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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 1998
JSCE, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 11951 37-1337160
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
150 North Michigan Avenue
Chicago, Illinois 60601-7568
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(Address of Principal Executive Offices) (Zip Code)
(312) 346-6600
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(Registrant's telephone number, including area code)
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. Other Events
On May 18, 1998, Jefferson Smurfit Corporation, a Delaware
corporation ("JSC") consummated the merger (the "Merger") of JSC Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of JSC
("Merger Sub") with and into Stone Container Corporation, a Delaware
corporation ("Stone"). JSC has no operations other than its investment in
JSCE Inc. ("JSCE"), a wholly owned subsidiary of JSC. JSCE owns a 100% equity
interest in Jefferson Smurfit Corporation (U.S.) ("JSCUS") and is the
guarantor of JSCUS' 11 1/4% Series A Senior Notes due 2004, 10 3/4% Series B
Senior Notes due 2002 and 9 3/4% Senior Notes due 2003. JSCE has no
operations other than its investment in JSCUS. JSCUS has extensive operations
throughout the United States.
With respect to information relating to the Merger, JSCE and
JSCUS hereby incorporate by reference the following documents filed by JSC:
Joint Proxy Statement/Prospectus, with respect to pages 1-94
and the section "Additional Information Regarding Stone-
Recent Developments" on pages 95-96, dated as of October 8,
1998.
Prospectus with respect to the section "Recent Developments"
on pages 4-5, dated as of November 9, 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a)--(b) Not applicable.
(c) Exhibits.
20.1 Joint Proxy Statement and Prospectus dated as of
October 8, 1998 filed by Jefferson Smurfit
Corporation and Stone Container Corporation with
respect to pages 1-94, and the section "Additional
Information Regarding Stone-Recent Developments" on
pages 95-96.
20.2 Prospectus dated as of November 9, 1998 filed by Jefferson
Smurfit Corporation, with respect to the section "Recent
Developments" on pages 4-5.
SIGNATURES
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 hereunto duly authorized.
JSCE, INC.
Dated: November 18, 1998 By:/s/ Charles A. Hinrich
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Name: Charles A. Hinrich
Title: Vice President and Treasurer
EXHIBIT INDEX
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------- ---------------------- -------------
20.1 Joint Proxy Statement and Prospectus dated as of
October 8, 1998 filed by Jefferson Smurfit
Corporation and Stone Container Corporation with
respect to pages 1-94, and the section "Additional
Information Regarding Stone-Recent Developments" on
pages 95-96.
20.2 Prospectus dated as of November 9, 1998 filed by Jefferson
Smurfit Corporation, with respect to the section "Recent
Developments" on pages 4-5.
[Logo] [Logo]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Jefferson Smurfit Corporation and Stone
Container Corporation have approved a merger agreement and are seeking your
vote on this important transaction. The combined company would be named
Smurfit-Stone Container Corporation, and would be a leading manufacturer of
paperboard and paper-based packaging products.
If the merger is completed, Stone stockholders will receive 0.99 of a
share of Jefferson Smurfit common stock for each share of Stone common
stock that they own. Jefferson Smurfit stockholders will continue to own
their existing shares after the merger. The shares of Jefferson Smurfit
common stock to be issued to Stone common stockholders will represent
approximately 48% of the outstanding common stock of Jefferson Smurfit
after the merger, and the shares of Jefferson Smurfit common stock held by
Jefferson Smurfit stockholders prior to the merger will represent
approximately 52% of the outstanding common stock of Jefferson Smurfit
after the merger.
The merger cannot be completed unless Stone stockholders approve and
adopt the merger agreement and the merger and approve the amendments to the
Stone restated certificate of incorporation as contemplated by the merger
agreement and Jefferson Smurfit stockholders approve the issuance of shares
of Jefferson Smurfit common stock in the merger and the amendments to the
Jefferson Smurfit certificate of incorporation as contemplated by the
merger agreement. We have scheduled special meetings for our stockholders
to vote on these proposals. YOUR VOTE IS VERY IMPORTANT.
At the special meetings, Jefferson Smurfit and Stone stockholders will
also be asked to approve the adoption of a long-term incentive plan for the
combined company. Approval of the Jefferson Smurfit and Stone proposals
relating to the merger discussed above are not conditioned on approval of
the incentive plan proposals, but approval of the incentive plan proposals
is conditioned on approval of the merger related proposals.
Whether or not you plan to attend a meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you want to vote, your
proxy will be counted as a vote in favor of the proposals submitted at your
meeting. If you fail to return the card, the effect will be a vote against
the merger related proposal submitted at your meeting, unless you attend
your meeting and vote in favor of the proposal. Your failure to return the
card, however, will have no effect on the outcome of the vote on the
incentive plan proposal submitted at your meeting, assuming a quorum is
present.
The dates, times and places of the meetings are as follows:
For JEFFERSON SMURFIT stockholders:
November 17, 1998
10:30 a.m.
Renaissance Hotel
9801 Natural Bridge Road
St. Louis, Missouri 63134
For STONE stockholders:
November 17, 1998
10:30 a.m.
The Mid-America Club
200 East Randolph Drive
Chicago, Illinois 60601
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain
information about our companies from documents that we have filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully.
/s/ Michael W. J. Smurfit /s/ Roger W. Stone
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Michael W. J. Smurfit Roger W. Stone
Chairman of the Board Chairman of the Board, President
Jefferson Smurfit Corporation and Chief Executive Officer
Stone Container Corporation
Neither the SEC nor any state securities regulators have approved the
Jefferson Smurfit common stock to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus
is accurate or adequate. Any representation to the contrary is a criminal
offense.
