laws. This summary is not intended to be complete
and is qualified in its entirety by reference to the DGCL, the CBCA and the
governing corporate instruments of Smurfit-Stone and St. Laurent. For a
description of the respective rights of the holders of Smurfit-Stone Common
Stock and St. Laurent Common Shares see, respectively, "Information Concerning
Smurfit-Stone -- Share and Loan Capital Structure" and "Information Concerning
St. Laurent -- Share Capital Matters".
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the CBCA, certain extraordinary corporate actions, such as certain
amalgamations, continuances, and sales, leases or exchanges of all or
substantially all the property of a corporation other than in the ordinary
course of business, and other extraordinary corporate actions such as
liquidations, dissolutions and (if ordered by the court) arrangements, are
required to be approved by special resolution. A special resolution is a
resolution passed at a meeting by not less than two-thirds of the votes cast by
the shareholders who voted in respect of the resolution. In certain cases, a
special resolution to approve an extraordinary corporate action is also required
to be approved separately by the holders of a class or series of shares,
including in certain cases a class or series of shares not otherwise carrying
voting rights.
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Under the CBCA, shareholder approval is not required for an amalgamation between
a corporation and its wholly-owned subsidiary.
Except with respect to certain mergers between a parent and subsidiary
corporations, the DGCL requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon to authorize any merger,
consolidation, dissolution or sale of substantially of the assets of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (i) such corporation's certificate of incorporation is not amended in any
respect by the merger, (ii) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger, and (iii) the number of shares to be issued in the merger
plus those initially issued upon conversion of any other securities to be issued
in the merger do not exceed 20% of such corporation's outstanding common stock
immediately prior to the effective date of the merger. Stockholder approval is
not required under the DGCL for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90% of the outstanding shares of each class of stock.
AMENDMENT TO GOVERNING DOCUMENTS
Under the CBCA, any amendment to the articles generally requires approval
by special resolution. The CBCA provides that unless the articles or by-laws
otherwise provide, the directors may, by resolution, make, amend or repeal any
by-laws that regulate the business or affairs of a corporation. Where the
directors make, amend or repeal a by-law, they are required under the CBCA to
submit the by-law, amendment or repeal to the shareholders at the next meeting
of shareholders, and the shareholders may confirm, reject or amend the by-law,
amendment or repeal by an ordinary resolution, which is a resolution, passed by
a majority of the votes cast by shareholders who voted in respect of the
resolution.
Under the DGCL, unless the certificate of incorporation or the by-laws
otherwise provide, amendments of a certificate of incorporation generally
require the approval of the board of directors and the holders of a majority of
the outstanding stock entitled to vote thereon, and if such amendments would
increase or decrease the aggregate number of authorized shares of any class or
series or the par value of such shares or would adversely affect the shares of
such class or series, a majority of the outstanding stock of such class or
series would have to approve the amendment, whether or not entitled to vote
thereon by the certificate of incorporation.
Pursuant to the Smurfit-Stone Charter, the amendment of the following
Smurfit-Stone Charter provisions requires the affirmative vote of stockholders
holding at least 75% of the voting power of Smurfit-Stone's then outstanding
capital stock entitled to vote: (i) Smurfit-Stone Charter provisions requiring a
75% stockholder vote to amend certain Smurfit-Stone Bylaw provisions and (ii)
Smurfit-Stone Charter provisions relating to certain rights of MSLEF where,
pursuant to the Smurfit-Stone Bylaws, stockholder amendment of such provisions
requires a 75% stockholder vote.
Pursuant to the Voting Agreement, each of the parties thereto has agreed
not to vote in favour of any resolution by any stockholder that seeks to amend,
repeal or adopt any provision inconsistent with (i) the Smurfit-Stone Bylaw
provisions relating to certain rights of MSLEF or (ii) the Smurfit-Stone Charter
provisions requiring, in the case of stockholder amendment or repeal of certain
Smurfit-Stone Bylaw provisions, the vote of holders of at least 75% of the
voting power of Smurfit-Stone's outstanding capital stock.
The Smurfit-Stone Bylaws may not be amended except by a majority of the
members of the entire Smurfit-Stone Board of Directors or by the affirmative
vote of the stockholders as required by the DGCL. In addition, the Smurfit-Stone
Charter and the Smurfit-Stone Bylaws provide that so long as MSLEF beneficially
owns not less than 1,000,000 shares of Smurfit-Stone Common Stock, adjusted for
any stock dividend, stock split or similar change, the amendment of any
provision of the Smurfit-Stone Bylaws relating to certain rights of MSLEF
require the unanimous vote of each of the members of the Smurfit-Stone Board of
Directors or the affirmative vote of the holders of at least 75% of the voting
power of Smurfit-Stone's outstanding capital stock entitled to vote thereon.
DISSENTERS' RIGHTS
The CBCA provides that shareholders of a CBCA corporation entitled to vote
on certain matters are entitled to exercise dissent rights and to be paid the
fair value of their shares in connection therewith. The CBCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include: (i) any amalgamation with another corporation (other than with certain
affiliated corporations); (ii) an amendment to a corporation's articles to add,
change or remove any provisions restricting or constraining the issue, transfer
or ownership of shares; (iii) an
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amendment to a corporation's articles to add, change or remove any restriction
upon the business or businesses that a corporation may carry on; (iv) a
continuance under the laws of another jurisdiction; (v) a sale, lease or
exchange of all or substantially all the property of a corporation other than in
the ordinary course of business; or (vi) certain amendments to the articles of a
corporation which require a separate class or series vote, provided that a
shareholder is not entitled to dissent if an amendment to the articles is
affected by the court order approving a reorganization or by the court order
made in connection with an action for an oppression remedy. In addition, in
connection with an application to a court for an order approving an arrangement
proposed by a corporation, the court may grant an order permitting a shareholder
to dissent. Under the CBCA, a shareholder may, in addition to exercising dissent
rights, seek an oppression remedy for any act of omission of a corporation which
is oppressive, unfairly prejudicial to or that unfairly disregards a
shareholder's interests.
Under the DGCL, holders of stock of any class or series have the right, in
certain circumstances, to dissent from a merger or consolidation by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by a court in an action timely
brought by the corporation or the dissenters. The DGCL grants dissenters
appraisal rights only in the case of mergers or consolidation and not in the
case of a sale or transfer of assets or a purchase of assets for stock
regardless of the number of shares being issued. Further, no appraisal rights
are available for shares of any class or series listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 stockholders, unless the agreement of merger or
consolidation requires the holders thereof to accept for such shares anything
other than (i) stock of the surviving corporation, (ii) stock of another
corporation which is either listed on a national securities exchange or
designated as a national market system security on a interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 stockholders, (iii) cash in lieu of fractional shares, or
(iv) some combination of the above. In addition, such rights are not available
for any shares of the surviving corporation if the merger did not require the
vote of the stockholders of the surviving corporation.
OPPRESSION REMEDY
The CBCA provides an oppression remedy that enables the court to make any
order, both interim and final, to rectify the matters complained of if the court
is satisfied upon application by a complainant (as defined below) that: (i) any
act or omission of a corporation or an affiliate effects a result; (ii) the
business or affairs of a corporation or an affiliate are or have been carried on
or conducted in a manner; or (iii) the powers of the directors of a corporation
or an affiliate are or have been exercised in a manner, that is oppressive or
unfairly prejudicial to or that unfairly disregards the interest of any security
holder, creditor, director or officer of the corporation. A complainant
includes: (a) a present or former registered holder or beneficial owner of
securities of a corporation or any of its affiliates; (b) a present or former
officer or director of a corporation or any of its affiliates; (c) the Director
under the CBCA; and (d) any other person who in the discretion of the court is a
proper person to make such application. A complainant is not required to give
security for costs in any such application under the CBCA.
The oppression remedy provides the court with an extremely broad and
flexible jurisdiction to intervene in corporate affairs to protect "reasonable
expectations" of shareholders and other complainants. While conduct which is in
breach of fiduciary duties of directors or that is contrary to the legal right
of a complainant will normally trigger the court's jurisdiction under the
oppression remedy, the exercise of that jurisdiction does not depend on a
finding of a breach of such legal and equitable rights. Furthermore, the court
may order a corporation to pay the interim costs of a complainant seeking an
oppression remedy, but the complainant may be held accountable for such interim
costs on final disposition of the complaint.
DERIVATIVE ACTION
Under the CBCA, a complainant may apply to the court for leave to bring an
action in the name and on behalf of a corporation or any subsidiary, or to
intervene in an existing action to which any such body corporate is a party, for
the purpose of prosecuting, defending or discontinuing the action on behalf of
the body corporate. However, no action may be brought and no intervention in an
action may be made unless the complainant has given reasonable notice to the
directors of the corporation or its subsidiary of the complainant's intention to
apply to the court if (i) the directors of the corporation or its subsidiary do
not bring, diligently prosecute or defend or discontinue the action; (ii) the
complainant is acting in good faith; and (iii) it appears to be in the interests
of the corporation or its subsidiary that the action be
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brought, prosecuted, defended or discontinued. A complainant is not required to
give security for costs in a derivative action under the CBCA.
Under the CBCA, the court in a derivative action may make any order it
thinks fit. In addition, under the CBCA, the court may order a corporation or
its subsidiary to pay the complainant's interim costs, although the complainant
may be held accountable for the interim costs on final disposition of the
complaint.
DIRECTOR QUALIFICATIONS
Generally, a majority of the directors of a CBCA corporation must be
resident Canadians. The CBCA also requires that a corporation, any of the issued
securities of which were distributed to the public and are held by more than one
person, must have at least three directors, at least two of whom are not
officers or employees of the corporation or any of its affiliates.
Absent prescribed qualifications in the certificate of incorporation or
bylaws, directors of a Delaware corporation need not be stockholders of the
corporation. The certificate of incorporation or bylaws of a Delaware
corporation may prescribe other qualifications for directors. The Smurfit-Stone
Charter and Smurfit-Stone Bylaws do not contain any provisions that prescribe
any such additional qualifications for members of the Smurfit-Stone Board of
Directors.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the CBCA, shareholder action without a meeting may only be taken by
written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting. Under the DGCL, any action that may be taken at an annual
or special meeting of stockholders may be taken by a company without a meeting
if written consents describing such action are signed by all stockholders
entitled to vote thereon.
Pursuant to the Smurfit-Stone Charter, any action required or permitted to
be taken by the Smurfit-Stone Stockholders may be effected solely at a duly
called annual or special meeting of Smurfit-Stone Stockholders and may not be
effected by any consent in writing by such stockholders in lieu of such a
meeting.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations governed-by the CBCA have fiduciary obligations
to the corporation. Under the CBCA, directors of a Canada corporation must act
honestly and in good faith with a view to the best interests of the corporation;
and must exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances. A director is not liable for breach
of this duty of care under the CBCA if he relies in good faith, on (i) financial
statements of the corporation represented to him by an officer of the
corporation or in a written report of the auditor of the corporation which
fairly reflects the financial condition of the corporation, or (ii) a report of
a lawyer, accountant, engineer, appraiser or other Persons, whose profession
lends credibility to a statement made by him.
Directors of corporations governed by the DGCL have fiduciary obligations
to the corporation and its stockholders. Pursuant to these fiduciary
obligations, the directors must act with the care an ordinarily prudent person
in a like position would exercise under similar circumstances. Directors are
also under a duty to act in good faith and in a manner that the directors
reasonably believe to be in the interests of the corporation. Directors may
rely, in performing their duties, on information, opinions, reports, statements
or financial data prepared or presented by employees, legal counsel, public
accountants, a committee of the board of directors of which the director is not
a member and other Persons the director reasonably believes to be reliable and
competent in the matters presented.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the CBCA, a corporation may indemnify a director or officer, a former
director or officer or a person who acts or acted at the corporation's request
as a director or officer of a body corporate of which the corporation is or was
a shareholder or creditor, and his or her heirs and legal representatives (an
"indemnifiable person"), against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him or her in respect of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having been
a director or officer of such corporation or such body corporate, if: (i) he or
she acted honestly and in good faith with a view to the best interests of such
corporation; and (ii) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful. Pursuant to the CBCA,
an indemnifiable person is entitled to such
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indemnity from the corporation if he or she was substantially successful on the
merits in his or her defence of the action or proceeding and fulfilled the
conditions set out in (i) and (ii) above. A corporation may, with the approval
of the court, also indemnify an indemnifiable person in respect of an action by
or on behalf of the corporation or body corporate to procure a judgment in its
favour, to which such person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate against all costs,
charges and expenses reasonably incurred by such person in connection with such
action, if he or she fulfills the conditions set out in (i) and (ii) above. The
St. Laurent By-laws provide for indemnification of directors and officers to the
fullest extent authorized by the CBCA.
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each, an "indemnitee") against all
reasonable expenses (including attorneys' fees) and against all judgments, fines
and amounts paid in settlement of actions brought against them, if such
individual acted in good faith and in a manner that he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The corporation must indemnify an indemnitee of the
corporation who is wholly successful on the merits or otherwise in the defense
of any claim, issue or matter associated with an action. The Smurfit-Stone
Bylaws provide for indemnification of its directors and officers to the fullest
extent authorized by the DGCL.
The DGCL allows for the advance payment of an indemnitee's expenses prior
to the final disposition of an action, provided that the indemnitee undertakes
to repay any such amount advanced if it is later determined that the indemnitee
is not entitled to indemnification with regard to the action for which the
expenses were advanced. The Smurfit-Stone Bylaws provide for such advance
payments.
DIRECTOR LIABILITY
The DGCL allows the certificate of incorporation to contain provisions that
limit potential director liability to the stockholders or the corporation. This
protection may not be extended to intentional misconduct, knowing violations of
the law, the authorization of illegal distributions to shareholders or loans to
directors, or transactions where the director will personally receive a benefit
in money, property, or services. The Smurfit-Stone Charter contains a provision
limiting the liability of its directors to the fullest extent permitted by the
DGCL. The DGCL does not limit a director's liability for violation of certain
United States laws, including the federal securities laws.
The CBCA does not permit any such limitation of a director's liability.
CERTAIN ANTI-TAKEOVER PROVISIONS
Policies of certain Canadian securities regulatory authorities, including
Policy 9.1 of the Ontario Securities Commission (which is intended to be
reformulated as a binding rule under the Securities Act (Ontario) in 2000) and
Policy Q-27 of the Commission des Valeurs Mobilieres du Quebec, contain
requirements in connection with related party transactions, subject to certain
materiality thresholds. A related party transaction means, generally, any
transaction by which an issuer, directly or indirectly, acquires or transfers an
asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one or any combination of transactions. "Related party" includes directors,
senior officers and holders of at least 10% of the voting securities of the
issuer.
Subject to certain exceptions, these policies require the preparation of a
formal valuation of the subject matter of the related party transaction and any
non-cash consideration offered therefor, that the minority shareholders of the
issuer separately approve the transaction, by either a simple majority or
two-thirds of the votes cast, depending on the circumstances, and more detailed
disclosure in the proxy material sent to security holders in connection with a
related party transaction including a copy of the valuation or a summary of it.
DISSENTING SHAREHOLDER RIGHTS
Section 190 of the CBCA provides shareholders with the right to dissent
from certain resolutions of a corporation which effect extraordinary corporate
transactions or fundamental corporate changes. The Interim Order expressly
provides St. Laurent Registered Shareholders with the right to dissent from the
Arrangement Resolution pursuant to Section 190 of the CBCA and the Plan of
Arrangement. Any St. Laurent Registered Shareholder who dissents from the
Arrangement Resolution in compliance with Section 190 of the CBCA and the Plan
of Arrangement will be entitled, in the event the Arrangement becomes effective,
to be paid by St. Laurent the fair value of the St. Laurent Common
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Shares held by such Dissenting Shareholder determined as of the close of
business on the day before the Arrangement Resolution is adopted.
Section 190 provides that a shareholder may only make a claim under that
Section with respect to all the shares of a class held by the shareholder on
behalf of any one beneficial owner and registered in the shareholder's name. One
consequence of this provision is that a HOLDER OF ST. LAURENT COMMON SHARES MAY
ONLY EXERCISE THE RIGHT TO DISSENT UNDER SECTION 190 IN RESPECT OF ST. LAURENT
COMMON SHARES WHICH ARE REGISTERED IN THAT HOLDER'S NAME. In many cases, shares
beneficially owned by a person are registered either: (i) in the name of an
intermediary that the Non-Registered Holder deals with in respect of the shares
(such as banks, trust companies, securities dealers and brokers, trustees or
administrators of self-administered registered retirement savings plans,
registered retirement income funds, registered educational savings plans and
similar plans, and their nominees); or (ii) in the name of a clearing agency
(such as CDS) of which the intermediary is a participant. Accordingly, a
Non-Registered Holder will not be entitled to exercise the right to dissent
under Section 190 directly (unless the St. Laurent Common Shares are
re-registered in the Non-Registered Holder's name). A Non-Registered Holder who
wishes to exercise the right to dissent should immediately contact the
intermediary with whom the Non-Registered Holder deals in respect of his or her
St. Laurent Common Shares and either: (a) instruct the intermediary to exercise
the right to dissent on the Non-Registered Holder's behalf (which, if the St.
Laurent Common Shares are registered in the name of CDS or other clearing
agency, would require that the St. Laurent Common Shares first be re-registered
in the name of the intermediary); or (b) instruct the intermediary to
re-register the St. Laurent Common Shares in the name of the Non-Registered
Holder, in which case the Non-Registered Holder would have to exercise the right
to dissent directly.
A ST. LAURENT REGISTERED SHAREHOLDER WHO WISHES TO DISSENT MUST PROVIDE TO
THE SECRETARY OF ST. LAURENT AT 630 RENE-LEVESQUE BOULEVARD WEST, SUITE 3000,
MONTREAL, QUEBEC, H3B 5C7 PRIOR TO 5:00 P.M. (MONTREAL TIME) ON THE BUSINESS DAY
PRECEDING THE MEETING, A NOTICE OF DISSENT. IT IS IMPORTANT THAT ST. LAURENT
REGISTERED SHAREHOLDERS STRICTLY COMPLY WITH THIS REQUIREMENT WHICH IS DIFFERENT
FROM THE STATUTORY DISSENT PROVISIONS OF THE CBCA WHICH WOULD PERMIT A NOTICE OF
DISSENT TO BE PROVIDED AT OR PRIOR TO THE MEETING. The filing of a Notice of
Dissent does not deprive a St. Laurent Registered Shareholder of the right to
vote at the Meeting; however, the CBCA provides, in effect, that a St. Laurent
Registered Shareholder who has submitted a Notice of Dissent and who votes in
favour of the Arrangement Resolution will no longer be considered a Dissenting
Shareholder with respect to that class of shares voted in favour of the
Arrangement Resolution. The CBCA does not provide, and St. Laurent will not
assume, that a vote against the Arrangement Resolution or an abstention
constitutes a Notice of Dissent but a St. Laurent Registered Shareholder need
not vote his or her St. Laurent Common Shares against the Arrangement Resolution
in order to dissent. Similarly, the revocation of a proxy conferring authority
on the proxy holder to vote in favour of the Arrangement Resolution does not
constitute a Notice of Dissent; however, any proxy granted by a St. Laurent
Registered Shareholder who intends to dissent, other than a proxy that instructs
the proxy holder to vote against the Arrangement Resolution, should be validly
revoked (see "General Proxy Information -- Revocation of Proxies") in order to
prevent the proxy holder from voting such St. Laurent Common Shares in favour of
the Arrangement Resolution and thereby causing the St. Laurent Registered
Shareholder to forfeit his or her right to dissent.
St. Laurent is required, within 10 days after the St. Laurent
Securityholders adopt the Arrangement Resolution, to notify each Dissenting
Shareholder that the Arrangement Resolution has been adopted. Such notice is not
required to be sent to any St. Laurent Securityholder or the Arrangement
Resolution or who has withdrawn his or her Notice of Dissent.
A Dissenting Shareholder who has not withdrawn his or her Notice of Dissent
must then, within 20 days after receipt of notice that the Arrangement
Resolution has been adopted or, if the Dissenting Shareholder does not receive
such notice, within 20 days after he or she learns that the Arrangement
Resolution has been adopted, send to St. Laurent a Demand for Payment,
containing his or her name and address, the number of St. Laurent Common Shares
in respect of which he or she dissents, and a demand for payment of the fair
value of such St. Laurent Common Shares. Within 30 days after sending a Demand
for Payment, the Dissenting Shareholder must send to St. Laurent or its transfer
agent the certificates representing the St. Laurent Common Shares in respect of
which he or she dissents. A Dissenting Shareholder who fails to send
certificates representing the St. Laurent Common Shares in respect of which he
or she dissents forfeits his or her right to dissent. St. Laurent or its
transfer agent will endorse on any share certificate received from a Dissenting
Shareholder a notice that the holder is a Dissenting Shareholder and will
forthwith return the share certificates to the Dissenting Shareholder.
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After sending a Demand for Payment, a Dissenting Shareholder ceases to have
any rights as a holder of the St. Laurent Common Shares in respect of which the
shareholder has dissented other than the right to be paid the fair value of such
shares as determined under Section 190, unless: (i) the Dissenting Shareholder
withdraws the Demand for Payment before St. Laurent makes an Offer to Pay; (ii)
St. Laurent fails to make a timely Offer to Pay to the Dissenting Shareholder
and the Dissenting Shareholder withdraws his or her Demand for Payment; or (iii)
the directors of St. Laurent revoke the Arrangement Resolution, in all of which
cases the Dissenting Shareholder's rights as a shareholder are reinstated.
In addition, pursuant to the Plan of Arrangement, St. Laurent Registered
Shareholders who duly exercise such rights of dissent and who:
(a) are ultimately determined to be entitled to be paid fair value for
their St. Laurent Common Shares shall be deemed to have transferred
such St. Laurent Common Shares to Novaco in accordance with Section
2.2(b) of the Plan of Arrangement, to the extent the fair value
therefor is paid by Novaco; or
(b) are ultimately determined not to be entitled, for any reason, to be
paid fair value for their St. Laurent Common Shares shall be deemed to
have participated in the Arrangement on the same basis as a
non-dissenting holder of St. Laurent Common Shares and shall receive
the Exchange Consideration on the basis determined in accordance with
Section 2.2(b) of the Plan of Arrangement;
but in no case shall Smurfit-Stone, Novaco, St. Laurent or any other Person be
required to recognize such holders as holders of St. Laurent Common Shares after
the Effective Time, and the names of such holders of St. Laurent Common Shares
shall be deleted from the registers of holders of St. Laurent Common Shares at
the Effective Date.
St. Laurent is required, not later than seven days after the later of the
Effective Date and the date on which St. Laurent receives a Demand for Payment
from a Dissenting Shareholder, to send such Dissenting Shareholder an Offer to
Pay for his or her St. Laurent Common Shares in an amount considered by the
Board of Directors to be the fair value thereof, accompanied by a statement
showing the manner in which such fair value was determined. Every Offer to Pay
must be on the same terms. St. Laurent must pay for the St. Laurent Common
Shares of a Dissenting Shareholder within 10 days after an Offer to Pay has been
accepted by such Dissenting Shareholder, but any such offer lapses if St.
Laurent does not receive an acceptance thereof within 30 days after the Offer to
Pay has been made.
If St. Laurent fails to make an Offer to Pay for a Dissenting Shareholder's
St. Laurent Common Shares, or if a Dissenting Shareholder fails to accept an
offer which has been made, St. Laurent may, within 50 days after the Effective
Date or within such further period as the Court may allow, apply to the Court to
fix a fair value for the St. Laurent Common Shares of Dissenting Shareholders.
If St. Laurent fails to apply to the Court, a Dissenting Shareholder may apply
to the Court for the same purpose within a further period of 20 days or within
such further period as the Court may allow. A Dissenting Shareholder is not
required to give security for costs in such an application.
Upon an application to the Court, all Dissenting Shareholders whose St.
Laurent Common Shares have not been purchased by St. Laurent will be joined as
parties and bound by the decision of the Court, and St. Laurent will be required
to notify each affected Dissenting Shareholder of the date, place and
consequences of the application and of his or her right to appear and be heard
in person or by counsel. Upon any such application to the Court, the Court may
determine whether any person is a Dissenting Shareholder who should be joined as
a party, and the Court will then fix a fair value for the St. Laurent Common
Shares of all Dissenting Shareholders. The final order of the Court will be
rendered against St. Laurent in favour of each Dissenting Shareholder and for
the amount of the fair value of his or her St. Laurent Common Shares as fixed by
the Court. The Court may, in its discretion, allow a reasonable rate of interest
on the amount payable to each Dissenting Shareholder from the Effective Date
until the date of payment. An application by either St. Laurent or a Dissenting
Shareholder must made to the Superior Court of Quebec.
THE FOREGOING IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF
THE CBCA AND THE PLAN OF ARRANGEMENT, WHICH ARE TECHNICAL AND COMPLEX. A
COMPLETE COPY OF SECTION 190 OF THE CBCA IS ATTACHED HERETO AS APPENDIX C. IT IS
RECOMMENDED THAT ANY ST. LAURENT REGISTERED SHAREHOLDER WISHING TO AVAIL HIMSELF
OR HERSELF OF HIS OR HER DISSENT RIGHTS UNDER THOSE PROVISIONS SEEK LEGAL ADVICE
AS FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF THE CBCA AND THE PLAN OF
ARRANGEMENT MAY PREJUDICE THE RIGHT OF DISSENT. FOR A GENERAL SUMMARY OF CERTAIN
INCOME TAX IMPLICATIONS TO A DISSENTING SHAREHOLDER, SEE "INCOME TAX
CONSIDERATIONS TO ST. LAURENT SECURITYHOLDERS -- ST. LAURENT SECURITYHOLDERS
RESIDENT IN CANADA -- DISSENTING SHAREHOLDERS".
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AVAILABLE INFORMATION
St. Laurent and Smurfit-Stone are subject to the informational requirements
of the Exchange Act and in accordance therewith file reports and other
information with the SEC. The reports and other information filed by St. Laurent
and Smurfit-Stone with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W,
Washington, D.C. 20549, and at the SEC's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661-2511. Copies of such material also can
be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W, Washington, D.C. 20549 at prescribed rates. St. Laurent and
Smurfit-Stone public filings in the United States are also available to the
public from commercial document, retrieval services and at the Internet World
Wide Web site maintained by the SEC at www.sec.gov. In addition, such material
filed by Smurfit-Stone can be inspected at the offices of NASDAQ at 1735 K
Street, N.W., Washington, D.C. 20006.
St. Laurent is subject to the informational requirements of Canadian
securities legislation, the TSE and of the NYSE. The former type of information
can be requested from the securities regulators of each of the provinces of
Canada while the latter type of material can be inspected at the offices of the
TSE, 3rd Floor, 2 First Canadian Place, 130 King Street West, Toronto, Ontario
M5X IJ2; the offices of each of the provincial securities commissions or
regulators and the NYSE, 20 Broad Street, New York, New York 10005,
respectively. Generally, such information is also available at the Internet site
maintained by CDS Inc. at www.sedar.com, and the Internet site maintained by the
SEC at www.sec.gov.
LEGAL MATTERS
Certain legal matters in connection with the Transaction will be passed
upon by Goodman Phillips & Vineberg, Montreal and Weil, Gotshal & Manges LLP,
New York, on behalf of St. Laurent.
EXPERTS
The financial statements of St. Laurent for the years ended December 31,
1999 and December 31, 1998 included in this Circular have been so included in
reliance on the report of PricewaterhouseCoopers LLP, given upon the authority
of said firm as experts in accounting and auditing. The consolidated financial
statements of Smurfit-Stone at December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in this Circular have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report, given on the authority of said firm as experts in accounting and
auditing.
APPROVAL OF PROXY CIRCULAR BY ST. LAURENT'S BOARD OF DIRECTORS
The contents of this Circular and its sending to St. Laurent
Securityholders have been approved by the directors of St. Laurent.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Marion Allaire, Secretary
April 14, 2000, Montreal, Quebec
110
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APPENDIX A
SPECIAL RESOLUTION OF THE ST. LAURENT SECURITYHOLDERS
BE IT RESOLVED THAT:
1. The arrangement (the "ARRANGEMENT") under Section 192 of the Canada
Business Corporations Act (the "CBCA") involving St. Laurent Paperboard
Inc. ("ST. LAURENT"), as more particularly described and set forth in the
Management Information Circular (the "CIRCULAR") of St. Laurent
accompanying the notice of this meeting (as the Arrangement may be modified
or amended) is hereby authorized, approved and adopted.
2. The plan of Arrangement (the "PLAN OF ARRANGEMENT") involving St. Laurent,
the full text of which is set out as Schedule D to the Amended and Restated
Pre-Merger Agreement made as of April 13, 2000 among Smurfit-Stone
Container Corporation, Stone Container Corporation, 3701174 Canada Inc.,
3038727 Nova Scotia Company and St. Laurent (the "PRE-MERGER AGREEMENT"),
(as the Plan of Arrangement may be or may have been amended) is hereby
approved and adopted.
3. Notwithstanding that this resolution has been passed (and the Arrangement
adopted) by the shareholders, holders of options and holders of restricted
share units of St. Laurent or that the Arrangement has been approved by the
Superior Court of Quebec, District of Montreal, the directors of St.
Laurent are hereby authorized and empowered (i) to amend the Pre-Merger
Agreement, or the Plan of Arrangement to the extent permitted by the
Pre-Merger Agreement, and (ii) not to proceed with the Arrangement without
further approval of the shareholders, holders of options and holders of
restricted share units of St. Laurent, but only if the Pre-Merger Agreement
is terminated in accordance with Article 6 thereof.
4. Any officer or director of St. Laurent is hereby authorized and directed
for and on behalf of St. Laurent to execute, under the seal of St. Laurent
or otherwise, and to deliver articles of arrangement and such other
documents as are necessary or desirable to the Director under the CBCA in
accordance with the Pre-Merger Agreement for filing.
5. Any officer or director of St. Laurent is hereby authorized and directed
for and on behalf of St. Laurent to execute or cause to be executed, under
the seal of St. Laurent or otherwise, and to deliver or cause to be
delivered, all such other documents and instruments and to perform or cause
to be performed all such other acts and things as in such person's opinion
may be necessary or desirable to give full effect to the foregoing
resolution and the matters authorized thereby, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing.
A-1
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APPENDIX B
PRE-MERGER AGREEMENT
SMURFIT-STONE CONTAINER CORPORATION
AS "SSCC"
AND
STONE CONTAINER CORPORATION
AS "STONE"
AND
3701174 CANADA INC.
AS "3701174"
AND
3038727 NOVA SCOTIA COMPANY
AS "3038727"
AND
ST. LAURENT PAPERBOARD INC.
AS "ST. LAURENT"
- --------------------------------------------------------------------------------
AMENDED AND RESTATED PRE-MERGER AGREEMENT
April 13, 2000
- --------------------------------------------------------------------------------
STIKEMAN ELLIOTT
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
INTERPRETATION
Section 1.1 Definitions................................................. B-4
Section 1.2 Interpretation Not Affected by Headings, etc................ B-9
Section 1.3 Currency.................................................... B-9
Section 1.4 Number, etc................................................. B-9
Section 1.5 Date For Any Action......................................... B-9
Section 1.6 Entire Agreement............................................ B-9
Section 1.7 Schedules................................................... B-9
Section 1.8 Accounting Matters.......................................... B-10
Section 1.9 Knowledge................................................... B-10
ARTICLE 2
THE ARRANGEMENT
Section 2.1 Implementation Steps by St. Laurent......................... B-10
Section 2.2 Interim Order............................................... B-10
Section 2.3 Articles of Arrangement..................................... B-11
Section 2.4 Circular.................................................... B-11
Section 2.5 Securities Compliance....................................... B-11
Section 2.6 Preparation of Filings...................................... B-12
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of St. Laurent............... B-13
Section 3.2 Representations and Warranties of the SSCC Parties.......... B-24
Section 3.3 Survival.................................................... B-27
ARTICLE 4
COVENANTS
Section 4.1 Retention of Goodwill....................................... B-27
Section 4.2 Material Commitments........................................ B-27
Section 4.3 Covenants of St. Laurent.................................... B-27
Section 4.4 Covenants of the SSCC Parties............................... B-30
Section 4.5 Covenants Regarding Non-Solicitation........................ B-31
Section 4.6 Notice by St. Laurent of Superior Proposal Determination.... B-32
Section 4.7 Access to Information....................................... B-33
Section 4.8 Closing Matters............................................. B-34
Section 4.9 Indemnification............................................. B-34
Section 4.10 Rights Plan................................................. B-34
Section 4.11 Benefits Continuation, etc.................................. B-34
ARTICLE 5
CONDITIONS
Section 5.1 Mutual Conditions Precedent................................. B-35
Section 5.2 Additional Conditions Precedent to the Obligations of the B-36
SSCC Parties................................................
Section 5.3 Additional Conditions Precedent to the Obligations of St. B-36
Laurent.....................................................
Section 5.4 Notice and Cure Provisions.................................. B-37
Section 5.5 Satisfaction of Conditions.................................. B-37
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 6
AMENDMENT AND TERMINATION
Section 6.1 Amendment................................................... B-37
Section 6.2 Mutual Understanding Regarding Amendments................... B-37
Section 6.3 Termination................................................. B-38
Section 6.4 Break Fee................................................... B-38
Section 6.5 Effect of Break Fee Payment................................. B-39
Section 6.6 Remedies.................................................... B-39
ARTICLE 7
GENERAL
Section 7.1 Notices..................................................... B-39
Section 7.2 Assignment.................................................. B-40
Section 7.3 Binding Effect.............................................. B-40
Section 7.4 Waiver and Modification..................................... B-41
Section 7.5 No Personal Liability....................................... B-41
Section 7.6 Further Assurances.......................................... B-41
Section 7.7 Expenses.................................................... B-41
Section 7.8 Consultation................................................ B-41
Section 7.9 Governing Laws.............................................. B-41
Section 7.10 Time of Essence............................................. B-41
Section 7.11 Counterparts................................................ B-42
Section 7.12 No Third Party Beneficiaries................................ B-42
Section 7.13 Language.................................................... B-42
SCHEDULES
Schedule A Affiliate's Letter.......................................... B-43
Schedule B Appropriate Regulatory Approvals............................ B-45
Schedule C Arrangement Resolution...................................... B-46
Schedule D Plan of Arrangement......................................... B-47
</TABLE>
B-3
<PAGE>
AMENDED AND RESTATED PRE-MERGER AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 13(th) day of April, 2000.
AMONG:
SMURFIT-STONE CONTAINER CORPORATION a corporation existing
under the laws of the State of Delaware (hereinafter referred
to as "SSCC")
-- and --
STONE CONTAINER CORPORATION a corporation existing under the
laws of the State of Delaware (hereinafter referred to as
"STONE")
-- and --
3701174 CANADA INC.
a corporation existing under the laws of Canada
(hereinafter referred to as "3701174")
-- and --
3038727 NOVA SCOTIA COMPANY
an unlimited liability company existing under the laws of
the Province of Nova Scotia
(hereinafter referred to as "3038727")
-- and --
ST. LAURENT PAPERBOARD INC.
a corporation existing under the laws of Canada
(hereinafter referred to as "ST. LAURENT")
WHEREAS SSCC, Stone, 3038727 and St. Laurent entered into a Pre-Merger
Agreement dated as of February 23, 2000 (the "INITIAL PRE-MERGER AGREEMENT");
WHEREAS SSCC, Stone, 3701174, 3038727 and St. Laurent wish to amend and
restate the Initial Pre-Merger Agreement;
THEREFORE, THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants and agreements herein contained, the parties hereto covenant and agree
as follows:
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS.
In this Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following terms shall have the following
meanings respectively:
"1933 ACT" means the United States Securities Act of 1933, as amended;
"ACQUISITION PROPOSAL" means any bona fide proposal with respect to any
merger, amalgamation, arrangement, take-over bid, sale of assets (excluding
inventory sold in the ordinary course of business) or otherwise
representing more than 20% of the book value (on a consolidated basis) of
St. Laurent's total assets (or any lease, long-term supply agreement or
other arrangement having the same economic effect as a sale of assets
(excluding
B-4
<PAGE>
inventory sold in the ordinary course of business) or otherwise
representing more than 20% of the book value (on a consolidated basis) of
St. Laurent's total assets), any sale of more than 20% of the St. Laurent
Common Shares then outstanding or similar transactions involving St.
Laurent or any subsidiary, or a proposal to do so, excluding the
Arrangement;
"AFFECTED EMPLOYEE" has the meaning ascribed thereto in Section 4.11;
"AFFILIATE" has the meaning ascribed thereto in the Securities Act
(Quebec), unless otherwise expressly stated herein;
"AFFILIATE'S LETTER" means a letter, to be substantially in the form and
content of Schedule A annexed hereto;
"APPROPRIATE REGULATORY APPROVALS" means those sanctions, rulings,
consents, orders, exemptions, permits and other approvals (including the
lapse, without objection, of a prescribed time under a statute or
regulation that states that a transaction may be implemented if a
prescribed time lapses following the giving of notice without an objection
being made) of Governmental Entities, regulatory agencies or
self-regulatory organizations, as set out in Schedule B annexed hereto;
"ARRANGEMENT" means an arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with
Section 6.1 hereof or Article 5 of the Plan of Arrangement or made at the
direction of the Court in the Interim Order or the Final Order;
"ARRANGEMENT RESOLUTION" means the special resolution of the St. Laurent
Securityholders, to be substantially in the form and content of Schedule C
annexed hereto;
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of St. Laurent
in respect of the Arrangement that are required by the CBCA to be sent to
the Director after the Final Order is made;
"BUSINESS DAY" means any day on which commercial banks are generally open
for business in Chicago, Illinois and Montreal, Quebec other than a
Saturday, a Sunday or a day observed as a holiday in Chicago, Illinois
under the laws of the State of Illinois or the federal laws of the United
States of America or in Montreal, Quebec under the laws of the Province of
Quebec or the federal laws of Canada;
"CBCA" means the Canada Business Corporations Act as now in effect and as
it may be amended from time to time prior to the Effective Date;
"CIRCULAR" means the notice of the St. Laurent Meeting and accompanying
management information circular, including all appendices thereto, to be
sent to holders of St. Laurent Common Shares, St. Laurent Options and St.
Laurent RSUs in connection with the St. Laurent Meeting, as may be amended
from time to time;
"CODE" has the meaning ascribed thereto in Section 3.1(1)(m)(ii);
"CONFIDENTIALITY AGREEMENTS" means the confidentiality and standstill
letter agreements dated November 29, 1999 from St. Laurent to SSCC and SSCC
to St. Laurent, respectively;
"COURT" means the Superior Court of Quebec, District of Montreal;
"DIRECTOR" means the Director appointed pursuant to Section 260 of the
CBCA;
"DISSENT RIGHTS" means the rights of dissent in respect of the Arrangement
described in Section 3.1 of the Plan of Arrangement;
"DISSENTING SHAREHOLDER" has the meaning ascribed thereto in the Plan of
Arrangement;
"DROP DEAD DATE" means September 30, 2000, or such later date as may be
mutually agreed by the parties to this Agreement;
"EFFECTIVE DATE" means the date shown on the certificate of arrangement to
be issued by the Director under the CBCA giving effect to the Arrangement
provided that such date occurs on or prior to the Drop Dead Date;
"EFFECTIVE TIME" has the meaning ascribed thereto in the Plan of
Arrangement;
"ENVIRONMENTAL LAWS" means all applicable Laws relating to the protection
of the environment and public health and safety;
"ENVIRONMENTAL PERMITS" has the meaning ascribed thereto in Section
3.1(1)(l)(ii);
B-5
<PAGE>
"ERISA" has the meaning ascribed thereto in Section 3.1(1)(n)(i);
"ERISA AFFILIATE" has the meaning ascribed thereto in Section
3.1(1)(n)(ix);
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended;
"EXCHANGE CONSIDERATION" has the meaning ascribed thereto in the Plan of
Arrangement;
"FINAL ORDER" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the
Effective Date or, if appealed, then, unless such appeal is withdrawn or
denied, as affirmed;
"FORMER EMPLOYEES" has the meaning ascribed thereto in Section 4.11;
"FORM S-8" has the meaning ascribed thereto in Section 2.5(2);
"GOVERNMENTAL ENTITY" means any (a) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"HAZARDOUS SUBSTANCE" means any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance, dangerous
substance or dangerous good as defined or identified in or regulated by any
Environmental Law;
"HOLDERS" means the holders of St. Laurent Common Shares shown from time to
time in the register maintained by or on behalf of St. Laurent in respect
of the St. Laurent Common Shares;
"INCLUDING" means including without limitation;
"INFORMATION" has the meaning ascribed thereto in Section 4.7(2);
"INITIAL PRE-MERGER AGREEMENT" has the meaning ascribed thereto in the
preamble hereof;
"INTERIM ORDER" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement, as contemplated by Section 2.2;
"LAWS" means all statutes, codes, regulations, statutory rules, orders,
decrees, and terms and conditions of any grant of approval, permission,
authority or license of any court, Governmental Entity, statutory body
(including The Toronto Stock Exchange, the New York Stock Exchange and The
Nasdaq Stock Market) or self-regulatory authority, and the term
"applicable" with respect to such Laws and in the context that refers to
one or more Persons, means that such Laws apply to such Person or Persons
or its or their business, undertaking, property or securities and emanate
from a Governmental Entity having jurisdiction over the Person or Persons
or its or their business, undertaking, property or securities;
"LIEN" means any mortgage, hypothec, lien, security interest, lease,
option, right of third parties or other similar charge or encumbrance,
including the lien or retained title of a conditional vendor and any
servitude, easement, right of way or other encumbrance or title to real
property;
"MATERIAL ADVERSE CHANGE", when used in connection with the SSCC or St.
Laurent, means any change, effect, event or occurrence with respect to its
condition (financial or otherwise), properties, assets, liabilities,
obligations (whether absolute, accrued conditional or otherwise),
businesses, operations or results of operations or those of its
subsidiaries that is, or would reasonably be expected to be, material and
adverse to the business, operations or financial condition of such party
and its subsidiaries taken as a whole;
"MATERIAL ADVERSE EFFECT" when used in connection with the SSCC or St.
Laurent, means any effect that is, or would reasonably be expected to be,
material and adverse to the business, results of operations or condition
(financial or otherwise) of such party and its subsidiaries taken as a
whole;
"MATERIAL CONTRACTS" has the meaning ascribed thereto in Section 3.1(1)(x);
"MATERIAL SUBSIDIARY" means each subsidiary of St. Laurent, the total
assets of which constituted more than ten percent of the consolidated
assets of St. Laurent, the total revenues of which constituted more than
ten percent of the consolidated revenues of St. Laurent or the total
operating income of which constituted more than ten percent of the
consolidated operating income of St. Laurent, in each case as set out in
the financial statements of
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St. Laurent as of and for the year ended December 31, 1998 and including
each affiliate of St. Laurent that directly or indirectly holds an equity
interest in each such subsidiary. Notwithstanding the foregoing, "MATERIAL
SUBSIDIARIES" shall include such other subsidiary identified as such in the
St. Laurent Disclosure Letter;
"NOON SPOT RATE" means, on any day, the Noon Spot Rate on such day of the
Bank of Canada for one US dollar expressed in Canadian dollar;
"OSC" means the Ontario Securities Commission;
"PERMITTED LIEN" means any Lien which is expressly permitted by the terms
of any financing instrument or security agreement to which SSCC or any of
its subsidiaries is a party or to which St. Laurent or any of its
subsidiaries is a party, as the case may be;
"PERSON" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other
entity, whether or not having legal status;
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in the
form and content of Schedule D annexed hereto and any amendments or
variations thereto made in accordance with Section 6.1 hereof or Article 5
of the Plan of Arrangement or made at the direction of the Court in the
Final Order;
"PRE-EFFECTIVE DATE PERIOD" shall mean the period from and including
February 23, 2000 to and including the Effective Time on the Effective
Date;
"PUBLICLY DISCLOSED BY ST. LAURENT" means disclosed by St. Laurent in a
public filing made by it with the OSC, SEC and/or QSC from January 1, 1999
to and including January 31, 2000;
"PUBLICLY DISCLOSED BY SSCC" means disclosed by SSCC in a public filing
made by it with the SEC from January 1, 1999 to and including January 31,
2000;
"QSC" means the Commission des valeurs mobilieres du Quebec;
"REPLACEMENT OPTION" has the meaning ascribed thereto in Section 2.3(1)(b);
"REPRESENTATIVES" has the meaning ascribed thereto in Section 4.7(1);
"SEC" means the United States Securities and Exchange Commission;
"SEC REPORTS" has the meaning ascribed thereto in Section 3.2(1)(g);
"SECURITIES LEGISLATION" means the CBCA, the Securities Act (Quebec), the
Securities Act (Ontario) and the equivalent legislation in the other
provinces of Canada, the 1933 Act, the Exchange Act, all as now enacted or
as the same may from time to time be amended, re-enacted or replaced, and
the applicable rules, regulations, rulings, orders and forms made or
promulgated under such statutes and the published policies of the
regulatory authorities administering such statutes, as well as the rules,
regulations, by-laws and policies of The Toronto Stock Exchange, the New
York Exchange and The Nasdaq Stock Market;
"SECURITY PORTION" has the meaning ascribed thereto in the Plan of
Arrangement;
"SPECIFIED SSCC EVENT" means the occurrence of a Material Adverse Change
with respect to SSCC, or a breach by a SSCC Party of its obligations
hereunder, if by reason thereof, and taking into account Section 5.4, St.
Laurent would be entitled to rely on the failure of a condition set forth
in Section 5.3(1)(a), Section 5.3(1)(b), Section 5.3(1)(c), Section
5.3(1)(e) or Section 5.3(1)(f) as a reason not to complete the transactions
contemplated herein;
"SSCC CLOSING PRICE" means the closing price on The Nasdaq Stock Market of
SSCC Common Shares on the day immediately preceding the Effective Date;
"SSCC COMMON SHARES" means the shares of common stock in the capital of
SSCC;
"SSCC DISCLOSURE LETTER" means that certain letter dated as of even date
herewith and delivered by SSCC to St. Laurent;
"SSCC MATERIAL SUBSIDIARY" means each subsidiary of SSCC, the total assets
of which constituted more than ten percent of the consolidated assets of
SSCC, the total revenues of which constituted more than ten percent of the
consolidated revenues of SSCC or the total operating income of which
constituted more than ten percent of the
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consolidated operating income of SSCC, in each case as set out in the
financial statements of SSCC for the year ended December 31, 1998 and
including each affiliate of SSCC that directly or indirectly holds an
equity interest in each such subsidiary;
"SSCC OPTION SHARES" has the meaning ascribed thereto in Section 2.3(1)(b);
"SSCC PARTIES" means SSCC, Stone, 3701174 and 3038727, and "SSCC
PARTY"means any one of them;
"ST. LAURENT COMMON SHARES" means the common shares in the capital of St.
Laurent;
"ST. LAURENT DIRECTORS' STOCK OPTION AND SHARE PURCHASE PLAN" means that
certain Directors Stock Option and Share Purchase Plan of St. Laurent in
effect as of the date hereof;
"ST. LAURENT DISCLOSURE LETTER" means that certain letter dated as of even
date herewith and delivered by St. Laurent to the SSCC Parties;
"ST. LAURENT DOCUMENTS" has the meaning ascribed thereto in Section
3.1(1)(o);
"ST. LAURENT EMPLOYEE SHARE PURCHASE PLAN (CANADA)" means the employee
share purchase plan (Canada) of St. Laurent in effect as of the date
hereof;
"ST. LAURENT FINANCIAL STATEMENTS" has the meaning ascribed thereto in
Section 3.1(1)(h).
"ST. LAURENT INTELLECTUAL PROPERTY RIGHTS" has the meaning ascribed thereto
in Section 3.1(1)(r);
"ST. LAURENT LONG-TERM INCENTIVE PLAN" means the long-term incentive plan
of St. Laurent in effect as of the date hereof;
"ST. LAURENT MANAGERS' SHARE PURCHASE PLAN" means the managers' share
purchase plan of St. Laurent in effect as of the date hereof;
"ST. LAURENT MANAGERS' STOCK OPTION PLAN" means the managers' stock option
plan of St. Laurent in effect as of the date hereof;
"ST. LAURENT MEETING" means the special meeting of St. Laurent
Securityholders, including any adjournment thereof, to be called and held
in accordance with the Interim Order to consider the Arrangement;
"ST. LAURENT OPTIONS" means the options to purchase St. Laurent Common
Shares granted under the St. Laurent Directors' Stock Option and Share
Purchase Plan, the St. Laurent Long-Term Incentive Plan and the St. Laurent
Managers' Stock Option Plan and being outstanding and unexercised;
"ST. LAURENT PARTIALLY-OWNED ENTITY" means Fibre Innovations, LLC, Grafx
Packaging Corp., Innovative Packaging Corp. and Oncorr Innovations, Inc.;
"ST. LAURENT PERFORMANCE SHARE PLAN" means the performance share plan of
St. Laurent in effect as of the date hereof;
"ST. LAURENT PLANS" has the meaning ascribed thereto in Section
3.1(1)(n)(i);
"ST. LAURENT RIGHTS PLAN" means the shareholder rights plan of St. Laurent
approved on February 1, 1995, as amended on April 28, 1995, on March 5,
1998, on May 7, 1998 and on February 23, 2000;
"ST. LAURENT RSUS" means the restricted share units granted by St. Laurent
to certain officers and managers pursuant to the St. Laurent Managers'
Share Purchase Plan and being outstanding and unexercised;
"ST. LAURENT SECURITYHOLDERS" means the holders of St. Laurent Common
Shares, St. Laurent Options and St. Laurent RSUs, collectively;
"ST. LAURENT SHARE PURCHASE PLANS" means, collectively, the St. Laurent
Directors' Stock Option and Share Purchase Plan, the St. Laurent Employee
Share Purchase Plan (Canada), the St. Laurent subsidiary Employee Stock
Purchase Plan (U.S.), the St. Laurent Managers' Share Purchase Plan and the
St. Laurent Performance Share Plan;
"ST. LAURENT SUBSIDIARY EMPLOYEE STOCK PURCHASE PLAN (U.S.)" means that
certain Employee Stock Purchase Plan (U.S.) of a subsidiary of St. Laurent
in effect as of the date hereof;
"ST. LAURENT WARRANTS" means the 380,000 Series A Warrants of St. Laurent
issued on January 29, 1999 to purchase 380,000 St. Laurent Common Shares at
an initial exercise price of Canadian $10.95;
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"SUBSIDIARY" means, with respect to a specified body corporate, any body
corporate of which more than 50% of the outstanding shares ordinarily
entitled to elect a majority of the board of directors thereof (whether or
not shares of any other class or classes shall or might be entitled to vote
upon the happening of any event or contingency) are at the time owned
directly or indirectly by such specified body corporate and shall include
any body corporate, partnership, joint venture or other entity over which
it exercises direction or control or which is in a like relation to a
subsidiary;
"SUPERIOR PROPOSAL" means any bona fide proposal by a third party to,
directly or indirectly, acquire assets representing more than 20% of the
book value (on a consolidated basis) of St. Laurent's total assets or more
than 20% of the outstanding St. Laurent Common Shares, whether by way of
merger, amalgamation, arrangement, take-over bid, sale of assets or
otherwise, and that in the good faith determination of the Board of
Directors of St. Laurent after consultation with financial advisors and
outside counsel (a) is reasonably capable of being completed, taking into
account all legal, financial, financing, regulatory and other aspects of
such proposal and the party making such proposal, and (b) would, if
consummated in accordance with its terms, result in a transaction more
favourable to the St. Laurent Securityholders than the transaction
contemplated by this Agreement;
"TAX" and "TAXES" have the respective meanings ascribed thereto in Section
3.1(1)(m)(iii); and
"TAX RETURNS" means all returns, declarations, reports, information returns
and statements required to be filed with any taxing authority relating to
Taxes.