Joint Proxy Statement/Prospectus dated October 8, 1998, and first mailed to
stockholders on October 9, 1998.
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER......... 1
WHO CAN HELP ANSWER YOUR QUESTIONS............. 3
SUMMARY........................................ 6
The Companies.................................. 6
Our Reasons for the Merger..................... 6
Our Recommendations to Stockholders............ 7
The Merger..................................... 8
RISK FACTORS................................... 14
THE MERGER..................................... 21
General........................................ 21
Background of the Merger....................... 21
Reasons for the Merger; Recommendations of the
Boards of Directors.......................... 24
Accounting Treatment........................... 28
Material Federal Income Tax Consequences....... 28
Regulatory Matters............................. 29
Certain Litigation............................. 30
No Appraisal Rights............................ 31
Federal Securities Laws Consequences; Stock
Transfer Restriction Agreements.............. 31
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION.................................. 32
SELECTED FINANCIAL INFORMATION................. 33
Jefferson Smurfit Corporation.................. 33
Stone Container Corporation.................... 34
HISTORICAL AND PRO FORMA PER SHARE DATA........ 35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA............................... 36
ROLE OF FINANCIAL ADVISORS..................... 42
Opinion of Financial Advisor to JSC............ 42
Opinion of Financial Advisor to Stone.......... 47
VOTING COMMITMENTS FROM CERTAIN STOCKHOLDERS... 54
INTERESTS OF CERTAIN PERSONS IN THE MERGER..... 55
Interests of Stone Officers and Directors...... 55
Interests of JSC Officers and Directors........ 56
Interests of Certain JSC Stockholders.......... 58
DIRECTORS AND MANAGEMENT OF SSCC AFTER THE
MERGER....................................... 61
Directors...................................... 61
Senior Executives.............................. 62
CERTAIN PROVISIONS OF THE MERGER AGREEMENT..... 62
General........................................ 62
Consideration to be Received in the Merger..... 62
Exchange of Shares............................. 63
SSCC Following the Merger...................... 63
Certain Representations and Warranties......... 63
Certain Covenants.............................. 64
Conditions to the Consummation of the Merger... 68
Termination.................................... 69
Termination Fees Payable by JSC................ 71
Termination Fees Payable by Stone.............. 71
Expenses....................................... 71
STOCK PURCHASE AGREEMENT....................... 72
STANDSTILL AGREEMENT........................... 73
AMENDMENTS TO THE STONE CERTIFICATE OF
INCORPORATION................................ 75
SSCC INCENTIVE PLAN PROPOSAL................... 76
Shares Authorized Under the Incentive Plan..... 76
Material Features of the Incentive Plan........ 76
Eligible Participants.......................... 77
Amendments to the Incentive Plan............... 77
Discussion of Certain Federal Income Tax
Consequences................................. 77
THE MEETINGS................................... 78
Times and Places; Purposes..................... 78
Voting Rights; Votes Required for Approval..... 78
Voting of Proxies.............................. 79
COMPARISON OF STOCKHOLDER RIGHTS............... 82
General........................................ 82
Comparison of Rights of JSC Stockholders
Currently and Following the Merger........... 82
Comparison of Rights of Stone Stockholders
Currently and Following the Merger........... 90
DESCRIPTION OF SSCC CAPITAL STOCK FOLLOWING THE
MERGER....................................... 93
ADDITIONAL INFORMATION REGARDING STONE......... 95
LEGAL MATTERS.................................. 114
EXPERTS........................................ 114
FUTURE STOCKHOLDER PROPOSALS................... 115
WHERE YOU CAN FIND MORE INFORMATION............ 115
LIST OF DEFINED TERMS.......................... 117
STONE CONSOLIDATED FINANCIAL STATEMENTS........ F-1
TABLE OF CONTENTS--(CONTINUED)
LIST OF ANNEXES
Annex A Agreement and Plan of Merger
Annex B Restated Certificate of Incorporation (JSC)
Annex C Amended and Restated Bylaws (JSC)
Annex D-1 Amendments to Stone Restated Certificate of Incorporation
Annex D-2 Amendments to Stone Restated Certificate of Incorporation
Annex E Opinion of Merrill Lynch & Co.
Annex F Opinion of Salomon Smith Barney Inc.
Annex G Stock Purchase Agreement
Annex H Standstill Agreement
Annex I SSCC 1998 Long Term Incentive Plan
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the two companies proposing the merger? How will I benefit? What are
the risks?
A: The combination of our two companies, Jefferson Smurfit Corporation ("JSC")
and Stone Container Corporation ("Stone"), will create a premier paperboard and
paper-based packaging company. The combined entity will be a focused, integrated
producer of corrugated containers, folding cartons, industrial bags,
containerboard and recycled paperboard. This increased focus on our core
businesses is intended to serve as a catalyst for the divestiture of our
non-core businesses and assets, which divestitures in turn would help the
combined company reduce its debt. To review in greater detail the reasons for
the merger, see pages 24-28.
You should note, however, that achieving these objectives is subject to certain
risks as discussed in the section "Risk Factors" on pages 14-19. These risks
include, among others, possible difficulties in integrating two companies that
have previously operated independently and in achieving anticipated synergies
from the merger, uncertainty regarding the ability of the combined company to
refinance its debt on acceptable terms, the highly leveraged capital structure
and substantial debt service obligations of the combined company after the
merger and uncertainty regarding the ability to divest and obtain anticipated
proceeds from the divestiture of certain non-core assets.
Q: What is "Smurfit-Stone Container Corporation"?
A: Smurfit-Stone Container Corporation ("SSCC") is the name that JSC and Stone
have agreed to use for the combined company after the merger. SSCC common stock
will be quoted on The Nasdaq National Market under the symbol "SSCC".
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, sign it and mail it in
the enclosed return envelope as soon as possible, so that your shares may be
represented at your stockholders' meeting. If you sign and send in your proxy
and do not indicate how you want to vote, your proxy will be counted as a vote
in favor of the proposals submitted at your stockholders' meeting.
The JSC meeting and the Stone meeting will each take place on November 17, 1998.
You may attend your stockholders' meeting and vote your shares in person, rather
than signing and mailing your proxy card. In addition, you may take back your
proxy up to and including the day of your stockholders' meeting by following
the directions on page 83 and either change your vote or attend your
stockholders' meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your broker will not be able to vote your
shares without instructions from you.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, we will send Stone common stockholders
written instructions for exchanging their stock certificates. JSC common
stockholders will retain their stock certificates.
Q: What will Stone common stockholders receive for their shares?
A: Stone common stockholders will receive 0.99 of a share of JSC common stock
for each of their shares of Stone common stock. This exchange ratio will not
change even if the market price of JSC or Stone common shares increases or
decreases between now and the date the merger is completed. Accordingly, Stone
common stockholders will not be able to determine the value of the shares of JSC
common stock they would receive in the merger at the time they vote on the
merger proposal submitted to them at their meeting.
JSC will not issue any fractional shares in the merger. Instead, Stone
stockholders will receive cash for any fractional shares of JSC common stock
owed to them in an amount based on the market value of JSC common stock on the
last full trading day prior to the date on which the merger occurs.
Q: Will JSC stockholders receive any shares as a result of the merger?
A: No. JSC stockholders will continue to hold the JSC shares they own at the
time of the merger. After the merger, these shares will represent an ownership
interest in the combined businesses of JSC and Stone.
Q: Will I receive any dividends?
A: Neither JSC nor Stone currently pays dividends. We do not expect that SSCC
will pay common stock dividends in the foreseeable future.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as soon as possible. We hope to
complete the merger shortly after the special meetings, assuming the required
stockholder approvals are obtained at such meetings.
Q: What are the tax consequences to Stone and JSC stockholders of the merger?
A: The exchange of shares by Stone common stockholders will be tax-free to Stone
common stockholders for federal income tax purposes, except for taxes on cash
received for fractional shares. The merger will have no tax consequences for JSC
stockholders. To review the material federal income tax consequences to Stone
common stockholders in greater detail, see page 28.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
JEFFERSON SMURFIT CORPORATION STOCKHOLDERS
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Office of Investor Relations
Phone Number: (314) 746-1223
STONE CONTAINER CORPORATION STOCKHOLDERS
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: Office of Investor Relations
Phone Number: (312) 580-4663
If you would like additional copies of this Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Phone Number: 1-800-290-6431
web site: www.dfking.com
The following diagrams illustrate the proposed transaction in general terms
and are not comprehensive. For a more complete description of the proposed
transaction, see "The Merger" on page 20 and "Certain Provisions of the Merger
Agreement" on page 65.
PRE-MERGER
[Graphic]
[Graphic]
SUMMARY
This summary highlights selected information from this Joint
Proxy Statement/Prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document, including the Annexes, and the documents we have referred you
to. See "Where You Can Find More Information."
THE COMPANIES
JEFFERSON SMURFIT CORPORATION
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
(314) 746-1223
JSC is a focused, integrated producer of paperboard, paper and packaging
products made from recycled paper and renewable forest products, serving
leading U.S. companies. JSC's paperboard/packaging products segment, which
is responsible for more than 90% of JSC's net sales, is comprised of: (1)
containerboard and corrugated shipping containers, (2) recycled boxboard,
solid bleached sulfate and folding cartons, (3) uncoated recycled boxboard
and industrial packaging, (4) consumer packaging and (5) fiber resources
and timber products. JSC is a leading manufacturer in each of these areas.
Headquartered in St. Louis, Missouri, JSC operates more than 150 mills and
converting facilities in the U.S. and employs nearly 16,000 people.
STONE CONTAINER CORPORATION
150 North Michigan Avenue
Chicago, Illinois 60601
(312) 346-6600
Stone is a major international pulp and paper company engaged principally
in the production and sale of paper, packaging products and market pulp.
Stone believes it is the world's largest producer of unbleached container
board and kraft paper and the world's largest converter of those products
into corrugated containers and paper bags and sacks. Headquartered in
Chicago, Illinois, Stone has more than 200 manufacturing facilities and
sales offices in North America, Europe, Asia and Central and South America
and employs more than 24,000 people.
OUR REASONS FOR THE MERGER
We believe the merger will:
o create one of the world's premier manufacturers of paperboard and paper-
based packaging products, with annual sales, based on 1997 results,
exceeding $8 billion;
o create a company with an improved cost structure and reduced earnings
volatility, with an enhanced ability to perform strongly throughout the
industry cycle;
o focus our product strategy by increasing our strength in our core
businesses of paperboard and paper-based packaging and serving as a
catalyst for the divestiture of our non-core businesses and assets;
o enable us to reduce debt through asset divestitures and enhanced cash
flow generation;
o create opportunities for significant operational and financial cost
savings through the integration of our operations; and
o enable us to provide our customers with better service and a broader
range of products.