SECTION 1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Agreement into Articles, Sections and other portions
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation hereof. Unless otherwise
indicated, all references to an "ARTICLE" or "SECTION" followed by a number
and/or a letter refer to the specified Article or Section of this Agreement. The
terms "THIS AGREEMENT", "HEREOF", "HEREIN" and "HEREUNDER" and similar
expressions refer to this Agreement (including the Schedules hereto) and, not to
any particular Article, Section or other portion hereof and include any
agreement or instrument supplementary or ancillary hereto.
SECTION 1.3 CURRENCY.
Unless otherwise specifically indicated, all sums of money referred to in
this Agreement are expressed in lawful money of the United States.
SECTION 1.4 NUMBER, ETC.
Unless the context otherwise requires, words importing the singular shall
include the plural and vice versa and words importing any gender shall include
all genders.
SECTION 1.5 DATE FOR ANY ACTION.
In the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day which is a Business Day.
SECTION 1.6 ENTIRE AGREEMENT.
This Agreement and the agreements and other documents herein referred to
(including the St. Laurent Disclosure Letter and the SSCC Disclosure Letter)
constitute the entire agreement between the parties hereto pertaining to the
terms of the Arrangement and supersede all other prior agreements,
understandings, negotiations and discussions, whether oral or written, between
the parties hereto with respect to the terms of the Arrangement, including the
Initial Pre-Merger Agreement. Notwithstanding anything to the contrary herein,
the Confidentiality Agreements shall survive the execution of this Agreement,
and in the event of inconsistencies between this Agreement and the
Confidentiality Agreements, the Confidentiality Agreements shall prevail.
However, SSCC and the SSCC Parties shall not be in breach of the "standstill"
undertakings contained in the Confidentiality Agreements solely by reason of the
execution of this Agreement or the consummation of the transactions contemplated
herein, which "standstill" undertakings shall continue to apply in the event of
termination of this Agreement by either SSCC or St. Laurent.
SECTION 1.7 SCHEDULES.
The following Schedules are annexed to this Agreement and are hereby
incorporated by reference into this Agreement and form part hereof:
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Schedule A -- Affiliate's Letter
Schedule B -- Appropriate Regulatory Approvals
Schedule C -- Arrangement Resolution
Schedule D -- Plan of Arrangement
SECTION 1.8 ACCOUNTING MATTERS.
Unless otherwise stated, all accounting terms used in this Agreement in
respect of St. Laurent shall have the meanings attributable thereto under
Canadian generally accepted accounting principles and all determinations of an
accounting nature in respect of St. Laurent required to be made shall be made in
a manner consistent with Canadian generally accepted accounting principles and
past practice. Unless otherwise stated, all accounting terms used in this
Agreement in respect of SSCC shall have the meanings attributable thereto under
United States generally accepted accounting principles and all determinations of
an accounting nature required to be made in respect of SSCC shall be made in a
manner consistent with United States generally accepted accounting principles
and past practice.
SECTION 1.9 KNOWLEDGE.
Each reference herein to the knowledge of a party means, unless otherwise
specified, the actual knowledge of such party without inquiry.
ARTICLE 2
THE ARRANGEMENT
SECTION 2.1 IMPLEMENTATION STEPS BY ST. LAURENT.
(1) St. Laurent covenants in favour of the SSCC Parties that St. Laurent shall:
(a) subject to Section 2.4, as soon as reasonably practicable, apply in a
manner acceptable to the SSCC Parties, acting reasonably, under
Section 192 of the CBCA for an order approving the Interim Order, and
thereafter proceed with and diligently seek the Arrangement;
(b) subject to Section 2.4, convene and hold the St. Laurent Meeting for
the purpose of considering the Arrangement Resolution (and for any
other proper purpose as may be set out in the notice for such
meeting);
(c) subject to the terms of this Agreement, include in the Circular the
unanimous recommendation of the disinterested directors of St. Laurent
that St. Laurent Securityholders vote in favour of the Arrangement
Resolution;
(d) subject to the terms of this Agreement and obtaining the approvals as
are required by the Interim Order, proceed with and diligently pursue
the application to the Court for the Final Order; and
(e) subject to the terms of this Agreement and obtaining the Final Order
and the satisfaction or waiver of the other conditions herein
contained in favour of each party, send to the Director, for
endorsement and filing by the Director, the Articles of Arrangement
and such other documents as may be required in connection therewith
under the CBCA to give effect to the Arrangement.
SECTION 2.2 INTERIM ORDER.
(1) The notice of motion for the application referred to in Section 2.1(1)(a)
shall request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in respect
of the Arrangement and the St. Laurent Meeting and for the manner in
which such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution shall be 66
2/3% of the votes cast on the Arrangement Resolution by St. Laurent
Securityholders present in person or by proxy at the St. Laurent
Meeting (such that each holder of St. Laurent Common Shares is
entitled to one vote for each St. Laurent Common Share held, each
holder of St. Laurent Options is entitled to one vote for each St.
Laurent Common Share such holder would have received on a valid
exercise of such St. Laurent Options and each holder of St. Laurent
RSUs is entitled to one vote for each St. Laurent Common Share such
holder would have received on vesting of such St. Laurent RSUs;
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(c) that, in all other respects, the terms, restrictions and conditions of
the by-laws and articles of St. Laurent, including quorum requirements
and all other matters, shall apply in respect of the St. Laurent
Meeting;
(d) for the grant of the Dissent Rights; and
(e) for the notice requirements respecting the presentation of the
application to the Court for a Final Order.
SECTION 2.3 ARTICLES OF ARRANGEMENT.
(1) The Articles of Arrangement shall, with such other matters as are necessary
to effect the Arrangement, and all as subject to the provisions of the Plan
of Arrangement, provide substantially as follows:
(a) each outstanding St. Laurent Common Share that is not held by a holder
who has exercised its Dissent Rights and is ultimately entitled to be
paid the fair value of St. Laurent Common Shares (other than St.
Laurent Common Shares held by any SSCC Party or any affiliate
thereof), will be transferred by the holder thereof to 3701174 in
exchange for the Exchange Consideration, and the name of each such
holder of St. Laurent Common Shares will be removed from the register
of holders of St. Laurent Common Shares and added to the register of
holders of SSCC Common Shares, and 3701174 will be recorded as the
registered holder of such St. Laurent Common Shares so exchanged and
will be deemed to be the legal and beneficial owner thereof;
(b) each St. Laurent Option shall be exchanged for an option (a
"REPLACEMENT OPTION") to purchase that number of SSCC Common Shares
equal to the sum of (i) the Security Portion times the number of St.
Laurent Common Shares subject to the St. Laurent Option; plus (ii) the
quotient of (A) $12.50 times the number of St. Laurent Common Shares
subject to the St. Laurent Option, divided by (B) the SSCC Closing
Price ("SSCC OPTION SHARES"); the exercise price per SSCC Common Share
for each Replacement Option shall be the quotient of (x) an aggregate
amount equal to the number of St. Laurent Common Shares subject to the
St. Laurent Option exchanged for such Replacement Option times the
original exercise price per St. Laurent Common Share pursuant to such
St. Laurent Option, at the option of the holder (i) converted into its
U.S. dollar equivalent based on the Noon Spot Rate on the day
immediately preceding the Effective Date, or (ii) expressed in
Canadian dollars, the whole divided by (y) the SSCC Option Shares
subject to such Replacement Option; and
(c) each St. Laurent RSU shall be fully vested and entitle its holder to
receive at the Effective Time, with respect to each St. Laurent Common
Share subject to such St. Laurent RSU, the Exchange Consideration.
(2) The parties understand and agree that the Exchange Consideration has been
calculated based upon the accuracy of the representations and warranties
set forth in Section 3.1(1)(c) and that, in the event the number of
outstanding St. Laurent Common Shares as of January 31, 2000 or the number
of St. Laurent Common Shares issuable upon the exercise of, or subject to,
options or other agreements exceeds or is less than the amounts
specifically set forth in the St. Laurent Disclosure Letter (including as a
result of any stock split, reverse stock split, stock dividend, including
any dividend or distribution of securities convertible into capital stock
or capital stock equivalents of St. Laurent, recapitalization, or other
like change occurring after the date of this Agreement), the Exchange
Consideration shall be appropriately adjusted upward or downward, as the
case may be. The provisions of this Section 2.3(2) shall not, however,
affect the representations and warranties set forth in Section 3.1(1)(c).
SECTION 2.4 CIRCULAR.
As promptly as practicable after the execution and delivery of this
Agreement, SSCC and St. Laurent shall prepare the Circular together with any
other documents required by Securities Legislation, other applicable Laws or the
Interim Order in connection with the Arrangement, and as promptly as practicable
after the date of execution of this Agreement but in any event not later than
August 18, 2000, St. Laurent shall cause the Circular and other documentation
required in connection with the St. Laurent Meeting to be sent to each holder of
St. Laurent Common Shares, St. Laurent Options and St. Laurent RSUs and filed as
required by the Interim Order and applicable Laws, provided that the SSCC
Parties and St. Laurent shall be reasonably satisfied, at the time the Circular
is sent to St. Laurent Securityholders, that the conditions referred to in
Article 5 can be satisfied.
SECTION 2.5 SECURITIES COMPLIANCE.
(1) SSCC shall use all reasonable best efforts to obtain, prior to the
Effective Time, all orders required from the applicable Canadian securities
authorities to permit the issuance and first resale of (a) the SSCC Common
Shares
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issued pursuant to the Arrangement, and (b) the SSCC Common Shares issued
from time to time upon the exercise of the Replacement Options, without
qualification with or approval of or the filing of any document, including
any prospectus or similar document, or the taking of any proceeding with,
or the obtaining of any further order, ruling or consent from, any
Governmental Entity or regulatory authority under any Canadian federal,
provincial or territorial securities or other Laws or pursuant to the rules
and regulations of any regulatory authority administering such Laws, or the
fulfilment of any other legal requirement in any such jurisdiction (other
than, with respect to such first resales, any restrictions on transfer by
reason of a holder being a "CONTROL PERSON" of any SSCC Party or St.
Laurent for purposes of Canadian federal, provincial or territorial
Securities Legislation).
(2) As promptly as practicable after the Effective Date, SSCC shall file a
registration statement on Form S-8 (or other applicable form) (the "FORM
S-8"), and take such actions as necessary to keep the information therein
current from time to time, in order to register under the 1933 Act those
SSCC Common Shares to be issued from time to time after the Effective Time
upon the exercise of the Replacement Options.
SECTION 2.6 PREPARATION OF FILINGS.
(1) Each of the SSCC Parties and St. Laurent shall cooperate and use their
reasonable best efforts in:
(a) the preparation and filing of any application for the orders and the
preparation of any required registration statements and any other
documents reasonably deemed by SSCC or St. Laurent to be necessary to
discharge their respective obligations under United States and
Canadian federal, provincial, territorial or state Securities
Legislation in connection with the Arrangement and the transactions
contemplated hereby;
(b) the taking of all such action as may be required under any applicable
United States and Canadian federal, provincial, territorial or state
Securities Legislation (including "blue sky laws") in connection with
the issuance of the SSCC Common Shares in connection with the
Arrangement or the exercise of the Replacement Options; provided,
however, that with respect to the United States "blue sky" and
Canadian provincial qualifications, neither SSCC nor St. Laurent shall
be required to register or qualify as a foreign corporation or to take
any action that would subject it to service of process in any
jurisdiction where such entity is not now so subject, except as to
matters and transactions arising solely from the offer and sale of the
SSCC Common Shares; and
(c) the taking of all such action as may be required under the CBCA in
connection with the transactions contemplated by this Agreement and
the Plan of Arrangement.
(2) Each of SSCC and St. Laurent shall furnish to the other all such
information concerning it and its shareholders as may be required (and, in
the case of its shareholders, available to it) for the effectuation of the
actions described in Section 2.4 and Section 2.5 and the foregoing
provisions of this Section 2.6 and the obtention of all Appropriate
Regulatory Approvals, and each covenants that no information furnished by
it (to its knowledge in the case of information concerning its
shareholders) in connection with such actions or otherwise in connection
with the consummation of the Arrangement and the other transactions
contemplated by this Agreement will contain any untrue statement of a
material fact or omit to state a material fact required to be stated in any
such document or necessary in order to make any information so furnished
for use in any such document not misleading in the light of the
circumstances in which it is furnished.
(3) SSCC and St. Laurent shall each promptly notify the other if at any time
before or after the Effective Time it becomes aware that the Circular or an
application for an order or a registration statement described in Section
2.5 contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the circumstances
in which they are made, or that otherwise requires an amendment or
supplement to the Circular or such application or registration statement.
In any such event, SSCC and St. Laurent shall cooperate in the preparation
of a supplement or amendment to the Circular, application for an order or
registration statement, or such other document, as required and as the case
may be, and, if required, shall cause the same to be distributed to
shareholders of SSCC or St. Laurent and/or filed with the relevant
securities regulatory authorities.
(4) St. Laurent shall use its reasonable best efforts to ensure that the
Circular complies with all applicable Laws and, without limiting the
generality of the foregoing, that the Circular does not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they are made (other than
with respect to
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any information relating to and provided by the SSCC Parties or any third
party that is not an affiliate of St. Laurent). Without limiting the
generality of the foregoing, St. Laurent shall use its reasonable best
efforts to ensure that the Circular provides holders of St. Laurent Common
Shares with information in sufficient detail to permit them to form a
reasoned judgment concerning the matters to be placed before them at the
St. Laurent Meeting and SSCC shall provide all information regarding it
necessary to do so.
(5) SSCC shall ensure that the Form S-8 contemplated in Section 2.5(2) complies
with all applicable Laws and, without limiting the generality of the
foregoing, that such document does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not
misleading in light of the circumstances in which they are made (other than
with respect to any information relating to and provided by St. Laurent or
any third party that is not an affiliate of SSCC) and St. Laurent shall
provide all information regarding it necessary to do so.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF ST. LAURENT.
(1) St. Laurent represents and warrants to and in favour of the SSCC Parties as
follows and acknowledges that the SSCC Parties are relying upon such
representations and warranties in connection with the matters contemplated
by this Agreement that, except as set forth in the St. Laurent Disclosure
Letter, as of February 23, 2000 (or as the date hereof with respect to
Section 3.1(1)(d)(i)):
(a) Organization.
(i) Each of St. Laurent and the Material Subsidiaries has been duly
incorporated or formed under all applicable Laws, is validly
subsisting and in good standing under the laws of the
jurisdiction of its incorporation or organization and has full
corporate or legal power to own, lease and operate its properties
and conduct its businesses as currently owned and conducted. Each
of the St. Laurent and the Material Subsidiaries is duly
qualified or licensed as foreign corporations to do business, and
is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in
good standing that would not, individually or in the aggregate,
have a Material Adverse Effect. All of the outstanding shares and
other ownership interests of the Material Subsidiaries which are
held directly or indirectly by St. Laurent are validly issued,
fully paid and non-assessable and all such shares and other
ownership interests are owned directly or indirectly by St.
Laurent, free and clear of all Liens, except pursuant to
restrictions on transfer contained in constating documents. There
are no outstanding options, rights, entitlements, understandings
or commitments (contingent or otherwise) regarding the right to
acquire any such shares or other ownership interests in any of
the Material Subsidiaries. St. Laurent has disclosed in the St.
Laurent Disclosure Letter the names and jurisdictions of
incorporation of each of the Material Subsidiaries.
(ii) Neither St. Laurent nor any Material Subsidiary has any minority
interest in any other corporation or entity.
(b) Certificate of Incorporation and By-laws. St. Laurent has heretofore
made available to SSCC a complete and correct copy of the certificate
of incorporation and the by-laws or equivalent organizational
documents, each as amended to date, of St. Laurent and each Material
Subsidiary. Such certificates of incorporation, by-laws and equivalent
organizational documents are in full force and effect.
(c) Capitalization. The authorized capital of St. Laurent consists of an
unlimited number of St. Laurent Common Shares and an unlimited number
of Class A preferred shares, issuable in series. The St. Laurent
Disclosure Letter sets forth, as at January 31, 2000, the number of
St. Laurent Common Shares issued and outstanding and the number of
outstanding St. Laurent Options, St. Laurent RSUs and St. Laurent
Warrants (all of which St. Laurent Warrants were exercised in full on
February 23, 2000). There are no options, warrants, conversion
privileges or other rights, agreements, arrangements or commitments
(pre-emptive, contingent or otherwise) obligating St. Laurent or any
Material Subsidiary to issue or sell any shares of St. Laurent or any
of the Material Subsidiaries or securities or obligations of any kind
convertible into or
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exchangeable for any shares of St. Laurent, any Material Subsidiary or
any other Person, nor is there outstanding any stock appreciation
rights, phantom equity or similar rights, agreements, arrangements or
commitments based upon the book value, income or any other attribute
of St. Laurent or any subsidiary. The St. Laurent Disclosure Letter
sets forth the holders of all outstanding St. Laurent Options and the
number, exercise prices, vesting schedules and expiration dates of
each grant to such holders. There have been no St. Laurent Common
Shares issued or purchased for cancellation since January 31, 2000
except pursuant to the purchase of St. Laurent Common Shares pursuant
to the St. Laurent Share Purchase Plans and pursuant to the exercise
of securities issued prior to January 31, 2000. All outstanding St.
Laurent Common Shares have been duly authorized and are validly issued
and outstanding as fully paid and non-assessable shares, free of
pre-emptive rights. There are no outstanding bonds, debentures or
other evidences of indebtedness of St. Laurent or any subsidiary
having the right to vote (or that are convertible for or exercisable
into securities having the right to vote) with the holders of the St.
Laurent Common Shares on any matter. There are no outstanding
contractual obligations of St. Laurent to repurchase, redeem or
otherwise acquire any of its outstanding securities or with respect to
the voting or disposition of any outstanding securities of any of the
Material Subsidiaries. To the knowledge of St. Laurent, as of the date
hereof, there are no proxies with respect to any securities of St.
Laurent and there are no agreements or understandings by or among any
persons which affect or relate to the voting or giving written
consents with respect to any securities of St. Laurent.
(d) Authority and No Violation.
(i) St. Laurent has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by St.
Laurent and the consummation by St. Laurent of the transactions
contemplated by this Agreement have been duly authorized by its
Board of Directors and no other corporate proceedings on its part
are necessary to authorize this Agreement, or the transactions
contemplated hereby other than:
(A) with respect to the Circular and other matters relating
solely thereto, including the implementation of the
Arrangement, the approval of the Board of Directors of St.
Laurent; and
(B) with respect to the completion of the Arrangement, the
approval of the St. Laurent Securityholders.
(ii) This Agreement has been duly executed and delivered by St.
Laurent and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency and other applicable Laws affecting
creditors' rights generally, and to general principles of equity
and to the fact that the Currency Act (Canada) precludes a court
in Canada from giving judgment in any currency other than
Canadian currency.
(iii) The disinterested directors of the Board of Directors of St.
Laurent have (A) determined unanimously that the Arrangement is
fair to the St. Laurent Securityholders and is in the best
interests of St. Laurent, (B) received separate opinions from
Bunting Warburg Dillon Read Inc. and Donaldson, Lufkin & Jenrette
to the effect that, as of the date of this Agreement, the
Exchange Consideration is fair from a financial point of view to
the St. Laurent Securityholders and (C) determined unanimously to
recommend that the St. Laurent Securityholders vote in favour of
the Arrangement. St. Laurent is not subject to a shareholder
rights plan or "poison pill" or similar plan, other than the St.
Laurent Rights Plan.
(iv) The approval of this Agreement, the execution and delivery by St.
Laurent of this Agreement and the performance by it of its
obligations hereunder and the completion of the Arrangement and
the transactions contemplated thereby, will not:
(A) result in a violation or breach of, require any consent to
be obtained under or give rise to any termination, purchase
or sale rights or payment obligation under any provision of:
(I) its or any Material Subsidiary's certificate of
incorporation, articles, by-laws or other charter
documents, including any unanimous shareholder
agreement or any other agreement or understanding
relating to ownership of shares or other interests or
to corporate governance with any party holding an
ownership interest in any Material Subsidiary; B-14
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(II) subject to obtaining the Appropriate Regulatory
Approvals relating to St. Laurent or any of its
Material Subsidiaries, any Laws, judgment or decree
applicable to St. Laurent or any of its Material
Subsidiaries or by which any property or assets of St.
Laurent or any of its Material Subsidiaries is bound or
affected except to the extent that the violation or
breach of, or failure to obtain any consent under, any
Laws, judgment or decree would not, individually or in
the aggregate, have a Material Adverse Effect on St.
Laurent; or
(III) subject to obtaining the Appropriate Regulatory
Approvals relating to St. Laurent or any Material
Subsidiary and except as would not, individually or in
the aggregate, have a Material Adverse Effect on St.
Laurent, any material contract, agreement, license,
franchise or permit to which St. Laurent or any
Material Subsidiary is party or by which St. Laurent or
any Material Subsidiary or any property or asset of St.
Laurent or any Material Subsidiary is bound or subject
or is the beneficiary;
(B) give rise to any right of termination or acceleration of
indebtedness (excluding leases which have not been
capitalized by St. Laurent or any subsidiary in accordance
with Canadian generally accepted accounting principles
applied on a consistent basis) of St. Laurent or any
subsidiary, or cause any such indebtedness to come due
before its stated maturity or cause any available credit of
St. Laurent or any subsidiary to cease to be available other
than as would not, individually or in the aggregate, have a
Material Adverse Effect on St. Laurent;
(C) except as would not, individually or in the aggregate, have
a Material Adverse Effect on St. Laurent, result in the
imposition of any Lien upon any of its assets or the assets
of any Material Subsidiary, or restrict, hinder, impair or
limit the ability of St. Laurent or any Material Subsidiary
to carry on the business of St. Laurent or any Material
Subsidiary as and where it is now being carried on; or
(D) except as would not, individually or in the aggregate, have
a Material Adverse Effect on St. Laurent, result in any
payment (including severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any
director, executive officer or senior management employee of
St. Laurent or any subsidiary or increase any benefits
otherwise payable under any St. Laurent Plan or result in
the acceleration of time of payment or vesting of any such
benefits, including the time of exercise of stock options.
(v) No consent, approval, order or authorization of, or declaration
or filing with, any Governmental Entity is required to be
obtained by St. Laurent and its Material Subsidiaries in
connection with the execution and delivery of this Agreement or
the consummation by St. Laurent of the transactions contemplated
hereby other than (A) any approvals required by the Interim
Order, (B) the Final Order, (C) filings with the Director under
the CBCA, (D) the Appropriate Regulatory Approvals relating to
St. Laurent and (E) any other consents, approvals, orders,
authorizations, declarations or filings of or with a Governmental
Entity which if not obtained would not, individually or in the
aggregate, have a Material Adverse Effect on St. Laurent.
(e) No Defaults. Subject to obtaining the Appropriate Regulatory Approvals
relating to St. Laurent or any of its Material Subsidiaries, neither
St. Laurent nor any of its Material Subsidiaries is in default under,
and there exists no event, condition or occurrence which, after notice
or lapse of time or both, would constitute such a default under, any
contract, agreement, license or franchise to which it is a party which
default would have a Material Adverse Effect on St. Laurent.
(f) Absence of Certain Changes or Events. Except as Publicly Disclosed by
St. Laurent, from December 31, 1998 (or, in the case of (iii) below,
January 31, 2000) through to the date hereof, each of St. Laurent and
its Material Subsidiaries has conducted its business only in the
ordinary and regular course of business and there has not occurred:
(i) a Material Adverse Change with respect to St. Laurent;
(ii) any damage, destruction or loss, whether covered by insurance or
not, that could reasonably be expected to have a Material Adverse
Effect on St. Laurent;
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<PAGE>
(iii) any redemption, repurchase or other acquisition of St. Laurent
Common Shares by St. Laurent or any declaration, setting aside or
payment of any dividend or other distribution (whether in cash,
stock or property) with respect to St. Laurent Common Shares;
(iv) any material increase in or modification of the compensation
payable or to become payable by it to any of its directors or
executive officers, or any grant to any such director or
executive officer of any increase in severance or termination
pay;
(v) any material increase in or modification of any bonus, pension,
insurance or benefit arrangement (including the granting of stock
options, restricted stock awards or stock appreciation rights)
made to, for or with any of its directors or executive officers;
(vi) any acquisition or sale of its property or assets having a value
in excess of $10,000,000 individually, other than in the ordinary
and regular course of business;
(vii) any entering into, amendment of, relinquishment, termination or
non-renewal by it of any material contract, agreement, license,
franchise, lease transaction, commitment or other right or
obligation, other than in the ordinary and regular course of
business;
(viii) any resolution to approve a split, combination or
reclassification of any of its outstanding shares;
(ix) any change in its accounting methods, principles or practices; or
(x) any incurrence of a material liability (direct, contingent or
otherwise);
(xi) any taking of action that would cause the St. Laurent Rights Plan
to be applicable;
(xii) any failure by St. Laurent, in any material respect, to revalue
any asset in accordance with Canadian generally accepted
accounting principles consistent with past practice;
(xiii) any agreement or arrangement to take any action which, if taken
prior to the date hereof, would have made any representation or
warranty set forth in this Agreement materially untrue or
incorrect as of the date when made.
(g) Employment Matters.
(i) St. Laurent has made available to SSCC true and complete copies
of all binding employment agreements, contracts, obligations and
understandings to which St. Laurent or any Material Subsidiary is
a party with any director, executive officer or senior management
employee earning in excess of $200,000 for the year ended
December 31, 1999 (including bonuses). Except as set forth in the
management information circular prepared in connection with the
Annual Meeting of St. Laurent held on May 5, 1999, neither St.
Laurent nor any Material Subsidiary is a party to any binding
policy, agreement, obligation or understanding providing for
severance or termination payments to, or any employment agreement
with, any director, executive officer or senior management
employee earning in excess of $200,000 for the year ended
December 31, 1999 (including bonuses).
(ii) St. Laurent has identified in the St. Laurent Disclosure Letter
and has delivered to SSCC true and complete copies of all
collective bargaining agreements, letters of understanding, and
other contracts to which St. Laurent and any Material Subsidiary
is a party with any labour organization. Neither St. Laurent nor
any Material Subsidiary is subject to any application for
certification or, to the knowledge of St. Laurent, threatened or
apparent union-organizing campaigns or representation disputes.
There are no current pending or, to the knowledge of St. Laurent,
threatened strikes, slowdowns, stoppages or disputes at St.
Laurent or any Material Subsidiary that would, individually or in
the aggregate, have a Material Adverse Effect on St. Laurent. No
collective bargaining agreement to which St. Laurent or any
subsidiary is or may be a party is currently under negotiation or
renegotiation and no existing collective bargaining agreement is
due for expiration, renewal or renegotiation within the one-year
period after the date hereof.
(iii) Neither St. Laurent nor any Material Subsidiary is subject to
any claim for wrongful dismissal, constructive dismissal or any
other tort claim, actual or, to the knowledge of St. Laurent,
threatened, or any litigation, actual or, to the knowledge of St.
Laurent, threatened, relating to employment or termination of
employment of employees or independent contractors, other than
those claims or such litigation as would, individually or in the
aggregate, not have a Material Adverse Effect on
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St. Laurent. No unfair labour practice complaint against St.
Laurent or any Material Subsidiary is pending before the National
Labour Relations Board or any other tribunal which would,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on St. Laurent. Neither St. Laurent nor
any Material Subsidiary is involved in or, to the knowledge of
St. Laurent, threatened with any complaint or grievance which,
individually or in the aggregate, has had or would be reasonably
expected to have a Material Adverse Effect on St. Laurent. St.
Laurent has delivered to SSCC a true and complete list of all
claims, complaints and grievances that are pending against St.
Laurent or any Material Subsidiary by any current or former
employee which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on St.
Laurent.
(iv) Except for any matter which would individually or in the
aggregate not reasonably be expected to have a Material Adverse
Effect on St. Laurent, St. Laurent and its Material Subsidiaries
have operated and are in compliance with all federal, state and
other applicable laws, domestic or foreign, respecting labour and
employment, including, but not limited to, fair employment
practices, labour standards, equal employment opportunity,
occupational health and safety, employment equity, pay equity,
workers' compensation, human rights, immigration, wages and
hours, plant closing, and the payment of social security and
similar taxes; there are no current, pending or, to the knowledge
of St. Laurent, threatened charges, claims, suits, actions,
proceedings or investigations against St. Laurent or any Material
Subsidiary by or before any tribunal, federal or state court or
administrative agency with respect to any of the above areas
which, individually or in the aggregate, has had or would be
reasonably expected to have a Material Adverse Effect on St.
Laurent; neither St. Laurent nor any Material Subsidiary is a
government contractor subject to any obligations imposed by the
Office of Federal Contract Compliance Program or any comparable
state or local affirmative action agency.
(h) Financial Statements. The audited consolidated financial statements
(including, in each case, any notes thereto) of St. Laurent as at and
for the 12-month periods ended December 31, 1998, December 31, 1997
and December 31, 1996 and the unaudited consolidated financial
statements for the 9-month period ended September 30, 1999 (the "ST.
LAURENT FINANCIAL STATEMENTS") have been prepared in accordance with
Canadian generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) (subject, in the case of such
unaudited financial statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in
the aggregate, to be material in amount and the absence of certain
footnote disclosures), the requirements of applicable Governmental
Entities and applicable Securities Legislation; such financial
statements present fairly, in all material respects, the consolidated
financial position, results of operations and cash flows of St.
Laurent and its subsidiaries as of the respective dates thereof and
for the respective periods covered thereby, subject, in the case of
such unaudited financial statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in
the aggregate, to be material in amount.
(i) Absence of Undisclosed Liabilities. Except as reflected in the audited
financial statements of St. Laurent for the 12-month period ended
December 31, 1998, as Publicly Disclosed by St. Laurent or as incurred
in the ordinary course of business, neither St. Laurent nor any of its
subsidiaries has any liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise), which, either
individually or in the aggregate, are material in amount to St.
Laurent and its subsidiaries taken as a whole.
(j) Books and Records. The books, records and accounts of St. Laurent and
its subsidiaries, in all material respects, (i) have been maintained
in accordance with good business practices on a basis consistent with
prior years, (ii) are stated in reasonable detail and accurately and
fairly reflect the transactions and dispositions of the assets of St.
Laurent and its subsidiaries and (iii) fairly reflect the basis for
the consolidated financial statements of St. Laurent. St. Laurent has
devised and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; and (ii) transactions are recorded as necessary (A) to
permit preparation of financial statements in conformity with Canadian
generally accepted accounting principles or any other criteria
applicable to such statements and (B) to maintain accountability for
assets.
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<PAGE>
(k) Litigation, Etc. Except as Publicly Disclosed by St. Laurent, there is
currently no claim, action, proceeding or investigation (including any
native land claims) pending or, to the knowledge of St. Laurent,
threatened against or affecting St. Laurent or any Material Subsidiary
before any court or Governmental Entity that, could reasonably be
expected to have a Material Adverse Effect on St. Laurent, or prevent
or materially delay consummation of the transactions contemplated by
this Agreement or the Arrangement. Neither St. Laurent nor any
Material Subsidiary, nor their respective assets and properties, is
subject to any outstanding judgment, order, writ, injunction or decree
that has had or is reasonably likely to have a Material Adverse Effect
on St. Laurent or that would prevent or materially delay consummation
of the transactions contemplated by this Agreement or the Arrangement.
(l) Environmental. Except for any matters that, individually or in the
aggregate, would not have a Material Adverse Effect on St. Laurent:
(i) all operations of St. Laurent and its subsidiaries have been
conducted, and are now, in compliance with all Environmental
Laws;
(ii) St. Laurent and its subsidiaries are in possession of, and in
compliance with, all permits, authorizations, certificates,
licenses, registrations, approvals and consents necessary under
Environmental Laws to own, lease and operate their properties and
to conduct their respective businesses as they are now being
conducted or as proposed to be conducted (collectively the
"ENVIRONMENTAL PERMITS");
(iii) neither St. Laurent nor any subsidiary is subject to:
(A) any non-compliance with Environmental Laws which requires
or, to the knowledge of St. Laurent, may, require any work,
repairs, construction, change in business practices or
operations, or expenditures, including capital expenditures
for facility upgrades, environmental investigation and
remediation expenditures, or any other such expenditures;
(B) any written demand or written notice with respect to the
breach of or potential liability under any Environmental
Laws or Environmental Permits by St. Laurent or any
subsidiary, including but not limited to any regulations
respecting the use, generation, release, storage, treatment,
transportation or disposition (including disposal or
arranging for disposal) of Hazardous Substances;
(C) any written demand or written notice with respect to
potential liability, by contract or under Environmental Laws
relating to St. Laurent or any current or, any former
subsidiary or, to the knowledge of St. Laurent, any of their
respective predecessor entities, divisions or any formerly
owned, leased or operated properties or assets of the
foregoing, including potential liability with respect to the
presence, generation, storage, treatment, release or
discharge of Hazardous Substances; or
(D) any changes in the terms or conditions of any Environmental
Permits or any renewal, modification, revocation,
reissuance, alteration, transfer or amendment of such
Environmental Permits, or any review by, or approval of, any
Governmental Entity of such Environmental Permits that are
required in connection with the execution or delivery of
this Agreement, the consummation of the transactions
contemplated hereby or the continuation of business of St.
Laurent or any subsidiaries following such consummation;
(E) any non-compliance with Environmental Laws pertaining to
underground storage tanks, asbestos containing materials, or
regulated levels of polychlorinated biphenols existing at
any of the facilities owned or operated by St. Laurent or
any subsidiary; and
(iv) with respect to such businesses and operations, neither St.
Laurent nor its subsidiaries have at any time given any written
undertakings with respect to remedying any breach or liability
under Environmental Laws or Environmental Permits which are
required to have been performed and have not been duly performed.
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(m) Tax Matters.
(i) St. Laurent and each of its Material Subsidiaries have duly and
timely filed, or caused to be filed, all material Tax Returns
required to be filed by them (all of which returns were correct
and complete in all material respects) and have paid, or caused
to be paid, all material amounts of Taxes shown to be due and
payable thereon, and St. Laurent's most recently published
financial statements contain an adequate provision in accordance
with Canadian generally accepted accounting principles for all
material amounts of Taxes payable in respect of each period
covered by such financial statements and all prior periods to the
extent such Taxes have not been paid, whether or not due and
whether or not shown as being due on any Tax Returns. St. Laurent
and each of its Material Subsidiaries have made adequate
provision in accordance with generally accepted accounting
principles in their books and records for any material amounts of
Taxes accruing in respect of any accounting period which has
ended subsequent to the period covered by such financial
statements.
(ii) Neither St. Laurent nor any Material Subsidiary has received any
written notification that any issues involving a material amount
of Taxes have been raised (and are currently pending) by Revenue
Canada, the United States Internal Revenue Service or any other
taxing authority, including any sales tax authority, in
connection with any of the Tax Returns referred to above and no
waivers of statutes of limitations have been given or requested
with respect to St. Laurent or any Material Subsidiary. All Tax
Returns of St. Laurent and the Material Subsidiaries for income
taxes have been examined by applicable Government Entities for
all fiscal years up to and including the fiscal year ended
December 31, 1995 (Canada). To the best of the knowledge of St.
Laurent, there are no proposed in writing (but unassessed)
additional Taxes involving a material amount of Taxes and none
has been asserted in writing. No Tax liens have been filed for
material amounts of Taxes other than for Taxes not yet due and
payable. Neither St. Laurent nor any of its subsidiaries has
filed any consent agreement under Section 341(f) of the Internal
Revenue Code of 1986, as amended (the "CODE"). Neither St.
Laurent nor any of its subsidiaries is party to any agreement
providing for the allocation or payment of Tax liabilities or
payment for Tax benefits. St. Laurent has not made an election
under Section 897(i) of the Code to be treated as a domestic
corporation for purposes of Sections 897, 1445 and 6039C of the
Code. St. Laurent is not, nor ever been, a "United States real
property holding company" within the meaning of Section 897(c)(2)
of the Code. To the extent that the classification of a St.
Laurent subsidiary is relevant for U.S. federal income tax
purposes, such subsidiary is treated as a corporation for
purposes of the Code. Neither St. Laurent nor any of its
subsidiaries is engaged in a trade or business or has a permanent
establishment in a country other than the country in which such
entity is formed or organized.
(iii) "TAX" and "TAXES" means, with respect to any entity, all income
taxes (including any tax on or based upon net income, gross
income, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all capital
taxes, gross receipts taxes, environmental taxes, sales taxes,
use taxes, ad valorem taxes, value added taxes, transfer taxes,
franchise taxes, license taxes, withholding taxes, payroll taxes,
employment taxes, Canada or Quebec Pension Plan premiums,
employment insurance premiums, excise, severance, social security
premiums, workers' compensation premiums, unemployment insurance
or compensation premiums, stamp taxes, occupation taxes, premium
taxes, property taxes, windfall profits taxes, alternative or
add-on minimum taxes, goods and services tax, customs duties or
other taxes, fees, imports, assessments or charges of any kind
whatsoever, together with any interest and any penalties or
additional amounts imposed by any taxing authority (domestic or
foreign) on such entity, and any interest, penalties, additional
taxes and additions to tax imposed with respect to the foregoing.
For purposes of this Section 3.1(m) the term "material amount of
Taxes" shall mean an amount of Taxes that is material to St.
Laurent and its subsidiaries taken as a whole.
(iv) St. Laurent and each of its Material Subsidiaries have withheld
from each payment made to any of their respective present or
former employees, officers and directors, and to all persons who
are non-residents of Canada for the purposes of the Income Tax
Act (Canada) all amounts of Taxes required by law, and have
remitted such withheld amounts within the prescribed periods to
the appropriate federal or provincial taxing authority to the
extent that the failure to do so would,
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individually or in the aggregate, have a Material Adverse Effect
on St. Laurent. St. Laurent and each of its subsidiaries have
remitted all Canada Pension Plan contributions, employment
insurance premiums, employer health taxes and other Taxes payable
in respect of their employees and have or will have remitted such
amounts to the proper taxing authority within the time required
by applicable law, to the extent that the failure to do so would,
individually or in the aggregate, have a Material Adverse Effect
on St. Laurent. St. Laurent and each of its subsidiaries have
charged, collected and remitted on a timely basis all Taxes as
required by applicable law (including Part IX of the Excise Tax
Act (Canada) or the retail sales tax legislation of any province
of Canada) on any sales, supply or delivery whatsoever, made by
St. Laurent or any Material Subsidiary, to the extent that the
failure to do so would, individually or in the aggregate, have a
Material Adverse Effect on St. Laurent.
(n) Pension and Employee Benefits.
(i) St. Laurent has delivered to SSCC a true and complete list as of
the date hereof of each material "employee pension benefit plan"
(as such term is defined in Section 3(2) of the United States
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), material "employee welfare benefit plan" (as such
term is defined in Section 3(1) of ERISA), severance agreement,
bonus, stock option, stock purchase, or other incentive plan
(including any equity or equity-based plan), deferred
compensation plan, salary reduction agreement, or any other
material benefit plan, policy, program or arrangement, with
respect to any employee, former employee, to the extent
applicable, director or any beneficiary or dependent thereof
(including any "employee pension or benefit plan", as defined in
Section 3(3) of ERISA), maintained by St. Laurent or a Material
Subsidiary (collectively referred to as the "ST. LAURENT PLANS").
The St. Laurent Disclosure Letter states which of the St. Laurent
Plans intend to constitute "employee pension benefit plans" (as
defined in Section 3(2) of ERISA) or "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA).
(ii) To the knowledge of St. Laurent, no step has been taken, no event
has occurred and no condition or circumstance exists that has
resulted in or could reasonably be expected to result in any St.
Laurent Plan being ordered or required to be terminated or wound
up in whole or in part or having its registration under
applicable Laws refused or revoked, or being placed under the
administration of any trustee or receiver or regulatory authority
or being required to pay any material Taxes, fees, penalties or
levies under applicable Laws. There are no actions, suits, claims
(other than routine claims for payment of benefits in the
ordinary course), trials, demands, investigations, arbitrations
or other proceedings which are pending or, to the knowledge of
St. Laurent, threatened in respect of any of the St. Laurent
Plans or their assets which individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect on
St. Laurent.
(iii) St. Laurent has made available to SSCC true, correct and
complete copies of all of the St. Laurent Plans as amended (or,
in the case of any unwritten St. Laurent Plan, a description
thereof) together with actuarial reports and applicable audited
financial statements, and the most recent determination letter
from the U.S. Internal Revenue Service or other applicable
Governmental Entity. St. Laurent has made available to SSCC a
true and complete copy of the most recent Annual Report on Form
5500 and accompanying schedules filed with the United States
Internal Revenue Service with respect to each St. Laurent Plan in
respect of which such a report was required. Except as
specifically provided in the foregoing documents delivered to
SSCC, there are no material amendments to any St. Laurent Plan
that have been adopted or approved nor has St. Laurent undertaken
to make any such amendments or to adopt or approve any new Plan.
(iv) All of the St. Laurent Plans are and have been established,
registered, qualified, invested and administered, in all material
respects, in accordance with all applicable Laws, and in
accordance with their terms and the terms of agreements between
St. Laurent and/or a subsidiary, as the case may be, and their
respective employees. To the knowledge of St. Laurent, no fact or
circumstance exists that could adversely affect the existing tax
status of a St. Laurent Plan.
(v) All material contributions or other amounts required to be paid
by St. Laurent as of the Effective Time by applicable Law or the
terms of a St. Laurent Plan with respect of current or prior plan
years will have been paid or accrued by the Effective Time. All
contributions, payments, premiums, expenses, B-20
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reimbursements or accruals for all periods ending prior to or as
of the Effective Time for each St. Laurent Plan (including
periods from the first day of the then current plan year to the
Effective Time) shall have been made or accrued on St. Laurent's
financial statements (in accordance with generally applied
accounting principles, including FAS 87, 88, 106 and 112), and
each such St. Laurent Plan otherwise does not have nor could have
any unfunded liability (including benefit liabilities as defined
in Section 4001(a)(16) of ERISA) or unfunded actuarial
liabilities or solvency deficiencies within the meaning of the
Quebec Supplemental Pension Plans Act which is not reflected on
financial statements, except where the failure to do so would not
individually or in the aggregate be material in amount. The same
shall be true for all periods ending as of the Effective Time for
each St. Laurent Plan.
(vi) To the knowledge of St. Laurent and other than as Publicly
Disclosed by St. Laurent, each St. Laurent Plan, as the case may
be, has no accumulated funding deficiency, and as of the date
hereof, no notice of under-funding, non-compliance, failure to be
in good standing or otherwise has been received by St. Laurent or
its subsidiaries from any such regulatory authority.
(vii) All St. Laurent Plans intended to be tax-qualified in the United
States have been the subject of determination letters from the
United States Internal Revenue Service to the effect that such
St. Laurent Plans are qualified and exempt from United States
Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has
been revoked nor, to the knowledge of St. Laurent, has revocation
been threatened, nor has any such St. Laurent Plan been amended
since the date of its most recent determination letter or
application therefor in any respect that would adversely affect
its qualification and, to the knowledge of St. Laurent, nothing
has occurred since the date of such letter that could reasonably
be expected to affect the qualified status of such plan.
(viii) Except as set forth in the St. Laurent Disclosure Letter, no
amount that could be received (whether in cash or property or the
vesting of property) as a result of the transactions contemplated
by this Agreement or the Arrangement by any employee, officer or
director of St. Laurent or any of its affiliates who is a
"disqualified individual" (as such term is defined in Code
Section 280G(i)) under any employment, severance or termination
agreement, other compensation arrangement or St. Laurent Plan
currently in effect will fail to be deductible for United States
federal income tax purposes by virtue of Section 280G of the
Code.
(ix) No St. Laurent Plan is a "multiemployer pension plan" (as such
term is defined in Section 3(37) of ERISA) or a plan that has two
or more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a
"multiple employer plan"). Neither St. Laurent nor any of its
ERISA Affiliates (as defined below) has (1) at any time during
the last six years, contributed to or been obligated to
contribute to any multiemployer pension plan or multiple employer
plan, or (2) incurred any withdrawal liability to a multiemployer
pension plan as a result of a complete or partial withdrawal from
such multiemployer pension plan that has not been satisfied in
full. There does not now exist, nor, to the knowledge of St.
Laurent, do any circumstances exist that could result in, any
liability that would be a liability of St. Laurent following the
Effective Time under Section 4971 of the Code, or as a result of
a failure to comply with the continuation coverage requirements
of Section 601 et seq. of ERISA and Section 4980B of the Code
which could have a Material Adverse Effect on St. Laurent. For
purposes of this Agreement, "ERISA AFFILIATE" shall mean St.
Laurent and any trade or business which is under common control
or which is treated as a single employer with St. Laurent under
Section 414(b) or (c) of the Code.
(x) St. Laurent has identified in the St. Laurent Disclosure Letter
and has made available to SSCC true and complete copies of (1)
all material severance and employment agreements with directors,
executive officers, key employees or consultants of St. Laurent;
(2) all material severance programs and policies of St. Laurent
with or relating to its employees; and (3) all material plans,
programs, agreements and other arrangements of St. Laurent with
or relating to its employees, directors or consultants which
contain change in control provisions. Neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (either alone or in
conjunction with any other event, such as termination of
employment) (A) result in any payment or
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profit (including severance, unemployment compensation, golden
parachute or otherwise) becoming due or increased to any
director, employee or consultant of St. Laurent or an Affiliate
from SSCC, St. Laurent or an Affiliate under any St. Laurent Plan
or otherwise, (B) increase any benefits otherwise payable under
any St. Laurent Plan or (C) result in any acceleration of the
time of payment or vesting of any compensation or benefits. No
individual who is a party to an employment or change of control
agreement listed in the St. Laurent Disclosure Letter with St.
Laurent has terminated employment or been terminated.
(xi) No St. Laurent Plan provides benefits, including death or medical
benefits (whether or not insured), with respect to current or
former employees of St. Laurent beyond their retirement or other
termination of service, other than benefits as accrued as
liabilities on the books of St. Laurent.
(xii) To the knowledge of St. Laurent, with respect to each St.
Laurent Plan, no Person: (A) has entered into any "prohibited
transaction," as such term is defined in ERISA or the Code and
the regulations, administrative rulings and case law thereunder
that is not exempt under Code Section 4975 or ERISA Section 408
(or any administrative class exemption issued thereunder); (B)
has breached a fiduciary obligation or violated Sections 402,
403, 405, 503, 510 or 511 of ERISA; (C) has any liability for any
failure to act or comply in connection with the administration or
investment of the assets of such plans; or (D) has engaged in any
transaction or otherwise acted with respect to such plans in such
a manner which could subject SSCC, St. Laurent or any employee of
St. Laurent to liability under Section 409 or 502 of ERISA or
Sections 4972 or 4976 through 4980B of the Code and where such
event would have a Material Adverse Effect on St. Laurent.
(xiii) Each St. Laurent Plan may be amended, terminated, modified or
otherwise revised by St. Laurent, as provided in St. Laurent
Plan, other than benefits protected under Section 411(d) of the
Code, on and after the Effective Time, and except as limited by
any collective bargaining agreement.
(o) Reports. St. Laurent has filed with the QSC, the OSC and the SEC true
and complete copies of all forms, reports, schedules, statements and
other documents required to be filed by it with such entities (such
forms, reports, schedules, statements and other documents, including
any financial statements or other documents, including any schedules
included therein, are referred to as the "ST. LAURENT DOCUMENTS"). The
St. Laurent Documents at the time filed (i) did not contain any
misrepresentation (as defined in the Securities Act (Ontario)) and
(ii) complied in all material respects with the requirements of
applicable Securities Legislation. St. Laurent has not filed any
confidential material change report with the OSC or any other
securities authority or regulator or any stock exchange or other
self-regulatory authority which at the date hereof remains
confidential. No Material Subsidiary is required to file any form,
report or other document with the QSC, the OSC or the SEC.
(p) Compliance with Laws. Except as Publicly Disclosed by St. Laurent, St.
Laurent and its Material Subsidiaries have complied with and are not
in violation of any applicable Laws, orders, judgments and decrees
other than non-compliance or violations which would not, individually
or in the aggregate, have a Material Adverse Effect on St. Laurent.
Without limiting the generality of the foregoing, all securities of
St. Laurent (including, all options, rights or other convertible or
exchangeable securities) have been issued in compliance, in all
material respects, with all applicable Securities Legislation and all
securities to be issued upon exercise of any such options, rights and
other convertible or exchangeable securities will be issued in
compliance with all applicable Securities Legislation.
(q) Restrictions on Business Activities. Except as Publicly Disclosed by
St. Laurent, there is no agreement, judgment, injunction, order or
decree binding upon St. Laurent or any Material Subsidiary that has or
could reasonably be expected to have the effect of prohibiting,
restricting or materially impairing any business practice of St.
Laurent or any Material Subsidiary, any acquisition of property by St.
Laurent or any Material Subsidiary or the conduct of business by St.
Laurent or any Material Subsidiary as currently conducted other than
prohibitions, restrictions or impairment which would not, individually
or in the aggregate, have a Material Adverse Effect on St. Laurent.
(r) Intellectual Property.
(i) St. Laurent and its Material Subsidiaries own, or are licensed or
otherwise possess, legally enforceable rights and are otherwise
legally entitled to use, all patents, trade secrets, trademarks,
trade
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names, service marks, copyrights and mask works, all applications
for and registrations of such patents, trademarks, trade names,
service marks, copyrights and mask works, and all processes,
formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct
the business of St. Laurent and its subsidiaries as currently
conducted (the "ST. LAURENT INTELLECTUAL PROPERTY RIGHTS") except
to the extent that the failure to have such rights would not,
individually or in the aggregate, be reasonably expected to have
a Material Adverse Effect on St. Laurent.
(ii) To the knowledge of St. Laurent, neither St. Laurent nor any of
its Material Subsidiaries is or will be as a result of the
execution and delivery of this Agreement, or the performance of
its obligations under this Agreement, in breach of any license,
sublicense or other agreement relating to the St. Laurent
Intellectual Property Rights or any license, sublicense or other
agreement pursuant to which St. Laurent or any of its
subsidiaries is authorized to use any third party patents,
trademarks or copyrights, including software, which are used in
the manufacture of, incorporated in, or form a part of any
product of St. Laurent or any of its subsidiaries, except for
breaches which, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect on St.
Laurent.