You should note, however, that achieving these objectives is subject to
certain risks as discussed in the section "Risk Factors" on pages 13-20. These
risks include, among others, possible difficulties in integrating two companies
that have previously operated independently and in achieving anticipated
synergies from the merger, uncertainty regarding the ability of the combined
company to refinance its debt on acceptable terms, the highly leveraged capital
structure and substantial debt service obligations of the combined company after
the merger and uncertainty regarding the ability to divest and obtain
anticipated proceeds from the divestiture of certain non-core assets.
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO THE JSC STOCKHOLDERS:
The JSC Board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposal to:
o approve the issuance of shares of JSC common stock pursuant to the
merger agreement and the amendment of the JSC certificate of
incorporation as contemplated by the merger agreement (the proposed
amendments are summarized beginning on page 84 and included in the form
of Restated Certificate of Incorporation of JSC attached as Annex B);
and
FOR the proposal to:
o approve the SSCC 1998 Long Term Incentive Plan (certain terms of the
plan are summarized beginning on page 79 and the Plan is attached as
Annex I).
TO THE STONE STOCKHOLDERS:
The Stone Board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposal to:
o approve and adopt the merger agreement and the merger and amend the
Stone restated certificate of incorporation as contemplated by the
merger agreement (the proposed amendment is summarized beginning on page
78 and attached as Annex D-1); and
FOR the proposal to:
o approve the SSCC 1998 Long Term Incentive Plan (certain terms of the
plan are summarized beginning on page 79 and the Plan is attached as
Annex I).
The first JSC proposal described above is referred to in this Summary as the
"JSC merger proposal" and the first Stone proposal described above is referred
to in this Summary as the "Stone merger proposal". Together, these proposals are
referred to in this Summary as the "merger proposals".
RECORD DATE; VOTING POWER (SEE PAGE 78)
You are entitled to vote at your stockholders' meeting if you owned shares
of common stock as of the close of business on September 29, 1998, the Record
Date.
On the Record Date, there were 110,997,612 shares of JSC common stock
outstanding. For each share of common stock that they owned on the Record Date,
JSC stockholders will have one vote at the JSC meeting for the JSC proposals
described above.
On the Record Date, there were 104,977,686 shares of Stone common stock
outstanding. For each share of Stone common stock that they owned on the Record
Date, Stone common stockholders will have one vote at the Stone meeting for the
Stone proposals described above.
VOTES REQUIRED
The favorable vote of two-thirds of the outstanding shares of JSC common
stock is required to approve the proposal to issue shares of JSC common stock
pursuant to the merger and amend the JSC certificate of incorporation as
contemplated by the merger agreement.
The favorable vote of a majority of the shares of JSC Common Stock present
in person or by proxy and entitled to vote at the JSC special meeting is
required to approve the SSCC 1998 Long Term Incentive Plan, assuming a quorum is
present.
The favorable vote of two-thirds of the outstanding shares of Stone common
stock is required to approve the proposal to approve and adopt the merger
agreement and the merger and amend the Stone restated certificate of
incorporation as contemplated by the merger agreement.
The favorable vote of a majority of the votes cast at the Stone special
meeting is required to approve the SSCC 1998 Long Term Incentive Plan, assuming
a quorum is present.
APPROVAL OF THE MERGER PROPOSALS IS NOT CONDITIONED ON APPROVAL OF THE 1998
SSCC LONG TERM INCENTIVE PLAN PROPOSALS, BUT APPROVAL OF THE 1998 SSCC LONG TERM
INCENTIVE PLAN PROPOSALS IS CONDITIONED ON APPROVAL OF THE MERGER PROPOSALS.
VOTING COMMITMENTS FROM CERTAIN JSC STOCKHOLDERS (SEE PAGE 54)
The two largest JSC stockholders, Smurfit International B.V. ("SIBV") and
Morgan Stanley Leveraged Equity Fund II, Inc. ("MSLEF"), have
entered into separate agreements with Stone under which they have agreed to vote
all of the JSC common shares beneficially owned by them in favor of the JSC
merger proposal described above.
On the Record Date, these supporting stockholders beneficially owned
sufficient shares of JSC common stock to approve the JSC merger proposal without
the vote of any other JSC stockholder.
VOTING COMMITMENT FROM CHIEF EXECUTIVE OFFICER OF STONE (SEE PAGE 54)
Roger W. Stone, the Chairman of the Board, President and Chief Executive
Officer of Stone, has entered into an agreement with JSC under which he has
agreed to vote all of the Stone common shares beneficially owned by him in favor
of (and to use reasonable best efforts to persuade members of his family to vote
in favor of) the Stone merger proposal described above.
On the Record Date, Mr. Stone beneficially owned approximately 1.1% of the
outstanding Stone common shares. On the Record Date, Mr. Stone and related
family members beneficially owned approximately 11.2% of the outstanding Stone
common shares.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the Record Date, directors and executive officers of JSC and their
affiliates owned and were entitled to vote approximately 83,865,000 shares of
JSC common stock, or approximately 75.6% of the shares of JSC common stock
outstanding on the Record Date. On the Record Date, the two largest JSC
stockholders, SIBV and MSLEF, beneficially owned approximately 75.2% of the
outstanding shares of JSC Common Stock, or 99.5% of the outstanding shares of
JSC Common Stock owned by directors and executive officers of JSC and their
affiliates.
On the Record Date, directors and executive officers of Stone and their
affiliates owned and were entitled to vote 7,519,619 shares of Stone common
stock, or approximately 7.2% of the shares of Stone common stock outstanding on
the Record Date.
THE MERGER
The merger agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. We
encourage you to read the merger agreement as it is the legal document that
governs the merger.
WHAT STONE COMMON STOCKHOLDERS WILL RECEIVE
As a result of the merger, Stone common stockholders will receive, for each
share of Stone common stock that they own, 0.99 of a share of JSC common stock.
JSC will not issue any fractional shares in the merger. Instead, Stone common
stockholders will receive cash for any fractional share of JSC common stock owed
to them in an amount based on the market value of JSC common stock on the last
full trading day prior to the date on which the merger occurs.
Stone common stockholders should not send in their stock certificates for
exchange until instructed to do so after the merger is completed.
STONE SERIES E PREFERRED STOCK
Holders of Stone's Series E preferred stock will continue to hold their
existing shares which will remain outstanding obligations of Stone after the
merger. As a result of the merger, the Stone Series E preferred stock will be
convertible pursuant to its terms into the number of shares of JSC common stock
that its holder would have received in the merger had such holder converted such
shares immediately prior to the merger. If the Stone merger proposal is approved
and the merger is consummated, the terms of the Stone Series E preferred stock
will be amended as set forth in Annexes D-1 and D-2, respectively.
WHAT CURRENT JSC STOCKHOLDERS WILL HOLD AFTER THE MERGER
JSC stockholders will continue to own their existing shares after the
merger. JSC stockholders should not send in their stock certificates in
connection with the merger.
OWNERSHIP OF JSC AFTER THE MERGER
Based upon the number of shares of JSC and Stone common stock outstanding
on the Record Date and not taking into account stock options or convertible debt
or equity securities of Stone, JSC will issue approximately 104 million JSC
common shares to Stone common stockholders in the merger. The shares of JSC
common stock that JSC will issue to Stone common stockholders in the merger will
represent approximately 48% of the outstanding JSC common stock after the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 55)
Our stockholders should note that a number of directors and executive
officers and certain JSC stockholders may have interests in the merger that are
different from, or in addition to, the interests of stockholders generally.
DIRECTORS AND MANAGEMENT OF JSC AFTER THE MERGER (SEE PAGE 61)
If we complete the merger, the SSCC Board will initially consist of:
o Michael W. J. Smurfit (Chairman of the Board and Chief Executive Officer
of Jefferson Smurfit Group plc ("JSG") and Chairman of the Board of JSC)
o Roger W. Stone (Chairman of the Board, President and Chief Executive
Officer of Stone)
o Ray M. Curran (Finance Director of JSG)
o Dermot F. Smurfit (Joint Deputy Chairman of JSG)
o Richard W. Graham (President and Chief Executive Officer of JSC)
o James J. O'Connor (former Chairman and Chief Executive Officer of Unicom
Corporation)
o Thomas A. Reynolds, III (Partner of Winston & Strawn)
o Matthew S. Kaplan (Senior Vice President of Stone North American
Operations)
o Dionisio Garza (Chairman of the Board and Chief Executive Officer of
Alfa, S.A. de C.V.)
o Richard A. Giesen (Chairman of the Board and Chief Executive Officer of
Continental Glass & Plastic, Inc.)
o Jerry K. Pearlman (retired Chairman of the Board and Chief Executive
Officer of Zenith Electronics Corporation)
o Alan E. Goldberg (Vice Chairman of MSLEF)
If we complete the merger, the following persons will be executive officers
of SSCC:
o Dr. Smurfit will chair the Board of Directors.
o Mr. Stone will serve as President and Chief Executive Officer.
o Mr. Curran will serve as Executive Vice President-Deputy Chief Executive
Officer.
o Patrick J. Moore will serve as Vice President and Chief Financial
Officer.
The JSC bylaws will be amended at the effective time of the merger to
provide that the JSC Board will include the Chairman, the Chief Executive
Officer and the Executive Vice President-Deputy Chief Executive Officer and to
reflect that the JSC Board will also include 4 SIBV designees, 4 Stone designees
and one MSLEF designee. The JSC bylaw provisions relating to this Board
composition generally will survive until the earlier of the date on which Mr.
Stone ceases to be Chief Executive Officer or upon his 66th birthday in the year
2001. Please also refer to pages 84 through 97 for more information concerning
these governance arrangements.
CONDITIONS TO THE MERGER (SEE PAGE 68)
We will complete the merger only if certain conditions are satisfied or (in
some cases) waived, including the following:
o the merger proposals having been approved by the common stockholders of
JSC and Stone;
o there being no law or court order that prohibits the merger;
o the stock purchase described below under "Stock Purchase Agreement"
being consummated simultaneously with the merger; and
o receipt of an opinion of Stone's counsel that the merger will be
tax-free to Stone and its common stockholders.