(iii) All patents, registered and common law trademarks, service marks
and copyrights held by St. Laurent or any of its Material
Subsidiaries which are material to the business of St. Laurent
and its Material Subsidiaries are valid and enforceable. Neither
St. Laurent nor any of its Material Subsidiaries (i) has been
sued in any suit, action or proceeding which involves a claim of
infringement of any patent, trade secret, trademark, service mark
or copyright or the violation of any trade secret or other
proprietary right of any third party or (ii) has any knowledge
that the manufacturing, importation, marketing, licensing, sale,
offer for sale, or use of any of its products infringes any
patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement,
individually or in the aggregate, would be reasonably expected to
have a Material Adverse Effect on St. Laurent.
(s) Insurance. St. Laurent has policies of insurance in force as of the
date hereof naming St. Laurent and/or its subsidiaries, as the case
may be, as an insured which, having regard to the nature of such risk
and the relative cost of obtaining insurance, St. Laurent believes are
reasonable, except where failure to have such insurance policies would
not, individually or in the aggregate, have a Material Adverse Effect
on St. Laurent.
(t) Property. Except as Publicly Disclosed by St. Laurent, each of St.
Laurent and its Material Subsidiaries has good and marketable title to
all of their respective properties and assets (real and personal,
tangible and intangible, including leasehold interest, leases,
easements, rights of way, permits or licences from land owners or
authorities permitting the use of land by St. Laurent or its Material
Subsidiaries) including all the properties and assets reflected in the
balance sheets forming part of the St. Laurent Financial Statements,
except as indicated in the notes thereto, together with all additions
thereto and less all dispositions thereof in the ordinary course of
their businesses, necessary to permit the operation of their
businesses as presently owned and conducted, in each case subject to
no Lien except for Permitted Liens and as is reflected in the balance
sheets forming part of the audited financial statements of St. Laurent
for the 12-month period ended December 31, 1998, except where the
failure to have such title, individually, or in the aggregate, would
not have a Material Adverse Effect on St. Laurent.
(u) Licences, Etc. St. Laurent and each Material Subsidiary owns,
possesses, or has obtained and is in compliance with, all licences,
permits, certificates, orders, grants and other authorizations of or
from any Governmental Entity necessary to conduct its businesses as
now conducted or as proposed to be conducted except for such failure
that would individually or in the aggregate not have a Material
Adverse Effect on St. Laurent. As of the date hereof, all of the
permits are in full force and effect and no violation, suspension or
cancellation of any of the Permits is pending or, to the knowledge of
St. Laurent threatened, except where not being in full force and
effect or the violation, suspension or cancellation of such permits,
individually or in the aggregate, would not have a Material Adverse
Effect on St. Laurent.
(v) Registration Rights. No holder of securities issued by St. Laurent has
any right to compel St. Laurent to register or otherwise qualify such
securities for public sale in Canada or the United States.
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<PAGE>
(w) Certain Business Practices. To the knowledge of St. Laurent, none of
St. Laurent, any of its subsidiaries or any directors, officers,
agents or employees of St. Laurent or any of its subsidiaries has (i)
used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns, or
(iii) made any other unlawful payment, except for such matters which
would not individually or in the aggregate have a Material Adverse
Effect on St. Laurent.
(x) Material Contracts. Each agreement, contract or arrangement which is
material to the business or operations of St. Laurent and its
subsidiaries taken as a whole (a "MATERIAL CONTRACT") is valid and
binding on St. Laurent (or, to the extent a subsidiary of St. Laurent
is a party, such subsidiary) and is in full force and effect, and St.
Laurent and each subsidiary have performed in all material respects
all material obligations required to be performed by them under each
Material Contract, except where the failure to do so would not
individually or in the aggregate have a Material Adverse Effect on St.
Laurent.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE SSCC PARTIES.
(1) The SSCC Parties, on a solidary basis, represent and warrant as of February
23, 2000 (or as the date hereof with respect to Section 3.2(1)(c)(i) or
with respect to any representation and warranty concerning 3701174) to and
in favour of St. Laurent as follows and acknowledge that St. Laurent is
relying upon such representations and warranties in connection with the
matters contemplated by this Agreement:
(a) Organization. Each of the SSCC Parties and the SSCC Material
Subsidiaries has been duly incorporated or formed under all applicable
Laws, is validly subsisting and in good standing under the laws of the
jurisdiction of its incorporation or organization and has full
corporate or legal power and authority to own its properties and
conduct its businesses as currently owned and conducted. Each of the
SSCC and the SSCC Material Subsidiaries are duly qualified or licensed
as foreign corporations to do business, and are in good standing, in
each jurisdiction where the character of the properties owned, leased
or operated by them or the nature of their business makes such
qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect. All
of the outstanding shares of capital stock and other ownership
interests of SSCC's subsidiaries which are held directly or indirectly
by SSCC are validly issued, fully paid and non-assessable and all such
shares and other ownership interests are owned directly or indirectly
by SSCC, free and clear of all Liens. Except as set forth in the SSCC
Disclosure Letter, there are no outstanding options, rights,
entitlements, understandings or commitments (contingent or otherwise)
regarding the right to acquire any such shares or other ownership
interests in any of the SSCC Material Subsidiaries.
(b) Capitalization. The authorized capital of SSCC consists of 400 million
common shares and 25 million preferred shares. As of February 18,
2000, there were 218,183,007 SSCC Common Shares issued and
outstanding. Except for employee stock options pursuant to employee
compensation plans or as Publicly Disclosed by SSCC or the SSCC
Disclosure Letter, there are no options, warrants, conversion
privileges or other rights, agreements, arrangements or commitments
(pre-emptive, contingent or otherwise) obligating SSCC to issue or
sell any shares or securities or obligations of any kind convertible
into or exchangeable for any shares of SSCC. All outstanding SSCC
Common Shares have been duly authorized and are validly issued and
outstanding as fully paid and non-assessable shares, and, subject to
the SSCC Disclosure Letter, free of pre-emptive rights. There are no
outstanding bonds, debentures or other evidences of indebtedness of
SSCC having the right to vote (or that are convertible for or
exercisable into securities having the right to vote) with the holders
of the SSCC Common Shares on any matter. Other than under employee
stock option plans or Publicly Disclosed by SSCC or in the SSCC
Disclosure Letter, there are no outstanding contractual obligations of
SSCC to repurchase, redeem or otherwise acquire any of its outstanding
securities or with respect to the voting or disposition of any
outstanding securities of any of the SSCC Material Subsidiaries.
(c) Authority and No Violation.
(i) Each of the SSCC Parties has the requisite corporate power and
authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this
Agreement by each of the SSCC Parties and the consummation by
each of the SSCC Parties of the transactions contemplated by
this Agreement have been duly authorized by its respective
Board of Directors and no other corporate
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proceedings (including a vote or approval by the shareholders)
on its part are necessary to authorize this Agreement or the
transactions contemplated hereby.
(ii) This Agreement has been duly executed and delivered by each of
the SSCC Parties and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency and other applicable
Laws affecting creditors' rights generally, and to general
principles of equity.
(iii) Except as set forth in the SSCC Disclosure Letter, the approval
of this Agreement, the execution and delivery by each of the
SSCC Parties of this Agreement and the performance by it of its
obligations hereunder and the completion of the Arrangement and
the transactions contemplated thereby, will not:
(A) result in a violation or breach of, require any consent,
vote or approval to be obtained under or give rise to any
termination, purchase or sale rights or payment obligation
under any provision of:
(I) its or any SSCC Material Subsidiary's certificate of
incorporation, articles, by-laws or other charter
documents, including any unanimous shareholder
agreement or any other agreement or understanding
relating to ownership of shares or other interests
or to corporate governance with any party holding an
ownership interest in any SSCC Material Subsidiary;
(II) subject to obtaining the Appropriate Regulatory
Approvals relating to the SSCC Parties, any Laws,
judgment or decree applicable to the SSCC Parties or
any of the SSCC Material Subsidiaries or by which
any property or assets of the SSCC Parties or any of
the SSCC Material Subsidiaries is bound or affected,
except to the extent that the violation or breach
of, or failure to obtain any consent under, any
Laws, judgment or decree would not, individually or
in the aggregate, have a Material Adverse Effect on
SSCC; or
(III) subject to obtaining the Appropriate Regulatory
Approvals relating to the SSCC Parties and except as
would not, individually or in the aggregate, have a
Material Adverse Effect on SSCC or a SSCC Material
Subsidiary, any material contract, agreement,
license, franchise or permit to which SSCC or any
SSCC Material Subsidiary is a party or by which SSCC
or any SSCC Material Subsidiary, or any property or
asset of SSCC or any SSCC Material Subsidiary is
bound or is subject or is the beneficiary;
(B) give rise to any right of termination or acceleration of
indebtedness of any SSCC Party or any SSCC Material
Subsidiary, or cause such indebtedness to come due before
its stated maturity or cause any available credit of any
SSCC Party or any SSCC Material Subsidiary to cease to be
available; or
(C) except as would not, individually or in the aggregate,
have a Material Adverse Effect on SSCC, result in the
imposition of any Lien upon any of its assets or the
assets of any SSCC Material Subsidiary, or restrict,
hinder, impair or limit the ability of any SSCC Party or
any SSCC Material Subsidiary to carry on the business as
and where it is now being carried on.
(iv) No consent, approval, order or authorization of, or declaration
or filing with, any Governmental Entity is required to be
obtained by any of the SSCC Parties or the SSCC Material
Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation by any of the SSCC Parties of
the transactions contemplated hereby other than (A) the
Appropriate Regulatory Approvals relating to the SSCC Parties,
and (B) any other consents, approvals, orders, authorizations,
declarations or filings of or with a Governmental Entity which,
if not obtained, would not, individually or in the aggregate,
have a Material Adverse Effect on SSCC.
(d) Absence of Certain Changes or Events. Except as Publicly Disclosed by
SSCC, since December 31, 1998 through to the date hereof each of the
SSCC Parties and each SSCC Material Subsidiary has conducted its
business only in the ordinary and regular course of business
consistent with past practice and there has not occurred:
(i) a Material Adverse Change with respect to SSCC;
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(ii) any agreement or arrangement to take any action which, if taken
prior to the date hereof, would have made any representation or
warranty set forth in this Agreement materially untrue or
incorrect as of the date when made;
(iii) any resolution to approve a split, combination or
reclassification of the SSCC Common Shares; or
(iv) any material change in its accounting methods, principles or
practices.
(e) Financial Statements. The audited consolidated financial statements
(including any notes thereto) of SSCC for the year ended December 31,
1998 and the unaudited consolidated financial statements for the
9-month period ended September 30, 1999 have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except
as may be indicated in the notes thereto) (subject, in the case of
such unaudited financial statements to normal and recurring year-end
adjustments which were not and are not expected, individually or in
the aggregate, to be material in amount and the absence of certain
footnote disclosures), the requirements of applicable Governmental
Entities and applicable Securities Legislation; such financial
statements present fairly, in all material respects, the consolidated
financial position, results of operations and cash-flows of SSCC and
its subsidiaries as of the respective dates thereof and for the
respective periods covered thereby, subject, in the case of such
unaudited financial statements to normal and recurring year-end
adjustments which were not and are not expected, individually or in
the aggregate, to be material in amount.
(f) Absence of Undisclosed Liabilities. Except as disclosed in the SSCC
Financial Statements, or as Publicly Disclosed by SSCC or as incurred
in the ordinary course of business, neither SSCC nor any of the SSCC
Material Subsidiaries has any liabilities or obligations of any nature
(absolute, accrued, contingent or otherwise) which either individually
or in the aggregate, are material in amount to SSCC and the SSCC
Material Subsidiaries taken as a whole.
(g) Reports. SSCC and each SSCC Material Subsidiary has filed with the SEC
all forms, reports, schedules, registration statements and definitive
proxy statements (the "SEC REPORTS") required to be filed by SSCC and
each SSCC Material Subsidiary with the SEC since December 31, 1998. As
of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Exchange Act or the 1933 Act and
the rules and regulations of the SEC promulgated thereunder
applicable, as the case may be, to such SEC Reports, and none of the
SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.
(h) SSCC Common Shares. The SSCC Common Shares to be issued pursuant to
the Arrangement or upon the exercise from time to time of the
Replacement Options will, in all cases, be duly and validly issued by
SSCC on their respective dates of issue as fully paid and
non-assessable shares.
(i) Compliance with Laws. Except as disclosed in the SSCC Disclosure
Letter or Publicly Disclosed by SSCC, SSCC and the SSCC Material
Subsidiaries have complied with and are not in violation of any
applicable Laws, orders, judgments and decrees other than
non-compliance or violations which would not, individually or in the
aggregate, have a Material Adverse Effect on SSCC. Without limiting
the generality of the foregoing, all securities of SSCC (including all
options, rights or other convertible or exchangeable securities) have
been issued in compliance in all material respects with all applicable
Securities Legislation and all securities to be issued upon exercise
of any such options, rights and other convertible or exchangeable
securities will be issued in compliance with all applicable Securities
Legislation.
(j) Litigation, Etc. Except as disclosed in the SSCC Disclosure Letter or
Publicly Disclosed by SSCC, there is currently no claim, action,
proceeding or investigation (including any native land claims) pending
or, to the knowledge of SSCC, threatened against or affecting SSCC or
any SSCC Material Subsidiary before any court or Governmental Entity
that, could reasonably be expected to have a Material Adverse Effect
on SSCC, or prevent or materially delay consummation of the
transactions contemplated by this Agreement or the Arrangement.
Neither SSCC nor any SSCC Material Subsidiary, nor their respective
assets and properties, is subject to any outstanding judgment, order,
writ, injunction or decree that has had or is reasonably likely to
have a Material Adverse Effect on SSCC or that would prevent or
materially delay consummation of the transactions contemplated by this
Agreement or the Arrangement.
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(k) Information Supplied. Neither the information supplied or to be
supplied in writing by or on behalf of any SSCC Party for inclusion,
nor the information incorporated by reference from documents filed by
a SSCC Party with the SEC, in the Circular or any other document to be
filed by any SSCC Party or St. Laurent with the SEC or any other
Governmental Entity in connection with the transactions contemplated
hereby will, on the date of its filing, or, with respect to the
Circular, as of the date it is mailed to the holders of the St.
Laurent Common Shares, St. Laurent Options and St. Laurent RSUs and as
of the date of the St. Laurent Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they are made, not
misleading.
SECTION 3.3 SURVIVAL.
For greater certainty, the representations and warranties of St. Laurent
and each SSCC Party contained herein shall survive the execution and delivery of
this Agreement and shall terminate on the earlier of the termination of this
Agreement in accordance with Section 6.3 and the Effective Time. Any
investigation by a party hereto and its advisors shall not mitigate, diminish or
affect the representations and warranties of another party to this Agreement.
ARTICLE 4
COVENANTS
SECTION 4.1 RETENTION OF GOODWILL.
During the Pre-Effective Date Period, St. Laurent will continue to carry on
the business of St. Laurent and its subsidiaries in a manner consistent with
prior practice, using all reasonable efforts to preserve the attendant goodwill
of such entities and to contribute to retention of that goodwill to and after
the Effective Date, but subject to the following provisions of this Article 4.
The following provisions of this Article 4 are intended to be in furtherance of
this general commitment.
SECTION 4.2 MATERIAL COMMITMENTS.
Subject to applicable Law and the other provisions of this Agreement,
during the Pre-Effective Date Period, St. Laurent and its subsidiaries will
consult on an ongoing basis with senior officers of SSCC in order that the
representatives of SSCC will become more familiar with the philosophy and
techniques of St. Laurent and its subsidiaries, as well as with their business
and financial affairs and in order to provide experience as a basis for ongoing
relationships following the Effective Date.
SECTION 4.3 COVENANTS OF ST. LAURENT.
(1) St. Laurent covenants and agrees that, until the Effective Date or the
earlier termination of this Agreement in accordance with Article 6, except
(i) with the consent of SSCC on behalf of the SSCC Parties to any deviation
therefrom, which consent shall not be unreasonably withheld; (ii) with
respect to any matters which were disclosed in the St. Laurent Disclosure
Letter; or (iii) with respect to any matter contemplated by this Agreement
or the Plan of Arrangement, including the transactions involving the
businesses of St. Laurent and SSCC contemplated hereby, St. Laurent will,
and will cause its subsidiaries to:
(a) carry on its business in, and only in, the ordinary and regular course
in substantially the same manner as heretofore conducted and, to the
extent consistent with such business, use all reasonable efforts to
preserve intact its present business organization and keep available
the services of its present officers and employees and others having
business dealings with it to the end that its goodwill and business
shall be maintained;
(b) not commence to undertake a substantial expansion of its business
facilities that is out of the ordinary and regular course of business;
(c) not split, combine or reclassify any of the outstanding shares of St.
Laurent nor declare, set aside or pay any dividends on or make any
other distributions on or in respect of the outstanding shares of St.
Laurent;
(d) not amend the articles or by-laws of St. Laurent or materially amend
the articles or by-laws of any subsidiary;
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(e) not sell, pledge, hypothecate, encumber, allot, reserve, set aside or
issue, authorize or propose the sale, pledge, encumbrance, allotment,
reservation, setting aside or issuance of, or purchase or redeem or
propose the purchase or redemption of, any shares in its capital stock
or of any subsidiary thereof or any class of securities convertible or
exchangeable into, or rights, warrants or options to acquire, any such
shares or other convertible or exchangeable securities, except for (a)
transactions between two or more wholly-owned St. Laurent subsidiaries
or between a wholly-owned subsidiary of St. Laurent and St. Laurent;
(b) the issuance of St. Laurent Common Shares pursuant to fully vested
St. Laurent Options or pursuant to the exercise of St. Laurent RSUs
granted prior to the date hereof; and (c) the purchase of St. Laurent
Common Shares with respect to the St. Laurent Directors' Stock Option
and Purchase Plan, the St. Laurent Employee Share Purchase Plan
(Canada) and/or the St. Laurent subsidiary Stock Purchase Plan (U.S.);
(f) not, whether through its Board of Directors or otherwise, accelerate
the vesting of any unvested St. Laurent Options or accelerate the
release of, or the expiry date of any hold period relating to, any St.
Laurent Common Shares held in the St. Laurent Share Purchase Plans, or
otherwise amend, vary or modify such plans or such other plans
relating to the Options;
(g) not reorganize, amalgamate or merge St. Laurent or any of its
subsidiaries with any other Person, nor acquire or agree to acquire by
amalgamating, merging or consolidating with, purchasing substantially
all of the assets of or otherwise, any business of any corporation,
partnership, association or other business organization or division
thereof, which acquisition would be material to its business or
financial condition on a consolidated basis (other than relating to
transactions between two or more wholly-owned St. Laurent subsidiaries
or between a wholly-owned subsidiary of St. Laurent and St. Laurent);
(h) except with respect to the sale of assets of St. Laurent or any
subsidiary in the ordinary and regular course of business, not sell,
pledge, hypothecate, encumber, lease or otherwise dispose of any
material assets (other than relating to transactions between two or
more wholly-owned St. Laurent subsidiaries or between a wholly-owned
subsidiary of St. Laurent and St. Laurent) or create or cause to be
created any Lien, except in the ordinary and regular course of
business;
(i) not guarantee the payment of material indebtedness of Persons other
than its subsidiaries or incur material indebtedness for money
borrowed or issue or sell any debt securities except in the ordinary
and regular course of business;
(j) carry out the terms of the Interim Order and the Final Order
applicable to it and use its reasonable efforts to comply promptly
with all requirements which applicable Laws may impose on St. Laurent
or its subsidiaries with respect to the transactions contemplated
hereby and by the Arrangement;
(k) not, and cause each of its subsidiaries not:
(i) other than in the usual, ordinary and regular course of business
or pursuant to existing employment, pension, supplemental
pension, termination, compensation arrangements or policies,
enter into or materially modify any employment, severance,
collective bargaining or similar agreements, policies or
arrangements with, or grant any material bonuses, salary
increases, stock options, pension or supplemental pension
benefits, profit sharing, retirement allowances, deferred
compensation, incentive compensation, severance or termination
pay to, or make any loan to, any officers or directors of it; or
(ii) other than in the usual, ordinary and regular course of business
or pursuant to existing employment, pension, supplemental
pension, termination, compensation arrangements or policies, in
the case of employees who are not officers or directors, take any
action with respect to the entering into or modifying of any
material employment, severance, collective bargaining or similar
agreements, policies or arrangements or with respect to the grant
of any material bonuses, salary increases, stock options, pension
or supplemental pension benefits, profit sharing, retirement
allowances, deferred compensation, incentive compensation,
severance or termination pay or any other form of compensation or
profit sharing or with respect to any increase of benefits
payable;
(l) subject to Section 4.3(1)(o), not, except in the ordinary and regular
course of business: (A) satisfy or settle any claims or liabilities
prior to the same being due, except such as have been reserved against
in St. Laurent Financial Statements or disclosed in the St. Laurent
Disclosure Letter, which are, individually or in the aggregate,
material; (B) grant any waiver, exercise any option or relinquish any
contractual rights
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which are, individually or in the aggregate, material; or (C) enter
into any interest rate, currency or commodity swaps, hedges or other
similar financial instruments;
(m) use its reasonable commercial efforts (or cause each of its
subsidiaries to use reasonable commercial efforts) to cause its
current insurance (or re-insurance) policies not to be cancelled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and re-insurance
companies of nationally recognized standing providing coverage equal
to or greater than the coverage under the cancelled, terminated or
lapsed policies for substantially similar premiums are in full force
and effect;
(n) except for the settlement or compromise amounts which represent not
more than $1,000,000 in the aggregate, not, and will cause its
subsidiaries not to, settle or compromise any claim brought by any
present, former or purported holder of any of its securities in
connection with the transactions contemplated by this Agreement or the
Arrangement prior to the Effective Date;
(o) except where disclosure would violate any confidentiality arrangements
or result in the loss of any client/solicitation privilege, keep SSCC
fully informed as to the status of the discussions or any developments
concerning the matters referred to in Section 3.1(1)(l)(i) of the St.
Laurent Disclosure Letter and not to settle or compromise any penalty
or fine imposed by a Governmental Entity in connection therewith
except for the settlement or compromise in respect of which St.
Laurent and its subsidiaries, as the case may be, shall have been
indemnified;
(p) not, and will cause its subsidiaries not to, enter into or modify in
any material respect any contract, agreement, commitment or
arrangement which new contract or series of related new contracts or
modification to an existing contract or series of related existing
contracts would have a Material Adverse Effect on St. Laurent;
(q) incur or commit to capital expenditures prior to the Effective Date
only in the ordinary course and not, in any event, exceeding by $12
million, individually or in the aggregate those set forth in the St.
Laurent Disclosure Letter;
(r) not make any changes to existing accounting practices relating to St.
Laurent or any subsidiary except as required by Law or required by
generally accepted accounting principles or make any material Tax
election or file any Tax return inconsistent with past practice; and
(s) promptly advise SSCC in writing:
(i) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of St. Laurent
contained in this Agreement (except any such representation or
warranty which speaks as of a date prior to the occurrence of
such event), if made on or as of the date of such event or the
Effective Date, untrue or inaccurate in any material respect;
(ii) of any Material Adverse Change in respect of St. Laurent; and
(iii) of any material breach by St. Laurent of any covenant or
agreement contained in this Agreement.
(2) St. Laurent shall and shall cause its subsidiaries to perform all
obligations required or desirable to be performed by St. Laurent or any of
its subsidiaries under this Agreement, co-operate with SSCC in connection
therewith, and do all such other acts and things as may be necessary or
desirable in order to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated in this Agreement and, without
limiting the generality of the foregoing, St. Laurent shall and where
appropriate shall cause its subsidiaries to:
(a) use all reasonable efforts to obtain the approvals of St. Laurent
Securityholders to the Arrangement including, by including in the
Circular the unanimous recommendation of the disinterested directors
of St. Laurent that St. Laurent Securityholders vote in favour of the
Arrangement Resolution, subject, however, to the exercise by the Board
of Directors of St. Laurent of its fiduciary duties as provided
herein;
(b) waive the application of the provisions of the St. Laurent Rights Plan
(including the separation of the rights thereunder) with respect to
the transactions contemplated by the Arrangement;
(c) apply for and use all reasonable best efforts to obtain all
Appropriate Regulatory Approvals relating to St. Laurent or any of its
subsidiaries and, in doing so, to keep SSCC reasonably informed as to
the status of the proceedings related to obtaining the Appropriate
Regulatory Approvals, including, but not limited to,
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providing SSCC with copies of all related applications and
notifications, in draft form, in order for SSCC to provide its
reasonable comments;
(d) apply for and use all reasonable efforts to obtain the Interim Order
and the Final Order;
(e) use its reasonable best efforts to defend and in defending all
lawsuits or other legal, regulatory or other proceedings challenging
or affecting this Agreement or the consummation of the transactions
contemplated hereby;
(f) use its reasonable best efforts to have lifted or rescinded any
injunction or restraining order or other order which may adversely
affect the ability of the parties to consummate the transactions
contemplated hereby;
(g) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from St. Laurent or any
of its subsidiaries;
(h) use its reasonable efforts to obtain all necessary waivers, consents
and approvals required to be obtained by St. Laurent or a subsidiary
from other parties to loan agreements, leases or other contracts; and
(i) use its reasonable efforts to ensure that St. Laurent's affiliates (as
defined in and for the purposes of Rule 145 under the 1933 Act)
execute and deliver to SSCC, on or prior to the Effective Date, an
Affiliate's Letter.
St. Laurent agrees to provide, and will cause its subsidiaries and will use
its reasonable efforts to cause its and their respective officers, employees,
advisors and representatives to provide, all necessary cooperation in connection
with (i) the arrangement of any financing by the SSCC Parties to be consummated
in connection with the transactions contemplated by this Agreement, (ii) any
amendments or waivers required under SSCC's existing credit facilities and (iii)
a reorganization (whether by merger, asset or stock transfer or amalgamation) of
St. Laurent and its subsidiaries made or implemented at the request of the SSCC
Parties to satisfy financing requirements and to effect tax and other
efficiencies for the SSCC Parties (and St. Laurent and its subsidiaries assuming
the consummation of the Arrangement), on or prior to the Effective Time;
provided, however, (A) prior to any such reorganization, SSCC and St. Laurent
shall agree upon the terms of an indemnity agreement in favor of St. Laurent and
its subsidiaries indemnifying St. Laurent and its subsidiaries in the event the
Arrangement is not consummated from any losses, costs or expenses incurred by
St. Laurent or any of its subsidiaries which would not have been so incurred but
for the reorganization and (B) any transactions effected pursuant to such
reorganization shall not be covered by St. Laurent's representations and
warranties contained in Article 3 of this Agreement or St. Laurent's other
covenants contained in Article 4 of this Agreement or otherwise expand St.
Laurent's liability under this Agreement.
SECTION 4.4 COVENANTS OF THE SSCC PARTIES.
(1) Each of the SSCC Parties hereby on a solidary basis covenants and agrees
(and, if applicable, will cause its subsidiaries):
(a) to perform all obligations required or desirable to be performed by it
under this Agreement, to co-operate with St. Laurent in connection
therewith, and to do all such other acts and things as may be
necessary or desirable in order to consummate and make effective, as
soon as reasonably practicable, the transactions contemplated by this
Agreement and, without limiting the generality of the foregoing, to:
(i) apply for and use all reasonable best efforts to obtain all
Appropriate Regulatory Approvals relating to the SSCC Parties,
and, in doing so, to keep St. Laurent reasonably informed as to
the status of the proceedings related to obtaining the
Appropriate Regulatory Approvals, including, but not limited to,
providing St. Laurent with copies of all related applications and
notifications, in draft form, in order for St. Laurent to provide
its reasonable comments;
(ii) use its reasonable best efforts to defend and in defending all
lawsuits or other legal, regulatory or other proceedings to which
it is a party challenging or affecting this Agreement or the
consummation of the transactions contemplated hereby;
(iii) use all reasonable best efforts to have lifted or rescinded any
injunction or restraining order or other order relating to the
SSCC Parties which may adversely affect the ability of the
parties to consummate the transactions contemplated hereby;
(iv) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from the SSCC
Parties or their subsidiaries; and
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<PAGE>
(v) cause SSCC to reserve a sufficient number of SSCC Common Shares
for issuance upon the completion of the Arrangement and the
exercise from time to time of Replacement Options;
(b) carry out the terms of the Interim Order and Final Order applicable to
it and use its reasonable efforts to comply promptly with all
requirements which applicable Laws may impose on SSCC or its
subsidiaries with respect to the transactions contemplated hereby and
by the Arrangement;
(c) in connection with the consummation of the transactions contemplated
hereby and by the Arrangement, use its reasonable efforts to obtain
all necessary waivers, consents and approvals required to be obtained
by SSCC or a subsidiary of SSCC from other parties to loan agreements,
leases or other contracts and take all reasonable steps to obtain the
financing necessary to pay the cash portion of the Exchange
Consideration; and
(d) until the Effective Date or the earlier termination of this Agreement
in accordance with Article 6, except (i) with the consent of St.
Laurent to any deviation therefrom, which shall not be unreasonably
withheld; (ii) with respect to any matters which were disclosed by
SSCC to St. Laurent in writing in the SSCC Disclosure Letter; or (iii)
with respect to any matter contemplated by this Agreement or the Plan
of Arrangement, including the transactions involving the businesses of
St. Laurent and SSCC contemplated hereby, SSCC will:
(i) not split, combine or reclassify any of the outstanding shares of
SSCC nor declare, set aside or pay any dividends on or make any
other distributions on or in respect of the outstanding shares of
SSCC;
(ii) promptly advise St. Laurent in writing:
(A) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty
of SSCC contained in this Agreement (except any such
representation or warranty which speaks as of a date prior
to the occurrence of such event), if made on or as of the
date of such event or the Effective Date, untrue or
inaccurate in any material respect;
(B) of any Material Adverse Change in respect of SSCC; and
(C) of any material breach by SSCC of any covenant or agreement
contained in this Agreement;
(iii) not make any changes to existing accounting practices related to
SSCC except as required by a change in United States generally
accepted accounting practice or by applicable Law; and
(iv) not reorganize, amalgamate, or merge SSCC with any other Person,
nor acquire by amalgamating, merging or consolidating with,
purchasing a majority of voting securities or substantially all
of the assets of or otherwise, any business or Person which
acquisition would result in SSCC's financing commitment for the
Arrangement being terminated or withdrawn and not being replaced.
SECTION 4.5 COVENANTS REGARDING NON-SOLICITATION.
(1) Except as expressly provided herein, St. Laurent shall not, directly or
indirectly, and shall use its best efforts to cause its representatives not
to, (a) solicit, initiate or knowingly encourage (including by way of
furnishing information or entering into any form of agreement, arrangement
or understanding) the initiation of any inquiries or proposals regarding an
Acquisition Proposal, (b) participate in any discussions or negotiations
regarding any Acquisition Proposal, (c) withdraw or modify in a manner
adverse to SSCC the approval of the Board of Directors of St. Laurent of
the transactions contemplated hereby, (d) approve or recommend any
Acquisition Proposal or (e) enter into any agreement, arrangement or
understanding related to any Acquisition Proposal. Notwithstanding the
preceding part of this Section 4.5(1) and any other provision of this
Agreement but subject to the provisions of Section 4.5(2), nothing shall
prevent the Board of Directors of St. Laurent prior to the issuance of the
Final Order from considering, participating in any discussions or
negotiations, or entering into a confidentiality agreement and providing
information pursuant to Section 4.5(3), regarding an unsolicited bona fide
written Acquisition Proposal that did not otherwise result from a breach of
this Section 4.5 and that the Board of Directors of St. Laurent determines
in good faith, after consultation with financial advisors and outside
counsel, is reasonably likely to result in a Superior Proposal; provided,
however, that prior to taking such action, the Board of Directors must
receive written opinion of outside counsel that it is appropriate that the
Board of Directors of St. Laurent take such action in order to discharge
properly its fiduciary duties. St. Laurent shall not consider, negotiate,
accept, approve
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or recommend an Acquisition Proposal after the date of the issuance of the
Final Order. St. Laurent shall, and shall cause the officers, directors,
employees, representatives and agents of St. Laurent and its subsidiaries
to, cease immediately all discussions and negotiations regarding any
proposal received prior to the execution of this Agreement that
constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal.
(2) St. Laurent shall promptly notify SSCC, at first orally and then in
writing, of any Acquisition Proposal and any inquiry that could reasonably
be expected to lead to an Acquisition Proposal, or any amendments to the
foregoing, or any request for non-public information relating to St.
Laurent or any Material Subsidiary in connection with an Acquisition
Proposal or for access to the properties, books or records of St. Laurent
or any Material Subsidiary by any Person that informs St. Laurent or such
subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice shall include a description of the material terms and
conditions of any proposal (including a copy of any written proposal), and
the identity of the Person making such proposal, inquiry or contact. St.
Laurent shall (i) keep SSCC fully informed of the status including any
change to the material terms of any such Acquisition Proposal or inquiry
and (ii) provide to SSCC as soon as practicable after receipt or delivery
thereof with copies of all correspondence and other written material sent
or provided to St. Laurent or any Material Subsidiary from any Person in
connection with any Acquisition Proposal sent or provided by St. Laurent to
any Person in connection with any Acquisition Proposal. SSCC shall treat
any documents received pursuant to this Section 4.5(2) as confidential
information in accordance with the provisions of the Confidentiality
Agreements.
(3) If St. Laurent receives a request for material non-public information from
a Person who has made an unsolicited bona fide written Acquisition Proposal
and St. Laurent is permitted, as contemplated under the second sentence of
Section 4.5(1), to negotiate the terms of such Acquisition Proposal, then,
and only in such case, the Board of Directors of St. Laurent may, subject
to the execution by such Person of a confidentiality agreement containing a
standstill provision substantially similar to that contained in the
Confidentiality Agreements, provide such Person with access to information
regarding St. Laurent; provided, however, that the Person making the
Acquisition Proposal shall not be precluded under such confidentiality
agreement from making the Acquisition Proposal (but not any material
amendment thereto, which shall be treated for the purposes hereof as a new
Acquisition Proposal) and provided further that St. Laurent sends a copy of
any such confidentiality agreement to SSCC promptly upon its execution and
SSCC is provided with a list of or copies of the information provided to
such Person and immediately provided with access to similar information to
which such Person was provided.
(4) St. Laurent shall ensure that its officers, directors and senior employees
and its subsidiaries and their officers, directors and senior employees and
any financial advisors or other advisors or representatives retained by it
are aware of the provisions of this Section 4.5, and it shall be
responsible for any breach of this Section 4.5 by its officers, directors,
employees, financial advisors or other advisors or representatives.
(5) Notwithstanding Section 4.5(1)(c), the Board of Directors of St. Laurent
may withdraw or modify in a manner adverse to SSCC the approval of the
Board of Directors of St. Laurent of the transactions contemplated hereby
if a Specified SSCC Event has occurred and is continuing.
SECTION 4.6 NOTICE BY ST. LAURENT OF SUPERIOR PROPOSAL DETERMINATION.
(1) Provided that the provisions of Section 4.5(1) and Section 4.5(2) are
complied with, St. Laurent may accept, approve, recommend or enter into any
agreement in respect of a Superior Proposal if, and only if, (i) it has
provided SSCC with a copy of the Superior Proposal document, (ii) five
Business Days shall have elapsed from the later of the date SSCC received
written notice advising SSCC that St. Laurent's Board of Directors has
resolved, subject only to compliance with this Section 4.6 and termination
of this Agreement, to accept, approve, recommend or enter into an agreement
in respect of such Superior Proposal, specifying the terms and conditions
of such Superior Proposal and identifying the Person making such Superior
Proposal, and the date SSCC received a copy of such Superior Proposal and
(iii) it has previously or concurrently will have (A) paid to SSCC the
break fee, if any, payable under Section 6.4 and (B) terminated this
Agreement pursuant to Section 6.3. Any information provided by St. Laurent
to SSCC pursuant to this Section 4.6 or pursuant to Section 4.5 shall
constitute "Information" under Section 4.7(2).
(2) During such five Business Day period, St. Laurent agrees that SSCC shall
have the right, but not the obligation, to offer to amend the terms of this
Agreement. The Board of Directors of St. Laurent will review any offer by
SSCC to amend the terms of this Agreement in good faith in order to
determine, in its discretion in the exercise of its fiduciary duties,
whether SSCC's offer upon acceptance by St. Laurent would result in such
Superior Proposal
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ceasing to be a Superior Proposal. If the Board of Directors of St. Laurent
so determines, it will enter into an amended agreement with SSCC reflecting
SSCC's amended proposal. If the Board of Directors of St. Laurent continues
to believe, in good faith and after consultation with financial advisors
and outside counsel, that such Superior Proposal remains a Superior
Proposal and therefore rejects SSCC's amended proposal, St. Laurent may
terminate this Agreement pursuant to Section 6.3(3)(d); provided, however,
that St. Laurent must concurrently pay or cause to be paid to SSCC the
break fee, if any, payable to SSCC under Section 6.4 and must concurrently
with termination enter into a definitive agreement with respect to such
Acquisition Proposal. St. Laurent acknowledges and agrees that payment of
the break fee, if any, payable under Section 6.4 is a condition to valid
termination of this Agreement under Section 6.3(3)(d) and this Section 4.6.
(3) St. Laurent also acknowledges and agrees that each successive modification
relating to an increase in the consideration offered or any other material
provision of any Acquisition Proposal shall constitute a new Acquisition
Proposal for purposes of the requirement under clause (ii) of this Section
4.6 to initiate an additional five Business Day notice period.
SECTION 4.7 ACCESS TO INFORMATION.
(1) Subject to Section 4.7(2) and Section 4.7(3) and applicable Laws, upon
reasonable notice, St. Laurent shall (and shall cause each of its
subsidiaries to) afford SSCC's officers, employees, counsel, accountants
and other authorized representatives and advisors ("REPRESENTATIVES")
access, during normal business hours from the date hereof and until the
earlier of the Effective Date or the termination of this Agreement, to its
properties, books, contracts and records as well as to its management
personnel, and, during such period, St. Laurent shall (and shall cause each
of its subsidiaries to) furnish promptly to SSCC all information concerning
St. Laurent's business, properties and personnel as SSCC may reasonably
request. Subject to Section 4.7(2) and Section 4.7(3) and applicable Laws,
as part of such investigation, SSCC and SSCC's Representatives may make
inquiries of customers of St. Laurent and its Material Subsidiaries;
provided, however, SSCC and SSCC's Representatives shall not contact any
such customers without the prior written consent of St. Laurent which
consent may be withheld by St. Laurent in its sole and absolute discretion
and St. Laurent shall have the opportunity to participate in any such
inquiries. Subject to Section 4.7(2) and Section 4.7(3) and applicable
laws, upon reasonable notice, SSCC shall afford St. Laurent's
Representatives access, upon reasonable notice and during normal business
hours from the date hereof and until the earlier of the Effective Date or
the termination of this Agreement, to such of SSCC's management personnel
as SSCC may determine, acting reasonably, and, during such period, SSCC
shall furnish promptly to St. Laurent all information respecting material
changes in SSCC's business, properties and personnel as St. Laurent may
reasonably request. Nothing in this Section 4.7(1) shall require St.
Laurent or SSCC, as the case may be, to disclose information subject to a
written confidentiality agreement with third parties or customer-specific
or competitively sensitive information relating to areas or projects where
the other party is in direct competition with it.
(2) In accordance with the Confidentiality Agreements, each of SSCC and St.
Laurent acknowledges that certain information provided to it under Section
4.7(1) above will be non-public and/or proprietary in nature (the
"INFORMATION"). Except as permitted below, each of SSCC and St. Laurent
will keep Information confidential and will not, without the prior written
consent of the other, disclose it, in any manner whatsoever, in whole or in
part, to any other Person, and will not use it for any purpose other than
to evaluate the transactions contemplated by this Agreement and to assist
in arranging the financing necessary to consummate such transactions. Each
of SSCC and St. Laurent will make all reasonable, necessary and appropriate
efforts to safeguard the Information from disclosure to anyone other than
as permitted hereby and to control the copies, extracts or reproductions
made of the Information. The Information may be provided to the
Representatives of each of SSCC and St. Laurent who require access to the
same to assist it in proceeding in good faith with the transactions
contemplated by this Agreement and whose assistance is required for such
purposes, provided that it has first informed such Representatives to whom
Information is provided that the Representative has the same obligations,
including as to confidentiality, restricted use and otherwise, that it has
with respect to such Information. This provision shall not apply to such
portions of the Information that: (i) are or become generally available to
the public otherwise than as a result of disclosure by a party or its
Representatives; or (ii) become available to a party on a non-confidential
basis from a source other than, directly or indirectly, the other party or
its Representatives, provided that such source is not to the knowledge of
the first party, upon reasonable inquiry, prohibited from transmitting the
Information by a contractual, legal or fiduciary obligation; (iii) were
known to a party or were in its possession on
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a non-confidential basis prior to being disclosed to it by the other party
or by someone on its behalf; or (iv) are required by applicable Laws or
court order to be disclosed. The provisions of this Section 4.7(2) shall
survive the termination of this Agreement.
(3) The parties acknowledge that certain Information may be competitively
sensitive and that disclosure thereof shall be limited to that which is
reasonably necessary for the purpose of (i) preparing submissions or
applications in order to obtain the Appropriate Regulatory Approvals, (ii)
preparing the Circular, (iii) avoiding conflicts, (iv) integrating the
operations of SSCC and St. Laurent, and (v) arranging the financing
necessary to consummate the transactions contemplated in this Agreement.
(4) Notwithstanding any other provision, no investigation pursuant to this
Section 4.7 shall affect or be deemed to affect or modify any of the
representations and warranties made by St. Laurent in this Agreement, and
no such investigation shall entitle SSCC to terminate this Agreement.
SECTION 4.8 CLOSING MATTERS.
Each of the SSCC Parties and St. Laurent shall deliver, at the closing of
the transactions contemplated hereby, such customary certificates, resolutions
and other closing documents as may be required by the other parties hereto,
acting reasonably.
SECTION 4.9 INDEMNIFICATION.
(1) SSCC agrees that, from and after the Effective Time, all rights to
indemnification or exculpation now existing in favour of the directors or
officers of St. Laurent or any subsidiary as provided in its articles of
incorporation or by-laws in effect on the date hereof shall survive the
Arrangement and shall continue in full force and effect for a period of not
less than six years from the Effective Time.
(2) There shall be maintained in effect, for not less than six years from the
Effective Time, coverage equivalent to that in effect under the current
policies of the directors' and officers' liability insurance maintained by
St. Laurent or any of its subsidiaries, as the case may be, which, in the
aggregate, are no less advantageous, and with no gaps or lapses in
coverages with respect to matters occurring prior to the Effective Time;
provided, neither SSCC nor any of its subsidiaries shall be required to pay
an annual premium in excess of 200% of the last annual premium paid by St.
Laurent prior to the date hereof and if SSCC is not able to obtain the
insurance required by this Section 4.9, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
SECTION 4.10 RIGHTS PLAN.
St. Laurent shall not redeem the rights issued under the St. Laurent Rights
Plan or terminate the St. Laurent Rights Plan until immediately prior to the
Effective Time unless required to do so by a court of competent jurisdiction or
any Regulatory Authority.
SECTION 4.11 BENEFITS CONTINUATION, ETC.
(1) Comparable Benefits. In addition to SSCC's obligations pursuant to the next
sentence, for not less than one year following the Effective Date, SSCC
shall maintain, or shall cause St. Laurent and its subsidiaries to
maintain, compensation and employee benefit plans, welfare benefit plans,
pension plans and arrangements for employees of St. Laurent and its
subsidiaries ("AFFECTED EMPLOYEES") that are, in the aggregate, no less
favorable than as provided under the St. Laurent Plans as in effect on the
date hereof. Without limiting the generality of the foregoing, for not less
than one year following the Effective Date, SSCC shall provide, or cause
St. Laurent and its subsidiaries to provide, severance pay and other
severance benefits to each Affected Employee as of the Effective Date that
are no less favorable than under the St. Laurent Plans as in effect as of
the date of this Agreement. Nothing in this Agreement shall be construed as
granting to any employee any rights of continuing employment.
(2) Honoring St. Laurent Employee Plans and Accrued Vacation. SSCC shall, or
shall cause St. Laurent or its subsidiaries to, honor all St. Laurent Plans
and other contractual commitments in effect immediately prior to the
Effective Date between St. Laurent or its subsidiaries and Affected
Employees or former employees of St. Laurent or its subsidiaries. Without
limiting the generality or the foregoing, SSCC shall honor all vacation,
holiday, sickness and personal days accrued by Affected Employees and, to
the extent applicable, former employees of St. Laurent and its subsidiaries
("FORMER EMPLOYEES") as of the Effective Date.
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<PAGE>
(3) Participation in Benefit Plans. Employees and, to the extent applicable,
Former Employees shall be given credit for all service with St. Laurent and
its subsidiaries (or service credited by St. Laurent or such subsidiaries)
under all employee benefit plans, welfare benefit plans, pension plans and
other arrangements currently maintained by SSCC or any of its subsidiaries
in which they are or become participants for purposes of eligibility and
vesting to the same extent as if rendered to SSCC or any of its
subsidiaries. SSCC shall cause to be waived any pre-existing condition
limitation under its employee benefit plans, welfare benefit plans, pension
plans and other arrangements that might otherwise apply to an Affected
Employee or, to the extent applicable, a Former Employee.
ARTICLE 5
CONDITIONS
SECTION 5.1 MUTUAL CONDITIONS PRECEDENT.
(1) The respective obligations of the parties hereto to complete the
transactions contemplated by this Agreement shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions
precedent, each of which may only be waived by the mutual consent of SSCC,
on behalf of the SSCC Parties, and St. Laurent:
(a) the Arrangement shall have been approved at the St. Laurent Meeting by
not less than two-thirds or such other percentage as set forth in the
Interim Order of the votes cast by the holders of St. Laurent Common
Shares who are represented at the St. Laurent Meeting;
(b) the Arrangement shall have been approved at the St. Laurent Meeting in
accordance with any conditions in addition to those set out in Section
5.1(1)(a) which may be imposed by the Interim Order;
(c) the Interim Order and the Final Order shall each have been obtained in
form and terms satisfactory to each of St. Laurent and SSCC, acting
reasonably, and shall not have been set aside or modified in a manner
unacceptable to such parties on appeal or otherwise;
(d) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by this
Agreement and there shall be no proceeding (other than an appeal made
in connection with the Arrangement), of a judicial or administrative
nature or otherwise, brought by a Governmental Entity in progress or
threatened that relates to or results from the transactions
contemplated by this Agreement that would, if successful, result in an
order or ruling that would preclude completion of the transactions
contemplated by this Agreement in accordance with the terms hereof or
would otherwise be inconsistent with the Appropriate Regulatory
Approvals which have been obtained;
(e) this Agreement shall not have been terminated pursuant to Article 6;
(f) the Appropriate Regulatory Approvals, and the expiry of any waiting
periods, in connection with, or required to permit, the consummation
of the Arrangement, the failure of which to obtain or the non-expiry
of which would constitute a violation of applicable Law, or would have
a Material Adverse Effect on SSCC or St. Laurent, as the case may be,
shall have been obtained or received on terms that will not have a
Material Adverse Effect on SSCC and/or St. Laurent; there shall not be
pending any suit, action or proceeding by any Governmental Entity nor
shall the parties have been advised by the applicable Governmental
Entity that the Government Entity has determined to file a suit,
action or proceeding (i) seeking to prohibit or restrict the
acquisition by SSCC or 3701174 of any St. Laurent Common Shares,
seeking to restrain or prohibit the consummation of the Plan of
Arrangement or seeking to obtain from St. Laurent or SSCC any damages
that are material in relation to St. Laurent and its subsidiaries
taken as a whole, (ii) seeking to prohibit or materially limit the
ownership or operation by SSCC or any of its subsidiaries of any
material portion of the business or assets of St. Laurent or any of
its subsidiaries or to compel SSCC or any of its subsidiaries to
dispose of or hold separate any material portion of the business or
assets of St. Laurent and of its subsidiaries, taken as a whole, as a
result of the Plan of Arrangement, (iii) seeking to impose limitations
on the ability of SSCC or any of its subsidiaries to acquire or hold,
or exercise full rights of ownership of, any St. Laurent Common
Shares, including the right to vote the St. Laurent Common Shares
purchased by it on all matters properly presented to the shareholders
of St. Laurent, (iv) seeking to prohibit SSCC or 3701174 from
effectively controlling in any material respect the business or
operations of St. Laurent and its subsidiaries or (v) which otherwise
is reasonably likely to have a Material Adverse Effect on St. Laurent
or SSCC.
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<PAGE>
SECTION 5.2 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SSCC
PARTIES.
(1) The obligations of the SSCC Parties to complete the transactions
contemplated by this Agreement shall also be subject to the fulfilment of
each of the following conditions precedent (each of which is for the SSCC
Parties' exclusive benefit and may be waived by SSCC on behalf of the SSCC
Parties):
(a) all covenants of St. Laurent under this Agreement to be performed on
or before the Effective Date shall have been duly performed by St.
Laurent in all material respects;
(b) the representations and warranties of St. Laurent shall be true and
correct in all material respects as of the Effective Date as if made
on and as of such date (except to the extent such representations and
warranties speak as of an earlier date, in which event such
representations and warranties shall be true and correct in all
material respects as of such earlier date, or except as affected by
transactions contemplated or permitted by this Agreement) and the SSCC
Parties shall have received a certificate of St. Laurent addressed to
the SSCC Parties and dated the Effective Date, signed on behalf of St.
Laurent by the Chief Executive Officer and Chief Financial Officer of
St. Laurent, confirming the same as at the Effective Date;
(c) between the date hereof and the Effective Date, there shall not have
occurred a Material Adverse Change to St. Laurent;
(d) the Board of Directors of St. Laurent shall have adopted all necessary
resolutions, and all other necessary corporate action shall have been
taken by St. Laurent and the subsidiaries to permit the consummation
of the Arrangement.
(2) The SSCC Parties may not rely on the failure to satisfy any of the above
conditions precedent as a basis for non-compliance by the SSCC Parties with
their obligations under this Agreement if the condition precedent would
have been satisfied but for a material default by the SSCC Parties in
complying with their obligations hereunder.
SECTION 5.3 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ST. LAURENT.
(1) The obligations of St. Laurent to complete the transactions contemplated by
this Agreement shall also be subject to the following conditions precedent
(each of which is for the exclusive benefit of St. Laurent and may be
waived by St. Laurent):
(a) all covenants of the SSCC Parties under this Agreement to be performed
on or before the Effective Date shall have been duly performed by the
SSCC Parties in all material respects;
(b) the representations and warranties of the SSCC Parties shall be true
and correct in all material respects as of the Effective Date as if
made on and as of such date (except to the extent such representations
and warranties speak as of an earlier date, in which event such
representations and warranties shall be true and correct in all
material respects as of such earlier date) and St. Laurent shall have
received a certificate of each of the SSCC Parties addressed to St.