Certain of the conditions to the merger, but not the first two conditions
listed above, may be waived by the company entitled to assert the condition. The
third condition listed above may only be waived by JSC and Stone with the
consent of JSG and MSLEF.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 69)
The Board of Directors of both our companies can jointly agree to terminate
the merger agreement at any time without completing the merger. Either company
can terminate the merger agreement if:
o the merger is not completed by December 31, 1998;
o the stockholders of either company fail to give the required stockholder
approval of such company's merger proposal;
o a law or court order permanently prohibits the merger;
o the other party breaches any of the representations or warranties it
made or fails to comply with any of its obligations under the merger
agreement, resulting in its inability to satisfy a condition to the
completion of the merger by December 31, 1998;
o a third party or group acquires ownership of a majority of the other
party's common shares;
o the other party's Board does not recommend or modifies in a manner
materially adverse to the company seeking to terminate the merger
agreement its recommendation of its merger proposal to its stockholders;
o the other party materially and knowingly breaches the covenant
restricting its ability to negotiate with a third party concerning an
alternative transaction; or
o either company's Board recommends a takeover proposal made by a third
party after determining that such proposal is superior to the merger;
provided that such company's Board cannot terminate the merger agreement
under such circumstance until 45 days after execution of the merger
agreement, but not later than the date that is the later of (x) 120 days
after execution of the merger agreement and (y) the date on which such
company's stockholder approval is received; provided, further, that the
company seeking to accept the superior proposal must give the other
company five business days to match the third party's offer before it
can terminate the merger agreement.
TERMINATION FEES AND EXPENSES (SEE PAGE 71)
Stone must pay JSC a termination fee of $50 million in cash if the merger
agreement is terminated because a third party or group has acquired a majority
of the outstanding Stone common shares, the Stone Board has not recommended or
has modified in a manner materially adverse to JSC its recommendation of the
Stone merger proposal, Stone has materially and knowingly breached the covenant
restricting its ability to negotiate with a third party concerning an
alternative transaction or the Stone Board has recommended a superior proposal.
Stone must also pay JSC a termination fee of $50 million in cash if its
stockholders reject the Stone merger proposal after a third party has made a
takeover proposal to Stone, except that if Stone did not exercise any of its
rights to share information or negotiate with the third party, such fee will not
be payable unless within nine months of the termination of the merger agreement
Stone consummates a takeover transaction or a third party becomes the beneficial
owner of a majority of Stone's common stock.
JSC must pay Stone a termination fee of $50 million in cash if the merger
agreement is terminated because a third party or group has acquired a majority
of the outstanding JSC common shares, the JSC Board has not recommended or has
modified in a manner materially adverse to Stone its recommendation of the JSC
merger proposal, JSC has materially and knowingly breached the covenant
restricting its ability to negotiate with a third party concerning an
alternative transaction or the JSC Board has recommended a superior proposal.
JSC must also pay Stone a termination fee of $50 million in cash if its
stockholders reject the JSC merger proposal after a third party has made a
takeover proposal to JSC, except that if JSC did not exercise any of its rights
to share information or negotiate with the third party, such fee will not be
payable unless within nine months of the termination of the merger agreement JSC
consummates a takeover transaction or a third party becomes the
beneficial owner of a majority of JSC's common stock.
AMENDMENTS TO THE JSC CERTIFICATE OF INCORPORATION AND BYLAWS (SEE PAGE 82)
The merger agreement provides that, in connection with the merger, JSC will
amend and restate its certificate of incorporation to, among other things:
o increase its authorized capital stock;
o provide that its entire Board will be elected annually;
o permit holders of 25% of its voting stock to call special meetings;
o provide for the delivery of shares of SSCC common stock upon the
conversion of Stone's Series E preferred stock; and
o require that any amendment by stockholders to the bylaw provisions
described immediately below will require the approval of the holders of
75% of its outstanding voting stock; and
amend and restate its bylaws to, among other things:
o implement certain governance arrangements relating to Board composition,
Board and other committees, management and certain other related
matters.
JSC's proposed form of Restated Certificate of Incorporation is attached as
Annex B and its proposed form of Amended and Restated Bylaws is attached as
Annex C.
Please also refer to pages 82 through 94 for more information concerning
these amendments.
The JSC Board has the power to adopt the proposed bylaws (assuming the JSC
merger proposal is approved by the JSC stockholders).
AMENDMENTS TO THE STONE RESTATED CERTIFICATE OF INCORPORATION (SEE PAGE 75)
The merger agreement provides that, prior to the merger, Stone will amend
its restated certificate of incorporation to provide holders of its Series E
preferred stock with voting rights with respect to Stone (which will survive the
merger as a subsidiary of JSC). A copy of such amendment is attached as Annex
D-1. This amendment, which is designed to ensure the tax-free treatment of the
merger to the Stone stockholders, requires the approval of Stone common
stockholders and is part of Stone's merger proposal. Unless each of the
conditions to the merger is satisfied or waived, this amendment will not be
effected. The merger agreement also provides that Stone's restated certificate
of incorporation, which will be the certificate of incorporation of the
surviving corporation in the merger, will be further amended to provide that
each share of Series E preferred stock will be convertible into the number of
shares of JSC common stock that its holder would have received in the merger had
such holder converted such share of Series E preferred stock immediately prior
to the closing of the merger. A copy of this amendment is attached as Annex D-2.
This amendment is to be effected as a term of the merger and will be approved if
Stone common stockholders approve and adopt the merger agreement and the merger.
STOCK PURCHASE AGREEMENT (SEE PAGE 72)
It is a condition to the closing of the merger that SIBV purchase from
MSLEF and certain other JSC stockholders 20,000,000 shares of JSC common stock.
The stock purchase is subject to several conditions (in addition to the closing
of the merger), including, without limitation, the absence of any law or court
order prohibiting the closing of the stock purchase. JSG, SIBV's parent, has
guaranteed SIBV's obligation to pay for the JSC common shares at the closing.
REGULATORY APPROVALS (SEE PAGE 29)
All material regulatory approvals required to permit consummation of the
merger have already been obtained from the applicable U.S. and foreign
regulatory authorities. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act expired on July 2, 1998.