Laurent and dated the Effective Date, signed on behalf of each of the
SSCC Parties by two senior executive officers of the relevant SSCC
Party, confirming the same as at the Effective Date;
(c) between the date hereof and the Effective Date, there shall not have
occurred a Material Adverse Change to SSCC;
(d) the Boards of Directors of the SSCC Parties shall have adopted all
necessary resolutions, and all other necessary corporate action shall
have been taken by the SSCC Parties to permit the consummation of the
Arrangement and the issue of SSCC Common Shares pursuant to the
Arrangement and upon the exercise from time to time of the Replacement
Options;
(e) the SSCC Common Shares issuable pursuant to the Arrangement, upon
exercise of the Replacement Options and the St. Laurent Warrants from
time to time shall have been approved for listing on The Nasdaq Stock
Market, subject to notice of issuance; and
(f) the issuance and first resale of the SSCC Common Shares to be issued
to the holders of St. Laurent Common Shares as of the Effective Time
shall be permitted without qualification with or approval of or the
filing of any document under Securities Legislation, except with
respect to Affiliates who shall receive SSCC Common Shares subject to
the terms and restrictions of the Affiliate's Letter and except for
such first resales, any restrictions or transfer by reason of a holder
being a "control person" of any SSCC Party or St. Laurent for purposes
of Canadian, federal, provincial or territorial Securities
Legislation. B-36
<PAGE>
(2) St. Laurent may not rely on the failure to satisfy any of the above
conditions precedent as a basis for noncompliance by St. Laurent with its
obligations under this Agreement if the condition precedent would have been
satisfied but for a material default by St. Laurent in complying with its
obligations hereunder.
SECTION 5.4 NOTICE AND CURE PROVISIONS.
(1) The SSCC Parties and St. Laurent will give prompt notice to the other of
the occurrence, or failure to occur, at any time from the date hereof until
the Effective Date, of any event or state of facts which occurrence or
failure would, or would be likely to:
(a) cause any of the representations or warranties of the other party
contained herein to be untrue or inaccurate in any material respect on
the date hereof or on the Effective Date; or
(b) result in the failure in any material respect to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by the other hereunder prior to the Effective Date.
(2) Neither the SSCC Parties nor St. Laurent may elect not to complete the
transactions contemplated hereby pursuant to the conditions precedent
contained in Section 5.1, Section 5.2, Section 5.3, or exercise any
termination right arising therefrom, unless forthwith and in any event
prior to the filing of the Final Order for acceptance by the Director, the
SSCC Parties or St. Laurent, as the case may be, have delivered a written
notice to the other specifying in reasonable detail all breaches of
covenants, representations and warranties or other matters which the SSCC
Parties or St. Laurent, as the case may be, are asserting as the basis for
the non-fulfilment of the applicable condition precedent or the exercise of
the termination right, as the case may be. If any such notice is delivered,
provided that the SSCC Parties or St. Laurent, as the case may be, are
proceeding diligently to cure such matter and if such matter is susceptible
to being cured using commercially reasonable efforts, the other may not
terminate this Agreement as a result thereof until the later of August 30,
2000 and the expiration of a period of thirty (30) days from such notice.
If such notice has been delivered prior to the date of the St. Laurent
Meeting, such meeting shall be postponed until the expiry of such period.
If such notice has been delivered prior to the making of the application
for the Final Order or the filing of the Articles of Arrangement with the
Director, such application and such filing shall be postponed until the
expiry of such period. For greater certainty, in the event that such matter
is cured within the time period referred to herein, this Agreement may not
be terminated.
SECTION 5.5 SATISFACTION OF CONDITIONS.
The conditions precedent set out in Section 5.1, Section 5.2 and Section
5.3 shall be conclusively deemed to have been satisfied, waived or released
when, with the agreement of SSCC and St. Laurent, a certificate of arrangement
in respect of the Arrangement is issued by the Director.
The parties hereto agree that no condition to the obligation of SSCC
Parties to complete the transactions contemplated by this Agreement set forth in
Section 5.2(1)(a), Section 5.2(1)(b) or Section 5.2(1)(c) shall be deemed not to
have been satisfied as a result of any occurrence of circumstances directly or
indirectly related to the effect of the existence or performance of this
Agreement or the transactions contemplated hereby on any existing agreements of
St. Laurent or its affiliates relating to the St. Laurent Partially-Owned Entity
or its affiliates or St. Laurent's relations with such persons referred to in
the St. Laurent Disclosure Letter.
ARTICLE 6
AMENDMENT AND TERMINATION
SECTION 6.1 AMENDMENT.
This Agreement may, at any time and from time to time before or after the
holding of the St. Laurent Meeting but not later than the Effective Date, be
amended by mutual written agreement of the parties hereto provided, however,
that any such amendment does not invalidate any required security holder
approval of the Arrangement.
SECTION 6.2 MUTUAL UNDERSTANDING REGARDING AMENDMENTS.
(1) The parties will continue, from and after the date hereof and through and
including the Effective Date, to use their respective reasonable efforts to
maximize present and future financial and tax planning opportunities for
SSCC and for St. Laurent as and to the extent that the same shall not
prejudice any party or its security holders from the
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<PAGE>
situation arising hereunder. The parties will ensure that such planning
activities do not impede the progress of the Arrangement in any material
way.
(2) The parties agree that if the SSCC Parties or St. Laurent, as the case may
be, propose any amendment or amendments to this Agreement or to the Plan of
Arrangement, the other will act reasonably in considering such amendment
and if the other and its shareholders are not prejudiced by reason of any
such amendment the other will co-operate in a reasonable fashion with the
SSCC Parties or St. Laurent, as the case may be, so that such amendment can
be effected subject to applicable Laws and the rights of the security
holders.
SECTION 6.3 TERMINATION.
(1) If any condition contained in Section 5.1 or Section 5.2 is not satisfied
at or before the Effective Date to the satisfaction of the SSCC Parties,
then, subject to Section 5.4, SSCC on behalf of the SSCC Parties may by
notice to St. Laurent terminate this Agreement and the obligations of the
parties hereunder except as otherwise herein provided, but without
detracting from the rights of the SSCC Parties arising from any breach by
St. Laurent.
(2) If any condition contained in Section 5.1 or Section 5.3 is not satisfied
at or before the Effective Date to the satisfaction of St. Laurent, then,
subject to Section 5.4, St. Laurent may by notice to SSCC on behalf of the
SSCC Parties terminate this Agreement and the obligations of the parties
hereunder except as otherwise herein provided, but without detracting from
the rights of St. Laurent arising from any breach by the SSCC Parties.
(3) This Agreement may:
(a) be terminated by the mutual agreement of St. Laurent and the SSCC
Parties (without further action on the part of the St. Laurent
Securityholders if terminated after the holding of the St. Laurent
Meeting);
(b) be terminated by either St. Laurent or SSCC, if there shall be passed
any law or regulation applicable to SSCC or St. Laurent, as the case
may be, that makes consummation of the transactions contemplated by
this Agreement illegal or otherwise prohibited or if any injunction,
order or decree enjoining SSCC or St. Laurent from consummating the
transactions contemplated by this Agreement is entered and such
injunction, order or decree shall become final and non-appealable;
(c) be terminated by SSCC if (A) the Board of Directors of St. Laurent
shall have failed to recommend or withdrawn or modified or changed in
a manner adverse to SSCC its approval or recommendation of this
Agreement or the Arrangement or shall have recommended an Acquisition
Proposal, or (B) St. Laurent shall have materially and willfully
breached the covenants contained in Section 4.5(1)(a) or if St.
Laurent has accepted a Superior Proposal in violation of Section 4.6
or (C) through the fault of St. Laurent (whether by commission or
omission), this Arrangement is not, prior to 14 days prior to the Drop
Dead Date, submitted for the approval of the St. Laurent
Securityholders at the St. Laurent Meeting;
(d) be terminated by St. Laurent in order to enter into a definitive
written agreement with respect to a Superior Proposal, provided St.
Laurent has complied with Section 4.6 and the payment of any fee
required to be paid pursuant to Section 6.4; or
(e) be terminated by St. Laurent or SSCC if St. Laurent Securityholder
approval shall not have been obtained by reason of the failure to
obtain the required vote at the St. Laurent Meeting;
in each case, prior to the Effective Date.
(4) If the Effective Date does not occur on or prior to the Drop Dead Date,
then this Agreement shall terminate.
(5) If this Agreement is validly terminated by either SSCC or St. Laurent
pursuant to Section 6.3, this Agreement shall forthwith become null and
void and there will be no liability or obligation on the part of either
SSCC or St. Laurent (or any of their respective directors, officers,
representatives or affiliates), except (i) that Section 6.4, Section 7.7
and this Section 6.3(5) shall continue to survive any such termination and
(ii) that nothing contained herein shall relieve any party hereto from
liability for willful breach of its representations, warranties, covenants
or agreements contained in this Agreement.
SECTION 6.4 BREAK FEE.
If:
(a) St. Laurent shall terminate this Agreement pursuant to Section
6.3(3)(d);
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<PAGE>
(b) SSCC shall terminate this Agreement pursuant to Section 6.3(3)(c)(A)
or Section 6.3(3)(c)(C); or
(c) either St. Laurent or SSCC shall terminate this Agreement pursuant to
Section 6.3(3)(e) in circumstances where St. Laurent Securityholder
approval has not been obtained at the St. Laurent Meeting, and (x) a
bona fide Acquisition Proposal has been made by any person other than
a SSCC Party prior to the St. Laurent Meeting and not withdrawn more
than five (5) days prior to the vote of the St. Laurent
Securityholders and (y) St. Laurent enters into an acquisition
agreement with respect to an Acquisition Proposal, or an Acquisition
Proposal is consummated, after the date hereof and prior to the
expiration of 12 months following termination of this Agreement,
unless at the time of the St. Laurent Meeting a specified SSCC Event
has occurred and is continuing;
then in any such case St. Laurent shall pay to SSCC US$30 million in
immediately available funds to an account designated by SSCC. Such payment
shall be due (i) in the case of a termination specified in clause (a),
prior to the termination of this Agreement, (ii) in the case of a
termination specified in clause (b), within five Business Days after
written notice of termination by SSCC or (iii) in the case of a termination
specified in clause (c), at or prior to the earlier of the entering into of
the acquisition agreement and the consummation of the transaction referred
to therein. St. Laurent shall not be obligated to make more than one
payment pursuant to this Section 6.4.
SECTION 6.5 EFFECT OF BREAK FEE PAYMENT.
For greater certainty, the parties hereto agree that if St. Laurent pays to
SSCC amounts required by Section 6.4 as a result of the occurrence of any of the
events referenced in Section 6.4, the SSCC Parties shall have no other remedy
for any breach of this Agreement by St. Laurent.
SECTION 6.6 REMEDIES.
Subject to Section 6.5, the parties hereto acknowledge and agree that an
award of money damages would be inadequate for any breach of this Agreement by
any party or its representatives and any such breach would cause the
non-breaching party irreparable harm. Accordingly, the parties hereto agree
that, in the event of any breach or threatened breach of this Agreement by one
of the parties, the non-breaching party will also be entitled, without the
requirement of posting a bond or other security, to injunctive relief and
specific performance. Such remedies will not be the exclusive remedies for any
breach of this Agreement but will be in addition to all other remedies available
at law or equity to each of the parties.
ARTICLE 7
GENERAL
SECTION 7.1 NOTICES.
(1) All notices and other communications which may or are required to be given
pursuant to any provision of this Agreement shall be given or made in
writing and shall be deemed to be validly given if served personally or by
telecopy, in each case addressed to the particular party at:
(a) If to St. Laurent, at:
St. Laurent Paperboard Inc.
620 Rene-Levesque Blvd. West
Suite 3000
Montreal, Quebec
H3B 5C7
Attention: Marion Allaire
Telecopier No.: (514) 861-9408
B-39
<PAGE>
with a copy to:
Goodman Phillips & Vineberg
1501 McGill College Avenue
26(th) Floor
Montreal, Quebec
H3A 3N9
Attention: Sylvain Cossette
Telecopier No.: (514) 841-6449
and to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ellen J. Odoner
Telecopier No.: (212) 310-8007
(b) If to a SSCC Party, at:
Smurfit-Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: Craig A. Hunt
Telecopier No.: (312) 580-4625
with a copy to:
Stikeman Elliott
1155 Rene-Levesque Blvd W.
Montreal, Quebec
H3B 3V2
Attention: Pierre Raymond and Christine Desaulniers
Telecopier No.: (514) 397-3222
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Joseph A. Walsh Jr.
Telecopier No.: (312) 558-5700
or at such other address of which any party may, from time to time,
advise the other parties by notice in writing given in accordance with
the foregoing. The date of receipt of any such notice shall be deemed
to be the date of delivery or telecopying thereof.
SECTION 7.2 ASSIGNMENT.
No party hereto may assign its rights or obligations under this Agreement
or the Arrangement except that the SSCC Parties (other than SSCC) shall be
permitted to assign their rights and obligations under this Agreement to a
direct or indirect wholly-owned subsidiary of SSCC, provided such assignment
shall not release any such SSCC Party from liability hereunder.
SECTION 7.3 BINDING EFFECT.
This Agreement and the Arrangement shall be binding upon and shall enure to
the benefit of the parties hereto and their respective successors and no third
party shall have any rights hereunder.
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<PAGE>
SECTION 7.4 WAIVER AND MODIFICATION.
St. Laurent and the SSCC Parties may waive or consent to the modification
of, in whole or in part, any inaccuracy of any representation or warranty made
to them hereunder or in any document to be delivered pursuant hereto and may
waive or consent to the modification of any of the covenants herein contained
for their respective benefit or waive or consent to the modification of any of
the obligations of the other parties hereto. Any waiver or consent to the
modification of any of the provisions of this Agreement, to be effective, must
be in writing executed by the party granting such waiver or consent. No failure
or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
SECTION 7.5 NO PERSONAL LIABILITY.
1) No director or officer of any SSCC Party shall have any personal liability
whatsoever to St. Laurent under this Agreement, or any other document
delivered in connection with the Arrangement on behalf of a SSCC Party.
2) No director or officer of St. Laurent shall have any personal liability
whatsoever to any SSCC Party under this Agreement, or any other document
delivered in connection with the Arrangement on behalf of St. Laurent.
SECTION 7.6 FURTHER ASSURANCES.
Each party hereto shall, from time to time, and at all times hereafter, at
the request of the other parties hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
SECTION 7.7 EXPENSES.
1) Subject to Section 6.4, the parties agree that all out-of-pocket expenses of
the parties relating to the Arrangement and the transactions contemplated
hereby, including legal fees, accounting fees, financial advisory fees,
regulatory filing fees, all disbursements of advisors and printing and
mailing costs, shall be paid by the party incurring such expenses.
2) St. Laurent represents and warrants to the SSCC Parties that, except for any
amounts owing to Bunting Warburg Dillon Read Inc. and Donaldson, Lufkin &
Jenrette by St. Laurent pursuant to and in accordance with the terms of
written and executed agreements existing as at the date hereof, copies of
which have been given to the SSCC Parties on or prior to the date hereof, no
broker, finder or investment banker is or will be entitled to any brokerage,
finder's or other fee or commission from St. Laurent or any subsidiary of
St. Laurent in connection with the transactions contemplated hereby or by
the Arrangement.
SECTION 7.8 CONSULTATION.
SSCC and St. Laurent agree to consult with each other as to the general
nature of any news releases or public statements with respect to this Agreement
or the Arrangement, and to use their respective reasonable efforts not to issue
any news releases or public statements inconsistent with the results of such
consultations. Subject to applicable Laws, each party shall use its reasonable
efforts to enable the other parties to review and comment on all such news
releases prior to the release thereof. The parties agree to issue jointly a news
release with respect to this Arrangement as soon as practicable following the
execution of this Agreement. SSCC and St. Laurent also agree to consult with
each other in preparing and making any filings and communications in connection
with any Appropriate Regulatory Approvals.
SECTION 7.9 GOVERNING LAWS.
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Quebec and the laws of Canada applicable therein and
shall be treated in all respects as a Quebec contract. Each party hereby
irrevocably attorns to the jurisdiction of the courts of the Province of Quebec
in respect of all matters arising under or in relation to this Agreement.
SECTION 7.10 TIME OF ESSENCE.
Time shall be of the essence in this Agreement.
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<PAGE>
SECTION 7.11 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.
SECTION 7.12 NO THIRD PARTY BENEFICIARIES
Except as provided in Section 4.9 and this Section 7.12, this Agreement
(including the documents and instruments referred to herein) is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
SECTION 7.13 LANGUAGE.
The Parties have required that this Agreement and all instruments relating
thereto be in the English language; les parties ont exige que la presente
convention et tout autre document afferent aux presentes soient en langue
anglaise.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first written above.
SMURFIT-STONE CONTAINER CORPORATION
By: /s/ RAYMOND M. CURRAN
Raymond M. Curran
STONE CONTAINER CORPORATION
By: /s/ RAYMOND M. CURRAN
Raymond M. Curran
3701174 CANADA INC.
By: /s/ RAYMOND M. CURRAN
Raymond M. Curran
3038727 NOVA SCOTIA COMPANY
By: /s/ RAYMOND M. CURRAN
Raymond M. Curran
ST. LAURENT PAPERBOARD INC.
By: /s/ JOSEPH J. GURANDIANO
Joseph J. Gurandiano
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<PAGE>
SCHEDULE A TO THE AMENDED AND
RESTATED PRE-MERGER AGREEMENT
FORM OF AFFILIATE'S LETTER
________, 2000
Smurfit-Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: Secretary
Ladies and Gentlemen:
Reference is made to the Amended and Restated Pre-Merger Agreement dated as
of April 13, 2000 (the "AGREEMENT"), among Smurfit-Stone Container Corporation,
a Delaware corporation ("SSCC"), Stone Container Corporation, a Delaware
corporation ("STONE"), 3701174 Canada Inc., a corporation existing under the
laws of Canada, 3038727 Nova Scotia Company, an unlimited liability company
existing under the laws of the Province of Nova Scotia, and St. Laurent
Paperboard Inc., a corporation existing under the laws of Canada (the
"COMPANY"), providing for a Plan of Arrangement (the "ARRANGEMENT"), pursuant to
which I may receive a cash payment plus shares of SSCC's common stock, par value
$0.01 per share (the "SSCC SECURITIES"), in exchange for the common shares of
the Company owned by me at the Effective Time of the Plan of Arrangement.
Capitalized terms used herein and not defined herein have the respective
meanings ascribed to them in the Agreement. This agreement is being delivered
pursuant to Section 4.3 of the Agreement.
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of the Company, as that term is defined for purposes of Rule 145 of
the rules and regulations (the "RULES AND REGULATIONS") of the Securities and
Exchange Commission (the "COMMISSION") promulgated under the Securities Act of
1933, as amended (the "ACT"). Neither my entering into this agreement, nor
anything contained herein, shall be deemed an admission on my part that I am
such an "affiliate" for any purpose.
I represent and warrant to SSCC that in such event:
A. I shall not make any sale, transfer or other disposition of the SSCC
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
their requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of SSCC Securities, to the extent I felt
necessary, with my counsel or counsel for the Company.
C. I have been advised that, in reliance on the exemption accorded by
Section 3(a)(10) of the Act, the issuance of SSCC Securities to me pursuant to
the Plan of Arrangement has not been registered with the Commission under the
Act. I have also been advised that because I may be deemed to have been an
affiliate of the Company prior to the completion of the Plan of Arrangement and
a distribution by me of SSCC Securities has not been registered under the Act,
the SSCC Securities must be held by me indefinitely unless (i) a distribution of
SSCC Securities by me has been registered under the Act, (ii) a sale of SSCC
Securities by me is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to SSCC, some other exemption from registration is
available with respect to a proposed sale, transfer or other disposition of SSCC
Securities by me.
D. I understand that SSCC is under no obligation to register the sale,
transfer or other disposition of SSCC Securities by me or on my behalf or to
take any other action necessary in order to make compliance with an exemption
from registration under the Act available.
E. I also understand that stop transfer instructions will be given to
SSCC's transfer agents with respect to the SSCC Securities and that there will
be placed on the certificates for the SSCC Securities delivered to me, or,
subject to the last paragraph of this letter, any substitutions therefor, a
legend stating in substance:
B-43
<PAGE>
"The shares represented by this certificate have been issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies and may only be sold, transferred or otherwise disposed of in
compliance with the requirements of Rule 145 or pursuant to a registration
statement under said act or an exemption from such registration".
F. I also understand that unless the transfer by me of my SSCC
Securities has been registered under the Act or is a sale made in conformity
with the provisions of Rule 145, SSCC reserves the right to put the following
legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies. The shares have been acquired by the
holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act of 1933 and
may not be sold, pledged or otherwise transferred except in accordance with
an exemption from the registration requirements of the Securities Act of
1933."
It is understood and agreed that the legends set forth in paragraph E
and F above shall be removed by delivery of substitute certificates without
such legend if the undersigned shall have delivered to SSCC a copy of a
letter from the staff of the Commission, or an opinion of counsel
reasonably acceptable to SSCC to the effect that such legend is not
required for purposes of the Act. In such event, SSCC will also rescind the
stock transfer instructions referred to above.
Very truly yours,
---------------------------------------------------------------------------
Name:
Accepted this
- --- day of
- --------- 2000, by:
SMURFIT-STONE CONTAINER CORPORATION
By:
- ------------------------------------
Name:
Title:
B-44
<PAGE>
SCHEDULE B TO THE AMENDED AND RESTATED
PRE-MERGER AGREEMENT
APPROPRIATE REGULATORY APPROVALS
CANADA
- -- expiration or earlier termination of the waiting period under Part IX of
the Competition Act (Canada) and receipt of an advance ruling certificate
("ARC") pursuant to the Competition Act (Canada) or, in the alternative to
an ARC, a no-action letter from the Commissioner of Competition;
- -- determination by the Minister responsible for Investment Canada under the
Investment Canada Act that the Arrangement is of "net benefit to Canada"
for purposes of such Act, subject to conditions satisfactory to SSCC,
acting reasonably; and
- -- exemption orders from the provincial securities regulators from the
registration and prospectus requirements with respect to the issuance and
first resale of SSCC Common Shares.
UNITED STATES AND OTHER
- -- expiration or earlier termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; and
- -- approval of The Nasdaq Stock Market regarding the listing of the SSCC
Common Shares subject to official notice of issuance.
B-45
<PAGE>
SCHEDULE C TO THE AMENDED AND RESTATED
PRE-MERGER AGREEMENT
ARRANGEMENT RESOLUTION
SPECIAL RESOLUTION OF THE ST. LAURENT SECURITYHOLDERS
BE IT RESOLVED THAT:
1. The arrangement (the "ARRANGEMENT") under Section 192 of the Canada
Business Corporations Act (the "CBCA") involving St. Laurent Paperboard
Inc. ("ST. LAURENT"), as more particularly described and set forth in the
Management Information Circular (the "CIRCULAR") of St. Laurent
accompanying the notice of this meeting (as the Arrangement may be modified
or amended) is hereby authorized, approved and adopted.
2. The plan of Arrangement (the "PLAN OF ARRANGEMENT") involving St. Laurent,
the full text of which is set out as Schedule D to the Amended and Restated
Pre-Merger Agreement made as of April 13, 2000 among Smurfit-Stone
Container Corporation, Stone Container Corporation, 3701174 Canada Inc.,
3038727 Nova Scotia Company and St. Laurent (the "PRE-MERGER AGREEMENT"),
(as the Plan of Arrangement may be or may have been amended) is hereby
approved and adopted.
3. Notwithstanding that this resolution has been passed (and the Arrangement
adopted) by the shareholders, holders of options and holders of restricted
share units of St. Laurent or that the Arrangement has been approved by the
Superior Court of Quebec, District of Montreal, the directors of St.
Laurent are hereby authorized and empowered (i) to amend the Pre-Merger
Agreement, or the Plan of Arrangement to the extent permitted by the
Pre-Merger Agreement, and (ii) not to proceed with the Arrangement without
further approval of the shareholders, holders of options and holders of
restricted share units of St. Laurent, but only if the Pre-Merger Agreement
is terminated in accordance with Article 6 thereof.
4. Any officer or director of St. Laurent is hereby authorized and directed
for and on behalf of St. Laurent to execute, under the seal of St. Laurent
or otherwise, and to deliver articles of arrangement and such other
documents as are necessary or desirable to the Director under the CBCA in
accordance with the Pre-Merger Agreement for filing.
5. Any officer or director of St. Laurent is hereby authorized and directed
for and on behalf of St. Laurent to execute or cause to be executed, under
the seal of St. Laurent or otherwise, and to deliver or cause to be
delivered, all such other documents and instruments and to perform or cause
to be performed all such other acts and things as in such person's opinion
may be necessary or desirable to give full effect to the foregoing
resolution and the matters authorized thereby, such determination to be
conclusively evidenced by the execution and delivery of such document,
agreement or instrument or the doing of any such act or thing.
B-46
<PAGE>
SCHEDULE D TO THE
AMENDED AND RESTATED PRE-MERGER AGREEMENT
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"ARRANGEMENT" means an arrangement under section 192 of the CBCA on the
terms and subject to the conditions set out in this Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with
Section 6.1 of the Pre-Merger Agreement or Article 5 or made at the
direction of the Court in the Final Order.
"ARRANGEMENT RESOLUTION" means the special resolution of the St. Laurent
Securityholders, to be substantially in the form and content of Schedule C
annexed to the Pre-Merger Agreement.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of St. Laurent
in respect of the Arrangement that are required by the CBCA to be sent to
the Director after the Final Order is made.
"BUSINESS DAY" means any day on which commercial banks are generally open
for business in Chicago, Illinois and Montreal, Quebec, other than a
Saturday, a Sunday or a day observed as a holiday in Chicago, Illinois
under the laws of the State of Illinois or the federal laws of the United
States of America or in Montreal, Quebec under the laws of the Province of
Quebec or the federal laws of Canada.
"CBCA" means the Canada Business Corporations Act, as amended.
"CERTIFICATE" means the certificate of arrangement giving effect to the
Arrangement, issued pursuant to subsection 192(7) of the CBCA after the
Articles of Arrangement have been filed.
"CIRCULAR" means the notice of the St. Laurent Meeting and accompanying
management information circular, including all appendices thereto, to be
sent to holders of St. Laurent Common Shares, St. Laurent Options and St.
Laurent RSUs in connection with the St. Laurent Meeting, as may be amended
from time to time.
"COURT"means the Superior Court of Quebec, District of Montreal.
"DEPOSITARY" means Montreal Trust Company at its offices located at
Montreal, Quebec.
"DIRECTOR" mean the Director appointed pursuant to section 260 of the CBCA.
"DISSENT RIGHTS" has the meaning ascribed thereto in Section 3.1.
"DISSENTING SHAREHOLDER" means a holder of St. Laurent Common Shares who
dissents in respect of the Arrangement in strict compliance with the
Dissent Rights.
"DROP DEAD DATE" means September 30, 2000, or such later date as may be
mutually agreed by the parties to the Pre-Merger Agreement.
"EFFECTIVE DATE" means the date shown on the Certificate, provided that
such date occurs on or prior to the Drop Dead Date.
"EFFECTIVE TIME" means 12:01 a.m. (Montreal time) on the Effective Date.
"EXCHANGE CONSIDERATION" has the meaning ascribed thereto in Section 2.3.
"FINAL ORDER" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the
Effective Date or, if appealed, then, unless such appeal is withdrawn or
denied, as affirmed.
B-47
<PAGE>
"GOVERNMENT ENTITY" means any (a) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign, (b) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (c) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing.
"HOLDERS" means the holders of St. Laurent Common Shares shown from time to
time in the register maintained by or on behalf of St. Laurent in respect
of the St. Laurent Common Shares.
"INTERIM ORDER" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement, as contemplated by Section 2.2 of
the Pre-Merger Agreement.
"MEETING DATE" means the date of the St. Laurent Meeting.
"NASDAQ" means The Nasdaq Stock Market.
"NOON SPOT RATE" means, on any day, the Noon Spot Rate on such day of the
Bank of Canada for one US dollar expressed in Canadian dollar.
"NSCA" means the Companies Act (Nova Scotia).
"PERSON" includes any individual, firm, partnership, joint venture, venture
capital fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other
entity, whether or not having legal status.
"PRE-MERGER AGREEMENT" means the amended and restated pre-merger agreement
made as of the 13(th) day of April, 2000 among SSCC, Stone, 3701174,
3038727 and St. Laurent, as amended, supplemented and/or restated in
accordance therewith prior to the Effective Date, providing for, among
other things, the Arrangement.
"REPLACEMENT OPTION" has the meaning ascribed thereto in Section 2.2(b).
"SECURITY PORTION" has the meaning ascribed thereto in Section 2.3.
"SSCC" means Smurfit-Stone Container Corporation, a corporation existing
under the laws of the State of Delaware.
"SSCC CLOSING PRICE" means the closing price on Nasdaq of SSCC Common
Shares on the day immediately preceding the Effective Date.
"SSCC COMMON SHARES" means the shares of common stock in the capital of
SSCC.
"SSCC OPTION SHARES" has the meaning ascribed thereto in Section 2.2(b).
"SSCC TRADING PRICE" means the average of the closing prices of SSCC Common
Shares on Nasdaq during a period of 20 consecutive trading days ending on
the Business Day immediately preceding the Effective Date.
"ST. LAURENT" means St. Laurent Paperboard Inc., a corporation existing
under the laws of Canada.
"ST. LAURENT COMMON SHARES" means the common shares in the capital of St.
Laurent.
"ST. LAURENT DIRECTORS' STOCK OPTION AND SHARE PURCHASE PLAN" means that
certain Directors Stock Option and Share Purchase Plan of St. Laurent in
effect as of the date hereof.
"ST. LAURENT EMPLOYEE SHARE PURCHASE PLAN (CANADA)" means the employee
share purchase plan (Canada) of St. Laurent in effect as of the date
hereof.
"ST. LAURENT LONG-TERM INCENTIVE PLAN" means the long-term incentive plan
of St. Laurent in effect as of the date hereof.
"ST. LAURENT MANAGERS' SHARE PURCHASE PLAN" means the managers' share
purchase plan of St. Laurent in effect as of the date hereof.
"ST. LAURENT MANAGERS' STOCK OPTION PLAN" mean the managers' stock option
plan of St. Laurent in effect as of the date hereof.
"ST. LAURENT MEETING" means the special meeting of St. Laurent
Securityholders, including any adjournment thereof, to be called and held
in accordance with the Interim Order to consider the Arrangement.
B-48
<PAGE>
"ST. LAURENT OPTIONS" means the options to purchase St. Laurent Common
Shares granted under the St. Laurent Directors' Stock Option and Share
Purchase Plan, the St. Laurent Long-Term Incentive Plan and the St. Laurent
Managers' Stock Option Plan and being outstanding and unexercised.
"ST. LAURENT PERFORMANCE SHARE PLAN" means the performance share plan of
St. Laurent in effect as of the date hereof.
"ST. LAURENT RIGHTS PLAN" means the shareholder rights plan of St. Laurent
approved on February 1, 1995, as amended on April 28, 1995, on March 5,
1998, on May 7, 1998 and on February 23, 2000.
"ST. LAURENT RSUS" means the restricted share units granted by St. Laurent
to certain officers and managers pursuant to the St. Laurent Managers'
Share Purchase Plan and being outstanding and unexercised on the Effective
Date.
"ST. LAURENT SECURITYHOLDERS" means the holders of St. Laurent Common
Shares, St. Laurent Options and St. Laurent RSUs, collectively.
"ST. LAURENT SHARE PURCHASE PLANS" means, collectively, the St. Laurent
Directors' Stock Option and Purchase Plan, the St. Laurent Employee Share
Purchase Plan (Canada), the St. Laurent subsidiary Employee Stock Purchase
Plan (U.S.), the St. Laurent Managers' Share Purchase Plan and the St.
Laurent Performance Share Plan.
"ST. LAURENT SUBSIDIARY EMPLOYEE STOCK PURCHASE PLAN (U.S.)" means that
certain Employee Stock Purchase Plan (U.S.) of a subsidiary of St. Laurent
in effect as of the date hereof.
"STONE" means Stone Container Corporation, a corporation existing under the
laws of the State of Delaware.
"3038727" means 3038727 Nova Scotia Company, an unlimited liability company
existing under the laws of the Province of Nova Scotia and being a
subsidiary of Stone.
"3701174" means 3701174 Canada Inc., a corporation existing under the laws
of Canada.
SECTION 1.2 SECTIONS AND HEADINGS
The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this
Plan of Arrangement to a section or an exhibit refers to the specified section
of or exhibit to this Plan of Arrangement.
SECTION 1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa and words
importing any gender include all genders.
ARTICLE 2
ARRANGEMENT
SECTION 2.1 BINDING EFFECT
This Plan of Arrangement will become effective at, and be binding at and
after, the Effective Time on (i) St. Laurent, (ii) SSCC, Stone, 3701174 and
3038727, (iii) all holders and all beneficial holders of St. Laurent Common
Shares, and (iv) all holders of St. Laurent Options and St. Laurent RSUs.
SECTION 2.2 ARRANGEMENT
Commencing at the Effective Time, the following shall occur and shall be
deemed to occur in the following order without any further act or formality:
(a) each St. Laurent Common Share will be transferred by the holder
thereof, without any act or formality on its part, to 3701174 in
exchange for the Exchange Consideration, and the name of each such
holder will be removed from the register of holders of St. Laurent
Common Shares and added to the register of holders of SSCC Common
Shares and 3701174 will be recorded as the registered holder of such
St. Laurent Common Shares so exchanged and will be deemed to be the
legal and beneficial owner thereof;
B-49
<PAGE>
(b) each St. Laurent Option shall be exchanged for an option (a
"REPLACEMENT OPTION") to purchase that number of SSCC Common Shares
equal to the sum of (i) the Security Portion times the number of St.
Laurent Common Shares subject to the St. Laurent Option; plus (ii) the
quotient of (A) $12.50 times the number of St. Laurent Common Shares
subject to the St. Laurent Option, divided by (B) the SSCC Closing
Price ("SSCC OPTION SHARES"); the exercise price per SSCC Common Share
for each Replacement Option shall be the quotient of (x) an aggregate
amount equal to the number of St. Laurent Common Shares subject to the
St. Laurent Option exchanged for such Replacement Option times the
original exercise price per St. Laurent Common Share pursuant to such
St. Laurent Option, at the option of the holder (i) converted into its
U.S. dollar equivalent based on the Noon Spot Rate on the day
immediately preceding the Effective Date, or (ii) expressed in
Canadian dollars, the whole divided by (y) the SSCC Option Shares
subject to such Replacement Option; and
(c) each St. Laurent RSU shall be fully vested and entitle its holder to
receive at the Effective Time, with respect of each St. Laurent Common
Share subject to such St. Laurent RSU, the Exchange Consideration
without any further act or formality.
SECTION 2.3 EXCHANGE CONSIDERATION
For purposes hereof, "EXCHANGE CONSIDERATION" means, with respect to each
St. Laurent Common Share, US$12.50 payable in cash plus 0.5 SSCC Common Share
(the "SECURITY PORTION").
SECTION 2.4 ADJUSTMENTS TO CONSIDERATION
The Security Portion of the Exchange Consideration and the conversion
formula for the St. Laurent Options shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into SSCC Common Shares or St. Laurent
Common Shares other than stock dividends paid in lieu of ordinary course
dividends), reorganization, recapitalization or other like change with respect
to SSCC Common Shares or St. Laurent Common Shares occurring after the date of
the Pre-Merger Agreement and prior to the Effective Time.
ARTICLE 3
RIGHTS OF DISSENT
SECTION 3.1 RIGHTS OF DISSENT
Holders of St. Laurent Common Shares may exercise rights of dissent with
respect to such shares pursuant to and in the manner set forth in section 190 of
the CBCA and this Section 3.1 (the "DISSENT RIGHTS") in connection with the
Arrangement; provided that, notwithstanding subsection 190(5) of the CBCA, the
written objection to the Arrangement Resolution referred to in subsection 190(5)
of the CBCA must be received by St. Laurent not later than 5:00 p.m. (Montreal
time) on the Business Day preceding the St. Laurent Meeting. Holders of St.
Laurent Common Shares who duly exercise such rights of dissent and who:
(a) are ultimately determined to be entitled to be paid fair value for
their St. Laurent Common Shares shall be deemed to have transferred
such St. Laurent Common Shares to 3701174 in accordance with Section
2.2(a) hereof, to the extent the fair value therefor is paid by
3701174; or
(b) are ultimately determined not to be entitled, for any reason, to be
paid fair value for their St. Laurent Common Shares shall be deemed
to have participated in the Arrangement on the same basis as a
non-dissenting holder of St. Laurent Common Shares and shall receive
the Exchange Consideration on the basis determined in accordance with
Section 2.2(a),
but in no case shall SSCC, 3701174, St. Laurent or any other Person be required
to recognize such holders as holders of St. Laurent Common Shares after the
Effective Time, and the names of such holders of St. Laurent Common Shares shall
be deleted from the registers of holders of St. Laurent Common Shares at the
Effective Time.
B-50
<PAGE>
ARTICLE 4
CERTIFICATES, CHEQUES AND FRACTIONAL SHARES
SECTION 4.1 EXCHANGE OF CERTIFICATES FOR SSCC COMMON SHARES AND PAYMENT IN CASH
At or promptly after the Effective Time, 3701174 shall deposit with the
Depositary, for the benefit of the holders of St. Laurent Common Shares who will
receive SSCC Common Shares in connection with the Arrangement, certificates
representing that whole number of SSCC Common Shares and the cash portion of the
Exchange Consideration to be delivered pursuant to Section 2.2 upon the exchange
of St. Laurent Common Shares. Upon surrender to the Depositary for cancellation
of a certificate which immediately prior to the Effective Time represented
outstanding St. Laurent Common Shares that were exchanged for the Exchange
Consideration under the Arrangement, together with such other documents and
instruments as would have been required to effect the transfer of the shares
formerly represented by such certificate under the CBCA and the by-laws of St.
Laurent and such additional documents and instruments as the Depositary may
reasonably require, the holder of such surrendered certificate shall be entitled
to receive in exchange therefor, and the Depositary shall deliver to such
holder, a certificate representing that number (rounded down to the nearest
whole number) of SSCC Common Shares and a cheque representing the cash portion
of the Exchange Consideration which such holder has the right to receive
(together with any dividends or distributions with respect thereto pursuant to
Section 4.2 and any cash in lieu of fractional SSCC Common Shares pursuant to
Section 4.3), and the certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of St. Laurent Common Shares which is
not registered in the transfer records of St. Laurent, a certificate
representing the proper number of SSCC Common Shares and a cheque representing
the cash portion of the Exchange Consideration may be issued to the transferee
if the certificate representing such St. Laurent Common Shares is presented to
the Depositary, accompanied by all documents required to evidence and effect
such transfer. Until surrendered as contemplated by this Section 4.1, each
certificate which immediately prior to the Effective Time represented one or
more outstanding St. Laurent Common Shares that were exchanged for SSCC Common
Shares and cash shall be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing SSCC Common Shares as contemplated by this Section 4.1, (ii) a cash
payment representing the cash portion of the Exchange Consideration, (iii) a
cash payment in lieu of any fractional SSCC Common Shares as contemplated by
Section 4.3 and (iv) any dividends or distributions with a record date after the
Effective Time theretofore paid or payable with respect to SSCC Common Shares as
contemplated by Section 4.2.
SECTION 4.2 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES
No dividends or other distributions declared or made after the Effective
Time with respect to SSCC Common Shares with a record date after the Effective
Time shall be paid to the holder of any unsurrendered certificate which
immediately prior to the Effective Time represented outstanding St. Laurent
Common Shares that were exchanged pursuant to Section 2.2, and no cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 4.3 and no interest shall be earned or payable on these proceeds, unless
and until the holder of such certificate shall surrender such certificate in
accordance with Section 4.1 and, in such event, only for the period commencing
five (5) Business Days following such surrender. Subject to applicable law, at
the time of such surrender of any such certificate (or, in the case of clause
(iii) below, at the appropriate payment date), there shall be paid to the holder
of the certificates representing St. Laurent Common Shares, as the case may be,
without interest, (i) the amount of any cash payable in lieu of a fractional
SSCC Common Share to which such holder is entitled pursuant to Section 4.3, (ii)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the SSCC Common Shares, as the
case may be, to which such holder is entitled pursuant hereto and (iii) on the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such SSCC Common Shares, as the
case may be.
SECTION 4.3 NO FRACTIONAL SHARES
No certificates representing fractional SSCC Common Shares shall be issued
upon the surrender for exchange of certificates pursuant to Section 4.1. In lieu
of any such fractional securities, each Person otherwise entitled to a
fractional interest in a SSCC Common Share will receive a cash payment from the
Depositary equal to the product of such fractional interest and the SSCC Trading
Price. 3701174 shall from time to time as necessary provide the Depositary with
funds sufficient to satisfy these obligations. On the sixth anniversary of the
Effective Date, the aggregate number of SSCC Common Shares for which no
certificates were issued as a result of the foregoing
B-51
<PAGE>
provisions of this Section 4.3 shall be deemed to have been surrendered by the
Depositary for no consideration to 3701174 or SSCC, as the case may be and the
cash portion of the Exchange Consideration shall be returned to the Depositary.
SECTION 4.4 LOST CERTIFICATES
In the event any certificate which immediately prior to the Effective Time
represented one or more outstanding St. Laurent Common Shares that were
exchanged pursuant to Section 2.2 shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
certificate to be lost, stolen or destroyed, the Depositary will issue in
exchange for such lost, stolen or destroyed certificate, any cash pursuant to
Section 4.3 and/or one or more certificates representing one or more SSCC Common
Shares (and any dividends or distributions with respect thereto) deliverable in
accordance with the terms of the Arrangement. When authorizing such payment in
exchange for any lost, stolen or destroyed certificate, the Person to whom
certificates representing SSCC Common Shares and cheques representing the cash
portion of the Exchange Consideration are to be issued shall, as a condition
precedent to the issuance thereof, give a bond satisfactory to 3701174, SSCC and
their respective transfer agents in such sum as 3701174 or SSCC may direct or
otherwise indemnify 3701174 and SSCC in a manner satisfactory to UCL and SSCC
against any claim that may be made against 3701174 or SSCC with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 4.5 EXTINCTION OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding St. Laurent Common Shares that were exchanged pursuant to Section
2.2 that is not deposited with all other instruments required by Section 4.1 on
or prior to the sixth anniversary of the Effective Date shall cease to represent
a claim or interest of any kind or nature as a shareholder or creditor for the
cash portion of the Exchange Consideration of 3701174, Stone or SSCC. On such
date, the SSCC Common Shares (or cash in lieu of fractional interests therein,
as provided in Section 4.3) and the cash portion of the Exchange Consideration
to which the former holder of the certificate referred to in the preceding
sentence was ultimately entitled shall be deemed to have been surrendered for no
consideration to 3701174 or SSCC, as the case may be, together with all
entitlements to dividends, distributions and interest in respect thereof held
for such former holder. None of SSCC, 3701174 or the Depositary shall be liable
to any person in respect of any SSCC Common Shares or payment in cash (or
dividends, distributions and interest in respect thereof) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 4.6 WITHHOLDING RIGHTS
3701174, Stone, SSCC and the Depositary shall be entitled to deduct and
withhold from any dividend or consideration otherwise payable to any holder of
St. Laurent Common Shares or SSCC Common Shares such amounts as 3701174, Stone,
SSCC or the Depositary is required to deduct and withhold with respect to such
payment under the ITA, the United States Internal Revenue Code of 1986 or any
provision of provincial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts shall
be treated for all purposes hereof as having been paid to the holder of the
shares in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the Exchange
Consideration otherwise payable to the holder, 3701174, Stone, SSCC and the
Depositary are hereby authorized to sell or otherwise dispose of such portion of
the Exchange Consideration as is necessary to provide sufficient funds to
3701174, Stone, SSCC or the Depositary, as the case may be, to enable it to
comply with such deduction or withholding requirement and 3701174, Stone, SSCC
or the Depositary shall notify the holder thereof and remit any unapplied
balance of the net proceeds of such sale.
ARTICLE 5
AMENDMENTS
SECTION 5.1 AMENDMENTS TO PLAN OF ARRANGEMENT
(1) St. Laurent reserves the right to amend, modify and/or supplement this Plan
of Arrangement at any time and from time to time prior to the Effective
Date, provided that each such amendment, modification and/or supplement
must be (i) set out in writing, (ii) approved by SSCC, (iii) filed with the
Court and, if made following the St. Laurent
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Meeting, approved by the Court and (iv) communicated to holders of St.
Laurent Common Shares, St. Laurent Options and St. Laurent RSUs if and as
required by the Court.
(2) Any amendment, modification or supplement to this Plan of Arrangement may
be proposed by St. Laurent at any time prior to the St. Laurent Meeting
(provided that SSCC shall have consented thereto) with or without any other
prior notice or communication, and if so proposed and accepted by the
Persons voting at the St. Laurent Meeting (other than as may be required
under the Interim Order), shall become part of this Plan of Arrangement for
all purposes.
(3) Any amendment, modification or supplement to this Plan of Arrangement that
is approved by the Court following the St. Laurent Meeting shall be
effective only if (i) it is consented to by each of St. Laurent and SSCC
and (ii) if required by the Court, it is consented to by holders of the St.
Laurent Common Shares, St. Laurent Options or St. Laurent RSUs voting in
the manner directed by the Court.
(4) Any amendment, modification or supplement to this Plan of Arrangement may
be made following the Effective Date unilaterally by SSCC, provided that it
concerns a matter which, in the reasonable opinion of SSCC, is of an
administrative nature required to better give effect to the implementation
of this Plan of Arrangement and is not adverse to the financial or economic
interests of any holder of St. Laurent Common Shares, St. Laurent Options
or St. Laurent RSUs.
ARTICLE 6
FURTHER ASSURANCES
SECTION 6.1 FURTHER ASSURANCES
Notwithstanding that the transactions and events set out herein shall occur
and be deemed to occur in the order set out in this Plan of Arrangement without
any further act or formality, each of the parties to the Pre-Merger Agreement
shall make, do and execute, or cause to be made, done and executed, all such
further acts, deeds, agreements, transfers, assurances, instruments or documents
as may reasonably be required by any of them in order further to document or
evidence any of the transactions or events set out herein.
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APPENDIX C
CANADA BUSINESS CORPORATIONS ACT -- SECTION 190
190. (1) [RIGHT OF DISSENT] Subject to sections 191 and 241, a holder of shares
of any class of a corporation may dissent if the corporation is subject to an
order under paragraph 192(4)(d) that affects the holder or if the corporation
resolves to
(a) amend its articles under section 173 or 174 to add, change or remove
any provisions restricting or constraining the issue, transfer or
ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation may
carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188; or
(e) sell, lease or exchange all or substantially all its property under
subsection 189(3).
(2) [FURTHER RIGHT] A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves to
amend its articles in a manner described in that section.
(3) [PAYMENT FOR SHARES] In addition to any other right he may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which he dissents or
an order made under subsection 192(4) becomes effective, to be paid by the
corporation the fair value of the shares held by him in respect of which he
dissents, determined as of the close of business on the day before the
resolution was adopted or the order was made.
(4) [NO PARTIAL DISSENT] A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by him on behalf of any
one beneficial owner and registered in the name of the dissenting shareholder.
(5) [OBJECTION] A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of his right to dissent.
(6) [NOTICE OF RESOLUTION] The corporation shall, within ten days after the
shareholders adopt the resolution, send to each shareholder who has filed the
objection referred to in subsection (5) notice that the resolution has been
adopted, but such notice is not required to be sent to any shareholder who voted
for the resolution or who has withdrawn his objection.
(7) [DEMAND FOR PAYMENT] A dissenting shareholder shall, within twenty days
after he receives a notice under subsection (6) or, if he does not receive such
notice, within twenty days after he learns that the resolution has been adopted,
send to the corporation a written notice containing
(a) his name and address;
(b) the number and class of shares in respect of which he dissents; and
(c) a demand for payment of the fair value of such shares.
(8) [SHARE CERTIFICATE] A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates representing
the shares in respect of which he dissents to the corporation or its transfer
agent.
(9) [FORFEITURE] A dissenting shareholder who fails to comply with
subsection (8) has no right to make a claim under this section.
(10) [ENDORSING CERTIFICATE] A corporation or its transfer agent shall
endorse on any share certificate received under subsection (8) a notice that the
holder is a dissenting shareholder under this section and shall forthwith return
the share certificates to the dissenting shareholder.
(11) [SUSPENSION OF RIGHTS] On sending a notice under subsection (7), a
dissenting shareholder ceases to have any rights as a shareholder other than the
right to be paid the fair value of his shares as determined under this section
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except where
(a) the dissenting shareholder withdraws his notice before the corporation
makes an offer under subsection (12);
(b) the corporation fails to make an offer in accordance with subsection
(12) and the dissenting shareholder withdraws his notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9),
in which case his rights as a shareholder are reinstated as of the date he sent
the notice referred to in subsection (7).
(12) [OFFER TO PAY] A corporation shall not later than seven days after the
later of the day on which the action approved by the resolution is effective or
the day the corporation received the notice referred to in subsection (7), send
to each dissenting shareholder who has sent such notice
(a) a written offer to pay for his shares in an amount considered by the
directors of the corporation to be the fair value thereof,
accompanied by a statement showing how the fair value was determined;
or
(b) if subsection (26) applies, a notification that it is unable lawfully
to pay dissenting shareholders for their shares.
(13) [SAME TERMS] Every offer made under subsection (12) for shares of the
same class or series shall be on the same terms.
(14) [PAYMENT] Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(15) [CORPORATION MAY APPLY BY COURT] Where a corporation fails to make an
offer under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty day s after the action approved by the
resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder.
(16) [SHAREHOLDER APPLICATION TO COURT] If a corporation fails to apply to
a court under subsection (15), a dissenting shareholder may apply to a court for
the same purpose within a further period of twenty days or within such further
period as a court may allow.
(17) [VENUE] An application under subsection (15) or (16) shall be made to
a court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder resides if
the corporation carries on business in that province.
(18) [NO SECURITY FOR COSTS] A dissenting shareholder is not required to
give security for costs in an application made under subsection (15) or (16).
(19) [PARTIES] On an application to a court under subsection (15) or 16),
(a) all dissenting shareholders whose shares have not been purchased by
the corporation shall be joined as parties and are bound by the
decision of the court; and
(b) the corporation shall notify each affected dissenting shareholder of
the date, place and consequences of the application and of his right
to appear and be heard in person or by counsel.
(20) [POWERS OF COURT] On an application to a court under subsection (15)
or (16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(21) [APPRAISERS] A court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(22) [FINAL ORDER] The final order of a court shall be rendered against the
corporation in favour of each dissenting shareholder and for the amount of his
shares as fixed by the court.
(23) [INTEREST] A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
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(24) [NOTICE THAT SUBSECTION (26) APPLIES] If subsection (26) applies, the
corporation shall,within ten days after the pronouncement of an order under
subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(25) [EFFECT WHERE SUBSECTION (26) APPLIES] If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation within
thirty days after receiving a notice under subsection (24), may
(a) withdraw his notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is reinstated
to his full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully unable to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors of
the corporation but in priority to its shareholders.