STANDSTILL AGREEMENT (SEE PAGE 73)
As a result of the merger and stock purchase described above, SIBV and
MSLEF will beneficially own approximately 33% and approximately 7%,
respectively, of the outstanding shares of SSCC common stock. As a condition and
inducement to Stone's willingness to enter into the merger agreement, SIBV, JSG
and MSLEF have entered into a standstill agreement with JSC under which JSG and
SIBV have agreed not to directly or indirectly acquire more than 40% of
SSCC's outstanding common shares, subject to certain exceptions, and MSLEF
has agreed not to acquire any additional SSCC common shares, in each case
until the fifth anniversary of the closing of the merger.
The standstill agreement also prohibits JSG, for specified periods of time,
from directly or indirectly soliciting proxies to vote SSCC securities, seeking
to place a representative on the SSCC Board (except as otherwise contemplated by
the merger agreement and the amended bylaws) or to remove any member of the SSCC
Board, making any statement or proposal (except in certain circumstances) with
regard to an acquisition or business combination involving SSCC or taking other
specified actions designed to influence the SSCC Board or control SSCC.
The standstill restrictions are suspended if SSCC enters into a written
agreement concerning an acquisition proposal or if a third party commences a
tender or exchange offer that would result in such third party owning more than
30% of SSCC's voting securities and are terminated if an acquisition proposal is
consummated or if a third party becomes the beneficial owner of more than 15% of
SSCC's voting securities, subject to certain exceptions.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE 42)
In deciding to approve the merger, our Boards considered opinions from our
respective financial advisors as to the fairness of the exchange ratio from a
financial point of view. JSC received an opinion from Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Stone received an opinion from Salomon Smith
Barney Inc. These opinions are attached as Annexes E and F to this Joint Proxy
Statement/Prospectus. We encourage you to read and consider these opinions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 28)
We have structured the merger so that neither JSC, Stone, common
stockholders of Stone or JSC nor Series E preferred stockholders of Stone will
recognize any gain or loss for federal income tax purposes as a result of the
merger (except for taxes payable on cash received by Stone common stockholders
for fractional shares).
As a result of the merger, however, holders of Stone Series E preferred
stock, which pursuant to the terms of the merger agreement and as required by
the Stone restated certificate of incorporation will become convertible into
shares of JSC common stock upon consummation of the merger, will recognize gain
or loss upon conversion of their shares of Stone Series E preferred stock into
shares of JSC common stock following consummation of the Merger. Presently,
holders of Stone Series E preferred stock recognize gain or loss only upon the
sale of the shares of Stone common stock received by them upon conversion of
their shares of Stone Series E preferred stock.
It is a condition to closing that Stone receive an opinion of counsel that
the merger will be tax-free to Stone and its common stockholders. Stone does not
currently intend to waive this condition. In the event that Stone waives this
condition because the merger is likely to be a taxable transaction, Stone would
recirculate this Joint Proxy Statement/Prospectus to disclose the waiver of this
condition and all related material disclosures, including the risks to Stone's
common stockholders resulting from the waiver, and would resolicit proxies from
Stone's common stockholders.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU ARE URGED TO CONSULT
YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
ACCOUNTING TREATMENT (SEE PAGE 28)
The merger will be accounted for by JSC as a purchase of a business. Under
this method of accounting, the assets and liabilities of Stone will be recorded
at their fair value, and any excess of JSC's purchase price over such fair value
will be recorded as goodwill. The revenues and expenses of Stone will be
included in JSC's financial statements from the date of consummation of the
merger.
NO APPRAISAL RIGHTS (SEE PAGE 31)
Both of our companies are organized under Delaware law. Under Delaware law,
JSC and Stone stockholders have no right to an appraisal of the value of their
shares in connection with the merger.
LISTING OR QUOTATION OF JSC COMMON STOCK
It is a condition to the closing of the merger that the shares of JSC
common stock to be issued to Stone common stockholders in the merger be approved
for listing on the New York Stock Exchange or approved for quotation on The
Nasdaq National Market. JSC expects that such shares will be quoted on The
Nasdaq National Market.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION (SEE PAGE 32)
JSC common stock is quoted on The Nasdaq National Market, and Stone common
stock is listed on the New York Stock Exchange. On May 8, 1998, the last full
trading day prior to the public announcement of the proposed merger, JSC common
stock closed at $20.50 and Stone common stock closed at $18.00. On October 6,
1998, the most recent practicable date prior to the filing of this Joint Proxy
Statement/Prospectus, JSC common stock closed at $8.63 and Stone common stock
closed at $11.63.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 20)
This document contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, about
JSC, Stone and the combined company. Although we believe that, in making any
such statements, our expectations are based on reasonable assumptions, any such
statement may be influenced by factors that could cause actual outcomes and
results to be materially different from those projected. When used in this
document, the words "anticipates," "believes," "expects," "intends," and similar
expressions as they relate to JSC, Stone or the combined company or our
respective managements are intended to identify such forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties. Important factors that could cause actual results to differ
materially from those in forward-looking statements, certain of which are beyond
the control of JSC, Stone or the combined company, include: the impact of
general economic conditions in the U.S. and Canada and in other countries in
which we currently do business (including Asia, Europe and Latin and South
America); industry conditions, including competition and product and raw
material prices; fluctuations in exchange rates and currency values; capital
expenditures requirements; legislative or regulatory requirements, particularly
concerning environmental matters; interest rates; access to capital markets; the
timing of and value received in connection with asset divestitures; and
obtaining required approvals, if any, of debtholders. The actual results,
performance or achievement by JSC, Stone or the combined company could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if any
of them do so, what impact they will have on the results of operations and
financial condition of JSC, Stone or the combined company.