(26) [LIMITATION] A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
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APPENDIX D
INTERIM ORDER AND NOTICE OF MOTION FOR FINAL ORDER
C A N A D A
<TABLE>
<S> <C>
PROVINCE OF QUEBEC S U P E R I O R C O U R T
DISTRICT OF MONTREAL ----------------------------------------------
No. 500-05-057112-003 Montreal, April 14, 2000
PRESENT:
IN THE MATTER OF A PROPOSED ARRANGEMENT
CONCERNING ST. LAURENT PAPERBOARD INC. AND
HOLDERS OF ITS SECURITIES UNDER SECTION 192 OF
THE CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, c. C.-44, as amended
-- and --
ST. LAURENT PAPERBOARD INC.
Petitioner
----------------------------------------------
</TABLE>
JUDGMENT
CONSIDERING the Petitioner's Motion Under Section 192 of the Canada Business
Corporations Act R.S.C. 1985 c. C-44 ("CBCA") for an Interim Order in Connection
with a Proposed Arrangement ("Motion"), the Affidavit of Mr. Richard Garneau and
the Exhibits in support of the Motion;
CONSIDERING the representations made by Petitioner's counsel;
CONSIDERING section 192 of the CBCA;
THE COURT:
ORDERS that St. Laurent Paperboard Inc. call, hold and conduct a Special Meeting
of the Securityholders of St. Laurent Paperboard Inc. ("Special Meeting") on May
26, 2000 to consider and, if deemed advisable, to pass, with or without
variation, the Arrangement Resolution substantially in the form set forth in
Appendix A of the Circular (EXHIBIT R-1) and to transact such other business as
may properly come before the meeting or any adjournment thereof the whole in
accordance with the terms restrictions and conditions of the by-laws and
articles of St. Laurent Paperboard Inc.;
ORDERS that St. Laurent Paperboard Inc. seek the approval of the Arrangement
Resolution at the Special Meeting, with or without variation, by the affirmative
vote of not less than 66 2/3% of the total votes cast on the resolution by the
St. Laurent Paperboard Inc. Securityholders present in person or by proxy at the
Special;
ORDERS that, in accordance with the "Dissenting Shareholders' Rights" section of
the Circular in Appendix "E" to the Circular (EXHIBIT R-1) that written
objection to the Arrangement Resolution must be provided to St. Laurent
Paperboard Inc. by 5:00 p.m. on the day before the Special Meeting as provided
by the Pre-Merger Agreement;
ORDERS that the Notice of Special Meeting and the Circular be in substantially
the same form as contained in EXHIBIT R-1, with such amendments thereto as
counsel for St. Laurent Paperboard Inc. may advise are necessary or desirable,
provided that such amendments are not inconsistent with the terms of the Interim
Order and are subsequently filed with the Court, shall be distributed to the St.
Laurent Paperboard Inc. Securityholders, to St. Laurent Paperboard Inc.'s
directors and auditors, and to the Director under the CBCA, by mailing the same
by pre-paid registered mail to
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such persons in accordance with the CBCA and St. Laurent Paperboard Inc.'s
by-laws at least thirty-five (35) days prior to the date of the Special Meeting
accompanied by the following documents:
- the Circular, substantially in the same form as the copy of same
communicated herewith as EXHIBIT R-1;
- a Proxy Form, a Letter of Transmittal and an Election Form substantially
in the same form as the copies of same communicated herewith en liasse
as EXHIBIT R-2;
- copies of the Notice of Motion for the sanction by this Court of the
Arrangement, substantially in the same form as the copies of same
communicated herewith en liasse as EXHIBIT R-3; and
- a copy of the Interim Order to be rendered herein along with a
translation thereof.
ORDERS that compliance by St. Laurent Paperboard Inc. with the provisions of
this Interim Order shall constitute good and sufficient Notice of Motion by St.
Laurent Paperboard Inc. to each and every Securityholder of St. Laurent
Paperboard Inc. for this Court to sanction the Arrangement by way of a final
judgment
THE WHOLE without costs.
/s/ The Honourable Mr. Justice
Jean-Louis Leger
---------------------------------------
J.S.C.
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C A N A D A
<TABLE>
<S> <C>
PROVINCE OF QUEBEC S U P E R I O R C O U R T
DISTRICT OF MONTREAL ----------------------------------------------
No. 500-05-057112-003 IN THE MATTER OF A PROPOSED ARRANGEMENT
CONCERNING ST. LAURENT PAPERBOARD INC. AND
HOLDERS OF ITS SECURITIES UNDER SECTION 192 OF
THE CANADA BUSINESS CORPORATIONS ACT, R.S.C.
1985, c. C.-44, as amended
-- and --
ST. LAURENT PAPERBOARD INC.
Petitioner
----------------------------------------------
</TABLE>
TO: ALL HOLDERS OF SECURITIES OF ST. LAURENT PAPERBOARD INC.
NOTICE is hereby given that St. Laurent Paperboard Inc. ("St. Laurent")
will be requesting the Superior Court of the Province of Quebec, District of
Montreal, to sanction the plan of arrangement with Smurfit-Stone Container
Corporation and certain of its subsidiaries pursuant to Subsection 192 of the
Canada Business Corporations Act R.S.C., 1985, c. C-44, as amended. All holders
of securities of St. Laurent may appear and be heard at the said hearing, which
is scheduled to take place in room 2.16 on of the Montreal Court House located
at 1 Notre-Dame Street West, Montreal, Quebec, at 9:00 a.m. on May 30, 2000 or
as soon as counsel may reasonably be heard.
DO GOVERN YOURSELVES ACCORDINGLY.
Montreal, April 14, 2000
LOGO
GOODMAN PHILLIPS & VINEBERG
Attorneys for Petitioner
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APPENDIX E
FAIRNESS OPINION OF BUNTING WARBURG DILLON READ INC.
LOGO WARBURG DILLON READ BUNTING WARBURG DILLON READ INC.
1010, rue Sherbrooke Ouest
Bureau 2510
Montreal, Quebec
H3A 2R7
Telephone: (514) 842-8726
Telecopieur: (514) 842-8720
[email protected]
February 23, 2000
The Board of Directors
St. Laurent Paperboard Inc.
630 Rene-Levesque Blvd. West
Suite 3000
Montreal, Quebec
Canada H3B 5C7
TO THE MEMBERS OF THE BOARD OF DIRECTORS:
Bunting Warburg Dillon Read Inc. (including its affiliate Warburg Dillon
Read, collectively "Warburg Dillon Read") understands that Smurfit-Stone
Container Corporation, (including its wholly-owned subsidiaries, Stone Container
Corporation and 3038727 Nova Scotia Company, collectively "Smurfit-Stone") has
entered into an agreement to acquire all of the issued and outstanding common
shares (the "St. Laurent Shares") of St. Laurent Paperboard Inc. ("St. Laurent")
pursuant to a plan of arrangement (the "Arrangement"), as provided in the
pre-merger agreement between St. Laurent and Smurfit-Stone dated February 23,
2000 (the "Pre-Merger Agreement"). The holders of St. Laurent Shares will be
offered U.S.$12.50 cash and 0.5 Smurfit-Stone common share ("Smurfit-Stone
Share") per St. Laurent Share (the "Consideration"). The terms of the
Arrangement will be more fully described in the Management Proxy Circular (the
"Circular") to be mailed to holders of St. Laurent Shares in connection with the
Arrangement.
ENGAGEMENT
Warburg Dillon Read was initially engaged by St. Laurent as of July 27,
1998 to act as financial advisor in connection with evaluating St. Laurent's
strategic alternatives, defensive awareness and preparedness. Subsequently, St.
Laurent, under the direction of its board of directors (the "Board"), retained
Warburg Dillon Read by letter dated February 4, 2000 (the "Engagement
Agreement") to act as financial advisor in connection with advising and
assisting the Board in evaluating the Arrangement, including the preparation and
delivery to the Board of a fairness opinion (the "Opinion").
Warburg Dillon Read is to be paid a fee contingent upon the completion of
the Arrangement. In addition, Warburg Dillon Read is to be reimbursed for its
reasonable out-of-pocket expenses and to be indemnified by St. Laurent in
certain circumstances. Warburg Dillon Read consents to the inclusion of the
Opinion in its entirety and a summary thereof in the Circular and to the filing
thereof, as necessary, by St. Laurent with the securities commissions or similar
regulatory authorities in Canada and the United States.
RELATIONSHIP WITH INTERESTED PARTIES
Neither Warburg Dillon Read nor any of its affiliates is an insider,
associate or affiliate (as those terms are defined in the Securities Act
(Ontario) (the "Act")) of St. Laurent, Smurfit-Stone or any of their respective
associates or affiliates. Warburg Dillon Read has not been engaged to provide
any financial advisory services nor has it participated in any financings
involving St. Laurent, Smurfit-Stone or any of their respective associates or
affiliates within the past two years except as disclosed above and, in 1999, as
the underwriter in the public offering of 41,000,812 common shares of
Abitibi-Consolidated Inc. owned by Smurfit-Stone and acting as financial advisor
to Smurfit-Stone in the sale
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of selected timberland assets. There are no understandings, agreements or
commitments between Warburg Dillon Read and St. Laurent, Smurfit-Stone or any of
their respective associates or affiliates with respect to any future business.
Warburg Dillon Read may, in the future, in the ordinary course of its business,
perform financial advisory or investment banking service for St. Laurent,
Smurfit-Stone or any of their respective associates or affiliates.
Warburg Dillon Read acts as a trader and dealer, both as principal and
agent, in major financial markets and, as such, may have had and may in the
future have positions in the securities of St. Laurent, Smurfit-Stone or any of
their respective associates or affiliates and, from time to time, may have
executed or may execute transactions on behalf of such companies or clients for
which it received or may receive compensation. As an investment dealer, Warburg
Dillon Read conducts research on securities and may, in the ordinary course of
its business, provide research reports and investment advice to its clients on
investment matters, including with respect to St. Laurent, Smurfit-Stone or any
of their respective associates or affiliates or the Arrangement.
CREDENTIALS OF WARBURG DILLON READ
Bunting Warburg Dillon Read Inc. is the Canadian affiliate of Warburg
Dillon Read, a division of UBS AG. Warburg Dillon Read is regularly engaged in
the provision of financial advisory services and fairness opinions in connection
with a wide range of transactions, including mergers and acquisitions, joint
ventures and corporate restructurings. Warburg Dillon Read is a major
international investment bank with capital resources, through its parent UBS AG,
in excess of C$33 billion. Warburg Dillon Read has leading positions in
corporate finance, equities and mergers and acquisitions throughout Europe, the
Americas and Asia-Pacific.
The Opinion expressed herein represents the opinion of Warburg Dillon Read
and the form and content herein have been approved for release by a committee of
its directors, each of whom is experienced in merger, acquisition, divestiture,
valuation and fairness opinion matters.
SCOPE OF REVIEW
In forming its opinion, Warburg Dillon Read has reviewed, considered, and
relied upon, among other things, the following:
(i) audited financial statements, including related notes to the audited
financial statements, of St. Laurent for each of the 5 years ended
December 31, 1998;
(ii) audited financial statements of St. Laurent for the year ended
December 31, 1999;
(iii) consolidated statements of operations of Smurfit-Stone for the year
ended December 31, 1999 as disclosed in a Smurfit-Stone press release
dated January 24, 2000;
(iv) audited financial statements, including related notes to the audited
financial statements, of Smurfit-Stone for the year ended December 31,
1998;
(v) the unaudited interim reports of St. Laurent and Smurfit-Stone for the
1999 fiscal year;
(vi) the annual reports of St. Laurent for each of the 5 years ended
December 31, 1998;
(vii) the annual report of Smurfit-Stone for the year ended December 31,
1998;
(viii) a review of recent industry research reports on St. Laurent and
Smurfit-Stone selected comparable companies and general industry
reports;
(ix) a copy of the Pre-Merger Agreement;
(x) certain internal financial information and other data relating to the
business and financial prospects of St. Laurent, including estimates
and financial forecasts prepared by St. Laurent management that were
provided to Warburg Dillon Read by St. Laurent and not publicly
available;
(xi) discussions with Smurfit-Stone management with respect to
Smurfit-Stone's current business operations, financial conditions,
financial results and intentions regarding St. Laurent's operations
and the Arrangement;
(xii) a review of current equity market conditions and an analysis of the
impact on Smurfit-Stone of the Arrangement;
(xiii) discussions with internal and external legal counsel of St. Laurent
and Smurfit-Stone with respect to various matters;
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(xiv) discussions with the financial advisors to Smurfit-Stone;
(xv) a discounted cash flow analysis of St. Laurent using different
scenarios as to commodity prices, foreign exchange rates, production
and sales volumes, cost structures, and the potential synergies and
one-time costs related to the Arrangement;
(xvi) a financial analysis of Smurfit-Stone and St. Laurent on a combined
basis taking into account the potential synergies and one time costs
associated with the Arrangement;
(xvii) a review of the financial and operating performance and market
multiples for Smurfit-Stone and St. Laurent and other selected public
companies that Warburg Dillon Read considered relevant;
(xviii) a review of historical trading statistics and relative stock market
capitalisation of Smurfit-Stone and St. Laurent;
(xix) an analysis over a range of periods of the premium offered to St.
Laurent's shareholders within the context of relevant take-over
premiums in the Canadian market place as well as within the forest
products industry;
(xx) an analysis of comparable containerboard and forest products
transactions which Warburg Dillon Read believed to be relevant;
(xxi) Site visits to certain of St. Laurent's facilities; and
(xxii) such other information, investigations and analyses as Warburg
Dillon Read considered necessary or appropriate in the circumstances.
Warburg Dillon Read has not, to the best of its knowledge, been denied
access by St. Laurent to any information requested by Warburg Dillon Read.
Warburg Dillon Read's access to Smurfit-Stone was limited to a review of
publicly available information only and verbal due diligence sessions with
certain members of Smurfit-Stone's senior management team. Warburg Dillon Read
was not, to the best of its knowledge, denied any information or access which
was requested at such sessions.
ASSUMPTIONS AND LIMITATIONS
Warburg Dillon Read has relied upon, and has assumed the completeness,
accuracy and fair presentation of all financial and other information, data,
advice, opinions and representations obtained from public sources or provided by
St. Laurent, Smurfit-Stone and their respective associates, affiliates,
consultants, advisors and representatives (collectively, the "information"). The
Opinion is conditional upon such completeness, accuracy and fair presentation of
such Information. Subject to the exercise of professional judgement and except
as expressly described herein, Warburg Dillon Read has not attempted to verify
independently the accuracy or completeness of any of the Information.
Senior management of St. Laurent has represented to Warburg Dillon Read,
amongst other things, that the Information, provided to Warburg Dillon Read on
behalf of St. Laurent is complete and correct at the date the Information was
provided to Warburg Dillon Read and that, since the date of the Information,
there has been no material change, financial or otherwise, in the position of
St. Laurent, or in its assets, liabilities (contingent or otherwise), business
or operations and that there has been no change in any material fact which is of
a nature as to render the Information untrue or misleading in any material
respect.
In preparing the Opinion, Warburg Dillon Read has made several assumptions,
including that all of the conditions required to implement the Arrangement will
be met.
The Opinion is rendered on the basis of securities markets, economic,
financial and general business conditions prevailing as at the date of the
Opinion and the condition and prospects, financial and otherwise, of St.
Laurent, Smurfit-Stone and their respective subsidiaries and affiliates, as they
were reflected in the Information and as they were represented to Warburg Dillon
Read in discussions with management of St. Laurent, Smurfit-Stone and their
respective advisors. In its analysis and in preparing the Opinion, Warburg
Dillon Read made numerous assumptions with respect to industry performance,
general business, market and economic conditions and other matters, many of
which are beyond the control of Warburg Dillon Read or any party involved in the
Arrangement.
Warburg Dillon Read has not been engaged to provide a formal valuation of
St. Laurent, Smurfit-Stone or of any of their respective securities or assets,
and the Opinion should not be construed as such.
E-3
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The Opinion has been provided for the use of the Board and may not be used
by any other person or relied upon by any other person other than the Board
without the express prior written consent of Warburg Dillon Read. The Opinion is
given as of the date hereof and Warburg Dillon Read disclaims any undertaking or
obligation to advise any person of any change in any fact or matter affecting
the Opinion which may come or be brought to Warburg Dillon Read's attention
after the date hereof. Without limiting the foregoing, in the event that there
is any material change in any fact or matter affecting the Opinion after the
date hereof, Warburg Dillon Read reserves the right to change, modify or
withdraw the Opinion.
Warburg Dillon Read believes that its analyses must be considered as a
whole and that selecting portions of its analyses or the factors considered by
it, without considering all factors and analyses together, could create a
misleading view of the process underlying the Opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Any attempt to do so could lead to
undue emphasis on any particular factor or analysis. The Opinion is not to be
construed as a recommendation to any holder of St. Laurent Shares as to whether
to vote in favour of the Arrangement.
FAIRNESS CONCLUSION
Based upon and subject to the foregoing, Warburg Dillon Read is of the
opinion that, as of the date hereof, the Consideration is fair, from a financial
point of view, to holders of St. Laurent Shares.
Yours very truly,
LOGO
BUNTING WARBURG DILLON READ INC.
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APPENDIX F
FAIRNESS OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
LOGO
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 - (212) 892-3000
February 23, 2000
Board of Directors
St. Laurent Paperboard, Inc.
630 Rene-Levesque Boulevard West
Montreal, Quebec H3B 5C7
Canada
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of St. Laurent Paperboard, Inc. (the "Company") of the
consideration to be received by such shareholders pursuant to the terms of the
Pre-Merger Agreement, dated as of February 23, 2000 (the "Agreement"), by and
among Smurfit-Stone Container Corporation ("Smurfit-Stone"), Stone Container
Corporation ("Stone"), a wholly-owned subsidiary of Smurfit-Stone, 3038727 Nova
Scotia Company ("ULC"), a wholly-owned subsidiary of Stone, and the Company,
pursuant to which the Company will be merged (the "Merger") with and into ULC.
Pursuant to the Agreement, each common share of the Company will be
converted into the right to receive US$12.50 per share in cash and 0.50 share of
common stock, $0.01 par value per share of Smurfit-Stone.
In arriving at our opinion, we have reviewed the draft dated February 11,
2000 of the Agreement and the exhibits thereto. We also have reviewed financial
and other information that was publicly available or furnished to us by the
Company and Smurfit-Stone, including information provided during due diligence
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of the Company and Smurfit-Stone for the period beginning
January 1, 2000 and ending December 31, 2000 prepared by the respective
managements. We have also reviewed certain financial projections of
Smurfit-Stone for the period beginning January 1, 2000 and ending December 31,
2001 prepared by the equity research department of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), and certain financial projections of the Company
for the same period based upon assumptions provided by DLJ's equity research
department. In addition, we have compared certain financial and securities data
of the Company and Smurfit-Stone with various other companies whose securities
are traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of the Company and Smurfit-Stone, reviewed prices
and premiums paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Smurfit-Stone
or their representatives, or that was otherwise reviewed by us. In particular,
we have relied upon the estimates of the management of the Company of the
operating synergies achievable as a result of the Merger and upon our discussion
of such synergies with the management of Smurfit-Stone. With respect to the
financial projections prepared by, or based upon assumptions provided by, DLJ's
equity research department referred to above, we have relied on representations
that they have been reasonably prepared on bases not materially different from
the best currently available estimates and judgements of the management of the
Smurfit-Stone and the Company as to the future operating and financial
performance of Smurfit-Stone and the Company, respectively. We have not assumed
any responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us.
F-1
<PAGE>
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as the
price at which the common stock of Smurfit-Stone will actually trade at any
time. Our opinion does not address the relative merits of the Merger and the
other business strategies being considered by the Company's Board of Directors,
nor does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed transaction.
DLJ as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company and
Smurfit-Stone in the past and has been compensated for such services. DLJ has
advised Smurfit-Stone in the November 1999 sale of its Fernandina and Brewton
timberlands. In addition, Josiah O. Low III, Managing Director of DLJ, is a
director of the Company.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the shareholders of the
Company pursuant to the Agreement is fair to such shareholders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Jonathan I. Mishkin
-------------------------------
Mr. Jonathan I. Mishkin
Managing Director
F-2
<PAGE>
APPENDIX G
EXECUTIVE COMPENSATION AND DESCRIPTION OF ST. LAURENT PLANS
THE ST. LAURENT DIRECTORS' STOCK OPTION AND SHARE PURCHASE PLAN
All elected or appointed directors of St. Laurent who are not employees of
St. Laurent are eligible to participate in the St. Laurent Directors' Stock
Option and Share Purchase Plan which provides for the grant of one-time options
for the purchase, within two weeks of the election or appointment of a director
for the first time, of the lesser of (i) 7,500 St. Laurent Common Shares and
(ii) the number of St. Laurent Common Shares obtained by dividing $150,000 by
the weighted average price per St. Laurent Common Share on the TSE during the
period of five consecutive trading days ending on the trading day immediately
prior to the date of grant (the "Market Price"). The exercise price of one-time
options is equal to the Market Price of the St. Laurent Common Shares at the
time of the grant. The one-time options become exercisable one year after the
date of the grant. No one-time option, however, may be exercised after the
10(th) anniversary of the grant thereof. When a director ceases to be a director
of St. Laurent, he has the right to exercise all one-time options which could be
exercised on the date he ceased to be a director at any time within a period of
12 months following such date, provided that such exercise shall be prior to the
expiry date of the one-time options.
Concurrently with the grant of one-time options, each eligible director is
granted a certain number of rights, each right consisting of (i) the entitlement
to receive one St. Laurent Common Share; and (ii) a 10-year option to subscribe
for one St. Laurent Common Share with terms similar to those of the one-time
options. Each eligible director will automatically receive, on a compulsory
basis, 50% of the sum of his annual retainers for board and committee
memberships (ranging between Cdn.$9,000 and Cdn.$9,500) by way of rights and
each director may elect to receive, on an optional basis, all of such annual
retainers (ranging between Cdn.$18,000 and Cdn.$19,000) by way of rights. In the
case of the Chairman of the Board of St. Laurent, the compulsory entitlement to
receive a portion of his annual retainer by way of rights equals 25% of the
annual fee (or Cdn.$20,000) and there is no elective entitlement applicable to
the balance of such fee or to the attendance fees. The number of rights granted
equals the amount of fees divided by the Market Price of the St. Laurent Common
Shares at the time of the election.
All St. Laurent Common Shares issued during the financial year ended
December 31, 1999 are held by the trustee under the St. Laurent Directors' Stock
Option and Share Purchase Plan for a period of one year. When a director ceases
to be a director of St. Laurent, he (i) receives a number of St. Laurent Common
Shares based on the amount of fees earned so far during the year; (ii) retains
for a period of 12 months such number of options associated with the last grant
of rights pro-rated on the basis of the amount of fees earned so far during the
year, and the balance of the St. Laurent Common Shares and options associated
with the latest grant of rights only is forfeited. For the year 2000, directors
will receive a cash payment in lieu of the annual option grant and issuance of
St. Laurent Common Shares under the plan.
To date, one-time options to purchase 7,500 St. Laurent Common Shares have
been granted to each non-employee director of St. Laurent other than Mr. Halsey
and Mr. Wright, who received one-time options to purchase 6,430 St. Laurent
Common Shares each, and the following number of rights have been granted: 4,519
to Mr. Pinard, 2,185 to Mr. Lacroix, 4,206 to Mr. LeBoutillier, 4,122 to Mr.
Low, 3,379 to Mr. Michals, 4,122 to Mr. Rice, 4,255 to Mr. Turmel, 2,597 to Mr.
Halsey and 2,713 to Mr. Wright.
EXECUTIVE COMPENSATION
The following summary compensation table shows certain compensation
information for the President and Chief Executive Officer of St. Laurent, the
four other most highly compensated executive officers of St. Laurent as well as
an additional individual who would have been among the four most highly
compensated executive officers but for the fact that the individual was not
serving as executive officer of St. Laurent at the end of the 1999 financial
year (collectively, the "Named Executive Officers"). The table contains the
compensation for services rendered by the Named Executive Officers in all
capacities from January 1st, 1997 to December 31, 1999, except that in the case
of the additional individual mentioned above, the compensation shown with
respect to the year ended December 31, 1999 only covers the period during which
this individual was serving as executive officer of St. Laurent. THE INFORMATION
PROVIDED INCLUDES THE DOLLAR VALUE OF BASE SALARIES AND BONUS AWARDS IN CANADIAN
DOLLARS, EXCEPT WHERE OTHERWISE INDICATED, IF ANY, THE NUMBER OF STOCK OPTIONS,
THE DOLLAR VALUE OF ST. LAURENT RSU'S AT THE TIME OF GRANT AND CERTAIN OTHER
COMPENSATION, IF ANY, WHETHER PAID OR DEFERRED.
G-1
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------- COMPENSATION AWARDS
OTHER --------------------------------------- ALL
ANNUAL SECURITIES UNDER OTHER
NAME AND COMPEN- OPTIONS/SARS RESTRICTED SHARES OR COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION GRANTED(H) ST. LAURENT RSUS(I) SATION
- ------------------ ------- ------- ------- ------- ---------------- -------------------- -------
($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
JOSEPH J. GURANDIANO... 1999 462,721 185,155 12,346 59,845 8,046 Units 2,646
President and Chief based on $185,155
Executive Officer 1998 441,048 -- 11,729 46,631 -- 1,621
1997 360,192 -- 9,259 79,527 -- 306,303
RONALD J. GLICK(a)..... 1999 219,895 47,508 -- 20,616 3,010 Units --
Vice-President, based on $69,262
Container- 1998(b) 60,304 1,075 -- -- -- 25,000
board Sales and 1997 -- -- -- -- -- --
Marketing
ROBERT J. GEIB(a)...... 1999 235,035 5,171(g) -- 21,071 327 Units 2,399
President and Chief based on $7,538
Operating Officer 1998 211,338 40,000 1,937 16,278 -- 160,578
St. Laurent Packaging 1997(c) 58,338 -- 82 12,024 -- 129
Corp.
RICHARD GARNEAU........ 1999 246,242 71,427 9,999 14,636 3,104 Units 1,272
Senior Vice-President based on $71,427
and Chief Financial 1998 212,080 -- 9,499 11,243 -- --
Officer 1997(d) 53,077 -- 23,593 -- -- --
PIERRE BOURDAGES....... 1999 201,861 43,697 6,275 12,997 1,899 Units 45,371(j)
Senior Vice-President, based on $43,697
Fibre 1998 195,442 -- 5,961 10,274 -- --
1997 174,253 -- 4,807 7,640 -- --
WILSON BLACKBURN(a).... 1999(e) 145,061 44,703 15,528 0 -- 300,000
Senior Vice-President, 1998 222,504 30,000 2,037 3,015 -- --
Containerboard 1997(f) 66,672 -- 348 -- -- --
</TABLE>
- ---------------
(a) The remuneration shown in this table for Messrs. Glick, Geib and Blackburn
has been expressed and paid to them in U.S. dollars by St. Laurent
Paperboard Corp., St. Laurent Packaging Corp. and St. Laurent Paperboard
(U.S.) Inc., respectively.
(b) From March 23 to December 31, 1998.
(c) From September 18 to December 31, 1997.
(d) From September 22 to December 31, 1997.
(e) From January 1 to July 30, 1999.
(f) From September 10 to December 31, 1997.
(g) This amount was paid to Mr. Geib on May 14, 1999 as an incentive bonus in
respect of fiscal 1998.
(h) Includes only On-Going Options.
(i) The numbers in this column represent units awarded for fiscal 1999 under
St. Laurent's Performance Share Plan, based on the share price of
Cdn.$23.01 which was the weighted average trading price per St. Laurent
Common Share for the five trading days preceding February 24, 2000, being
the date of grant of the units in Canadian currency
(j) Of this amount, $44,198 represents the value on the date of maturity of the
St. Laurent RSUs granted to the executive officer in question in February
1996 under the St. Laurent Managers' Share Purchase Plan and which have now
matured.
G-2
<PAGE>
Option/SAR Grants During the Most Recently Completed Financial Year
The table below shows information regarding grants of outstanding on-going
options made to the Named Executive Officers under the St. Laurent Long-Term
Incentive Plan during the financial year ended December 31, 1999. The maximum
number of St. Laurent Common Shares that may be issued pursuant to the exercise
of options granted under such plan is currently limited to 1,031,684.
<TABLE>
<CAPTION>
% OF TOTAL MARKET VALUE OF
OPTIONS/SARS SECURITIES
SECURITIES UNDER GRANTED TO UNDERLYING
OPTIONS/SARS EMPLOYEES IN EXERCISE OR OPTIONS/SARS ON
NAME GRANTED FINANCIAL YEAR BASE PRICE THE DATE OF GRANT EXPIRATION DATE
- ---- ---------------- -------------- ------------ ----------------- ---------------
(#) ($/Security) ($/Security)
<S> <C> <C> <C> <C> <C>
Joseph J. Gurandiano........ 59,845 17.96 15.67 15.67 May 5, 2009
Ronald J. Glick............. 20,616 6.19 15.67 15.67 May 5, 2009
Robert J. Geib.............. 21,071 6.32 15.67 15.67 May 5, 2009
Richard Garneau............. 14,636 4.39 15.67 15.67 May 5, 2009
Pierre Bourdages............ 12,997 3.90 15.67 15.67 May 5, 2009
Wilson Blackburn............ -- -- -- -- --
</TABLE>
Aggregated Option/SAR Exercises During the Most Recently Completed Financial
Year and Financial Year-End Option/SAR Values
No options were exercised by the Named Executive Officers during the
financial year ended December 31, 1999. The following table summarizes for each
of the Named Executive Officers the total number and value of unexercised
options held at December 31, 1999. Value of unexercised in-the-money options at
financial year-end, if any, is the difference between their exercise or base
prices and the fair market value of the St. Laurent Common Shares on December
31, 1999, which was Cdn.$19.25 per share. The values indicated are not
necessarily indicative of the actual gains, if any, which could be realized upon
an eventual exercise of options. These options have not been, and may never be,
exercised and actual gains, if any, on exercise will depend on the value of the
St. Laurent Common Shares on the date of exercise.
<TABLE>
<CAPTION>
SECURITIES AGGREGATE VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON VALUE UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT
NAME EXERCISE REALIZED FY-END FY-END
- ---- ----------- --------- --------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
(#) ($) ------- ------- ------- -------
(#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Gurandiano......... 146,589 184,463 494,006 293,772
-- --
Ronald J. Glick.............. Nil 20,616 Nil 73,805
-- --
Robert J. Geib............... 8,066 41,307 32 75,564
-- --
Richard Garneau.............. 2,249 23,630 22 52,486
-- --
Pierre Bourdages............. 16,282 30,758 6,410 50,872
-- --
Wilson Blackburn............. 3,015 Nil 30 Nil
-- --
</TABLE>
Pension Benefits
St. Laurent also provides certain retirement benefits to employees,
including the Named Executive Officers, through pension plans registered with
the appropriate authorities in Canada (the "Canadian Plan") and the United
States (the "US Plans" and, together with the Canadian Plan, the "St. Laurent
Plans"). Under each of the St. Laurent Plans annual pension is limited to the
maximum permitted by the appropriate taxing authorities (Canada Customs and
Revenue Agency or the IRS in the United States), as follows: (i) Cdn.$1,722
times the number of years of credited service in the case of the Canadian Plan,
and (ii) $125,000 for 1997, $130,000 for 1998 and 1999 and $135,000 for 2000,
and subsequently increased consistent with the Consumer Price Index for the US
Plans.
On January 1, 1996 St. Laurent implemented a Supplementary Employee
Retirement Plan (the "SERP") pursuant to which additional pension benefits in
excess of those that can be provided under the Canadian Plan may become payable
to certain executive officers of St. Laurent and its operating subsidiaries
qualified for participation under the SERP based on their position level.
Certain of the Named Executive Officers, namely Messrs. Gurandiano, Garneau and
Bourdages, are participants of the SERP. Under the SERP, a participant becomes
entitled to an annual
G-3
<PAGE>
supplementary retirement allowance equal to 2% (in the case of the Chief
Executive Officer) or 1.75% (in the case of a vice-president reporting directly
to the Chief Executive Officer) of his average remuneration (average of the
highest annual base salary and all premiums and bonuses paid under short-term
incentive plans in any three of the last five calendar years of service)
multiplied by the number of years of credited service as an employee of St.
Laurent, reduced by any amount payable under the Canadian Plan for the
corresponding years of credited service. Entitlement to the maximum annual
supplementary retirement Allowance requires attainment of age 60 and completion
of 15 years of continuous employment with St. Laurent or designated affiliates
(or 65 years of age if the executive has less than 15 years of service). In
addition, pursuant to a recent amendment to the SERP, participants of the SERP
who have completed at least 20 years of continuous employment with St. Laurent
or designated affiliates upon attaining the age of 58 also become entitled to
the maximum annual supplementary retirement allowance. The pension benefits
under the Canadian Plan and the SERP are in the form of a joint and 60% survivor
annuity.
The following tables set forth the total annual pension benefits which are
payable under the Canadian Plan and the SERP for certain Named Executive
Officers, namely Messrs. Gurandiano, Garneau and Bourdages:
Pension Plan Table for certain Named Executive Officers under the Canadian Plan
and the SERP other than the Chief Executive Officer
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
(Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$)
<S> <C> <C> <C> <C> <C>
200,000............................................... 52,500 70,000 87,500 105,000 122,500
225,000............................................... 59,063 78,750 98,438 118,125 137,813
250,000............................................... 65,625 87,500 109,375 131,250 153,125
275,000............................................... 72,188 96,250 120,313 144,375 168,438
300,000............................................... 78,750 105,000 131,250 157,500 183,750
</TABLE>
Pension Plan Table for the Chief Executive Officer
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
(Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$)
<S> <C> <C> <C> <C> <C>
450,000............................................... 135,000 180,000 225,000 270,000 315,000
500,000............................................... 150,000 200,000 250,000 300,000 350,000
550,000............................................... 165,000 220,000 275,000 330,000 385,000
600,000............................................... 180,000 240,000 300,000 360,000 420,000
</TABLE>
On May 23, 1997 the board of directors of St. Laurent Paperboard (U.S.)
Inc. adopted an Executive Supplemental Retirement Plan (the "ESRP") for certain
elected officers and selected employees who are participants in one of the US
Plans, namely the St. Laurent Paperboard Retirement Plan for Non-Union Employees
(the "Regular Retirement Plan"). The ESRP provides retirement benefits in
addition to those provided under the Regular Retirement Plan. Mr. Robert J.
Geib, a Named Executive Officer, is a participant of the ESRP. Under the ESRP, a
participant becomes entitled to receive a supplemental annual benefit equal to
the sum of (i) and (ii): (i) 3.0% of his Average Incentive Pay times years of
participation service up to a maximum of 15 years; plus (ii) 2.0% of his Average
Incentive Pay times years of participation service in excess of 15. In addition,
any employee whose benefits in the Regular Retirement Plan are affected by legal
limitations will receive an additional benefit from the ESRP to replace the
benefit lost due to the limitations. For the purpose of the ESRP, Average
Incentive Pay means 1/5 of a participant's incentive pay (any annual incentive
compensation or bonus) for the five consecutive fiscal years within the last 10
consecutive fiscal years which give the greatest such amount. Entitlement to the
maximum Annual Supplementary Retirement Allowance requires attainment of age 62
and completion of 10 years of service. The pension benefits under the Regular
Retirement Plan and the ESRP are in the form of a life annuity.
G-4
<PAGE>
The following table sets forth the total annual pension benefits which are
payable under the Regular Retirement Plan and the ESRP for Mr. Robert J. Geib, a
Named Executive Officer:
PENSION PLAN TABLE FOR CERTAIN NAMED EXECUTIVE OFFICERS UNDER THE REGULAR
RETIREMENT PLAN AND THE ESRP
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
(Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$)
<S> <C> <C> <C> <C> <C>
200,000...................................... 53,400 68,200 83,100 98,000 112,900
225,000...................................... 60,700 77,700 94,700 111,600 128,700
250,000...................................... 68,100 87,100 106,200 125,300 144,400
275,000...................................... 75,500 96,600 117,800 139,000 160,200
300,000...................................... 82,900 106,100 129,400 152,600 175,900
350,000...................................... 97,700 125,100 152,500 179,900 207,400
</TABLE>
- ---------------
Note: Assumption: Total remuneration is assumed to be 70.00% base pay and 30.00%
bonus.
The respective credited years of service as of December 31, 1999 and
compensation covered for the Named Executive Officers (other than Mr. Blackburn,
who is no longer with St. Laurent) are as follows:
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
-------------------------
NAME COMPENSATION COVERED ST. LAURENT PLANS SERP
- ---- -------------------- ----------------- ----
<S> <C> <C> <C>
Joseph J. Gurandiano................................. Cdn.$462,721 20.4 20.4
Ronald J. Glick...................................... $219,895 1.75 0
Robert J. Geib....................................... $274,276 1.3 1.3
Richard Garneau...................................... Cdn.$246,242 2.3 2.3
Pierre Bourdages..................................... Cdn.$201,861 22.4 4.2
</TABLE>
THE SVA BASED ST. LAURENT INCENTIVE PLAN
Under the SVA Based St. Laurent Inc. Incentive Plan (the "SVA based SPIP"),
performance of executives and senior managers is measured against preset annual
SVA targets and objectives (or "drivers") for each value center of St. Laurent
and, in the case of top-line executives, for St. Laurent as a whole. SVA, which
stands for "shareholder value added", is defined as the difference between net
operating profit after taxes and the cost of capital employed. The compensation
committee of St. Laurent is responsible for the management and administration of
the SVA based SPIP. The SVA based SPIP is available four categories of St.
Laurent's management, with the target performance objectives and maximum award
varying for each such category. The targets and drivers for the SVA based SPIP
are set before the beginning of each fiscal year by the President and Chief
Executive Officer of St. Laurent and are calculated according to a formula which
considers such variables as the prior year SVA and the current year SVA. The
calculation of a participant's individual award is based on a quadruple multiple
of the following factors: job class, SVA performance factors (established on the
basis of the performance of the participant's value center by reference to the
SVA targets for the year), the value drivers performance factor (based on
performance of the participant's value center by reference to specific drivers)
and the participant's individual performance factor based on his individual
performance. The resulting multiple is then applied to the participant's base
salary as at January 1 of the year in question in order to calculate his SVA
based SPIP for that year.
In February 2000, a short-term incentive award was paid to each of the
Named Executive Officers under the SVA based SPIP in respect of the financial
year ended December 31, 1999.
THE ST. LAURENT LONG-TERM INCENTIVE PLAN
The St. Laurent Long-Term Incentive Plan is administered by the
compensation committee of St. Laurent and is subject to the general authority of
the Board of Directors. The plan is designed to encourage participants to
further the development of St. Laurent and to attract and retain key officers
over the long term. The plan is composed of the following:
(a) St. Laurent granted to Eligible Employees (as defined in the St.
Laurent Long Term Incentive Plan) a one-time right to purchase common
shares (the "Executive Shares") on the closing of the initial public
offering of St. Laurent. The number of Executive Shares purchased by
each Eligible Employee was equal to
G-5
<PAGE>
a percentage, established by the compensation committee of St.
Laurent, of the 1994 annualized base salary of such Eligible Employee
divided by the purchase price. 90,512 Executive Shares were purchased
at Cdn.$12.15 per St. Laurent Common Share, being a discount of 10%
from the price at which St. Laurent Common Shares were sold pursuant
to the initial public offering. The Executive Shares had to be
retained by the Eligible Employee for at least two years following the
date of purchase and the Eligible Employee had to remain in the
continuous employment of St. Laurent for a period of two years after
the purchase of the Executive Shares, failing which the Eligible
Employee was obliged to pay to St. Laurent the amount of the discount
from the price at which the St. Laurent Common Shares were sold
pursuant to the initial public offering. St. Laurent provided
financial assistance to participants in the form of an interest-free
loan or bank financing with interest assumed by St. Laurent. This
financial assistance is repayable from proceeds on the sale by the
Eligible Employee of any Executive Shares purchased, by the
application of any dividends declared and paid on such Executive
Shares, any moneys payable to the Eligible Employee under the St.
Laurent RSUs, 25% of any bonus paid to the Eligible Employee under the
SVA based SPIP and, as to any remainder, by the Eligible Employee.
(b) Effective on the date of purchase of Executive Shares, St. Laurent
granted to each Eligible Employee who purchased Executive Shares one
St. Laurent RSU for every two Executive Shares purchased. Each RSU
entitled the holder to receive one St. Laurent Common Share at the end
of a three-year period following the purchase of the Executive Shares,
without payment of further consideration by the Eligible Employee,
provided the Eligible Employee had remained in the continuous
employment of St. Laurent and had retained ownership of his Executive
Shares throughout such period. In the event the Eligible Employee sold
Executive Shares before the end of such period, one St. Laurent RSU
was forfeited by the Eligible Employee for every two Executive Shares
sold. On June 16, 1997 a total of 26,118 St. Laurent RSUs matured and
were converted into a corresponding number of St. Laurent Common
Shares.
(c) Each Eligible Employee was granted, effective on the closing of the
initial public offering, options to purchase a number of St. Laurent
Common Shares equal to a percentage, established by the compensation
committee of St. Laurent, of the 1994 annualized base salary of such
Eligible Employee divided by the exercise price (the "One-Time
Options"). The exercise price of the one-time options was Cdn.$13.50
per St. Laurent Common Share, being the price at which St. Laurent
Common Shares were sold pursuant to the initial public offering.
(d) Each Eligible Employee of St. Laurent may also, from time to time, be
granted on-going options to purchase a number of St. Laurent Common
Shares not to exceed in any one fiscal year of St. Laurent a
percentage, established by the compensation committee of St. Laurent,
of the annualized base salary of such Eligible Employee divided by the
exercise price (the "On-Going Options"). For the Named Executive
Officers, yearly option opportunities range from 275% of base salary
for the President and Chief Executive Officer to 120% for the other
Named Executive Officers. The number and exercise price of On-Going
Options are fixed by the Board of Directors at the time of the grant,
in the latter case based on the weighted average price per St. Laurent
Common Share on the TSE for the last five trading days immediately
preceding the date of the grant. The aggregate number of One-Time
Options and On-Going Options (collectively, the "Options") is
currently limited to that number which, if exercised, would result in
the issuance of an aggregate of 1,031,684 St. Laurent Common Shares.
The St. Laurent Long Term Incentive Plan establishes that Options
expire 10 years after the date of the grant except in special
circumstances. Unless the compensation committee of St. Laurent
otherwise determines, (i) 1/3 of One-Time Options granted to Eligible
Employees become exercisable three years after the date of the grant,
a further 1/3 become exercisable four years after the date of the
grant, and the remaining Options become exercisable five years after
the date of the grant; and (ii) On-Going Options become exercisable at
the rate of 20% per annum, on a cumulative basis, from the date of the
grant. In the financial year ended December 31, 1999, On-Going Options
to purchase a total of 218,361 common shares were granted by St.
Laurent under the St. Laurent Long Term Incentive Plan, including the
129,165 On-Going Options granted to the Named Executive Officers.
THE ST. LAURENT MANAGERS' SHARE PURCHASE PLAN
The St. Laurent Managers' Share Purchase Plan is designed to promote a
proprietary interest in St. Laurent at the managerial level, to encourage the
long-term development of St. Laurent and to attract and retain managers
necessary
G-6
<PAGE>
to the long-term success of St. Laurent. The plan is administered by the
compensation committee of St. Laurent, subject to the general authority of the
Board of Directors. The plan comprises a share purchase offer component and a
St. Laurent RSU grant component. Under the share purchase offer component,
Eligible Employees (as defined in the plan) were given the opportunity to
subscribe to a number of St. Laurent Common Shares (the "Management Shares")
calculated on the basis of a percentage of such employee's annualized base
salary divided by the purchase price of the St. Laurent Common Shares (90% of
the market price thereof, which is defined in the plan as the weighed average of
the trading price per St. Laurent Common Share on the TSE for the last five
trading days preceding the last business day before the purchase date). The
maximum number of St. Laurent Common Shares issuable by St. Laurent under the
plan is limited to 300,000. Upon the termination of the Eligible Employee's
employment with St. Laurent (or a Subsidiary or Affiliate thereof, as the case
may be) within two years of the date of purchase, a penalty equal to 10% of the
market price of the Management Shares acquired becomes payable by the Eligible
Employee to St. Laurent as liquidated damages. This penalty also applies if the
Management Shares are resold by the Eligible Employee during the same period.
Concurrently with any purchase of Management Shares pursuant to the share
purchase offer component of the St. Laurent Managers' Share Purchase Plan,
Eligible Employees received one St. Laurent RSU for every two Management Shares
so purchased by them. Each St. Laurent RSU under the plan entitles the holder to
receive, on the third anniversary of the date of grant, one St. Laurent Common
Share without further consideration being payable in respect thereof. All St.
Laurent RSUs so issued are automatically forfeited upon the termination of the
employment of the holder with St. Laurent, a Subsidiary or Affiliate thereof
prior to the expiry of the aforementioned three year period. Similarly, where an
Eligible Employee sells, transfers or otherwise alienates Management Shares
purchased under the plan prior to the expiry of a two-year period from the date
of purchase, one St. Laurent RSU will be automatically forfeited for every two
Management Shares so sold, transferred or otherwise alienated. There are a total
of 11,819 St. Laurent RSUs outstanding at the date hereof.
Subject to the vested rights of participants in the plan as of May 15, 1998
to receive St. Laurent Common Shares pursuant to existing St. Laurent RSUs, no
additional share purchase offers or St. Laurent RSUs have been granted after
such date, as the plan has been replaced by the St. Laurent Managers' Stock
Option Plan described below.
THE ST. LAURENT MANAGERS' STOCK OPTION PLAN
The St. Laurent Managers' Stock Option Plan was implemented in February of
1999. The purpose of the plan is to (i) promote a proprietary interest in St.
Laurent among its key employees and those of its existing or future Subsidiaries
and Affiliates, (ii) encourage them to further the development of St. Laurent,
its Subsidiaries and Affiliates, and (iii) attract and retain key employees
necessary for the long-term success of St. Laurent, its Subsidiaries and
Affiliates. Under the plan, which is administered by the compensation committee
of St. Laurent, subject to the general authority of the Board of Directors,
Eligible Employees (as defined in the plan) may be granted, on an annual basis,
on-going options to purchase St. Laurent Common Shares. The number of St.
Laurent Common Shares to be covered by each such on-going option shall not
exceed in any one fiscal year of St. Laurent a percentage of the annual Base
Salary (as defined in the plan) of the relevant optionee to be determined from
time to time by the compensation committee of St. Laurent, divided, in each
case, by the exercise price (the Weighted Average Price (as defined in the plan)
per St. Laurent Common Share at which the St. Laurent Common Shares traded on
the TSE during the period of five consecutive trading days ending on the trading
day immediately prior to the date of the grant). The percentage of the annual
Base Salary of Eligible Employees used to calculate the number of on-going
options to be granted, which shall not exceed 60% of the Base Salary, is based
on the Eligible Employee's classification and ranking within St. Laurent, taking
into consideration the individual performance rating of the Eligible Employee
under the terms of the performance evaluation program of St. Laurent. The
maximum number of St. Laurent Common Shares issuable by St. Laurent pursuant to
the exercise of on-going options under the St. Laurent Managers' Stock Option
Plan is limited to 500,000. The plan establishes that on-going options granted
thereunder expire 10 years after the date of the grant except in special
circumstances. Unless the compensation committee of St. Laurent otherwise
determines, the on-going options granted under the plan become exercisable at
the rate of 20% per annum, on a cumulative basis, from the date of the grant.
In the financial year ended December 31, 1999, options to purchase a total
of 105,587 St. Laurent Common Shares were granted under the St. Laurent
Managers' Stock Option Plan.
G-7
<PAGE>
THE ST. LAURENT PERFORMANCE SHARE PLAN
On January 1, 1998, the St. Laurent Performance Share Plan became
effective. The purposes of the plan are to reward Key Employees (as defined
hereinafter) for the creation of economic value for the shareholders, assure a
certain level of ownership by Key Employees and provide Key Employees with
potential capital accumulation for retirement and with a total compensation
which is competitive with that of similar positions in markets where St. Laurent
and its Affiliates compete for managerial and professional talent. The St.
Laurent Performance Plan is administered by the compensation committee of St.
Laurent and is intended for key employees of St. Laurent or its Affiliates,
which in general will include officers and other employees who occupy leadership
positions, either with St. Laurent or with any of its Affiliates, and have
demonstrated a capacity for contributing in a substantial measure to the
successful performance of St. Laurent or its Affiliates (the "Key Employees").
Under the St. Laurent Performance Share Plan, Key Employees may be granted units
of participation therein ("Performance Shares"), the number of Performance
Shares covered by a normal grant being equal to the number obtained by dividing
the guideline annual grant expressed as a percentage of the bonus amount earned
by the participant in respect of the calendar year preceding the date of grant
under the SVA based SPIP (100% for the Chief Executive Officer, for each of the
executive vice-presidents and for each of the corporate vice-presidents) by the
weighted average trading price per St. Laurent Common Share on the TSE for the
five trading days preceding the date of grant. Grants of Performance Shares
under the St. Laurent Performance Plan will generally be made annually at the
same time as annual bonuses are paid under the SVA based SPIP.
Performance Shares granted pursuant the St. Laurent Performance Plan are
either Basic Performance Shares or Voluntary Performance Shares, depending on
whether the required ownership level is met at the time of grant. Performance
Shares become redeemable for cash within specified periods following a
participant's termination of employment, for whatever reason, except that Basic
Performance Shares are immediately forfeited upon a termination of employment
for cause. The value of a Performance Share for purposes of redemption is the
weighted average of the trading price per St. Laurent Common Share on the TSE
for the day of termination and the last trading day of each of the weeks
preceding the date of termination. As described above, the grant of Performance
Shares under the Performance Plan does not entitle grantees thereof to acquire
St. Laurent Common Shares or other securities of St. Laurent under any
circumstances and a participant shall not, by holding Performance Shares
thereunder, be, or otherwise be considered to be, a shareholder of St. Laurent.
An aggregate of 24,625 Performance Shares were awarded to the Named
Executives Officers for the financial year ended December 31, 1999, based on the
short-term incentive award granted under the SVA based SPIP.
G-8
<PAGE>
APPENDIX H
ST. LAURENT RIGHTS PLAN
The St. Laurent Rights plan has been in effect since February 1, 1995, was
amended on April 28, 1995; on March 5, 1998; on May 7, 1998 and further amended
on February 23, 2000, and will expire on February 1, 2005, subject to
reconfirmation by the shareholders of St. Laurent every third annual general
meeting following the 1995 meeting of shareholders of St. Laurent.
A copy of the St. Laurent Rights Plan is available form the Secretary of
St. Laurent at the registered office of St. Laurent located at 630 Rene-Levesque
Blvd. West, Suite 3000, Montreal, Quebec, H3B 5C7, and copies of the St. Laurent
Rights Plan will be available at the Meeting. Capitalized terms used below which
are not otherwise defined have the same meaning given to them in the St. Laurent
Rights Plan.
Summary of the St. Laurent Rights Plan
The following is a summary of the terms of the St. Laurent Rights Plan and
is qualified in its entirety by the full text of the St. Laurent Rights Plan.
One Right has been issued by St. Laurent pursuant to the St. Laurent Rights
Plan in respect of each St. Laurent Common Share outstanding. Each Right will
entitle the registered holder to purchase from St. Laurent one St. Laurent
Common Share at a price of Cdn.$65, subject to certain anti-dilution
adjustments. The Rights, however, will not be exercisable until the Separation
Time. In addition, on a Flip-in Event, each Right will entitle the holder to
purchase that number of St. Laurent Common Shares having a market value of
Cdn.$130 for the initial exercise of Cdn.$65.
Until the Separation Time, the Rights trade together with the St. Laurent
Common Shares, are represented by the common share certificates and are not
exercisable. After the Separation Time, the Rights will become exercisable, will
be evidenced by Rights certificates and will be transferable separately from the
St. Laurent Common Shares.
The Separation Time is defined in the St. Laurent Rights Plan as the close
of business on the eighty Trading Day (or such earlier or later day as may be
determined by the Board of Directors) after the earlier of:
(a) public disclosure that a Person has become an Acquiring Person
(defined in the St. Laurent Rights plan as a person who has acquired,
other than pursuant to an exemption available under the St. Laurent
Rights Plan or a Permitted Bid, beneficial ownership of 20% or more of
the Voting Shares of St. Laurent);
(b) the date of the commencement of, or first public announcement of an
intention to commence, a Take-over Bid (other than a Permitted Bid) to
acquire beneficial ownership of 20% or more of the Voting Shares of
St. Laurent; and
(c) the date upon which a Permitted Bid ceases to be a Permitted Bid.
A Permitted Bid is defined in the St. Laurent Rights Plan as a Take-over
Bid made in compliance with (but not on a basis which is exempt from) the
provisions of the applicable take-over bid legislation. In addition, a Permitted
Bid must comply with the following requirements:
(a) the Take-over Bid is made on identical terms to all holders of
outstanding Voting Shares of St. Laurent wherever resident, for all
Voting Shares held; and
(b) the Take-over Bid must be open for at least 60 days and more than 50%
of the outstanding Voting Shares of St. Laurent (other than shares
Beneficially Owned by the Offeror on the date of the bid) must be
deposited under the bid and not withdrawn before any shares may be
taken up and paid for and, if 50% of the Voting Shares are so
deposited, an announcement of such fact must be made and the bid must
remain open for a further 10-day period.
If a potential Offeror does not wish to make a Permitted Bid, it can
negotiate with, and obtain the prior approval of, the Board to make a Take-over
Bid on terms which the Board of Directors considers fair to all shareholders. In
such circumstances, the Board of Directors may waive the application of the St.
Laurent Rights Plan or redeem the Rights, thereby allowing such bid to proceed
without dilution to the Offeror.
Under the St. Laurent Rights plan, a Flip-in Event is any transaction in or
pursuant to which any Person becomes an Acquiring Person (of 20 percent or more
of the outstanding Voting Shares of St. Laurent).
H-1
<PAGE>
Therefore, a Flip-in Event that is not approved by the Board of Directors
will result in significant dilution to an Acquiring Person. The Board of
Directors may, at its option, at any time prior to the occurrence of a Flip-in
Event, elect to redeem all of the outstanding Rights at a redemption price of
Cdn.$0.001 per Right, appropriately adjusted for anti-dilution as set out in the
St. Laurent Rights Plan.
Amendments to the St. Laurent Rights Plan
The St. Laurent Rights Plan was amended by the Board of Directors in March
of 1998 in the following manner: (i) the definition of "Beneficial Ownership"
was amended to exclude shares over which voting power is held by a person as a
result of an arrangement, agreement or otherwise and to exclude the holdings of
a securities depository other than in a Take-over bid context; (ii) the
definition of "Competing Permitted Bid" was amended to refer to the minimum
statutory requirements of the Securities Act (Ontario) rather than specifying a
period of 21 days regarding the minimum delay for taking up and paying for the
Voting Shares of St. Laurent made by way of a private placement to private
placements as a result of which a Person does not acquire more than 25% of the
Voting Shares of St. Laurent outstanding prior to the private placement; and
(iv) other drafting changes and clarifications to the St. Laurent Rights Plan
were made as a result of discussions with representatives of institutional
shareholders of St. Laurent. The St. Laurent Rights Plan was further amended on
February 23, 2000 to change the definition of "Separation Time" to mean the
close of business on the eighth Trading Day after the earlier of: (i) the Stock
Acquisition Date; (ii) the date of the commencement of, or the first public
announcement (provided such announcement is made after the Record Time) of the
intent of any Person (other than St. Laurent or any Subsidiary of St. Laurent)
to commence a Take-over Bid (other than a Permitted Bid or a Competing Permitted
Bid); (iii) or such later time as may be determined by the Board of Directors;
provided that if any Take-over Bid referred to in (ii) above expires, or is
cancelled, terminated or otherwise withdrawn prior to the Separation Time, such
Take-over Bid shall be deemed never to have been made.
The Board of Directors has waived the application of the St. Laurent Rights
Plan, including the deferral of the Separation Time thereunder with respect to
the Transaction. St. Laurent has agreed not to redeem the Rights issued under
the St. Laurent Rights Plan or terminate the St. Laurent Rights Plan until
immediately prior to the Effective Time, unless St. Laurent is required to do so
by a court of competent jurisdiction or any applicable regulatory authority.
H-2
<PAGE>
APPENDIX I
ST. LAURENT PAPERBOARD INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
AUDITORS' REPORT
To the Directors of
ST. LAURENT PAPERBOARD INC.
We have audited the consolidated balance sheets of St. Laurent Paperboard
Inc. as at December 31, 1999 and 1998 and the consolidated statements of
earnings (loss), retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999 in accordance with
generally accepted accounting principles in Canada.
LOGO
PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Canada
January 24, 2000, except as to Note 10 b), which is as of February 25, 2000 and
Note 20, which is as of February 23, 2000.
I-1
<PAGE>
ST. LAURENT PAPERBOARD INC.
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
(in thousands of US dollars,
except per share amounts)
<S> <C> <C> <C>
Sales....................................................... $986,819 $860,473 $642,700
Cost of delivery............................................ 71,022 68,566 52,258
-------- -------- --------
Net sales................................................... 915,797 791,907 590,442
-------- -------- --------
Cost of sales............................................... 711,030 665,102 509,162
Amortization................................................ 67,023 63,508 47,621
Selling and administrative expenses......................... 62,651 51,919 42,563
Restructuring charge (Note 17).............................. -- 12,878 --
-------- -------- --------
840,704 793,407 599,346
-------- -------- --------
Operating earnings (loss)................................... 75,093 (1,500) (8,904)
Interest expense, net (Note 12)............................. 28,609 29,397 33,760
Other income, net (Note 12)................................. (13,792) (497) (213)
-------- -------- --------
Earnings (loss) before income taxes......................... 60,276 (30,400) (42,451)
Provision for (recovery of) income taxes (Note 13).......... 21,836 (7,137) (12,010)
-------- -------- --------
Net earnings (loss) before non-controlling interest......... 38,440 (23,263) (30,441)
Non-controlling interests................................... (103) -- --
Increase in equity component of convertible
Debentures, net of income taxes (1997 -- $1,480).......... -- -- (3,094)
-------- -------- --------
Net earnings (loss) attributable to common shares........... $ 38,337 $(23,263) $(33,535)
======== ======== ========
Net earnings (loss) per common share
Basic.................................................. $ 0.78 $ (0.47) $ (0.98)
======== ======== ========
Fully diluted.......................................... $ 0.77 (1) (1)
======== ======== ========
Weighted average number of outstanding common shares (in
thousands)................................................ 49,328 49,124 34,384
======== ======== ========
</TABLE>
- ---------------
(1) Anti-dilutive
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
(in thousands of US dollars)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 1,769 $ 25,032 $ 58,567
Net earnings (loss) attributable to common shares........... 38,337 (23,263) (33,535)
-------- -------- --------
Balance at end of year...................................... $ 40,106 $ 1,769 $ 25,032
======== ======== ========
</TABLE>
See notes to the Consolidated Financial Statements.
I-2
<PAGE>
ST. LAURENT PAPERBOARD INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings (loss)....................................... $ 38,337 $ (23,263) $ (30,441)
Items not involving cash
Amortization of property, plant and equipment, start-up
and deferred costs and goodwill...................... 67,023 63,508 47,621
Amortization and write-off of debt issue costs......... 1,438 1,422 9,538
Future income taxes.................................... 20,379 (8,163) (13,560)
Gain on asset disposals................................ (5,094) (235) (235)
Other.................................................. (927) (758) (2,019)
Start-up and other deferred costs incurred................ (2,199) 414 (2,267)
Pension expense, net of funding........................... 3,242 9,358 1,129
Interest payments, net of expense......................... -- -- (4,795)
Non-controlling interests................................. 103 -- --
--------- --------- ---------
122,302 42,283 4,971
Change in non-cash working capital relating to operations
Accounts receivable.................................... (10,588) 11,913 (8,856)
Inventory.............................................. 9,704 (1,942) (11,846)
Prepaid expenses....................................... 226 (8,153) (2,608)
Accounts payable and accrued liabilities............... 23,854 (8,825) 11,804
Income and other taxes payable......................... (538) 123 1,829
--------- --------- ---------
22,658 (6,884) (9,677)
--------- --------- ---------
Cash provided by (used in) operations..................... 144,960 35,399 (4,706)
--------- --------- ---------
INVESTING ACTIVITIES
Business acquisitions, including bank indebtedness assumed
of $5,678 in 1997 (Note 3)............................. (70,415) -- (506,353)
Additions to property, plant and equipment................ (57,138) (49,235) (44,038)
Proceeds from disposals of property, plant and
equipment.............................................. 9,059 235 312
--------- --------- ---------
Cash used in investing activities......................... (118,494) (49,000) (550,079)
--------- --------- ---------
FINANCING ACTIVITIES
Issuance of common shares, net of expenses................ 1,537 2,144 349,442
Redemption of common shares............................... -- (370) --
Issuance of long-term debt................................ 610 230,256 245,453
Repayment of long-term debt............................... (9,549) (241,892) (12,940)
Debt issue costs.......................................... (1,354) (4,496) (8,487)
Minority interests........................................ 700 -- --
Cash held in escrow....................................... -- 11,000 (11,000)
--------- --------- ---------
Cash provided by (used in) financing activities........... (8,056) (3,358) 562,468
--------- --------- ---------
INCREASE (DECREASE) IN CASH................................. 18,410 (16,959) 7,683
CASH (INDEBTEDNESS) AT BEGINNING OF YEAR.................... (3,519) 13,440 5,757
--------- --------- ---------
CASH (INDEBTEDNESS) AT END OF YEAR.......................... $ 14,891 $ (3,519) $ 13,440
========= ========= =========
CASH (INDEBTEDNESS) CONSISTS OF:
Cash...................................................... $ 9,125 $ -- $ 3,689
Temporary investments..................................... 5,766 2,607 9,751
Bank indebtedness......................................... -- (6,126) --
--------- --------- ---------
$ 14,891 $ (3,519) $ 13,440
========= ========= =========
</TABLE>
See notes to the Consolidated Financial Statements.
I-3
<PAGE>
ST. LAURENT PAPERBOARD INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
(in thousands of US
dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments............................ $ 14,891 $ 2,607
Accounts receivable....................................... 124,279 95,895
Income and other taxes recoverable........................ 4,792 4,870
Inventories (Note 4)...................................... 106,481 98,542
Prepaid expenses and other assets......................... 13,984 13,832
---------- ----------
264,427 215,746
PROPERTY, PLANT AND EQUIPMENT (NOTE 5)...................... 816,879 775,960
FUTURE INCOME TAXES (NOTE 13)............................... -- 8,437
DEFERRED CHARGES AND OTHER ASSETS (NOTE 6).................. 33,898 30,347
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $3,991 (1998 --
$2,777)................................................... 40,339 19,923
---------- ----------
$1,155,543 $1,050,413
========== ==========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness......................................... $ -- $ 6,126
Accounts payable and accrued liabilities.................. 102,846 72,112
Current portion of long-term debt (Note 7)................ 47,397 5,975
---------- ----------
150,243 84,213
LONG-TERM DEBT (NOTE 7)..................................... 338,206 356,455
OTHER LIABILITIES (NOTE 8).................................. 32,804 27,271
FUTURE INCOME TAXES (NOTE 13)............................... 18,305 6,363
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY
COMMON SHARES (NOTE 9)...................................... 573,471 571,934
CONTRIBUTED SURPLUS......................................... 2,408 2,408
RETAINED EARNINGS........................................... 40,106 1,769
---------- ----------
615,985 576,111
---------- ----------
$1,155,543 $1,050,413
========== ==========
</TABLE>
APPROVED BY THE BOARD OF DIRECTORS,
/s/ Jay J. Gurandiano /s/ Raymond R. Pinard
------------------------------ ------------------------------
Jay J. Gurandiano Raymond R. Pinard
Director Director
See notes to the Consolidated Financial Statements.
I-4
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a producer, supplier and converter of paperboard products.
Its principal products are white top linerboard, brown linerboard,
corrugating medium and solid bleached paperboard (foodboard and linerboard).
The Company converts approximately one third of its paperboard capacity into
corrugated boxes, point-of-purchase displays and other products. Its assets
are located in the United States and Canada and the products are sold mostly
in the United States and Canada.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. As described in Note 19,
those principles differ in certain material respects from those that the
Company would have followed had its financial statements been prepared in
accordance with generally accepted accounting principles in the United
States.
The consolidated financial statements include the accounts of the Company
and all its subsidiary companies. All significant inter-company transactions
and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements requires the Company's management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities shown on the balance sheet and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses on the statement of earnings
during the reporting period. Actual results may differ from those estimates.
FOREIGN EXCHANGE AND HEDGING ACTIVITIES
Non-monetary assets and liabilities of Canadian activities are translated
into US dollars at historical exchange rates. As explained in Note 2, the
historical rate for non-monetary items at December 31, 1996 is the rate in
effect as at that date. Monetary assets and liabilities are translated from
other currencies into US dollars at rates of exchange in effect at the date
of the balance sheet. Exchange gains or losses on Canadian dollar
denominated long-term debt are deferred and amortized over the expected life
of the related debt using the straight-line method.
Revenues and expenses are translated at the average rate during the month in
which the transaction took place, except amortization, which is translated
at historical rates.
The Company currently manages its foreign exchange exposure to future
expenses denominated in Canadian dollars through the use of forward
contracts and options. Resulting gains and losses on contracts designated as
hedges are recognized as part of the related Canadian transactions as they
occur and, therefore, are included in the cost of sales.
The Company also manages its risk exposure to interest rate variations by
entering into swap and option agreements. Payments made or received under
these agreements are accounted for as adjustments to interest expense.
The Company also manages its commodities price exposures by entering into
cash settled-swap agreements. Resulting gains and losses on contracts
designated as hedges are recognized as part of the related transaction as
they occur and, therefore, are included in sales or cost of sales, as
applicable.
TEMPORARY INVESTMENTS
Temporary investments are stated at the lower of cost and market value. They
are composed of debt instruments with maturities of less than three months.
INVENTORIES
Finished products are valued at the lower of average cost and net realizable
value. Fibre, maintenance materials and operating supplies are valued at
average cost. The average cost includes, where applicable, direct labor,
manufacturing overhead expenses and amortization.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, net of related investment
tax credits. They are amortized over their estimated useful lives, which are
approximately 20 years, using the unit of production method for
manufacturing facilities and the straight-line method for converting
facilities.
Timberlands are stated at cost and are managed on a sustained yield basis.
Major roads are capitalized and amortized over their expected useful life.
Amortization is recorded based on timber harvested.
During the construction period, interest is capitalized on major
improvements and expansion projects. No amortization is charged on major
improvements or expansion projects until construction is completed.
I-5
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
ENVIRONMENTAL EXPENDITURES
Environmental expenditures related to current operations are expensed or
capitalized as appropriate. Provisions are made for costs of anticipated
remedial action when they can be reasonably estimated.
OTHER ASSETS
Start-up costs, which include pre-production costs, incurred on significant
construction and modernization projects are deferred until the projects are
ready to commence commercial production and are then amortized over a period
of five years. Debt issue expenses are deferred and amortized over the
expected life of the related debt using the straight-line method.
GOODWILL
Goodwill is recorded at cost less accumulated amortization. It is amortized
over a 20-year period using the straight-line method. The Company assesses
annually whether there has been a permanent impairment in the value of the
unamortized portion of goodwill by determining whether projected
undiscounted future cash flows from the related operations exceed the net
book value of goodwill at the assessment date.
PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS
Pension costs are determined annually in consultation with independent
actuaries and include current service costs, a provision for the
amortization of prior service costs and settlement costs related to special
events. The pension plans' surplus or deficit, after including the
liabilities for past service, is amortized over the estimated average
remaining service lives of the employees. The assets of the pension plans
are invested in listed common stocks, fixed income securities and cash
equivalents.
In addition to pension benefits, the Company provides limited life
insurance, dental and health care benefits to eligible retired employees.
The cost of providing these benefits is recognized on an accrual basis
during the service years of these employees. The costs include also a
provision for the amortization of prior service costs.
LONG-TERM INCENTIVE PLANS
The Company recognizes compensation costs related to awards of restricted
share units and stock options (see Note 9) when the shares are issued. The
costs accounted for on the issuance date are based on the market value of
the shares at that date.
INCOME TAXES
The Company adopted in 1998 the new accounting rules for income taxes
approved by the Canadian Institute of Chartered Accountants in September
1997. Under the new rules, the Company recognizes the amount of taxes
payable or refundable for the current year and recognizes also the future
income tax liabilities and assets related to the other assets and
liabilities recognized in the balance sheet, using the current income tax
rate. The impact of the change on 1998 net earnings was not significant. The
change has not been applied retroactively since the impact was not
significant on financial statements of prior years. The Company does not
make provisions for income taxes on the undistributed earnings of foreign
subsidiaries, part of which may be subject to certain taxes on distribution
to the parent company as such income is reinvested in foreign operations.
The amount of such undistributed earnings is not significant at December 31,
1999.
EARNINGS PER COMMON SHARE
Earnings per common share are calculated using the weighted average number
of common shares outstanding during the year. Fully diluted earnings per
common share are calculated using the weighted average number of common
shares outstanding during the year and assuming that all convertible
debentures were converted to common shares at the beginning of their
respective years, that all outstanding stock options and warrants were
exercised from the beginning of the year, and that all shares, entitled to
be received through the restricted share units, were issued also at the
beginning of the year.
2. CHANGE IN REPORTING CURRENCY IN 1997
The consolidated financial statements of the Company were presented in
Canadian dollars up to December 31, 1996. Until that date, the Canadian
dollar was also considered the functional currency of the Company. With the
major acquisition of U.S. assets made in May 1997 (see Note 3),
substantially all the Company's revenues are received in US dollars and the
Company's Canadian assets and expenses denominated in Canadian dollars
represent less than half of the assets and expenses of the Company. For
these reasons, the US dollar was adopted in 1997 as the Company's reporting
and functional currency. The comparative financial information for 1996 is
presented in US dollars in accordance with a translation of convenience
method using the Closing exchange rate at December 31, 1996 of $0.73 for
CAN$1.00. The translated amount for Canadian non-monetary items at December
31, 1996 became the historical basis for those items in 1997 and
subsequently.
I-6
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
3. BUSINESS ACQUISITIONS
The Company completed the following business acquisitions:
On December 22, 1999, the Company acquired for cash consideration of $6.5
million all the assets of The Kimball Companies in East Longmeadow,
Massachusetts. The Kimball Companies manufacture protective packaging
including triplewall, foam, wood and corrugated products.
On January 29, 1999, the Company purchased a 49% interest in Eastern
Container Corporation which operates converting facilities in Massachusetts
and New Hampshire and, on November 30, 1999, the Company acquired the
remaining 51% interest. The total cash consideration paid by the Company for
this acquisition amounted to $25.3 million.
On July 30, 1999, the Company acquired from Chesapeake Corporation all the
assets of the building products business, consisting of two softwood
sawmills located in West Point, Virginia and Princess Anne, Maryland; a
hardwood lumber re-processing facility located in Milford, Virginia; as well
as a chip mill facility located in Pocomoke City, Maryland for cash
consideration of $13.8 million.
On May 28, 1999, the Company acquired all the assets of Castle Rock
Container Company, a custom manufacturer of high-quality corrugated
packaging, point-of-purchase displays and communication kit, from
Consolidated Papers Inc. located in Adams, Wisconsin for cash consideration
of $24.8 million.
In 1998, there were no business acquisitions.
On May 23, 1997, the Company acquired from Chesapeake Corporation certain
assets of its paperboard business consisting of a pulp and paper mill
located in West Point, Virginia, four converting plants located in Richmond
and Roanoke, Virginia, Baltimore, Maryland and North Tonawanda, New York,
and other related assets for $498 million paid in cash. The acquisition was
financed by the issuance of common shares and term loans.
In January 1997, the Company acquired for cash consideration of $2.9 million
(CAN$3.9 million) all of the outstanding shares of Usine Francobec Inc., a
wood chipping facility located near La Tuque, Quebec.
The acquisitions have been accounted for using the purchase method and the
results of operations therefrom are included in the consolidated statement
of earnings of the Company from the respective acquisition dates. The
initial investment in Eastern Container Corporation on January 29, 1999 was
accounted for using the equity method up to December 1, 1999 when the
remaining 51% was acquired.
The net assets acquired, at assigned values, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Current assets.............................................. $ 35,817 $ 79,610
Property, plant and equipment............................... 51,477 457,121
Goodwill.................................................... 21,630 702
Other assets................................................ 2,429 19,626
-------- --------
111,353 557,059
Current liabilities......................................... (7,503) (32,080)
Other liabilities........................................... (33,435) (24,304)
-------- --------
$ 70,415 $500,675
======== ========
</TABLE>
I-7
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
4. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Primary mills
Fibre..................................................... $ 11,699 $ 11,058
Maintenance materials and operating supplies.............. 29,796 29,910
Finished products......................................... 10,013 24,518
Converting plants
Raw materials............................................. 22,915 14,107
Maintenance materials and operating supplies.............. 3,218 3,639
Finished products......................................... 18,461 10,282
Lumber
Fibre..................................................... 8,500 4,921
Finished products......................................... 1,879 107
-------- --------
$106,481 $ 98,542
======== ========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1999
--------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---------- ------------ --------
(in thousands of dollars)
<S> <C> <C> <C>
Land........................................................ $ 12,334 $ -- $ 12,334
Timberlands and roads....................................... 12,986 2,504 10,482
Buildings and equipment..................................... 995,460 201,397 794,063
---------- -------- --------
$1,020,780 $203,901 $816,879
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---------- ------------ --------
(in thousands of dollars)
<S> <C> <C> <C>
Land........................................................ $ 6,549 $ -- $ 6,549
Timberlands and roads....................................... 12,990 2,058 10,932
Buildings and equipment..................................... 894,329 135,850 758,479
---------- -------- --------
$ 913,868 $137,908 $775,960
========== ======== ========
</TABLE>
Amortization expense for the year was $63,731 (1998 -- $60,602; 1997 --
$43,837).
6. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Deferred charges, net of accumulated amortization
Start-up costs............................................ $ 5,979 $ 5,626
Debt issue expenses....................................... 6,005 5,016
Foreign exchange loss on long-term debt................... 1,527 1,909
Other..................................................... 3,765 2,107
Prepaid pension costs (Note 11)............................. 15,326 14,279
Advances to officers and managers (Note 9).................. 1,296 1,410
-------- --------
$ 33,898 $ 30,347
======== ========
</TABLE>
I-8
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Secured term loan........................................... $224,250 $230,000
Senior secured notes
-- Series A, 8.80% (1998 -- 8.17%).......................... 30,000 30,000
-- Series B, 9.04% (1998 -- 8.41% )......................... 85,000 85,000
-- Series C, 9.42% (1998 -- 8.79% )......................... 10,000 10,000
Eastern Container Corporation term loan..................... 22,500 --
Industrial development revenue bonds........................ 4,760 4,880
Note payable................................................ 8,000 --
Note payable to Abitibi-Consolidated Inc. (1998 --
CAN$3.7).................................................. -- 2,389
Other....................................................... 1,093 161
-------- --------
385,603 362,430
Less: Long-term debt due within one year.................... 47,397 5,975
-------- --------
$338,206 $356,455
======== ========
</TABLE>
SECURED TERM LOAN
Under a credit agreement, the Company has a 7-year term facility with an
original amount of $230 million, of which $224.3 million were outstanding at
the end of 1999, and a CAN$200 million or $ equivalent 5-year revolving
facility, of which CAN$191 million were available at the end of the year,
subject to meeting certain financial covenants. In the third quarter of
1999, a CAN$70 million or $ equivalent, 7-year term facility available under
this credit agreement was cancelled. The remaining principal amount of the
secured term loan is payable as follows: 10% in 2000 and 2001, 17.5% in
2002, 20% in 2003, 2004 and 2005 on the original amount of $230 million. The
credit facilities bear interest at specified margins over the alternate base
rate or LIBOR. The actual interest rate as of December 31, 1999 is 7.70% on
the term facility (6.29% in 1998). The credit facilities are secured by all
the assets of St. Laurent Paperboard Inc., St. Laurent Paperboard (U.S.)
Inc. and their subsidiaries.
SENIOR SECURED NOTES
The $125 million senior secured notes are secured by all the assets of St.
Laurent Paperboard Inc., St. Laurent Paperboard (U.S.) Inc. and their
subsidiaries and rank pari passu with the lenders under the credit
agreement governing the secured term loan. The Series B senior notes carry
the following principal repayment requirements: $18.3 million in 2000 and
2002 and $12.1 million in each of the years 2003 through 2006. The Series A
and C senior notes are payable in 2002 and 2008 respectively. Subject to a
make-whole provision, the notes are redeemable at any time.
EASTERN CONTAINER CORPORATION ("EASTERN") TERM LOAN
Concurrent with the acquisition of the remaining 51% of Eastern and with the
Company providing a guarantee to the lenders, Eastern's existing credit
agreement was renegotiated in order to have the covenants governing
Eastern's $24 million, 7-year term facility similar to those governing the
Company's secured term loan. The principal amount of Eastern's term loan is
payable as follows: 12.5% in 2000, 2001, 2002 and 2003, 16.7% in 2004 and
27.1% in 2005 on the original amount of $24 million. This credit facility
bears interest at a specified margin over prime rate or LIBOR. The actual
interest rate as of December 31, 1999 is 7.92%. The credit facility is
secured by all the assets of Eastern and is guaranteed by St. Laurent
Paperboard Inc.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
In connection with the construction of a sheet corrugating facility based in
Milwaukee, Wisconsin by Innovative Packaging Corp., a subsidiary, tax-exempt
variable rate industrial development revenue bonds were issued by this
subsidiary in 1997 with a maturity of December 1, 2017. The bonds are
secured by an irrevocable bank letter of credit governed by a credit
facility, imposing certain financial covenants such as working capital and
tangible net worth. The bonds are subject to redemption at the option of
Innovative Packaging Corp., in whole or in part at any time, at par plus
accrued interest. The actual interest rate as of December 31, 1999 is 5.65%
(4.20% in 1998).
NOTE PAYABLE
In connection with the acquisition of Eastern, a $8 million note was issued
as a balance of sale. The principal amount of the note payable will be
repaid as follows: one third in each of the years 2000, 2001 and 2002. This
note bears interest at a fixed rate of 8.25% and a portion of this note
ranks pari passu with the lenders under the Eastern Container Corporation
term loan. This note is guaranteed by St. Laurent Paperboard Inc.
I-9
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
COVENANTS
Under the terms of its various debt agreements, the Company must meet
certain financial covenants, including ratios with respect to leverage,
tangible net worth and, under certain circumstances, interest coverage. In
addition, the Company is subject to limitations with regard to the sale or
disposal of assets. Specific rules and restrictions govern mergers and
acquisitions.
The minimum annual installments on long-term debt for the next five years
are as follows:
<TABLE>
<CAPTION>
(in thousands of dollars)
<S> <C>
2000................................ $47,397
2001................................ 29,152
2002................................ 94,654
2003................................ 61,245
2004................................ 62,245
</TABLE>
8. OTHER LIABILITIES
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands of
dollars)
<S> <C> <C>
Pension liability (Note 11)................................. $14,529 $10,659
Post-retirement benefit liability (Note 11)................. 16,981 15,312
Non-controlling interest.................................... 921 --
Other....................................................... 373 1,300
------- -------
$32,804 $27,271
======= =======
</TABLE>
9. COMMON SHARES AND CONTRIBUTED SURPLUS
The Company's authorized share capital consists of an unlimited number of
common shares and an unlimited number of preferred shares issuable in
series, in each case without nominal or par value. The number of shares
outstanding as at December 31, 1999 is 49,398,968 common shares (1998 --
49,244,696; 1997 -- 49,034,871).
The changes in the number and stated value of the common shares of the
Company are as follows, in thousands of dollars except the number of shares:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
NUMBER OF STATED NUMBER OF STATED NUMBER OF STATED
SHARES VALUE SHARES VALUE SHARES VALUE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year.................... 49,244,696 $571,934 49,034,871 $570,160 13,314,298 $ 90,111
Issued during the year Public offering(i)....... -- -- -- -- 24,420,000 352,894
Conversion of debentures(ii).................. -- -- -- -- 11,190,770 125,638
Managers' Share Purchase Plan(iii)............ -- -- 9,289 107 30,603 445
Employees' Share Purchase Plan(iv)............ 136,925 1,360 202,129 1,647 43,784 520
Directors' Stock Option and Share Purchase
Plan(v)..................................... 10,110 108 8,233 110 6,060 98
Restricted share units matured................ 7,237 69 13,960 144 26,118 416
Options exercised............................. -- -- 14,814 136 3,238 38
Buy-back of shares(vi).......................... -- -- (38,600) (370) -- --
---------- -------- ---------- -------- ---------- --------
Balance at end of year.......................... 49,398,968 $573,471 49,244,696 $571,934 49,034,871 $570,160
========== ======== ========== ======== ========== ========
</TABLE>
- ---------------
(i) Net of issue costs of $10.2 million, which are net of taxes of $4.9
million.
(ii) Net of amortized issue costs of $1.1 million, which are net of taxes
of $0.5 million. If the convertible debentures had been converted at
the beginning of 1997, the loss per share figure for 1997 would have
been $0.77.
(iii) Shares issued to eligible managers under the Managers' Share
Purchase Plan were financed by interest-free loans provided by the
Company. The Company has reserved a maximum of 300,000 shares for
the purpose of the Plan. At December 31, 1999, there were 82,293
shares held by the Plan's participants (1998 -- 92,269; 1997 --
91,201) with a market value of $1,096,966 (1998 -- $646,806; 1997 --
$1,172,845).
(iv) The Company has reserved a maximum of 500,000 shares for the purpose
of the Employees' Share Purchase Plan. At December 31, 1999, there
were 296,997 shares held by the Plan's participants (1998 --
267,366; 1997 -- 64,853).
I-10
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
(v) The Company has reserved a maximum of 175,000 shares for the purpose
of the Directors' Stock Option and Share Purchase Plan. At December
31, 1999, there were 32,098 shares issued and outstanding under the
provisions of the Plan (1998 -- 21,988; 1997 -- 15,143).
(vi) Shares were purchased according to a normal course issuer bid that
was approved in December 1997. The bid was for approximately 5% of
the 49 million common shares issued and outstanding, subject to a
maximum aggregate purchase price of CAN$40 million. The normal
course issuer bid expired in December 1998.
The Company also issued shares to eligible officers under a Long-Term
Incentive Plan which were financed by interest-free loans provided by the
Company. At December 31, 1999, there were 44,004 (1998 -- 44,004; 1997 --
52,234) shares issued and outstanding under this plan with a market value of
$586,573 (1998 -- $308,468; 1997 -- $671,867).
The interest-free loans to eligible officers and managers are secured by the
common shares issued under both plans and are repayable from proceeds on the
sale of any shares purchased, by the application of any dividends declared
and paid on such shares, and from 25% of any bonus paid to the eligible
officer or manager and, as to any remainder, upon termination of employment.
Under the Long-Term Incentive and Managers' Share Purchase plans, at the
time of issuance of common shares, the Company granted to each eligible
officer and manager one restricted share unit ("RSU") for every two shares.
Each RSU entitles the holder to receive one common share, at no cost, three
years after its issuance. During the year, 7,237 RSUs (1998 -- 13,960; 1997
-- 26,118) matured and 1,731 were cancelled (1998 -- 13,569; 1997 -- 1,298).
In addition, the Long-Term Incentive Plan also includes a stock option
component for its participants. The number of shares that may be issued
pursuant to the exercise of options under the plan is limited to 1,031,684
common shares. The options can be exercised between one to five years after
their respective date of grant for a period of ten years, at which time they
expire.
Under the terms of the Directors' Stock Option and Share Purchase Plan, the
options granted to directors can be exercised starting one year after their
respective date of grant for a period of ten years, at which time they
expire.
The changes in the number of stock options and RSUs of the Company are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
NUMBER WEIGHTED NUMBER NUMBER WEIGHTED NUMBER
OF EXERCISE OF OF EXERCISE OF
OPTIONS PRICE RSUS OPTIONS PRICE RSUS
------- -------- ------ ------- -------- -------
CAN$ CAN$
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year.................... 666,340 $19.07 22,710 594,359 $18.88 45,595
Issued.......................................... 333,262 15.71 -- 163,769 19.25 4,644
Cancelled....................................... (67,228) 17.69 (1,731) (76,974) 19.10 (13,569)
Matured or exercised............................ -- -- (7,237) (14,814) 13.50 (13,960)
------- ------ ------ ------- ------ -------
Balance at end of year.......................... 932,374 16.01 13,742 666,340 19.07 22,710
======= ====== ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------
NUMBER WEIGHTED NUMBER
OF EXERCISE OF
OPTIONS PRICE RSUS
------- -------- -------
CAN$
<S> <C> <C> <C>
Balance at beginning of year................................ 448,234 $17.22 58,328
Issued...................................................... 173,396 22.86 15,300
Cancelled................................................... (24,033) 16.12 (1,915)
Matured or exercised........................................ (3,238) 16.70 (26,118)
------- ------ -------
Balance at end of year...................................... 594,359 18.88 45,595
======= ====== =======
</TABLE>
I-11
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
RANGE REMAINING AVERAGE AVERAGE
OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13.50 --
$17.00 432,947 7.45 years $15.00 134,189 $13.50
$17.00 --
$21.00 313,785 6.52 years $19.09 155,520 $19.09
$21.00 --
$23.73 185,642 6.70 years $22.99 65,464 $22.88
------- -------
932,374 355,173
======= =======
</TABLE>
In addition to the options and the RSUs outstanding, the Company issued
380,000 warrants in the course of the acquisition of Eastern Container
Corporation. The warrants awarded give the right to the owner to buy 380,000
common shares of the Company at CAN$10.95/share and the owner has until
January 2002 to exercise those warrants.
10. COMMITMENTS AND CONTINGENCIES
a) At December 31, 1999, the Company had commitments for major capital
expenditures under purchase orders and contracts amounting to
approximately $13.5 million.
Minimum payments in US and Canadian dollars required under operating
leases are as follows:
<TABLE>
<CAPTION>
US $ CAN $
------ ------
(in thousands of
dollars)
<S> <C> <C>
2000........................................................ 5,285 1,429
2001........................................................ 4,794 897
2002........................................................ 4,436 813
2003........................................................ 3,496 776
2004........................................................ 2,614 715
Subsequent years............................................ 5,282 1,405
</TABLE>
Under the Asset Acquisition Agreement between the Company and Avenor
Inc. in June 1994, Avenor Inc. (now Bowater Canada Inc.) has a right
of first refusal for a period of 99 years regarding disposition of the
Company's private timberlands of approximately 904,020 acres at the
rate of 250 acres or more in any one transaction or series of related
transactions. Should Bowater Canada Inc. refuse the transaction, it
remains entitled to receive from the Company any amount in excess of
CAN$25 per acre.
The Company is involved in various legal actions during the normal
course of business. Management of the Company is of the opinion that
the total amount of any potential liabilities for which provisions
have not already been recorded is not expected to have a material
adverse effect on the Company's financial position or its results.
b) On April 19, 1999, the U.S. Environmental Protection Agency ("EPA")
and the Virginia Department of Environmental Quality ("DEQ") each
issued a Notice of Violation (the "NOVS") under the Clean Air Act
("CAA") to the primary mill located in West Point, Virginia (the
"Mill"), which was acquired from Chesapeake Corporation ("Chesapeake")
in 1997. The Company is part of a group of pulp and paper companies
that were served at the same period of time with NOVs by EPA for
alleged violations of the Clean Air Act. In general, the NOVs allege
that from 1984 to the present, the Mill installed certain equipment
and modified certain production processes without obtaining required
permits. In the 1997 Purchase Agreement, Chesapeake agreed to
indemnify the Company for remediation work resulting from violations
of applicable environmental laws (including the CAA) that existed at
the Mill as of the date of the Purchase Agreement and as of the May
1997 closing date as to which Chesapeake had "knowledge" as defined in
the Purchase Agreement. Chesapeake's maximum indemnification
obligation to St. Laurent with respect to such matters is $50 million.
While such costs cannot be estimated with certainty at this time,
based on presently available information, the Company believes that
the cost of remediation work, which represents capital expenditures
comprising the engineering, procurement and construction work of Mill
modifications (including the installation of air emission controls,
etc.) associated with the NOVs may approximate $20 million.
In addition, a civil monetary penalty may be assessed by EPA and DEQ;
however, the costs associated with any such penalty cannot be
estimated at this time as the Company and Chesapeake are continuing
discussions with EPA and DEQ with respect to such matters. Based upon
discussions with EPA and DEQ to date, the Company believes that the
total cost of remediation work associated with the NOVs and fines and
penalties that may be imposed by EPA and DEQ will not exceed the
maximum amount of Chesapeake's obligation. The Company and Chesapeake
have agreed to appoint a third party to decide the scope and timing of
future remediation work that is the subject of indemnification in the
Purchase Agreement. The third party ruled on February 25, 2000 that
said extension of the indemnification period has been extended to May
8, 2000, with the possibility of a further extension, on terms that
may be determined by
I-12
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
the third party. In the interim, the Company and Chesapeake, with the
assistance of the third party, under certain conditions, shall work
together in attempting to develop and implement a remediation plan,
which will provide for a cost-effective resolution of the issues
raised by the NOVs. The Company believes that Chesapeake has the
financial ability to honor its indemnification obligation under the
1997 Purchase Agreement. The Company is cooperating with Chesapeake to
analyze, respond to, and defend against the matters alleged in the
NOVs. Based upon an initial review of the NOVs, the Company believes
that it has substantial defenses against the alleged violations. The
Company and Chesapeake are working with EPA and DEQ to address the
matters that are the subject of the NOVs; however, the Company will
vigorously defend itself against these allegations, if necessary.
11. EMPLOYEE PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS
PENSION COSTS
Canadian operations
Defined Benefit Pension Plans
The Company has a registered pension plan (the "St. Laurent Plan") which
covers substantially all non-unionized employees. The St. Laurent Plan is a
defined benefit plan integrated with the Canada/Quebec Pension Plan, and is
funded through Company contributions.
Most of the unionized employees of the Company are covered by a registered
defined benefit plan integrated with the Canada/Quebec Pension Plan, funded
through Company and employee contributions. Employee contributions and
pension benefits for unionized employees are established pursuant to the
collective bargaining agreements in effect with their respective unions.
Defined Contribution Pension Plans
Certain unionized and non-unionized employees of the Company are covered by
registered defined contribution pension plan.
Supplementary Executive Retirement Plan (the "SERP")
The Company also has a SERP pursuant to which additional pension benefits in
excess of those that can be provided under St. Laurent Plans may become
payable to certain executive officers qualified for participation under the
SERP based on their position level.
UNITED STATES OPERATIONS
Defined Benefit Pension Plans
The U.S. companies currently maintain two non-contributory defined benefit
retirement plans covering substantially all U.S. employees. The plan
covering represented U.S. employees generally provides benefits of stated
amounts for each year of service or a formula based on years of service and
the employee's salary history. The plan covering U.S. salaried and
non-represented hourly employees provides benefits of stated amounts for
each year of service for most hourly employees and a formula based on years
of service and the employee's salary history for salaried employees and
certain hourly employees. Salaried employees and certain represented
employees are also entitled to supplemental benefits based on service of
more than ten years. The funding policy for the qualified plans is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act and
the Internal Revenue Code. The U.S. companies also maintain certain
non-qualified pension plans for executives which provide benefits that are
based on targeted wage replacement percentages or provide other additional
benefits. These non-qualified plans are unfunded.
401(k) Plans
The U.S. companies also maintain two 401(k) Plans covering substantially
all U.S. employees. Participants are allowed to make voluntary employee
contributions on a pre-tax basis which contributions are matched based on
the employee's status and workplace.
The dates of the most recent actuarial valuations for the plans are December
31, 1997 for the Canadian plans and October 1, 1998 for the U.S. plans.
Contributions to the Company's pension plans are based on the actuarial
recommendation for each plan and meet the funding requirements of the
regulatory authorities.
PENSION EXPENSE
Net pension expense for the defined benefit plans include the following
components:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Service costs -- pension benefits earned during the year.... $ 5,647 $ 4,809 $ 3,069
Interest costs on projected benefit obligation.............. 18,754 17,607 15,465
Actual return on pension fund assets........................ (9,757) (21,733) (20,543)
Net amortization, deferrals and others...................... (9,222) 2,756 4,937
------- -------- --------
Net pension expense......................................... $ 5,422 $ 3,439 $ 2,928
======= ======== ========
</TABLE>
I-13
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
FUNDED STATUS OF THE PLANS
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
FOR PLANS IN WHICH FOR PLANS IN WHICH
ASSETS EXCEED BENEFITS EARNED ASSETS EXCEED BENEFITS EARNED
BENEFITS EARNED EXCEED ASSETS BENEFITS EARNED EXCEED ASSETS
--------------- --------------- --------------- ---------------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Plan assets at fair value........................... $63,955 $172,737 $60,187 $161,373
Projected benefit obligation........................ 51,998 195,176 48,990 177,397
------- -------- ------- --------
Plan assets in excess of (less than) projected
benefit obligation................................ $11,957 $(22,439) $11,197 $(16,024)
======= ======== ======= ========
The above excess (deficiency) is comprised of amounts to be amortized over
the expected average remaining service lives of plan members and to be
reflected in future earnings, namely:
Unamortized net gain (loss)....................... $(2,917) $ 15,736 $(3,082) $ 7,169
Net asset (obligation) as at June 1994, the
implementation date of the current accounting
policy.......................................... -- 480 -- 584
Prior service cost of retroactive benefits
resulting from plan amendments since June
1994............................................ (452) (24,126) -- (13,118)
------- -------- ------- --------
(3,369) (7,910) (3,082) (5,365)
Prepaid pension cost (liability).................... 15,326 (14,529) 14,279 (10,659)
------- -------- ------- --------
$11,957 $(22,439) $11,197 $(16,024)
======= ======== ======= ========
</TABLE>
The following assumptions were used for the Canadian and U.S. plans:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
AVERAGE RATE CAN US CAN US
- ------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 8.25% 7.50% 8.75% 6.75%
Salary increase......................................... 3.50% 4.75% 3.50% 4.75%
Return on assets........................................ 8.25% 9.25% 8.75% 9.25%
</TABLE>
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands of
dollars)
<S> <C> <C>
Costs of post-retirement benefits other than pensions:
Service costs............................................. $ 962 $ 690
Interest costs............................................ 1,350 1,252
Amortization of the transitional balance.................. 131 131
Actuarial loss............................................ 4 --
------- -------
Total....................................................... $ 2,447 $ 2,073
======= =======
Funded status of plans:
Accumulated obligation for post-retirement benefits other
than pensions........................................... $19,444 18,740
======= =======
Unrecognized transitional balance........................... $ 1,622 $ 1,653
Unrecognized net loss....................................... 841 1,775
Accrual for post-retirement benefits other than pensions.... 16,981 15,312
------- -------
$19,444 $18,740
======= =======
</TABLE>
I-14
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
The assumptions used to measure the obligation for post-retirement benefits
other than pensions are as follows:
<TABLE>
<S> <C>
Average age discount rate................................... 7.50%
Health care cost trend rate................................. 7.50% in 1999 trending down to a rate of 5% in 2003
Effect of a 1% change in the health care cost trend rate on
post-retirement benefits other than pensions:............. - Cost $0.1 million
- Obligation $0.9 million
</TABLE>
CHANGE IN BENEFITS OBLIGATION
<TABLE>
<CAPTION>
OTHER POST-
RETIREMENT
PENSION BENEFITS BENEFITS
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
(in thousands of (in thousands of
dollars) dollars)
<S> <C> <C> <C> <C>
Benefits obligation at beginning of year.................... $226,387 $212,045 $18,740 $16,754
Acquisition............................................... 5,811 -- 1,014 --
Unrealized foreign exchange loss (gain)................... 9,111 (9,887) 131 (145)
Service costs............................................. 5,647 4,809 962 690
Interest costs............................................ 18,754 17,607 1,350 1,252
Plan participants' contributions.......................... 1,326 1,159 -- --
Amendments................................................ 12,032 4,140 -- --
Actuarial loss (gain)..................................... (18,258) 5,216 (930) 1,054
Special termination benefits (Note 17).................... -- 8,233 -- --
Benefits paid............................................. (13,636) (16,935) (1,823) (865)
-------- -------- ------- -------
Benefits obligation at end of year.......................... $247,174 $226,387 $19,444 $18,740
======== ======== ======= =======
</TABLE>
CHANGE IN PLAN ASSETS
<TABLE>
<CAPTION>
PENSION BENEFITS
--------------------
1999 1998
-------- --------
(in thousands of
dollars)
<S> <C> <C>
Fair value of plan assets at beginning of year.............. $221,560 $221,460
Acquisition............................................... 5,224 --
Unrealized foreign exchange gain (loss)................... 8,601 (9,683)
Actual return on plan assets.............................. 9,757 21,733
Employer contribution..................................... 3,860 3,826
Plan participants' contributions.......................... 1,326 1,159
Gross benefits paid....................................... (13,636) (16,935)
-------- --------
Fair value of plan assets at end of year.................... $236,692 $221,560
======== ========
</TABLE>
12. INTEREST EXPENSE (INCOME), NET AND OTHER INCOME
Interest expense (income), net
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C>
Interest on long-term debt.................................. $27,019 $28,252 $25,635
Deferred debt issue expenses written off.................... -- -- 8,426
Interest on debt component of convertible debentures........ -- -- 260
Interest income on temporary investments.................... (943) (1,103) (1,866)
Interest capitalized on major construction projects......... -- -- (200)
Other....................................................... 2,533 2,248 1,505
------- ------- -------
$28,609 $29,397 $33,760
======= ======= =======
</TABLE>
Cash payments of interest totaled $27.6 million in 1999 (1998 -- $27.1
million; 1997 -- $28.4 million).
I-15
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
Other income (expense), net
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Gain resulting from the renegotiation of fibre supply
agreements................................................ $ 9,500 -- --
Gain from asset disposals................................... 5,094 235 235
Other....................................................... (802) 262 (22)
------- -------- --------
$13,792 $ 497 $ 213
======= ======== ========
</TABLE>
13. PROVISION FOR (RECOVERY OF) INCOME TAXES
The composite of the applicable statutory corporate income tax rates in
Canada is 39.7% (1998 -- 39.3%; 1997 -- 41.1%). The following is the
reconciliation of income taxes calculated at the above composite statutory
rate with the income tax provision:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Earnings (loss) before income taxes......................... $60,276 $(30,400) $(42,451)
------- -------- --------
Income taxes (recovery) at the composite statutory rate..... 23,943 (11,946) (17,458)
Manufacturing and processing deduction...................... (2,455) 624 2,655
Large corporations tax...................................... 926 714 1,310
Exchange translation items.................................. (515) 3,277 1,054
Other items................................................. (63) 194 429
------- -------- --------
$21,836 $ (7,137) $(12,010)
======= ======== ========
</TABLE>
Payments for income and capital taxes in 1999 amounted to $2.9 million (1998
-- payments of $2.5 million; 1997 -- payments of $2.6 million).
The following summarizes the Company's income taxes on earnings of its
Canadian and foreign operations:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Canada
Earnings (loss) before income taxes....................... $33,678 $(16,063) $(35,854)
Income taxes (recovery)
Current................................................. 913 921 1,550
Future.................................................. 10,352 (2,760) (11,067)
------- -------- --------
11,265 (1,839) (9,517)
------- -------- --------
Net earnings (loss) before non-controlling interest....... $22,413 $(14,224) $(26,337)
======= ======== ========
Foreign
Earnings (loss) before income taxes....................... $26,598 $(14,337) $ (6,597)
Income taxes (recovery)
Current................................................. 544 104 --
Future.................................................. 10,027 (5,402) (2,493)
------- -------- --------
10,571 (5,298) (2,493)
------- -------- --------
Net earnings (loss) before non-controlling interest....... $16,027 $ (9,039) $ (4,104)
======= ======== ========
Total
Earnings (loss) before income taxes....................... $60,276 $(30,400) $(42,451)
Income taxes (recovery)
Current................................................. 1,457 1,026 1,550
Future.................................................. 20,379 (8,163) (13,560)
------- -------- --------
21,836 (7,137) (12,010)
------- -------- --------
Net earnings (loss) before non-controlling interest....... $38,440 $(23,263) $(30,441)
======= ======== ========
</TABLE>
I-16
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
Principal components of future income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
CANADA UNITED STATES CANADA UNITED STATES
-------- ------------- ------- -------------
(in thousands of dollars) (in thousands of
dollars)
<S> <C> <C> <C> <C>
Future income tax assets
Operating loss carryforwards.............................. $ 5,031 $48,004 $10,423 $37,870
Post retirement benefits.................................. -- 7,107 -- 6,958
Shares issuance costs..................................... 2,864 -- 4,170 --
Other deductible timing differences....................... 3,426 4,302 2,128 4,467
-------- ------- ------- -------
11,321 59,413 16,721 49,295
-------- ------- ------- -------
Future income tax liabilities
Differences between tax bases and reported amounts of
depreciable assets...................................... 26,648 56,617 21,174 36,548
Post retirement liabilities............................... -- 4,318 -- 4,246
Other taxable timing differences.......................... 1,388 68 1,910 64
-------- ------- ------- -------
28,036 61,003 23,084 40,858
-------- ------- ------- -------
Net future income tax assets (liabilities).................. $(16,715) $(1,590) $(6,363) $ 8,437
======== ======= ======= =======
</TABLE>
The tax loss carryforwards expire as follows:
<TABLE>
<CAPTION>
(in thousands of dollars)
<S> <C>
2003................................ $ 6,800
2004................................ 7,400
2010................................ 900
2011................................ 2,300
2012................................ 23,500
2018................................ 71,800
2019................................ 21,800
--------
$134,500
========
</TABLE>
14. SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder Rights Plan which is designed to encourage the
fair treatment of all shareholders in connection with any takeover bid for
the Company. The Shareholder Rights Plan adopted in 1995 and subject to
reconfirmation by the shareholders at every third annual meeting, has been
renewed in 1998 and will expire on February 1, 2005.
The rights issued under the Shareholder Rights Plan become exercisable under
certain specific events related to a potential takeover other than a
permitted bid. Similar to most of the rights plans implemented in Canada,
the Shareholder Rights Plan contemplates a permitted bid concept whereby a
takeover bid will not trigger the rights if it meets specified conditions.
Should a bid other than a permitted bid be carried out, each right would
entitle a rights holder to purchase common shares of the Company at a 50%
discount of the market price at the time.
15. SEGMENTED INFORMATION
The Company's primary activity is the production and marketing of paperboard
and packaging products. The Company's manufacturing and converting
facilities are located in Quebec and Ontario, Canada, and in New York,
Maryland, Massachusetts, Ohio, North Carolina, Virginia, Wisconsin, South
Carolina and New Hampshire, U.S.A. The operating activities are split into
two major segments which are the paperboard production and marketing, and
the converting operations.
Primary production includes white top and mottled white linerboard, solid
bleached foodboard and linerboard, unbleached kraftliner board, and
corrugating medium. Containerboard, consisting of linerboard and corrugating
medium, is the principal raw material used in the manufacturing of
corrugated containers. Integrated containerboard manufacturers exchange
containerboard with other manufacturers to take advantage of freight costs,
manufacturing efficiencies and to obtain grade they do not produce.
The Company owns and operates seventeen converting plants. The converting
production consists mainly of corrugated containers, litho-labeled and
direct-printed retail packaging, point-of-purchase displays, post-print,
specialty packaging products, cupstock, baconboard and liquid packaging. The
Company's converting plants consume the equivalent of approximately 37% of
the Company's production. Accounting for segment profitability involves use
of transfer prices that attempt to approximate current market value. Segment
profit and assets have been measured in accordance with the Company's
accounting policies.
I-17
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
<TABLE>
<CAPTION>
WOODLANDS,
SOLID
WOOD
AND
PRIMARY UNALLOCATED
1999 MILLS CONVERTING AMOUNTS TOTAL
---- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales to third parties.................................. $523,532 $363,178 $29,087 $ 915,797
Inter-segment sales......................................... 90,240 -- -- 90,240
-------- -------- ------- ----------
Total....................................................... 613,772 363,178 29,087 1,006,037
EBITDA(i)................................................. 117,476 21,845 2,795 142,116
Amortization.............................................. 56,064 8,741 2,218 67,023
Operating earnings........................................ 61,412 13,104 577 75,093
Total assets................................................ 766,288 310,233 79,022 1,155,543
Additions to property, plant and equipment................ 37,251 18,556 1,331 57,138
Addition to goodwill...................................... -- 21,630 -- 21,630
</TABLE>
<TABLE>
<CAPTION>
WOODLANDS,
SOLID
WOOD
AND
PRIMARY UNALLOCATED
1998 MILLS CONVERTING AMOUNTS TOTAL
---- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales to third parties.................................. $478,104 $296,038 $17,765 $ 791,907
Inter-segment sales....................................... 80,354 -- -- 80,354
-------- -------- ------- ----------
Total....................................................... 558,458 296,038 17,765 872,261
EBITDA before restructuring charge(i)..................... 61,300 15,206 (1,620) 74,886
Amortization.............................................. 54,329 7,391 1,788 63,508
Operating earnings (loss) before restructuring charge..... 6,971 7,815 (3,408) 11,378
Total assets................................................ 809,947 181,532 58,934 1,050,413
Additions to property, plant and equipment................ 33,913 13,129 2,193 49,235
Addition to goodwill...................................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
WOODLANDS,
SOLID WOOD
AND
PRIMARY UNALLOCATED
1997 MILLS CONVERTING AMOUNTS TOTAL
---- -------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales to third parties.................................. $363,436 $220,125 $ 6,881 $590,442
Inter-segment sales....................................... 64,727 -- -- 64,727
-------- -------- -------- --------
Total....................................................... 428,163 220,125 6,881 655,169
EBITDA(i)................................................... 29,812 14,432 (5,527) 38,717
Amortization................................................ 39,696 6,466 1,459 47,621
Operating earnings (loss)................................... (9,884) 7,966 (6,986) (8,904)
Total assets................................................ 844,388 176,792 59,741 1,080,921
Additions to property, plant and equipment.................. 21,388 19,113 3,537 44,038
Addition to goodwill........................................ -- -- 702 702
</TABLE>
Starting in July 1998, corporate expenses were allocated to the primary
mills and converting segments.
- ---------------
(i) EBITDA: earnings before interest, income taxes, depreciation and
amortization.
I-18
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
The operations and assets of the Company by geographic area are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C>
Sales to third parties
From Canada
Within Canada........................................... $ 137,174 $ 120,620 $ 130,367
To the United States.................................... 208,086 151,903 125,206
Other................................................... 29,222 45,583 45,296
---------- ---------- ----------
374,482 318,106 300,869
From the United States.................................... 541,315 473,801 289,573
---------- ---------- ----------
$ 915,797 $ 791,907 $ 590,442
========== ========== ==========
Intercompany sales between geographic areas(A)
From Canada............................................... $ 19,582 $ 9,723 $ 4,845
From the United States.................................... 1,215 2,078 1,092
---------- ---------- ----------
$ 20,797 $ 11,801 $ 5,937
========== ========== ==========
Operating earnings (loss)
Canada.................................................... $ 40,967 $ (4,213) $ (22,975)
United States............................................. 34,126 2,713 14,071
---------- ---------- ----------
$ 75,093 $ (1,500) $ (8,904)
========== ========== ==========
Total assets(B)
Canada.................................................... $ 438,551 $ 441,710 $ 468,865
United States............................................. 716,992 608,703 612,056
---------- ---------- ----------
$1,155,543 $1,050,413 $1,080,921
========== ========== ==========
Property, plant, equipment and goodwill
Canada.................................................... $ 325,249 $ 320,371 $ 316,170
United States............................................. 531,969 475,512 491,901
---------- ---------- ----------
$ 857,218 $ 795,883 $ 808,071
========== ========== ==========
</TABLE>
- ---------------
(A) Intercompany sales reflect transfer prices at market value.
(B) Total assets are those which are directly used in geographic areas.
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Since substantially all of the Company's revenues are denominated in US
dollars and a portion of the operating costs are incurred in Canadian
dollars, the Company has a hedging program to manage its foreign exchange
exposure on future purchases of services and products denominated in
Canadian dollars. The Company does not use derivative financial instruments
for trading or speculative purposes. At December 31, the Company had entered
into various forward contracts and options for the purchase of Canadian
dollars as follows (amounts in parentheses represent losses):
<TABLE>
<CAPTION>
1999 1998
------------------------------ --------------------------------
AVERAGE AVERAGE
EXCHANGE EXCHANGE
NOMINAL RATE FAIR NOMINAL RATE FAIR
AMOUNT $/CAN$ VALUE AMOUNT $/CAN$ VALUE
-------- -------- ------ -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
1999............................................... $ -- $ -- $ -- $ 77,000 $0.7125 $ (7,422)
2000............................................... 108,000 0.6950 150 84,000 0.7001 (5,493)
2001............................................... 76,000 0.6920 919 56,000 0.7027 (3,776)
2002............................................... 21,000 0.6972 208 15,000 0.7068 (1,074)
-------- ------ -------- --------
$205,000 $1,277 $232,000 $(17,765)
======== ====== ======== ========
</TABLE>
The fair value of these forward contracts and options reflects the estimated
amounts that the Company would receive or (pay) to terminate the contracts
at the year-end date. The unrealized gains and losses on open contracts are
equal to the fair value as indicated above.
I-19
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
INTEREST RATE RISK MANAGEMENT
Cash and temporary investments bear interest at floating rates. Accounts
receivable, accounts payable and accrued liabilities are non-interest
bearing.
The Company enters into interest rate swap agreements to reduce exposure to
interest rate fluctuations on its long-term debt. Payments made under these
agreements are accounted for as adjustments to interest expense.
At December 31, 1999, the Company has entered into interest rate swap
agreements with financial institutions to pay fixed rates on a notional
amount of $55 million at a rate of 5.97%. These agreements expire in 2003.
The fair value of these financial instruments as of December 31, 1999
represents an unrealized gain of $1.5 million.
SELLING PRICES RISK MANAGEMENT
The Company enters into cash-settled swap agreements with financial
institutions to receive fixed prices on notional amounts of 26 lb.
semichemical corrugating medium and 42 lb. unbleached kraftliner. At
December 31, 1999, the Company had entered into swap agreements for 37,500
tons of corrugating medium and 18,000 tons of unbleached kraftliner. These
agreements expire in 2000 and 2001. The fair value of these financial
instruments as of December 31, 1999 represents an unrealized loss of $1.6
million.
RECYCLED FIBRE RISK MANAGEMENT
The Company enters into cash-settled swap agreements with financial
institutions to pay fixed prices on notional amounts of old corrugated
container. At December 31, 1999, the Company had entered into swap
agreements for 48,000 tons of old corrugated container. These agreements
expire in 2001. The fair market value of these instruments as of December
31, 1999 represents an unrealized loss of $0.3 million.
CREDIT RISK MANAGEMENT
The Company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce this risk, the Company's credit policies
include the analysis of the financial position of its customers and the
regular review of their credit limits. In some cases, the Company requires
bank letters of credit or subscribes to credit insurance. The Company does
not have significant exposure to any individual customer or counterpart and
has not incurred significant bad debt expenses in the last three years.
The Company minimizes its credit exposure to counterparties in the
derivative financial instrument transactions by entering into contracts only
with highly rated financial institutions and by distributing the
transactions among several selected financial institutions. Although the
Company's credit risk is the replacement cost at the then-estimated fair
value of the instrument, management believes that the risk of incurring
losses is remote and that such losses, if any, would not be material. The
market risk related to the derivative instruments should be offset by
changes in the valuation of the underlying items being hedged.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Rates currently available to the Company for long-term debt with similar
terms and remaining maturities are used to estimate the fair value of
existing borrowings using the present value of expected cash flows.
Short-term financial instruments included in the consolidated balance sheet
are valued at their carrying amounts which are reasonable estimates of fair
value due to the relatively short period to maturity of the instruments;
these include cash and temporary investments, accounts receivable, bank
indebtedness and accounts payable and accrued liabilities.
The fair value of the Company's other financial instruments and their
carrying amount are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Secured term loan........................................... $224,250 $224,250 $230,000 $230,000
Senior secured notes........................................ 125,000 130,845 125,000 135,588
Eastern Container Corporation term loan..................... 22,500 22,500 -- --
Industrial development revenue bonds........................ 4,760 4,760 4,880 4,880
Note payable................................................ 8,000 8,000 -- --
Note payable to Abitibi-Consolidated Inc.................... -- -- 2,389 2,389
</TABLE>
17. RESTRUCTURING CHARGE
In 1998, the Company completed a major restructuring of its West Point mill.
As a result, the market pulp machine was permanently shut down as well as a
chip mill. With this process, the Company has offered an enhanced early
retirement package to a certain number of eligible
I-20
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
employees, including severance payments and extended health benefits. The
Company has renegotiated the expiry date of the collective agreement
extending it from 2001 to 2008. The cost related to the restructuring was
incurred in 1998.
18. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not yet possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
19. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP)
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (Canadian GAAP) which
conform in all material respects with generally accepted accounting
principles in the United States, except as set forth below.
A) RECONCILIATION OF EARNINGS AND BALANCE SHEET TO U.S. GAAP
EARNINGS ADJUSTMENTS
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian GAAP........ 38,337 (23,263) (30,441)
======= ======== ========
Adjustments:
Pension expense(1).......................................... $ (933) $ (722) $ (414)
Unrealized exchange loss on long-term debt(2)............... 381 237 527
Interest on equity component of convertible debentures(3)... -- -- (4,790)
RSU/stock options(4)........................................ (804) (798) (785)
Future income taxes(5)...................................... -- (394) 394
Deferred start-up costs(6).................................. (455) 2,180 (75)
Change in reporting currency(7)............................. -- -- (508)
Write-off of debt issue expenses(9)......................... -- -- 8,426
Income tax impact of the above adjustments.................. 458 (481) (1,444)
------- -------- --------
$(1,353) $ 22 $ 1,331
------- -------- --------
Net earnings (loss) in accordance with U.S. GAAP before
extraordinary item........................................ $36,984 $(23,241) $(29,110)
Extraordinary item (net of tax) write-off of debt issue
expenses(9)............................................... -- (5,645) --
------- -------- --------
Net earnings (loss)......................................... $36,984 $(28,886) $(29,110)
======= ======== ========
Net earnings (loss) per common share in accordance with U.S.
GAAP before extraordinary item -- basic................... $ 0.75 $ (0.47) $ (0.85)
Extraordinary item (net of tax)............................. -- (0.12) --
------- -------- --------
Net earnings (loss) per common share -- basic............... $ 0.75 $ (0.59) $ (0.85)
======= ======== ========
Net earnings (loss) per common share -- fully diluted(10)... $ 0.75 $ (0.59) $ (0.85)
======= ======== ========
</TABLE>
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Net earning (loss).......................................... $36,984 $(28,886) $(29,110)
Other comprehensive income, net of tax
Minimum pension liability................................... 1,882 (1,995) 3,131
------- -------- --------
Comprehensive income (loss)................................. $38,866 $(30,881) $(25,979)
======= ======== ========
</TABLE>
I-21
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
CONSOLIDATED BALANCE SHEET ADJUSTMENTS
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CAN. GAAP U.S. GAAP CAN. GAAP U.S. GAAP
---------- ---------- ---------- ----------
(in thousands of dollars)
<S> <C> <C> <C> <C>
Working capital........................................... $ 114,184 $ 114,184 $ 131,533 $ 131,533
Property, plant and equipment............................. 816,879 816,879 775,960 775,960
Future income taxes(1,6).................................. -- -- 8,437 8,437
Other assets(1,2,6,8)..................................... 74,237 77,051 50,270 57,483
---------- ---------- ---------- ----------
$1,005,300 $1,008,114 $ 966,200 $ 973,413
========== ========== ========== ==========
Long-term debt............................................ $ 338,206 $ 338,206 $ 356,455 $ 356,455
Future income taxes(1,6).................................. 18,305 16,018 6,363 3,607
Other liabilities(1)...................................... 32,804 46,528 27,271 47,310
Shareholders' equity(1,2,4,6,8)........................... 615,985 607,362 576,111 566,041
---------- ---------- ---------- ----------
$1,005,300 $1,008,114 $ 966,200 $ 973,413
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Accounting for pension costs under U.S. GAAP differs from Canadian
GAAP principally with respect to the choice of the discount rate
used to calculate the projected benefit obligation and to the
valuation of assets and related effects on pension expense. In
addition, under U.S. GAAP, the Company would have recorded an
additional minimum liability for underfunded plans representing the
excess of the accumulated benefit obligation over the pension plan
assets, less the pension liability already recognized and the net
unamortized prior service cost. Under U.S. GAAP, the additional
minimum liability at December 31, 1999 of $12.1 million (1998 --
$19.3 million) would be accounted for and offset by an intangible
asset of $11.4 million (1998 -- $15.9 million) and a component of
accumulated other comprehensive income of $0.5 million (1998 -- $2.3
million), net of a tax benefit of $0.2 million (1998 -- $1.1
million).
(2) Unrealized exchange gains and losses arising on the translation, at
exchange rates prevailing on the balance sheet date, of long-term
debt repayable in a foreign currency are deferred and amortized over
the remaining life of the related debt. Under U.S. GAAP, such
exchange gains and losses are included in earnings.
(3) Under Canadian GAAP, the interest expense related to the debt
component of the convertible debenture is charged to net earnings
and the interest expense related to the equity component of the
convertible debentures, net of income taxes, is charged to retained
earnings. Under U.S. GAAP, the interest related to the principal
amount of the convertible debentures is charged to earnings.
(4) Under U.S. GAAP, the Company had elected in 1995 to measure
compensation costs related to awards of RSUs and stock options using
the fair value based method of accounting as recommended under FASB
Statement 123. The recognition provision has not been applied to
awards granted in 1994. The fair value of options granted was
estimated using the Black-Scholes options pricing model, taking into
account an interest risk-free rate of 6% in 1999 (6% in 1998; 7% in
1997), an expected volatility of 25% and an expected life of four
years. The weighted average grant date fair value of options granted
during the year was $3.39: (1998 -- $3.42 and 1997 -- $5.28). The
expected rate of cancellation of options and RSUs is estimated at 5%
and 6.5% respectively per year. The cost related to the RSUs, which
is amortized over a period of three years, is based on the market
value of the Company's shares as of the grant date, which was $12.30
in 1998 (1997 -- $15.08). The program was terminated in 1998. No
RSUs were granted in 1999.
(5) Under Canadian GAAP, future income taxes were, until 1997,
considered as non-monetary elements and were therefore translated
into US dollars using historical exchange rates. Under U.S. GAAP,
future income taxes were considered as monetary elements and were,
therefore, translated into US dollars using the exchange rate in
effect at the end of the year. In 1998, the Company adopted the new
Canadian accounting for income taxes approved by CICA, which had the
effect of considering future income taxes as monetary items;
therefore, there is no difference in the measurement of future
income taxes at the end of December 1998 and 1999.
(6) Under Canadian GAAP, start-up costs can be deferred and amortized.
Under U.S. GAAP, such costs are charged to earnings as incurred.
(7) As mentioned in Note 2, the Company has adopted, in 1997, the US
dollar as its reporting and functional currency. Under Canadian
GAAP, prior years' financial statements are presented in US dollars
in accordance with a translation of convenience method using the
closing exchange rate at December 31, 1996 of $0.73 per CAN$1.00.
Under U.S. GAAP, prior years' financial statements are translated
according to the current rate method using the year-end rate or the
rate in effect at the transaction dates, as appropriate.
(8) Under U.S. GAAP, advances to officers and managers for the purchase
of shares of the Company must be deducted from shareholders' equity.
(9) Under U.S. GAAP, the write-off (Note 12) of unamortized debt issue
expense was recognized when the debt was extinguished in 1998.
I-22
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
(10) Under U.S. GAAP, the effect of potential conversion is calculated
using the treasury stock method for options and warrants. Under
the treasury stock method, earnings per share are calculated as
if options and warrants were exercised at the beginning of the
year and as if the funds were used to purchase the Company's
stock in the market. Under Canadian GAAP, the funds theoretically
received on conversion are assumed to earn an appropriate rate of
return.
(B) SUPPLEMENTARY DISCLOSURES UNDER U.S. GAAP
1. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
-------- -------
(in thousands of
dollars)
<S> <C> <C>
Trade receivable........................................... $112,380 $94,189
Other...................................................... 13,038 2,856
-------- -------
125,418 97,045
Less: Allowance for doubtful accounts...................... (1,139) (1,150)
-------- -------
$124,279 $95,895
======== =======
</TABLE>
2. ACCOUNTS PAYABLE AND ACCRUED CHARGES
<TABLE>
<CAPTION>
1999 1998
-------- -------
(in thousands of
dollars)
<S> <C> <C>
Trade payable.............................................. $ 67,781 $41,136
Accrued vacation pay and payroll deduction................. 13,387 9,068
Other...................................................... 21,678 21,908
-------- -------
$102,846 $72,112
======== =======
</TABLE>
3. OPERATING LEASES
Operating lease expenses amounted to $7.4 million in 1999 (1998 --
$6.6 million; 1997 -- $4.7 million).
4. SUPPLEMENTARY INFORMATION TO CONSOLIDATED STATEMENT OF CASH FLOWS
Under US GAAP, bank indebtedness is considered as a financing activity
and is reported as such in the statement of cash flows.
5. PRO FORMA STATEMENT OF EARNINGS DATA (UNAUDITED)
The following unaudited pro forma statement of earnings data assume
that the acquisitions discussed in Note 3 occurred as at January 1,
1998. The unaudited pro forma statement of earnings data were prepared
based upon the historical consolidated statements of earnings of the
Company for the years ended December 31, 1999 and 1998, on the
statements of earnings of the businesses acquired for the year ended
December 31, 1998 and for the period from January 1, 1999 to the date
of their respective acquisition. The statements of earnings of the
businesses acquired have been adjusted to bring accounting policies
for amortization of property, plant and equipment and inventory
valuation in line with those of the Company. The unaudited pro forma
data are not necessarily indicative of the combined results of
operations of the Company and the businesses acquired that would have
resulted had the transactions occurred on the date previously
indicated, nor is it necessarily indicative of future operating
results of the Company.
Pro forma statement of earnings data
<TABLE>
<CAPTION>
1999 1998
----------- ---------
(in thousands of dollar,
except per share
amounts)
<S> <C> <C>
Net sales.................................................. $1,049,161 $950,830
Net earnings (loss)........................................ 39,475 (26,213)
Net earnings (loss) per share.............................. 0.80 (0.53)
</TABLE>
I-23
<PAGE>
ST. LAURENT PAPERBOARD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED)
6. PENDING ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which standardized the
accounting for all derivatives. This standard will be effective for
fiscal years beginning after June 15, 2000. Management has not yet
determined the impact of this new Standard.
In March 1999, the Canadian Institute of Chartered Accountants
("CICA") released new accounting rules regarding employee future
benefits under section 3461 of the CICA Handbook. The new accounting
standards will be applicable in fiscal year 2000. Management has not
yet determined if the new rules will be applied retroactively or
prospectively as permitted under section 3461. If the new rules are
applied retroactively, the benefit liability will increase by
approximately $31 million and retained earnings will decrease by
approximately $21 million net of income taxes.
20. SUBSEQUENT EVENT
On February 23, 2000, Smurfit-Stone Container Corporation ("SSCC") and the
Company entered into a pre-merger agreement pursuant to which SSCC has
agreed to acquire all of the issued and outstanding shares of the Company
for a per share consideration of $12.50 and one-half share of SSCC. In
certain circumstances, including in the event that the Company receives a
superior proposal and the Board of Directors of the Company withdraws its
support for the SSCC offer, SSCC will be entitled to a $30 million break
fee. Subject to obtaining shareholders and regulatory approvals, the SSCC
transaction is scheduled to close towards the end of the second quarter.
21. COMPARATIVE AMOUNTS
Certain comparative amounts have been restated to comply with the current
year's presentation.
I-24
<PAGE>
APPENDIX J
SMURFIT-STONE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE THREE YEARS ENDED DECEMBER 31, 1999
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SMURFIT-STONE CONTAINER CORPORATION
We have audited the accompanying consolidated balance sheets of
Smurfit-Stone Container Corporation as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Smurfit-Stone
Container Corporation at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
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
-------------------------------
ERNST & YOUNG LLP
St. Louis, Missouri
January 24, 2000
except for Note 20, as to which the date is February 23, 2000
J-1
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ---------
(In millions, except
share data)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 24 $ 155
Receivables, less allowances of $50 in 1999 and $70 in
1998................................................... 647 743
Inventories
Work-in-process and finished goods..................... 238 227
Materials and supplies................................. 496 546
------ -------
734 773
Refundable income taxes................................... 7 24
Deferred income taxes..................................... 130 160
Prepaid expenses and other current assets................. 69 129
------ -------
Total current assets................................... 1,611 1,984
Net property, plant and equipment........................... 4,395 5,496
Timberland, less timber depletion........................... 24 276
Goodwill, less accumulated amortization of $151 in 1999 and
$73 in 1998............................................... 3,328 2,869
Investment in equity of non-consolidated affiliates......... 176 638
Other assets................................................ 325 368
------ -------
$9,859 $11,631
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 174 $ 205
Accounts payable.......................................... 662 533
Accrued compensation and payroll taxes.................... 238 181
Interest payable.......................................... 111 126
Other current liabilities................................. 384 304
------ -------
Total current liabilities.............................. 1,569 1,349
Long-term debt, less current maturities..................... 4,619 6,428
Other long-term liabilities................................. 894 1,026
Deferred income taxes....................................... 839 1,113
Minority interest........................................... 91 81
Stockholders' equity
Preferred stock, par value $.01 per share; 25,000,000
shares authorized; none issued and outstanding
Common stock, par value $.01 per share; 400,000,000 shares
authorized, 217,820,762 and 214,959,041 issued and
outstanding in 1999 and 1998, respectively............. 2 2
Additional paid-in capital................................ 3,436 3,376
Retained earnings (deficit)............................... (1,586) (1,743)
Accumulated other comprehensive income (loss)............. (5) (1)
------ -------
Total stockholders' equity............................. 1,847 1,634
------ -------
$9,859 $11,631
====== =======
</TABLE>
See notes to consolidated financial statements.
J-2
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(In millions, except per share data)
<S> <C> <C> <C>
Net sales................................................... $7,151 $3,485 $2,957
Costs and expenses
Cost of goods sold........................................ 6,022 2,952 2,532
Selling and administrative expenses....................... 696 369 249
Restructuring charge...................................... 10 257
------ ------ ------
Income (loss) from operations.......................... 423 (93) 176
Other income (expense)
Interest expense, net..................................... (563) (247) (196)
Other, net................................................ 479 4 (2)
------ ------ ------
Income (loss) from continuing operations before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change................. 339 (336) (22)
Benefit from (provision for) income taxes................... (168) 126 3
Minority interest expense................................... (8) (1)
------ ------ ------
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. 163 (211) (19)
Discontinued operations
Income from discontinued operations, net of income taxes
of $(1) in 1999, $(17) in 1998 and $(14) in 1997....... 2 27 20
Gain on disposition of discontinued operations, net of
income taxes of $2........................................ 4
------ ------ ------
Income (loss) before extraordinary item and cumulative
effect of accounting change............................ 169 (184) 1
Extraordinary item
Loss from early extinguishment of debt, net of income tax
benefit of $7 in 1999 and $9 in 1998................... (12) (13)
Cumulative effect of accounting change
Start-up costs, net of income tax benefit of $2........... (3)
------ ------ ------
Net income (loss)...................................... $ 157 $ (200) $ 1
------ ------ ------
Basic earnings per common share
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. $ .75 $(1.70) $ (.17)
Discontinued operations................................... .01 .22 .18
Gain on disposition of discontinued operations............ .01
Extraordinary item........................................ (.05) (.11)
Cumulative effect of accounting change.................... (.02)
------ ------ ------
Net income (loss)...................................... $ .72 $(1.61) $ .01
------ ------ ------
Weighted average shares outstanding......................... 217 124 111
Diluted earnings per common share
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change................................................. $ .74 $(1.70) $ (.17)
Discontinued operations................................... .01 .22 .18
Gain on disposition of discontinued operations............ .01
Extraordinary item........................................ (.05) (.11)
Cumulative effect of accounting change.................... (.02)
------ ------ ------
Net income (loss)...................................... $ .71 $(1.61) $ .01
------ ------ ------
Weighted average shares outstanding......................... 220 124 111
</TABLE>
See notes to consolidated financial statements.
J-3
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ACCUMULATED
NUMBER PAR ADDITIONAL RETAINED OTHER
OF VALUE, PAID-IN EARNINGS COMPREHENSIVE
SHARES $.01 CAPITAL (DEFICIT) INCOME (LOSS) TOTAL
----------- ------ ---------- --------- ------------- ------
(in millions, except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997......... 110,989,156 $1 $1,168 $(1,544) $ $ (375)
Comprehensive income
Net income....................... 1 1
Other comprehensive income, net
of tax........................
----------- -- ------ ------- --- ------
Comprehensive income.......... 1 1
Issuance of common stock under
stock option plan................ 7,638
----------- -- ------ ------- --- ------
BALANCE AT DECEMBER 31, 1997....... 110,996,794 1 1,168 (1,543) (374)
Comprehensive income (loss)
Net loss......................... (200) (200)
Other comprehensive income (loss)
Foreign currency translation
adjustment, net of tax of
$2.......................... 3 3
Minimum pension liability
adjustment, net of tax of
$(2)........................ (4) (4)
----------- -- ------ ------- --- ------
Comprehensive income
(loss)................... (200) (1) (201)
Issuance of common stock for
acquisition of Stone Container
Corporation, net of registration
costs............................ 103,954,782 1 2,168 2,169
Fair value of Smurfit-Stone
Container
Corporation stock options issued
to convert Stone Container
Corporation stock options........ 40 40
Issuance of common stock under
stock option plan................ 7,465
----------- -- ------ ------- --- ------
BALANCE AT DECEMBER 31, 1998....... 214,959,041 2 3,376 (1,743) (1) 1,634
Comprehensive income (loss)
Net income....................... 157 157
Other comprehensive income (loss)
Unrealized holding gain on
marketable securities, net
of tax of $2................ 3 3
Foreign currency translation
adjustment, net of tax of
$(7)........................ (11) (11)
Minimum pension liability
adjustment, net of tax of
$2.......................... 4 4
----------- -- ------ ------- --- ------
Comprehensive income
(loss)................... 157 (4) 153
Issuance of common stock under
stock option plan................ 2,861,721 60 60
----------- -- ------ ------- --- ------
BALANCE AT DECEMBER 31, 1999....... 217,820,762 $2 $3,436 $(1,586) $(5) $1,847
=========== == ====== ======= === ======
</TABLE>
See notes to consolidated financial statements
J-4
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -----
(in millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 157 $ (200) $ 1
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities
Gain on disposition of discontinued operations......... (2)
Extraordinary loss from early extinguishment of debt... 19 22
Cumulative effect of accounting change for start-up
costs................................................. 5
Depreciation, depletion and amortization............... 430 168 127
Amortization of deferred debt issuance costs........... 14 8 11
Deferred income taxes.................................. 137 (113) 13
Gain on sale of assets................................. (446)
Non-cash employee benefit expense...................... 31 9 4
Foreign currency transaction gains..................... (7) (4)
Non-cash restructuring charge.......................... 4 179
Change in current assets and liabilities, net of
effects from
acquisitions and dispositions
Receivables.......................................... (186) 98 (24)
Inventories.......................................... 8 3 (32)
Prepaid expenses and other current assets............ 38 (13) 3
Accounts payable and accrued liabilities............. 88 (77) (4)
Interest payable..................................... (15) 26 (5)
Income taxes......................................... 6 (18) (6)
Other, net............................................. (93) 36
------- ------- -----
Net cash provided by operating activities................. 183 129 88
------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions........................................ (156) (285) (166)
Timberland additions...................................... (2) (16)
Investments in affiliates and acquisitions................ (9)
Cash acquired with acquisition, net of acquisition
costs.................................................. 222
Construction funds held in escrow......................... 9
Proceeds from property and timberland disposals and sale
of businesses.......................................... 1,417 6 7
Net proceeds from sale of receivables..................... 226
------- ------- -----
Net cash provided by (used for) investing activities...... 1,487 (59) (175)
------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under bank credit facilities................... 1,502
Net borrowings (repayments) under accounts receivable
securitization programs................................ (211) (1) 30
Payments of long-term debt................................ (1,611) (1,384) (7)
Other increases in long-term debt......................... 64
Proceeds from exercise of stock options................... 17
Deferred debt issuance costs.............................. (44)
------- ------- -----
Net cash provided by (used for) financing activities...... (1,805) 73 87
------- ------- -----
Effect of exchange rate changes on cash................... 4
------- ------- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (131) 143
Cash and cash equivalents
Beginning of year......................................... 155 12 12
------- ------- -----
End of year............................................... $ 24 $ 155 $ 12
======= ======= =====
</TABLE>
See notes to consolidated financial statements.
J-5
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
BASISOF PRESENTATION: Smurfit-Stone Container Corporation ("SSCC"),
formerly Jefferson Smurfit Corporation and hereafter referred to as the
"Company," owns 100% of the common equity interest in JSCE, Inc. and Stone
Container Corporation ("Stone"). The Company has no operations other than
its investments in JSCE, Inc. and Stone. JSCE, Inc. owns 100% of the equity
interest in Jefferson Smurfit Corporation (U.S.) ("JSC(U.S.)") and is the
guarantor of the senior unsecured indebtedness of JSC(U.S.). JSCE, Inc. has
no operations other than its investment in JSC(U.S.). JSC(U.S.) has
operations throughout the United States. Stone has domestic and
international operations.
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 13). The Company's
paperboard mills procure virgin and recycled fiber and produce paperboard
for conversion into corrugated containers, folding cartons, industrial bags
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. Specialty
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.
Investments in majority-owned affiliates where control does not exist and
non-majority owned affiliates are accounted for on the equity method.
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 $3 million and $55 million were
pledged at December 31, 1999 and 1998 as collateral for obligations
associated with the accounts receivable securitization programs (See Note
6).
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 $225
million in 1999 and $303 million in 1998 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 $64 million and $45
million at December 31, 1999 and 1998, 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. Papermill
machines have been assigned a useful life of 23 years, while major
converting equipment and folding carton presses have been assigned useful
lives ranging from 12-20 years. Property, plant and equipment acquired in
the Merger were recorded at fair value based on the final appraisal results
(See Note 2). These assets were assigned remaining useful lives of 18 years
for papermill machines and 12 years for major converting equipment.
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 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. The Company sold
approximately 980,000 acres of owned and leased timberlands in 1999 (See
Note 4).
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 8).
FOREIGN CURRENCY TRANSLATION: The functional currency for the majority of
the Company's foreign operations is the applicable local currency.
Accordingly, assets and liabilities are translated at the exchange rate in
effect at the balance sheet date, and income and expenses are translated at
average exchange rates prevailing during the year. Translation gains or
losses are included within stockholders' equity as part of Accumulated Other
Comprehensive Income. Foreign currency transaction gains or losses are
credited or charged to income. The functional currency for foreign
operations operating in highly inflationary economies is the U.S. dollar and
any gains or losses are credited or charged to income.
J-6
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
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.
TRANSFERS OF FINANCIAL ASSETS: The Company accounts for transfers of
financial assets in accordance with SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
Accordingly, financial assets transferred to qualifying special-purpose
entities and the liabilities of such entities are not reflected in the
consolidated financial statements of the Company (See Note 4).
EMPLOYEE STOCK OPTIONS: Accounting for stock-based plans is in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Under APB 25,
because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The Company has adopted the
disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" (See Note 11).
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 1999 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 $2 million
($.02 per share), to expense costs that had been capitalized prior to 1998.
COMPUTER SOFTWARE-INTERNAL USE: In March 1998, the AICPA issued 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. The adoption of SOP
98-1 did not have a material effect on the 1999 financial statements.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS: 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. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company is currently assessing what the impact of SFAS No. 133
will be on the Company's future earnings and financial position.
2. MERGER AND RESTRUCTURINGS
MERGER WITH STONE CONTAINER CORPORATION
On November 18, 1998, Stone merged with a wholly-owned subsidiary of the
Company ("the Merger"). Under the terms of the Merger, each share of Stone
common stock was exchanged for the right to receive .99 of one share of
Company common stock. A total of 104 million shares of Company common stock
were issued in the Merger, resulting in a total purchase price (including
the fair value of stock options and related fees) of approximately $2,245
million. The Merger was accounted for as a purchase business combination
and, accordingly, the results of operations of Stone have been included in
the consolidated statements of operations of the Company after November 18,
1998. The purchase price allocation was completed during the fourth quarter
of 1999, and includes adjustments for the final appraisals on property,
plant and equipment and investments in non-consolidated affiliates,
resulting in a decrease in valuations of $726 million and $38 million,
respectively; the resolution of litigation related to the Company's
investment in Florida Coast Paper Company L.L.C ("FCPC") and Stone Savannah
River Pulp and Paper Corporation ("SSR"); the shutdown of converting
facilities; and the related deferred taxes. The final allocation resulted in
acquired goodwill of $3,202 million, which is being amortized on a
straight-line basis over 40 years.
In October 1999, FCPC and a committee representing the holders of the FCPC
secured debt filed a bankruptcy reorganization plan to resolve all matters
relating to the bankruptcies of the FCPC Companies. In January 2000, the
plan was confirmed and consummated and Stone paid approximately $123 million
to satisfy the claims of creditors of FCPC, Stone received title to the FCPC
mill, and all claims under the Output Purchase Agreement, as well as any
obligations of Stone involving FCPC or its affiliates, were released and
discharged. In addition,
J-7
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
Four M Corporation ("Four M") issued $25 million of convertible preferred
stock to Stone in connection with the consummation of the plan. (See Note
18).
The litigation related to the Company's purchase of the common stock of SSR
was settled for cash payments of approximately $32 million during the third
quarter of 1999.
The following unaudited pro forma combined information presents the results
of operations of the Company as if the Merger had taken place on January 1,
1998 and 1997, respectively:
PRO FORMA INFORMATION
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net sales................................................... $7,550 $7,748
Loss from continuing operations before extraordinary item
and cumulative effect of accounting change................ (999) (453)
Net loss.................................................... (992) (445)
Net loss per common share
Basic..................................................... (4.61) (2.08)
Diluted................................................... (4.61) (2.08)
</TABLE>
These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results
of operations which actually would have resulted had the Merger occurred as
of January 1, 1998 and 1997, respectively.
STONE PURCHASE ALLOCATION
Included in the allocation of the cost to acquire Stone is the adjustment to
fair value of property and equipment associated with the permanent shutdown
of certain containerboard mill and pulp mill facilities of Stone,
liabilities for the termination of certain Stone employees, and liabilities
for long-term commitments. The assets at these facilities were recorded at
their estimated fair value less cost to sell based upon appraisals. The
terminated employees included approximately 550 employees at these mill
facilities and 200 employees in Stone's corporate office. These employees
were terminated in December 1998. The facilities were shut down during 1998
and the Company is in the process of either selling or dismantling these
facilities. The long-term commitments consist of lease commitments and
funding commitments on debt guarantees that are associated with the shutdown
of Stone's containerboard mill and pulp mill facilities or other investments
in which the Company will no longer participate as a result of its merger
plan.
During 1999, the Company permanently closed five Stone converting
facilities. Included in the purchase price allocation for these facilities
are the adjustment to fair value of property, plant and equipment less the
costs to sell, liabilities for the termination of employees, and liabilities
for long-term commitments, primarily leases. Approximately 500 employees
were terminated in 1999. The amounts associated with these closures are
included in the following table of exit liabilities as part of the 1999
adjustments.
The following is a summary of the exit liabilities recorded in the
allocation of the cost of Stone:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
OPENING DEC. 31, DEC. 31,
BALANCE PAYMENTS 1998 PAYMENTS ADJUSTMENTS 1999
------- -------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Severance................................ $ 14 $ (4) $ 10 $(13) $ 8 $ 5
Lease commitments........................ 38 (1) 37 (6) 8 39
Settlement of FCPC litigation............ 37 37 (1) 87 123
Other commitments........................ 19 (6) 13 (2) 4 15
Mill closure costs....................... 9 9 (7) (1) 1
---- ---- ---- ---- ---- ----
$117 $(11) $106 $(29) $106 $183
---- ---- ---- ---- ---- ----
</TABLE>
RESTRUCTURING
In connection with the Merger, the Company recorded a pretax restructuring
charge of $257 million in 1998 related to the permanent shutdown of certain
containerboard mill operations and related facilities formerly operated by
JSC(U.S.), the termination of certain JSC(U.S.) employees, and liabilities
for lease commitments at the closed JSC(U.S.) facilities. The containerboard
mill facilities were permanently shut down on December 1, 1998 and the
Company is in various stages of dismantling 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. During 1999, the Company
permanently closed eight facilities, which resulted in approximately 400
employees being terminated. A $15 million restructuring charge was recorded
related to the facility closures. The 1999 adjustments below include a
reduction to 1998 exit liabilities of $5 million and a reclassification of
pension liabilities of $12 million.
J-8
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
The following is a summary of the restructuring liabilities recorded:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
OPENING DEC. 31, DEC. 31,
BALANCE PAYMENTS ADJUSTMENTS 1998 CHARGE PAYMENTS ADJUSTMENTS 1999
------- -------- ----------- ---------- ------ -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Write-down of property and
equipment to fair
value................... $179 $ $(179) $ $ 4 $ $ (4) $
Severance................. 27 (3) 24 5 (27) 2
Lease commitments......... 21 (1) 20 (3) 17
Pension curtailments...... 9 9 3 (12)
Facility closure costs.... 13 (3) 10 1 (3) 8
Other..................... 8 8 2 (3) (5) 2
---- --- ----- --- --- ---- ---- ---
$257 $(7) $(179) $71 $15 $(36) $(21) $29
---- --- ----- --- --- ---- ---- ---
</TABLE>
OTHER MERGER RELATED CHARGES
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 cost.
CASH REQUIREMENTS
Future cash outlays under the restructuring of Stone and JSC(U.S.)
operations are anticipated to be $158 million in 2000 (including the $123
million FCPC settlement), $11 million in 2001, $11 million in 2002, and $32
million thereafter. The Company is continuing to evaluate all areas of its
business in connection with its merger integration, including the
identification of additional converting facilities that might be closed.
3. NET PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Land........................................................ $ 122 $ 145
Buildings and leasehold improvements........................ 496 780
Machinery, fixtures and equipment........................... 4,662 5,279
Construction in progress.................................... 127 156
------- ------
5,407 6,360
Less accumulated depreciation and amortization.............. (1,012) (864)
------- ------
Net property, plant and equipment......................... $ 4,395 $5,496
------- ------
</TABLE>
Property, plant and equipment was adjusted by $726 million in Stone's final
purchase price allocation (See Note 2). Depreciation and depletion expense
was $352 million, $153 million, and $119 million for 1999, 1998 and 1997,
respectively. Net property, plant and equipment include capitalized leases
of $76 million and $68 million and related accumulated amortization of $32
million and $23 million at December 31, 1999 and 1998, respectively.
4. SFAS NO. 125 TRANSACTIONS
STONE RECEIVABLES SECURITIZATION PROGRAM
On October 15, 1999, the Company entered into a new six-year $250 million
accounts receivable securitization program whereby the Company sells,
without recourse, on an ongoing basis, certain of its accounts receivable to
Stone Receivables Corporation ("SRC"), a wholly-owned non-consolidated
subsidiary of the Company. SRC transfers the receivables to a trust for
which it has sold beneficial interest to third-party investors. The Company
retained a junior interest in the trust which has been classified as
accounts receivable in the accompanying consolidated balance sheets.
SRC is a qualified special-purpose entity under the provisions of SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Accordingly accounts receivable sold to SRC
for which the Company did not retain an interest, are not included in the
Company's consolidated balance sheets.
At December 31, 1999, $304 million of accounts receivable had been sold
under the program, of which $79 million was retained by the Company as a
junior interest and recorded as an accounts receivable in the accompanying
consolidated balance sheets.
J-9
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
TIMBERLAND SALE AND NOTE MONETIZATION
The Company sold approximately 980,000 acres of owned and leased timberland
in Florida, Georgia and Alabama in October 1999. The final purchase price,
after adjustments, was $710 million. The Company received $225 million in
cash, with the balance of $485 million in the form of installment notes.
The Company entered into a program to monetize the installment notes
receivable. The notes were sold to Timber Notes Holdings, a qualified
special purpose entity under the provisions of SFAS No. 125, for $430
million cash proceeds and a residual interest in the notes. The transaction
has been accounted for as a sale under SFAS No. 125. The cash proceeds from
the sale and the monetization transactions were used to prepay borrowings
under the JSC(U.S.) Credit Agreement. At December 31, 1999 the residual
interest of $33 million was included in other assets.
The pretax gain of $407 million on the timberland sale and the related note
monetization program is included in other, net in the consolidated
statements of operations.
5. NON-CONSOLIDATED AFFILIATES
The Company has several non-consolidated affiliates that are engaged in
paper and packaging operations in North America, South America and Europe.
The Company's significant non-consolidated affiliate at December 31, 1999 is
Smurfit-MBI (formerly MacMillian Bathurst, Inc.), a Canadian corrugated
container company, in which the Company owns a 50% interest. The remaining
50% interest is owned by an affiliate of Jefferson Smurfit Group plc.
Smurfit-MBI had net sales of $389 million and $351 million in 1999 and 1998,
respectively.
As of December 31, 1998, the Company owned 25% of Abitibi Consolidated Inc.
("Abitibi"), which had sales of $2,313 million in 1998. In 1999, the Company
sold its interest in Abitibi and recorded a $39 million gain, which is
reflected in other, net in the consolidated statements of operations.
Combined summarized financial information for all of the Company's
non-consolidated affiliates that are accounted for under the equity method
of accounting is presented as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Results of operations
Net sales................................................. $668 $417
Cost of sales............................................. 576 384
Income (loss) before income taxes, minority interest and
extraordinary charges................................... 34 (55)
Net income (loss)......................................... 32 (43)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Financial position:
Current assets............................................ $160 $ 964
Non-current assets........................................ 150 4,238
Current liabilities....................................... 111 782
Non-current liabilities................................... 107 1,973
Stockholders' equity...................................... 93 2,447
</TABLE>
J-10
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
6. LONG-TERM DEBT
Long-term debt, as of December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
BANK CREDIT FACILITIES
JSC(U.S.)
1998 Tranche A Term Loan (8.7% weighted average variable rate), payable in
various installments through March 31,
2005...................................................... $ 275 $ 400
1998 Tranche B Term Loan (9.4% weighted average variable
rate), payable in various installments through March 31,
2006...................................................... 115 900
Revolving Credit Facility (9.0% weighted average variable
rate), due March 31, 2005................................. 50 85
Stone
Tranche B Term Loan, payable in various installments through
April 1, 2000............................................. 368
Tranche C Term Loan (9.5% weighted average variable rate),
payable in various installments
through October 1, 2003................................... 181 194
Tranche D Term Loan (9.5% weighted average variable rate),
payable in various installments
through October 1, 2003................................... 173 185
Tranche E Term Loan (9.5% weighted average variable rate),
payable in various installments
through October 1, 2003................................... 234 248
Revolving Credit Facility (10.6% weighted average rate), due
December 31, 2000......................................... 93 161
4.98% to 7.96% term loans, denominated in foreign
currencies, payable in varying amounts through 2004....... 40 79
------ ------
1,161 2,620
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM BORROWINGS
JSC(U.S.) accounts receivable securitization program
borrowings (5.9% weighted average variable rate), due in
February 2002............................................. 224 209
Stone accounts receivable securitization program term loans (6.2% weighted
average variable rate), due December 15,
2000...................................................... 210
------ ------
224 419
SENIOR NOTES
JSC(U.S.)
11.25% Series A unsecured senior notes, due May 1, 2004..... 300 300
10.75% Series B unsecured senior notes, due May 1, 2002..... 100 100
9.75% unsecured senior notes, due April 1, 2003............. 500 500
</TABLE>
<TABLE>
<S> <C> <C>
Stone
10.75% first mortgage notes, due October 1, 2002 (plus
unamortized premium of $13 and $18)....................... 513 518
8.45% mortgage notes, payable in monthly installments
through August 1, 2007 and $69 on September 1, 2007....... 81 82
9.875% unsecured senior notes, due February 1, 2001 (plus
unamortized premium of $3 and $7)......................... 562 578
11.5% unsecured senior notes, due October 1, 2004 (plus
unamortized premium of $10 and $12)....................... 210 212
11.5% unsecured senior notes, due August 15, 2006 (plus
unamortized premium of $5 and $6)......................... 205 206
12.58% rating adjustable unsecured senior notes, due August
1, 2016 (plus unamortized premium of $2 and $2)........... 127 127
------ ------
2,598 2,623
OTHER DEBT
Other (including obligations under capitalized leases of $43
and $44).................................................. 329 344
STONE SUBORDINATED DEBT
10.75% senior subordinated debentures and 1.5% supplemental
interest certificates, due on April 1, 2002 (less
unamortized discount of $3 and $5)........................ 244 270
10.75% senior subordinated debentures, due April 1, 2002
(less unamortized discount of $1 at December 31, 1998).... 200 200
11.0% senior subordinated debentures, due August 15, 1999
(plus unamortized premium of $1
at December 31, 1998)..................................... 120
6.75% convertible subordinated debentures (convertible at
$34.28 per share), due February 15, 2007
(less unamortized discount of $8 and $8).................. 37 37
------ ------
481 627
------ ------
Total debt.................................................. 4,793 6,633
Less current maturities..................................... (174) (205)
------ ------
Total long-term debt........................................ $4,619 $6,428
------ ------
</TABLE>
J-11
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
The amounts of total debt outstanding at December 31, 1999 maturing during
the next five years are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 174
2001........................................................ 612
2002........................................................ 1,378
2003........................................................ 1,111
2004........................................................ 598
Thereafter.................................................. 920
</TABLE>
BANK CREDIT FACILITIES
JSC(U.S.) Credit Agreement
In March 1998, JSC(U.S.) entered into a bank credit facility (the "JSC(U.S.)
Credit Agreement") consisting of a $550 million revolving credit facility
("Revolving Credit Facility") of which up to $150 million may consist of
letters of credit, 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, and 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) for 1998 is
reflected in the accompanying consolidated statements of operations as an
extraordinary item.
A commitment fee of .5% per annum is assessed on the unused portion of the
Revolving Credit Facility. At December 31, 1999, the unused portion of this
facility, after giving consideration to outstanding letters of credit, was
$485 million.
On November 18, 1998, JSC(U.S.) and its bank group amended and restated the
JSC(U.S.) 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 paper machine from an affiliate (See Note 15), (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.
On October 15, 1999 JSC(U.S.) and its bank group amended the JSC(U.S.)
Credit Agreement to (i) permit the sale of the timberlands and the Newberg
newsprint mill, (ii) permit the cash proceeds from these asset sales to be
applied as prepayments against the JSC(U.S.) Credit Agreement, (iii) permit
certain prepayments of other indebtedness, and (iv) ease certain quarterly
financial covenants for 1999 and 2000. The proceeds from the timberland sale
and the Newberg newsprint mill were used to reduce the balance of the
Tranche A and Tranche B Term Loans. The write-off of related deferred debt
issuance costs totaling $10 million (net of income tax benefits of $6
million) for 1999 is reflected in the accompanying consolidated statements
of operations as an extraordinary item.
The JSC(U.S.) Credit Agreement contains various covenants and restrictions
including, among other things, (i) limitations on dividends, redemptions and
repurchases of capital stock, (ii) limitations on the incurrence of
indebtedness, liens, leases and sale-leaseback transactions, (iii)
limitations on capital expenditures, and (iv) maintenance of certain
financial covenants. The JSC(U.S.) Credit Agreement also requires
prepayments if JSC(U.S.) has excess cash flows, as defined, or receives
proceeds from certain asset sales, insurance, issuance of certain equity
securities or incurrence of certain indebtedness.
The obligations under the JSC(U.S.) Credit Agreement are unconditionally
guaranteed by the Company and JSCE, Inc. and its subsidiaries, and are
secured by a security interest in substantially all of the assets of
JSC(U.S.) and its material subsidiaries, with the exception of cash, cash
equivalents and trade receivables. The JSC(U.S.) Credit Agreement is also
secured by a pledge of all the capital stock of JSCE, Inc. and each of its
material subsidiaries and by certain intercompany notes.
Stone Credit Agreement
Stone has a bank credit agreement which provides for four secured senior
term loans (Tranche B, Tranche C, Tranche D, and Tranche E Term Loans),
aggregating $588 million at December 31, 1999 which mature through October
1, 2003 and a $560 million senior secured revolving credit facility, up to
which $62 million may consist of letters of credit, maturing December 31,
2000 (collectively the "Stone Credit Agreement"). Stone pays a .5%
commitment fee on the unused portions of its revolving credit facility. At
December 31, 1999, the unused portion of this facility, after giving
consideration to outstanding letters of credit, was $447 million.
On November 18, 1998, Stone and its bank group amended and restated the
Stone Credit Agreement to, among other things, (i) extend the maturity date
on the Tranche B Term Loan $190 million payment due on October 1, 1999 to
April 1, 2000, (ii) extend the maturity date of the revolving credit
facility to April 1, 2000 and to provide a further extension to December 31,
2000 upon repayment of the Tranche B Term Loan on or before its maturity
date of April 1, 2000, (iii) permit the use of the net proceeds from the
sale of the newsprint and related assets at the Snowflake, AZ, facility to
repay a portion of Stone's 11.875% Senior Notes due December 1, 1998, (iv)
permit the Merger, and (v) ease certain financial covenants. On April 23,
1999, the Company repaid all outstanding amounts under Tranche B Term Loan
with proceeds from the sale of Abitibi.
The Stone Credit Agreement (as amended) 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
covenants. The Stone Credit Agreement also requires prepayments of the term
loans if Stone has excess cash flows, as defined, or receives proceeds from
certain asset sales, insurance, issuance of
J-12
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
certain equity securities or incurrence of certain indebtedness. Current
maturities include $43 million of excess cash flow payments due prior to
April 5, 2000. Any prepayments are allocated against the term loan
amortization in inverse order of maturity.
During January 1999, the Company obtained a waiver from its bank group for
relief from certain financial covenant requirements under the Stone Credit
Agreement as of December 31, 1998. Subsequently, on March 23, 1999 the
Company and its bank group amended the Stone Credit Agreement to ease
certain quarterly financial covenant requirements for 1999.
At December 31, 1999, borrowings and accrued interest outstanding under the
Stone Credit Agreement were secured by a security interest in substantially
all of the assets of Stone and 65% of the stock of its Canadian subsidiary.
The security interest excludes cash, cash equivalents, certain trade
receivables, five paper mills and the land and buildings of the corrugated
container plants.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM BORROWINGS
JSC(U.S.) Securitization Program
JSC(U.S.) has a $315 million accounts receivable securitization program (the
"JSC(U.S.) 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 JSC(U.S.)
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 $91 million available for additional borrowing
at December 31, 1999, subject to eligible accounts receivable. Borrowings
under the JSC(U.S.) 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.
Stone Securitization Program
On October 15, 1999, the Company entered into the Stone Securitization
Program, which is accounted for under SFAS No. 125 (See Note 4). Proceeds
from the Stone Securitization Program were used to repay borrowings
outstanding under its prior $210 million accounts receivable securitization
program.
SENIOR NOTES
JSC(U.S.)
The 11.25% Series A Senior Notes are redeemable in whole or in part at the
option of JSC(U.S.), at any time on or after May 1, 1999 with a premium of
5.625% and after May 1, 2000 with a premium of 2.813% of the principal
amount. The 10.75% Series B Senior Notes and the 9.75% Senior Notes are not
redeemable prior to maturity. Holders of the JSC(U.S.) Senior Notes have the
right, subject to certain limitations, to require JSC(U.S.) to repurchase
their securities at 101% of the principal amount plus accrued and unpaid
interest, upon the occurrence of a change in control or, in certain events,
from proceeds of major asset sales, as defined.
The Senior Notes, which are unconditionally guaranteed on a senior basis by
JSCE, Inc., rank pari passu with the JSC(U.S.) Credit Agreement and contain
business and financial covenants which are less restrictive than those
contained in the JSC(U.S.) Credit Agreement.
Stone
Stone's senior notes (the "Stone Senior Notes"), aggregating $1,698 million
at December 31, 1999, are redeemable in whole or in part at the option of
Stone at various dates, at par plus a weighted average premium of 2.57%. The
Merger constituted a "Change of Control" under the Stone Senior Notes and
Stone's $481 million outstanding senior subordinated debentures (the "Stone
Senior Subordinated Debentures"). As a result, Stone is required, subject to
certain limitations, to offer to repurchase the Stone Senior Notes and the
Stone Senior Subordinated Debentures at a price equal to 101% of the
principal amount, together with accrued interest. However, because the Stone
Credit Agreement prohibits Stone from making an offer to repurchase the
Stone Senior Notes and the Stone Senior Subordinated Debentures, Stone could
not make the offer. Although the terms of the Stone Senior Notes refer to an
obligation to repay the bank debt or obtain the consent of the bank lenders
to such repurchase, the terms do not specify a deadline, if any, following
the Merger for repayment of bank debt or obtaining such consent. Stone
intends to actively seek commercially acceptable sources of financing to
repay the outstanding indebtedness under the Stone Credit Agreement or
alternative financing arrangements which would cause the bank lenders to
consent to the repurchase. There can be no assurance that the Company will
be successful in obtaining such financing or consents.
In the event Stone does not maintain the minimum Subordinated Capital Base
(as defined) of $1 billion for two consecutive quarters, the indentures
governing the Stone Senior Notes require Stone to semiannually offer to
purchase 10% of such outstanding indebtedness at par until the minimum
Subordinated Capital Base (as defined) is attained. In the event the Stone
Credit Agreement prohibits such an offer to repurchase, the interest rate on
the Stone Senior Notes is increased by 50 basis points per semiannual coupon
period up to a maximum of 200 basis points until the minimum Subordinated
Capital Base is attained.
Stone's Subordinated Capital Base (as defined) was $2,998 million and $3,096
million at December 31, 1999 and December 31, 1998, respectively; however,
it was below the $1 billion minimum at September 30, June 30, and March 31,
1998. In April 1998, Stone offered to
J-13
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
repurchase 10% of the outstanding Stone Senior Notes. Approximately $1
million of such indebtedness was redeemed under this offer. Effective
February 1, 1999 the interest rate on the 9.875% Senior Notes due February
1, 2001 and 12.58% Senior Notes due August 1, 2016 was increased by 50 basis
points. Effective February 15, 1999 the interest rate on the 11.5% Senior
Notes due August 15, 2006 was also increased 50 basis points. The interest
rates on all of the Stone Senior Notes returned to the original interest
rate on April 1, 1999 due to Stone's Subordinated Capital Base exceeding the
minimum on December 31, 1998.
The 10.75% first mortgage notes are secured by the assets at four of Stone's
containerboard mills. The 8.45% mortgage notes are secured by the assets at
37 of Stone's corrugated container plants.
STONE SUBORDINATED DEBT
The Stone Senior Subordinated Debentures, aggregating $481 million, are
redeemable as of December 31, 1999, in whole or in part at the option of
Stone with premiums of the principal amount at par plus a weighted average
premium of .16%.
In the event Stone does not maintain a minimum Net Worth, as defined, of
$500 million, for two consecutive quarters, the interest rate on Stone's
10.75% senior subordinated debentures and 11.0% senior subordinated
debentures will be increased by 50 basis points per semiannual coupon period
up to a maximum amount of 200 basis points, until the minimum Net Worth is
attained.
Stone's Net Worth (as defined) was $2,506 million and $2,590 million at
December 31, 1999 and 1998, respectively; however, it was below the $500
million minimum at September 30, June 30 and March 31, 1998. The interest
rate on the 11.0% senior subordinated debentures was increased 50 basis
points on August 15, 1998 and 50 basis points on February 15, 1999. The
interest rate on the 10.75% senior subordinated debentures and the 10.75%
senior subordinated debentures with the 1.5% supplemental interest
certificates was increased 50 basis points on October 1, 1998. The interest
rate on all of the Stone Senior Subordinated Debentures returned to the
original interest rate on April 1, 1999, due to Stone's Net Worth exceeding
the minimum at December 31, 1998.
On August 15, 1999, the Company repaid its $120 million 11.0% Senior
Subordinated Debentures at maturity with borrowings under its revolving
credit facility.
OTHER
Interest costs capitalized on construction projects in 1999, 1998 and 1997
totaled $4 million, $2 million and $5 million, respectively. Interest
payments on all debt instruments for 1999, 1998 and 1997 were $583 million,
$206 million and $188 million, respectively.
7. 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 expenses) under
operating leases having initial or remaining non-cancelable terms in excess
of one year, excluding lease commitments on closed facilities, are reflected
below:
<TABLE>
<S> <C>
2000........................................................ $ 99
2001........................................................ 78
2002........................................................ 64
2003........................................................ 54
2004........................................................ 45
Thereafter.................................................. 116
----
Total minimum lease payments................................ $456
====
</TABLE>
Net rental expense for operating leases, including leases having a duration
of less than one year, was approximately $156 million, $69 million and $50
million for 1999, 1998 and 1997, respectively.
J-14
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
8. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment and timberland.............. $(1,350) $(1,622)
Inventory................................................. (35) 2
Prepaid pension costs..................................... (42) (41)
Investments in affiliates................................. (45) (57)
Timber installment sale................................... (129)
Other..................................................... (151) (153)
------- -------
Total deferred tax liabilities............................ (1,752) (1,871)
------- -------
Deferred tax assets
Employee benefit plans.................................... 198 227
Net operating loss, alternative minimum tax and tax credit
carryforwards........................................... 702 559
Deferred gain............................................. 29 23
Purchase accounting liabilities........................... 132 103
Deferred debt issuance cost............................... 48 52
Restructuring............................................. 7 49
Other..................................................... 135 113
------- -------
Total deferred tax assets................................. 1,251 1,126
Valuation allowance for deferred tax asset................ (208) (208)
------- -------
Net deferred tax assets................................... 1,043 918
------- -------
Net deferred tax liabilities................................ $ (709) $ (953)
======= =======
</TABLE>
At December 31, 1999, the Company had approximately $1,420 million of net
operating loss carryforwards for U.S. federal income tax purposes that
expire from 2009 through 2019, with a tax value of $497 million. A valuation
allowance of $152 million has been established for a portion of these
deferred tax assets. Further, the Company had net operating loss
carryforwards for state purposes with a tax value of $111 million, which
expire from 2000 to 2019. A valuation allowance of $56 million has been
established for a portion of these deferred tax assets. The Company had
approximately $94 million of alternative minimum tax credit carryforwards
for U.S. federal income tax purposes, which are available indefinitely.
Benefit from (provision for) income taxes from continuing operations before
income taxes, minority interest, extraordinary item and cumulative effect of
accounting change is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Current
Federal................................................... $ 7 $ 11 $ 10
State and local........................................... 1 3
Foreign................................................... (19) (5)
----- ---- ----
Total current benefit (expense)........................... (11) 9 10
Deferred
Federal................................................... (123) 103 (5)
State and local........................................... (27) 11 (2)
Foreign................................................... (7) 3
----- ---- ----
Total deferred benefit (expense).......................... (157) 117 (7)
----- ---- ----
Total benefit from (provision for) income taxes............. $(168) $126 $ 3
===== ==== ====
</TABLE>
J-15
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
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, minority
interest, extraordinary items and cumulative effect of accounting change is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- ----
<S> <C> <C> <C>
U.S. federal income tax benefit (provision) at federal
statutory rate............................................ $(119) $ 119 $ 8
Permanent differences from applying purchase accounting..... (29) (6) (3)
Permanently non-deductible expenses......................... (3) (2) (8)
State income taxes, net of federal income tax effect........ (17) 14 2
Effect of valuation allowances on deferred tax assets, net
of federal benefit........................................ 7
Other....................................................... 1 (3)
----- ----- ----
Total benefit from (provision for) income taxes............. $(168) $ 126 $ 3
===== ===== ====
</TABLE>
The components of the income (loss) from continuing operations before income
taxes, minority interest, extraordinary item and cumulative effect of
accounting change are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
United States............................................... $282 $(338) $(22)
Foreign..................................................... 57 2
---- ----- ----
Income (loss) from continuing operations before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change.................... $339 $(336) $(22)
==== ===== ====
</TABLE>
The IRS has examined the Company's tax returns for all years through 1991,
and the years have been closed through 1988. The years 1992 through 1994 are
currently under examination. While the ultimate results 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 $47 million, $22 million and $8
million in 1999, 1998 and 1997, respectively.
9. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees. The defined benefit plans of JSCE, Inc. were
merged with the domestic defined benefit plans of Stone on December 31, 1998
and assets of these plans are available to meet the funding requirements of
the combined plans. Approximately 29% of the Company's domestic pension plan
assets at December 31, 1999 are invested in cash equivalents or debt
securities and 71% are invested in equity securities. Equity securities at
December 31, 1999 include .7 million shares of SSCC common stock with a
market value of approximately $18 million and 26 million shares of JS Group
common stock having a market value of approximately $79 million. Dividends
paid on JS Group common stock during 1999 and 1998 were approximately $2
million in each year.
The Company sponsors noncontributory defined benefit pension plans for its
foreign operations. Approximately 21% of the foreign pension plan assets at
December 31, 1999, are invested in cash equivalents or debt securities and
79% are invested in equity securities.
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 5.25% to 6.5% at December 31, 1999 decreasing
to the ultimate rate of 5.25%. The effect of a 1% increase in the assumed
health care cost trend rate would increase the APBO as of December 31, 1999
by $9 million and have an immaterial effect on the annual net periodic
postretirement benefit cost for 1999.
J-16
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
The following provides a reconciliation of benefit obligations, plan assets,
and funded status of the plans:
<TABLE>
<CAPTION>
DEFINED BENEFIT POSTRETIREMENT
PLANS PLANS
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1............................. $1,789 $ 950 $ 178 $ 103
Service cost................................................ 43 18 3 1
Interest cost............................................... 121 68 12 7
Amendments.................................................. 10 8
Plan participants' contributions............................ 1 6 4
Curtailments................................................ (2)
Actuarial (gain) loss....................................... (150) 22 (9) 3
Acquisitions................................................ 778 73
Foreign currency rate changes............................... (8) 1
Benefits paid............................................... (95) (55) (21) (13)
------ ------ ------ ------
Benefit obligation at December 31........................... $1,711 $1,789 $ 168 $ 178
====== ====== ====== ======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1...................... $1,512 $1,013 $ $
Actual return on plan assets................................ 256 49
Employer contributions...................................... 14 1 11 9
Plan participants' contributions............................ 4 4
Acquisitions................................................ 504
Foreign currency rate changes............................... 10
Benefits paid............................................... (95) (55) (15) (13)
------ ------ ------ ------
Fair value of plan assets at December 31.................... $1,697 $1,512 $ $
====== ====== ====== ======
OVER (UNDER) FUNDED STATUS:................................. $ (14) $ (277) $ (168) $ (178)
Unrecognized actuarial (gain) loss.......................... (287) (9) (5) 6
Unrecognized prior service cost............................. 50 44 (2) (2)
Net transition obligation................................... (6) (9)
------ ------ ------ ------
Net amount recognized....................................... $ (257) $ (251) $ (175) $ (174)
====== ====== ====== ======
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS:
Prepaid benefit cost........................................ $ 71 $ 52 $ $
Accrued benefit liability................................... (328) (303) (175) (174)
Additional minimum liability................................ (3) (32)
Intangible asset............................................ 3 26
Accumulated other comprehensive income...................... 4
Deferred tax................................................ 2
------ ------ ------ ------
Net amount recognized....................................... $ (257) $ (251) $ (175) $ (174)
====== ====== ====== ======
</TABLE>
The weighted-average assumptions used in the accounting for the defined
benefit plans and postretirement plans were:
<TABLE>
<CAPTION>
POSTRETIREMENT
DEFINED BENEFIT PLANS PLANS
---------------------- --------------
1999 1998 1999 1998
--------- --------- ----- -----
<S> <C> <C> <C> <C>
Weighted average discount rate:
U.S. Plans................................................ 8.00% 7.00% 8.00% 7.00%
Foreign Plans............................................. 6.50-8.00% 6.00-7.00% 8.00% 7.00%
Rate of compensation........................................ 3.00-4.50% 3.00-3.75% 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% 6.50%
</TABLE>
J-17
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
The components of net pension expense for the defined benefit plans and the
components of the postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
DEFINED BENEFIT PLANS POSTRETIREMENT PLANS
--------------------- --------------------
1999 1998 1997 1999 1998 1997
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost................................................ $ 48 $ 26 $ 19 $ 2 $1 $1
Interest cost............................................... 121 74 65 12 8 7
Expected return on plan assets.............................. (138) (90) (80)
Curtailment cost............................................ 6 2
Amortization of transitional asset.......................... (4) (4)
Recognized actuarial loss................................... 3 4
Multi-employer plans........................................ 4 1
----- ---- ---- --- -- --
Net periodic benefit cost................................... $ 40 $ 12 $ 4 $15 $9 $8
===== ==== ==== === == ==
</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 $144 million, $133 million and
zero, respectively, as of December 31, 1999 and $795 million, $778 million
and $601 million as of December 31, 1998.
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 $17 million, $10 million and $9 million in 1999, 1998 and
1997, respectively.
10. MINORITY INTEREST
Stone has approximately 4.6 million shares of $1.75 Series E Cumulative
Convertible Exchangeable Preferred Stock, $.01 par value, (the "Preferred
Stock") issued and outstanding. Each share of Preferred Stock is entitled to
one vote on all matters submitted to a vote of Stone's stockholders. The
Preferred Stock is convertible, at the option of the holder, into shares of
SSCC common stock at a conversion price of $34.28 (equivalent to a
conversion rate of .729 shares of SSCC common stock for each share of
Preferred Stock), subject to adjustment based on certain events. The
Preferred Stock may alternatively be exchanged, at the option of Stone, for
new 7% Convertible Subordinated Exchange Debentures of Stone due February
15, 2007 in a principal amount equal to $25.00 per share of Preferred Stock
so exchanged. Additionally, the Preferred Stock is redeemable at the option
of Stone, in whole or in part, from time to time. Preferred dividends are
reflected as a minority interest in the Company's Consolidated Statements of
Operations. At December 31, 1999 and 1998, Stone had accumulated dividend
arrearages on the Preferred Stock of $22 million and $14 million,
respectively. The payment of dividends is prohibited by covenants in certain
of the agreements and indentures relating to indebtedness of Stone. However,
the accumulated dividend arrearages on the preferred stock are payable upon
their conversion, exchange or redemption.
11. STOCK OPTION AND INCENTIVE PLANS
Prior to the Merger, the Company and Stone each maintained incentive plans
for selected employees. The Company's plan included non-qualified stock
options issued at prices equal to the fair market value of the Company's
stock at the date of grant which expire upon the earlier of 12 years from
the date of grant or termination of employment, death, or disability. The
Stone plans included incentive stock options and non-qualified stock options
issued at prices equal to the fair market value of Stone's common stock at
the date of grant which expire upon the earlier of 10 years from the date of
grant or termination of employment, death, or disability. Effective with the
Merger, options outstanding under the Stone plans were converted into
options to acquire SSCC common stock, with the number of shares and exercise
price being adjusted in accordance with the exchange ratio of .99 to one
established in the Merger Agreement, and all outstanding options under both
the Company and the Stone plans became exercisable and fully vested.
In November 1998, the stockholders approved the 1998 Long-Term Incentive
Plan (the "1998 Plan") reserving 8.5 million shares of Company common stock
for non-qualified stock options and performance awards to officers, key
employees, and non-employee directors of the Company. The stock options are
exercisable at a price equal to the fair market value of the Company's
common stock on the date of grant. The vesting schedule and other terms and
conditions of options granted under the 1998 Plan are established separately
for each grant. The stock options granted during 1999 and 1998 vest and
become exercisable eight years after the date of grant subject to
acceleration based upon the attainment of pre-established stock price
targets. The number of options that become vested and exercisable in any one
year may not exceed one-third of the options granted for certain
participants and may not exceed one-fourth of the options granted for other
participants. In general, options expire 10 years from the date of grant.
The performance awards permit the holder to receive amounts, denominated in
shares of Company common stock, based on the Company's performance during
the period between the date of grant and a pre-established future date.
Performance criteria, the length of the performance period, and the form and
time of payment of the award are established separately for each grant.
There were no performance awards outstanding under the 1998 Plan at December
31, 1999 and 1998.
J-18
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
During the second quarter of 1999, the Company recorded a $26 million charge
in selling and administrative expenses related to the cashless exercise of
SSCC stock options under the Jefferson Smurfit Corporation stock option
plan.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options issued subsequent to December 31,
1994 under the fair value method. The pro forma net income information
required by SFAS No. 123 is not likely to be representative of the effects
on reported net income for future years. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected option life (years)................................ 6 6 5
Risk-free weighted average interest rate.................... 5.43% 4.79% 6.49%
Stock price volatility...................................... 52.80% 53.30% 44.20%
Dividend yield.............................................. 0.0% 0.0% 0.0%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's unaudited pro forma information is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- -----
<S> <C> <C> <C>
AS REPORTED
Net income (loss)......................................... $157 $(200) $ 1
Basic earnings (loss) per share........................... .72 (1.61) .01
Diluted earnings (loss) per share......................... .71 (1.61) .01
PRO FORMA
Net income (loss)......................................... $156 $(209) $ (1)
Basic earnings (loss) per share........................... .72 (1.69) (.01)
Diluted earnings (loss) per share......................... .71 (1.69) (.01)
</TABLE>
The weighted average fair values of options granted during 1999, 1998 and
1997 were $9.67, $6.98 and $6.63 per share, respectively.
Additional information relating to the plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER OPTION EXERCISE
OPTION PRICE RANGE PRICE
------------ -------------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1997.............................. 7,117,473 $10.00 - 17.63 $10.91
Granted................................................... 1,238,500 13.13 - 15.81 13.43
Exercised................................................. 23,825 10.00 10.00
Cancelled................................................. 164,375 10.00 - 15.81 12.98
----------
Outstanding at December 31, 1997............................ 8,167,773 10.00 - 17.63 11.25
Granted................................................... 4,728,000 12.81 - 15.81 12.94
Exercised................................................. 36,950 10.00 10.00
Cancelled................................................. 9,918 11.13 - 22.35 13.67
Stone addition............................................ 6,050,196 11.87 - 29.59 14.35
----------
Outstanding at December 31, 1998............................ 18,899,101 10.00 - 29.59 12.67
Granted................................................... 636,500 12.81 - 23.38 17.14
Exercised................................................. 4,475,476 10.00 - 22.35 12.37
Cancelled................................................. 99,976 10.00 - 29.59 13.77
----------
Outstanding at December 31, 1999............................ 14,960,149 10.00 - 23.38 12.86
</TABLE>
J-19
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
PRICES OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
-------------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
$10.00 - 12.50 4,688,619 $10.57 5.63 4,688,619 $10.57
12.81 - 13.51 7,723,164 13.01 8.41 4,320,675 13.16
14.06 - 15.81 1,486,281 14.47 7.63 1,486,281 14.47
17.19 - 23.38 1,062,085 19.63 7.03 609,585 20.18
----------- ----------
14,960,149 11,105,160
</TABLE>
The number of options exercisable at December 31, 1998 and 1997 was
14,386,101 and 483,100 respectively. As of December 31, 1999, approximately
3,357,000 shares were available for grant under the 1998 Plan.
12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY MINIMUM HOLDING GAIN ON OTHER
TRANSLATION PENSION MARKETABLE COMPREHENSIVE
ADJUSTMENT LIABILITY SECURITIES INCOME (LOSS)
----------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998.............................. $ $ $ $
Current period change................................. 3 (4) (1)
---- --- -- ---
Balance at December 31, 1998............................ 3 (4) (1)
Current period change................................. (11) 4 3 (4)
---- --- -- ---
Balance at December 31, 1999............................ $ (8) ...$... $3 $(5)
==== === == ===
</TABLE>
13. DISCONTINUED OPERATIONS
During February 1999, the Company adopted a formal plan to sell the
operating assets of its subsidiary, Smurfit Newsprint Corporation ("SNC").
Accordingly, SNC was accounted for as a discontinued operation in the prior
consolidated financial statements. SNC consists of two newsprint mills in
Oregon, and its Cladwood(R) operation, which consists of two plants which
manufacture a wood composite panel used in the housing industry. The Company
subsequently decided to continue to operate its Cladwood(R) business and
therefore, Cladwood's(R) operating income (loss) of $1 million in 1999,
$(29) million in 1998 and $1 million in 1997 was reclassified to continuing
operations. Cladwood's(R) operating loss in 1998 includes the $30 million
charge related to a class action settlement agreement (See Note 18). The
revenues and net assets of Cladwood(R) were not material to the consolidated
financial statements in any of the periods presented.
In November 1999, the Company sold its Newberg, Oregon newsprint mill for
proceeds of approximately $211 million. The Company is in negotiations to
transfer ownership of the Oregon City, Oregon newsprint mill and does not
expect to realize any significant proceeds from the transaction. Net gain on
disposition of discontinued operations of $4 million includes the realized
gain on the sale of the Newberg, Oregon newsprint mill, an expected loss on
the sale of the Oregon City, Oregon newsprint mill, actual results from the
measurement date through December 31, 1999 and the estimated losses on the
Oregon City newsprint mill through the expected disposition date.
SNC newsprint revenues were $235 million, $303 million and $281 million for
1999, 1998 and 1997, respectively. The net assets of SNC newsprint included
in the accompanying consolidated balance sheets as of December 31, 1999 and
1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Inventories and current assets.............................. $ 34 $ 36
Net property, plant and equipment........................... 48 183
Other assets................................................ 11 7
Accounts payable and other current liabilities.............. (94) (63)
Other liabilities........................................... (4) (42)
---- ----
Net assets (liabilities) of discontinued operations....... $ (5) $121
==== ====
</TABLE>
J-20
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1999 1998 1997
---- ------ -----
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations before
extraordinary item and cumulative effect
of accounting change...................................... $163 $ (211) $ (19)
Denominator:
Denominator for basic earnings per share -- weighted
average shares.......................................... 217 124 111
Effect of dilutive securities:
Employee stock options.................................. 3
---- ------ -----
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversions......... 220 124 111
==== ====== =====
Basic earnings (loss) per share from continuing operations before
extraordinary item and cumulative effect of
accounting change......................................... $.75 $(1.70) $(.17)
==== ====== =====
Diluted earnings (loss) per share from continuing operations before
extraordinary item and cumulative effect of
accounting change......................................... $.74 $(1.70) $(.17)
==== ====== =====
</TABLE>
For 1999, convertible debt to acquire one million shares of common stock
with an earnings effect of $2 million and additional minority interest
shares of three million with an earnings effect of $8 million are excluded
from the diluted earnings per share computation because they are
antidilutive.
For 1998, options to purchase one million shares of common stock under the
treasury stock method, convertible debt to acquire one million shares of
common stock with an earnings effect of $2 million, and additional minority
interest shares of three million with an earnings effect of $1 million are
excluded from the diluted earnings (loss) per share computation because they
are antidilutive. Options to purchase an immaterial number of shares of
common stock for 1997 were outstanding, but not included in the computation
of diluted earnings (loss) per share because the option exercise price was
greater than the average market price of the common shares for the year.
15. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH JS GROUP
Transactions with Jefferson Smurfit Group plc ("JS Group"), a significant
shareholder of the Company, its subsidiaries and affiliated companies were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Product sales............................................... $45 $39 $34
Product and raw material purchases.......................... 21 54 51
Management services income.................................. 3 4 4
Charges from JS Group for services provided................. 1 1
Charges to JS Group for costs pertaining to the Fernandina
No. 2 paperboard machine through November 18, 1998........ 50 53
Receivables at December 31.................................. 2 5 3
Payables at December 31..................................... 14 4 11
</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.
J-21
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
Stone's Canadian subsidiary, Stone Container (Canada) Inc. ("Stone Canada")
owns a 50% interest in Smurfit-MBI. On September 4, 1998, Stone Canada
purchased the remaining 50% of Smurfit-MBI from MacMillan Bloedel Ltd. for
$185 million (Canadian). Simultaneously, Stone Canada sold the newly
acquired 50% interest to JS Group for the same amount.
The Company, in connection with Merger related activities, either paid or
reimbursed $16 million in legal fees, financial advisory fees and executive
compensation to JS Group in 1998.
TRANSACTIONS WITH NON-CONSOLIDATED AFFILIATES
The Company sold paperboard, market pulp and fiber to and purchased
containerboard and kraft paper from various non-consolidated affiliates. The
following table summarizes the Company's related party transactions with its
non-consolidated affiliates for each year presented:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Product sales............................................... $303 $57
Product and raw material purchases.......................... 65
Receivables at December 31.................................. 43 70
Payables at December 31..................................... 3
</TABLE>
On October 15, 1998, the Company sold its Snowflake, Arizona newsprint
manufacturing operations and related assets to Abitibi for approximately
$250 million. The Company retained ownership of a corrugating medium machine
located in the facility that Abitibi operated on behalf of the Company
pursuant to an operating agreement entered into as part of the sale.
Payments made to Abitibi, prior to the sale of the Company's remaining
interest (see Note 5), were $17 million in the period from January 1 to
April 23, 1999 and $4 million in the period from November 19 to December 31,
1998.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................... $ 24 $ 24 $ 155 $ 155
Notes receivable and long-term investments.................. 26 26 22 22
Residual interest in timber notes........................... 33 33
Long-term debt including current maturities................. 4,793 4,860 6,633 6,690
</TABLE>
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair values of notes receivable
and long-term investments are based on discounted future cash flows or the
applicable quoted market price. The fair value of the Company's debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities. The fair value of the residual interest is based on
discounted future cash flows.
17. OTHER, NET
The significant components of other, net are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Foreign currency transaction gains.......................... $ 7 $ 4 $
Gain on sale of assets (See Note 4 and 5)................... 446
Income from non-consolidated affiliates..................... 12 4
Other....................................................... 14 (4) (2)
---- --- ---
Total other, net.......................................... $479 $ 4 $(2)
---- --- ---
</TABLE>
18. CONTINGENCIES
The Company's past and present operations include activities which are
subject to federal, state and local environmental requirements, particularly
relating to air and water quality. The Company faces potential environmental
liability as a result of violations of permit terms and similar
authorizations that have occurred from time to time at its facilities. In
addition, the Company faces potential liability for response costs at
various sites for which it has received notice as being a potentially
responsible party ("PRP") concerning hazardous substance contamination. In
estimating its reserves for environmental remediation and future costs, the
Company's estimated liability reflects only the Company's expected share
after consideration for the number of other PRPs at each site, the identity
and financial condition of such parties and experience regarding similar
matters.
J-22
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
Stone was a party to an Output Purchase Agreement (the "OPA") with Four M
Corporation ("Four M") and Florida Coast Paper Company, L.L.C. ("FCPC"), a
joint venture owned 50% by each of Stone and Four M. The OPA required that
Stone and Four M each purchase one-half of the linerboard produced at FCPC's
mill in Port St. Joe, FL (the "FCPC Mill") at a minimum price sufficient to
cover certain obligations of FCPC. The OPA also required Stone and Four M to
use their best efforts to cause the FCPC Mill to operate at a production
rate not less than the reported average capacity utilization of the U.S.
linerboard industry. FCPC indefinitely discontinued production at the FCPC
Mill in August 1998, and FCPC and certain of its affiliates filed for
Chapter 11 bankruptcy protection in April 1999. Certain creditors of FCPC
filed an adverse proceeding in the bankruptcy against Stone and Four M, and
certain of their officers and directors, alleging among other things,
default with respect to the obligations of Stone and Four M under the OPA.
On October 20, 1999, FCPC and a committee representing the holders of the
FCPC debt securities filed a bankruptcy reorganization plan ("Plan") that
provided for the settlement of all outstanding claims in exchange for cash
payments. Under the Plan, which was confirmed and consummated in January
2000, Stone paid approximately $123 million to satisfy the claims of
creditors of FCPC, Stone received title to the FCPC mill, and all claims
under the OPA, as well as any obligations of Stone involving FCPC or its
affiliates, were released and discharged. In addition, Four M issued $25
million of convertible preferred stock to Stone in connection with the
consummation of the Plan.
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(R), a
composite wood siding product manufactured by SNC that has been used
primarily in the construction of manufactured or mobile homes. In 1998, the
Company recorded a $30 million pre-tax charge to reflect amounts SNC has
paid into a settlement fund, administrative costs, plaintiff's 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(R) cases could exceed
established reserves.
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.
19. 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 1998 and 1997 has been
restated from the prior year's presentation in order to conform to the 1999
presentation.
The Company has two reportable segments: (1) Containerboard and Corrugated
Containers, and (2) Boxboard and Folding Cartons. 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 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 four
non-reportable segments, specialty packaging, industrial bags, reclamation,
international and corporate related items. Corporate related items include
goodwill, equity investments, income and expense not allocated to reportable
segments (goodwill amortization, interest expense and depreciation expense
related to the fair value adjustments made to the historical basis of Stone
property, plant and equipment in the purchase price allocation), the
adjustment to record inventory at LIFO, and the elimination of intercompany
assets and intercompany profit.
J-23
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
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. In 1999, corporate related items included a
$407 million gain on the timberland sale and related note monetization
program and a $39 million gain on the sale of Abitibi.
<TABLE>
<CAPTION>
CONTAINERBOARD BOXBOARD
& CORRUGATED & FOLDING
CONTAINERS CARTONS OTHER TOTAL
-------------- --------- ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenues from external customers............................ $4,636 $836 $1,679 $7,151
Intersegment revenues....................................... 193 287 480
Depreciation, depletion and amortization.................... 187 24 208 419
Segment profit (loss)....................................... 478 62 (201) 339
Total assets................................................ 4,288 449 5,122 9,859
Capital expenditures........................................ 81 15 60 156
YEAR ENDED DECEMBER 31, 1988
Revenues from external customers............................ $2,014 $785 $ 686 $3,485
Intersegment revenues....................................... 57 149 206
Depreciation, depletion and amortization.................... 85 22 48 155
Segment profit (loss)....................................... 117 67 (520) (336)
Total assets................................................ 5,765 454 5,412 11,631
Capital expenditures........................................ 221 26 40 287
YEAR ENDED DECEMBER 31, 1997
Revenues from external customers............................ $1,607 $752 $ 598 $2,957
Intersegment revenues....................................... 35 167 202
Depreciation, depletion and amortization.................... 67 21 27 115
Segment profit (loss)....................................... 56 68 (146) (22)
Total assets................................................ 1,467 435 869 2,771
Capital expenditures........................................ 101 37 44 182
</TABLE>
The following table presents net sales to external customers by country of
origin:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
United States............................................... $6,359 $3,395 $2,952
Canada...................................................... 211 22 5
Europe and other............................................ 581 68
------ ------ ------
Total net sales........................................... $7,151 $3,485 $2,957
------ ------ ------
</TABLE>
The following table presents long-lived assets by country:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
United States............................................... $3,902 $5,254 $1,787
Canada...................................................... 228 191 1
Europe and other............................................ 289 327
------ ------ ------
4,419 5,772 1,788
Goodwill.................................................... 3,328 2,869 237
------ ------ ------
Total long-lived assets................................... $7,747 $8,641 $2,025
------ ------ ------
</TABLE>
20. SUBSEQUENT EVENT
On February 23, 2000, SSCC, Stone and a newly-formed subsidiary of Stone
entered into a Pre-Merger Agreement with St. Laurent Paperboard Inc.
pursuant to which the Company will acquire St. Laurent for approximately
$1.4 billion, consisting of approximately $625 million in cash, the issuance
of approximately 25 million shares of SSCC common stock and the assumption
of approximately $386 million of St. Laurent's debt. Stone expects to borrow
$1,050 million to finance the acquisition of St. Laurent. Consummation of
the transaction, which is subject to St. Laurent shareholder and certain
regulatory approvals, is expected to occur in the second quarter of 2000.
J-24
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)
21. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Net sales................................................. $1,705 $1,730 $1,792 $1,924
Gross profit.............................................. 191 273 304 361
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. (92) (23) (11) 289
Discontinued operations................................... 4 (1) (4) 3
Gain on disposition of discontinued operations............ 4
Extraordinary item........................................ (1) (1) (10)
Net income (loss)......................................... (88) (25) (16) 286
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. (.43) (.11) (.05) 1.33
Discontinued operations................................... .02 (.01) (.02) .03
Extraordinary item........................................ (.05)
------ ------ ------ ------
Net income (loss)......................................... (.41) (.12) (.07) 1.31
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. (.43) (.11) (.05) 1.29
Discontinued operations................................... .02 (.01) (.02) .03
Extraordinary item........................................ (.04)
------ ------ ------ ------
Net income (loss)......................................... (.41) (.12) (.07) 1.28
1998
Net sales................................................. $ 769 $ 769 $ 763 $1,184
Gross profit.............................................. 128 126 125 154
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. 3 2 3 (219)
Discontinued operations................................... 8 9 5 5
Extraordinary item........................................ (13)
Cumulative effect of accounting change.................... (3)
Net income (loss)......................................... (5) 11 8 (214)
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. .03 .02 .03 (1.36)
Discontinued operations................................... .07 .08 .04 .03
Extraordinary item........................................ (.12)
Cumulative effect of accounting change.................... (.03)
------ ------ ------ ------
Net income (loss)......................................... (.05) .10 .07 (1.33)
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of accounting
change.................................................. .03 .02 .03 (1.36)
Discontinued operations................................... .07 .08 .04 .03
Extraordinary item........................................ (.11)
Cumulative effect of accounting change.................... (.03)
------ ------ ------ ------
Net income (loss)......................................... (.04) .10 .07 (1.33)
</TABLE>
J-25
<PAGE>
APPENDIX K
SMURFIT-STONE CONTAINER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations and condensed consolidated balance sheet of Smurfit-Stone were
prepared to illustrate the estimated effects of the Transaction, including the
financing plan, as if those transactions had occurred for the statement of
operations as of the beginning of the period presented and for the balance sheet
presentation as of December 31, 1999.
The pro forma adjustments are based upon available information and upon
certain assumptions that Smurfit-Stone and St. Laurent believe are reasonable.
The unaudited pro forma condensed consolidated financial statements and
accompanying notes should be read in conjunction with the historical financial
statements of Smurfit-Stone and St. Laurent, and the related notes thereto
included in this Circular. The historical condensed consolidated statement of
operations and condensed consolidated balance sheet of St. Laurent are presented
in accordance with accounting principles generally accepted in the United
States.
The unaudited pro forma condensed consolidated financial statements are
provided for informational purposes only and do not purport to represent what
Smurfit-Stone's financial position or results of operations would actually have
been if the Transaction had in fact occurred at such dates or to project
Smurfit-Stone's financial position or results of operations for any future date
or period.
For financial accounting purposes, the acquisition of St. Laurent will be
accounted for using the purchase method of accounting. Accordingly, St.
Laurent's assets and liabilities have been adjusted, on a preliminary basis, to
reflect their fair values in the unaudited pro forma condensed consolidated
balance sheet as of December 31, 1999. The estimated effects resulting from
these adjustments have been reflected in the unaudited pro forma condensed
consolidated statements of operations. The allocation of the estimated purchase
price and the estimated transaction fees and expenses included in the unaudited
pro forma condensed consolidated financial statements are preliminary; final
amounts may differ from those set forth herein and such differences may be
material.
K-1
<PAGE>
COMPILATION REPORT
To the Directors of
SMURFIT-STONE CONTAINER CORPORATION
We have reviewed, as to compilation only, the accompanying unaudited pro
forma condensed consolidated balance sheet of Smurfit-Stone Container
Corporation as at December 31, 1999 and the unaudited pro forma condensed
consolidated statement of operations for the year then ended which have been
prepared for inclusion in the Notice of Special Meeting and Management Proxy
Circular of St. Laurent Paperboard Inc. dated April 14, 2000. In our opinion,
the unaudited pro forma condensed consolidated balance sheet and the unaudited
pro forma condensed consolidated statement of operations have been properly
compiled to give effect to the proposed transaction and the assumptions
described in the accompanying notes thereto.
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
St. Louis, Missouri
April 14, 2000
K-2
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------
SMURFIT-STONE ST. LAURENT PRO FORMA SMURFIT-STONE
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- ----------- -------------
(In millions)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 24 $ 15 $ (619)(a) $ 39
619(e)
Receivables................................ 647 124 771
Inventories................................ 734 106 840
Refundable income taxes.................... 7 5 12
Deferred income taxes...................... 130 130
Prepaid expenses and other current
assets.................................. 69 14 83
------ ------ ------ -------
Total current assets.................... 1,611 264 1,875
Property, plant and equipment, net........... 4,395 804 140(a) 5,339
Timberland, net.............................. 24 13 37
Goodwill, net................................ 3,328 40 358(a) 3,733
7(d)
Investment in non-consolidated affiliates.... 176 176
Other assets................................. 325 37 (6)(a) 367
11(e)
------ ------ ------ -------
$9,859 $1,158 $ 510 $11,527
====== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....... $ 174 $ 47 $ (47)(e) $ 174
Accounts payable........................... 662 68 730
Other accrued liabilities.................. 733 35 34(a) 768
(34)(e)
------ ------ ------ -------
Total current liabilities............... 1,569 150 (47) 1,672
Long-term debt, less current maturities...... 4,619 339 (339)(e) 5,669
1,050(e)
Other long-term liabilities.................. 894 46 11(a) 951
Deferred income taxes........................ 839 16 49(a) 904
Minority interest............................ 91 91
Stockholders' equity:
Common stock and additional paid-in
capital................................. 3,438 576 (576)(a) 3,831
386(a)
7(d)
Retained earnings (deficit)................ (1,586) 32 (32)(a) (1,586)
Accumulated other comprehensive income..... (5) (1) 1(a) (5)
------ ------ ------ -------
Total stockholders' equity.............. 1,847 607 (214) 2,240
------ ------ ------ -------
$9,859 $1,158 $ 510 $11,527
====== ====== ====== =======
Common stock shares outstanding............ 218 49 (24)(c) 243
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
K-3
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SMURFIT-STONE ST. LAURENT PRO FORMA SMURFIT-STONE
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- ----------- -------------
(in millions, except per share data)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Net sales.................................. $7,151 $916 $(53)(b) $8,014
Cost of goods sold......................... 6,022 778 0(a) 6,747
(53)(b)
Selling and administrative expenses........ 696 64 760
Restructuring charge....................... 10 10
------ ---- ---- ------
Income from operations..................... 423 74 497
Interest expense, net...................... (563) (29) (70)(e) (662)
Other income -- net........................ 479(f) 14 493
------ ---- ---- ------
Income from continuing operations before
income taxes, minority interest and
extraordinary item...................... 339 59 (70) 328
Provision for income taxes................. (168) (22) 24(a) (166)
Minority interest expense.................. (8) (8)
------ ---- ---- ------
Income from continuing operations before
extraordinary item...................... $ 163 $ 37 $(46) $ 154
====== ==== ==== ======
Basic earnings per common share from
continuing operations before
extraordinary item...................... $ .75 $.75 $ .64
====== ==== ======
Diluted earnings per common share from
continuing operations before
extraordinary item...................... $ .74 $.75 $ .63
====== ==== ======
Weighted average common shares outstanding
-- Basic................................ 217 49 (24)(c) 242
Weighted average common shares outstanding
-- Diluted.............................. 220 49 (23)(c) 246
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
K-4
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) To record:
Balance Sheet
- The cash payment of $617 million representing 49.4 million shares of St.
Laurent common stock at $12.50 per share to the existing shareholders;
- The cash payment of $5 million or $12.50 per share for .4 million shares
of St. Laurent common stock issued upon the conversion of St. Laurent
warrants prior to the Transaction, less $3 million cash received upon the
conversion from warrant holders;
- The conversion of 49.8 million shares of St. Laurent common stock
including .4 million shares from exercise of warrants into 24.9 million
shares of Smurfit-Stone common stock at a fair value of $386 million,
determined based upon an average market price of $15.51 for Smurfit-
Stone shares five days before and after February 23, 2000, the date of
the Pre-Merger Agreement;
- Acquired assets and liabilities, at fair value;
- Excess purchase price as goodwill; and
- Estimated Smurfit-Stone merger costs of $34 million directly attributable
to the cost of acquisition representing primarily financial advisor,
banking and legal fees.
Statement of Operations
- Depreciation of property, plant and equipment over an average life of
seventeen years; and
- Amortization of goodwill over a forty year period.
Tax effects are recorded assuming a 39% tax rate.
The allocation of fair values to assets and liabilities, including
intangibles and property, plant and equipment was performed on a preliminary
basis. Based upon additional analyses and evaluations to be performed, the
final amounts to be allocated to assets and liabilities may differ from
those amounts included herein and such differences may be material. In
particular the amount allocated to property, plant and equipment will change
upon completion of certain valuations and other studies. A $100 million
increase in property, plant and equipment and a corresponding decrease in
goodwill would increase the pro forma after-tax loss by $1 million for the
year ended December 31, 1999.
(b) To eliminate the effects of sales transactions between Smurfit-Stone and St.
Laurent.
(c) To convert St. Laurent common stock including shares from exercise of
warrants to Smurfit-Stone common stock using a 0.5 conversion factor. The
diluted weighted average common shares include incremental shares from St.
Laurent options under the treasury stock method.
Smurfit-Stone has granted Smurfit International B.V. ("SIBV"), the right to
maintain its percentage ownership of Smurfit-Stone common stock in the event
of public or private issuances. It was assumed that SIBV will not elect to
exercise its right.
(d) To record the vesting of approximately one million St. Laurent stock options
based on their intrinsic value which approximates fair value. No
compensation expense was included in the pro forma statement of operations
because the acceleration of vesting would not require the determination of a
new measurement date under APB No. 25.
(e) To record the effects of additional borrowings under Smurfit-Stone senior
secured credit facilities and repayment of St. Laurent debt:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE SHEET DECEMBER 31, 1999
------------- -----------------
<S> <C>
NEW BORROWINGS
U.S. term facility (variable rate of 9.5%) due 2006......... $ 500
Canadian term facility (variable rate of 9.5%) due 2006..... 550
------
Total new borrowings...................................... $1,050
======
</TABLE>
The interest rate on the term facilities is based on the assumed LIBOR rate
of 6.00%. A one-eighth of one percent change in the interest rate would
increase or decrease interest expense by $1 million for the year ended
December 31, 1999.
REPAYMENTS OF ST. LAURENT DEBT
<TABLE>
<S> <C>
Secured term loan (6.68% weighted average variable rate)
payable in installments through 2005...................... $ 224
Senior secured notes (8.54% weighted average variable rate)
payable in installments through 2008...................... 125
Other debt.................................................. 37
------
Total St. Laurent debt to be repaid....................... 386
------
Net increase to total debt.................................. $ 664
======
</TABLE>
K-5
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
DECEMBER 31, 1999
ADDITIONAL NET BORROWINGS WILL BE USED AS FOLLOWS -----------------
<S> <C>
Cash consideration to St. Laurent shareholders at $12.50 per
share..................................................... $ 619
Deferred debt issuance costs................................ 11
Advisory and banking fees................................... 34
------
Total uses of additional borrowings....................... $ 664
======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
STATEMENT OF OPERATIONS -----------------
<S> <C>
Interest expense on $1,050 million new borrowings used to
finance the acquisition................................... $ 100
Amortization of new deferred debt issuance costs............ 2
Less interest expense on extinguished debt.................. (32)
------
Net interest expense increase............................... $ 70
======
</TABLE>
(f) Other, net for Smurfit-Stone includes pretax gains on asset sales of $446
million resulting from the sales of a majority of its timberlands and its
interest in Abitibi.
K-6
<PAGE>
(LOGO)
PRINTED IN CANADA
M05537
<PAGE>
ST. LAURENT PAPERBOARD INC.
INSTRUMENT OF PROXY FOR THE
MEETING OF ST. LAURENT SECURITYHOLDERS
MAY 26, 2000
The undersigned St. Laurent Securityholder hereby appoints Mr. Raymond
Pinard, Chairman of the Board of Directors of St. Laurent, or, failing him, Mr.
Joseph J. Gurandiano, President and Chief Executive Officer of St. Laurent, or,
failing him, Marion Allaire, Vice-President, Administration and Secretary of St.
Laurent, or instead of any of the foregoing, __________________________ as
proxyholder of the undersigned, with full power of substitution, to attend, vote
and act for and on behalf of the undersigned at the Meeting of St. Laurent
Securityholders to be held on May 26, 2000, and at any adjournment thereof (the
"Meeting"), and on every ballot that may take place in consequence thereof to
the same extent and with the same powers as if the undersigned was personally
present at the Meeting, with authority to vote at the proxyholder's discretion
on amendments or variations to matters identified in the Notice of Meeting or
such other matters as may properly be brought before the Meeting, except as
otherwise specified below. Without limiting the general power hereby conferred,
the undersigned hereby directs the proxyholder to vote the securities of St.
Laurent represented by this proxy in the following manner:
VOTE FOR [ ] OR AGAINST [ ] (OR, IF NOT SPECIFIED, VOTE FOR) the
special resolution set forth at Appendix "A" of the Management
Information Circular and Proxy Statement of St. Laurent Paperboard
Inc. dated April 14 , 2000 (the "Circular"), approving an arrangement
pursuant to Section 192 of the Canada Business Corporations Act with
Smurfit-Stone Container Corporation, Stone Container Corporation,
3701174 Canada Inc. and 3038727 Nova Scotia Company.
Any capitalized terms used but not defined herein have the meaning
ascribed to such terms by the Circular.
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF ST. LAURENT.
EACH ST. LAURENT SECURITYHOLDER HAS THE RIGHT TO APPOINT A PERSON
OTHER THAN THE MANAGEMENT NOMINEES SPECIFIED ABOVE TO ATTEND AND ACT
ON HIS, HER OR ITS BEHALF AT THE MEETING. Such right may be exercised
by inserting the name of the person to be appointed in the space
provided, or by completing another proper form of proxy and, in either
case, depositing the form of proxy not later than 5:00 p.m. (Montreal
Time) on the business day prior to the Meeting to the attention of the
Proxy Department at the office of Montreal Trust Company, at 1800
McGill College Avenue, 6(th) floor, Montreal, Quebec H3A 3K9 by
delivery or, if mailed using the postage pre-paid envelope provided.
The securities of St. Laurent represented by this proxy will be voted
for or against the proposed special resolution in accordance with the
instructions set forth above on any ballot that may be called for.
THE UNDERSIGNED HEREBY REVOKES ANY PRIOR PROXIES.
DATED this ____________ day of ______________________________ , 2000
-------------------------------------------------
Signature of St. Laurent Securityholder
-------------------------------------------------
Name of St. Laurent Securityholder (PLEASE PRINT)
IN THE CASE OF ST. LAURENT REGISTERED SHAREHOLDERS, THE SIGNATURE OF
THE ST. LAURENT REGISTERED SHAREHOLDER ON THIS PROXY MUST BE EXACTLY
THE SAME AS THE NAME IN WHICH THE ST. LAURENT COMMON SHARES ARE
REGISTERED. IF THIS PROXY IS NOT DATED IN THE SPACE PROVIDED, IT SHALL
BE DEEMED TO BEAR THE DATE ON WHICH IT WAS MAILED TO ST. LAURENT. THIS
PROXY MUST BE EXECUTED BY THE ST. LAURENT SECURITYHOLDER OR AN
ATTORNEY AUTHORIZED IN WRITING OR, IF THE ST. LAURENT SECURITYHOLDER
IS A CORPORATION, UNDER ITS CORPORATE SEAL OR BY AN OFFICER OR
ATTORNEY THEREOF DULY AUTHORIZED.