RISK FACTORS
Stockholders of Stone should consider the following matters in considering
whether to vote in favor of the proposal to (x) approve and adopt the Agreement
and Plan of Merger dated as of May 10, 1998, as amended (the "Merger
Agreement"), among JSC, Stone, and JSC Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of JSC ("Sub"), a copy of which is
attached hereto as Annex A, pursuant to which Sub will be merged with and into
Stone (the "Merger"), with Stone surviving the Merger as a subsidiary of JSC,
and the Merger and (y) amend the Stone restated certificate of incorporation as
contemplated by the Merger Agreement. Stockholders of JSC should consider the
following matters in considering whether to vote in favor of the proposal to
issue shares of common stock, par value $0.01 per share, of JSC (the "JSC Common
Stock") in the Merger and amend the JSC restated certificate of incorporation as
contemplated by the Merger Agreement. These matters should be considered in
conjunction with the other information included or incorporated by reference in
this Joint Proxy Statement/Prospectus. JSC Common Stock following the Merger is
sometimes referred to herein as "SSCC Common Stock."
FIXED MERGER CONSIDERATION DESPITE POTENTIAL CHANGES IN STOCK PRICES
Each share of common stock, par value $0.01 per share, of Stone (the "Stone
Common Stock") (other than shares owned by JSC or any of its wholly owned
subsidiaries or held in the treasury of Stone), together with each preferred
stock purchase right associated therewith, will be converted at such time (the
"Effective Time") as a certificate of merger (the "Certificate of Merger") is
duly filed with the Delaware Secretary of State (or such subsequent time as is
specified in the Certificate of Merger) into 0.99 of a share (the "Exchange
Ratio") of JSC Common Stock (with cash being paid in lieu of any fractional
shares of JSC Common Stock that would otherwise be issuable). The Exchange Ratio
is a fixed number and will not be adjusted in the event of any increases or
decreases in the price of either JSC Common Stock or Stone Common Stock.
Accordingly, holders of Stone Common Stock will not be able to determine the
value of the JSC Common Stock they would receive in the Merger at the time they
vote on the Merger and holders of JSC Common Stock will not be able to determine
the value of the JSC Common Stock to be issued to the holders of Stone Common
Stock. In addition, neither party will have the right to terminate the Merger
Agreement or elect not to consummate the Merger as a result of changes in the
market prices of either company's common stock. The prices of JSC Common Stock
and Stone Common Stock at the Effective Time may vary from their respective
prices at the date of this Joint Proxy Statement/Prospectus and at the date of
the JSC Special Meeting of Stockholders and the Stone Special Meeting of
Stockholders, each to be held on November 17, 1998 (the "JSC Meeting" and the
"Stone Meeting," respectively, and, together, the "Meetings"). Such variations
may be the result of changes in the business, operations or prospects of JSC or
Stone, market assessments of the likelihood that the Merger will be consummated,
the timing thereof and the prospects of the Merger and post-Merger 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 Meetings occur, there can be no assurance that the prices of JSC
Common Stock and Stone Common Stock on the date of the Meetings will be
indicative of their respective prices at the Effective Time. JSC and Stone
stockholders are urged to obtain current market quotations for JSC Common Stock
and Stone Common Stock. See "Certain Provisions of the Merger--Agreement
Consideration to be Received in the Merger."
RISKS RELATING TO INTEGRATION OF OPERATIONS; REALIZATION OF SYNERGIES
The Merger involves the integration of two companies that have previously
operated independently. Stone and JSC expect to realize significant cost savings
and other synergies from the Merger, but there can be no assurance regarding
when or the extent to which these will be achieved or the costs associated
therewith. There are numerous systems that must be integrated, including
management information, purchasing, accounting and finance, sales, billing,
payroll and regulatory compliance. Stone has maintained separate systems at the
entities it has acquired in recent years, which will make integration more
difficult. JSC and Stone do not expect to have completed their systems
integration before the end of 1999. In addition, customer retention may be more
difficult after the Merger. Difficulties associated with integrating JSC
and Stone could have a material adverse effect on SSCC and the value of its
common stock.
RISKS RELATING TO REALIZATION OF PROCEEDS FROM PROPOSED DIVESTITURES; ABILITY TO
REDUCE DEBT
JSC and Stone have announced a divestiture program to narrow SSCC's product
focus through divestiture of certain non-core businesses and assets. The net
proceeds of the divestiture program will be used to reduce indebtedness. The
assets to be sold are in cyclical industries, and an industry downturn would
reduce the value of those assets. An inability to sell the assets or to sell the
assets at the anticipated prices would mean that SSCC would be more highly
leveraged than is currently expected, and would not reduce its interest expense
to the levels it currently anticipates. An inability to sell the assets would
also mean that SSCC would continue to own and operate non-core businesses and
assets.
SUBSTANTIAL LEVERAGE
Each of JSC and Stone currently has a highly leveraged capital structure.
As of June 30, 1998, JSC and Stone had approximately $2.1 billion and $4.5
billion of outstanding indebtedness, respectively, and JSC intends to incur
additional indebtedness in connection with the Merger as described in
"--Ability to Service Debt; Liquidity" below. The level of SSCC's indebtedness
could have important consequences for SSCC and its stockholders, including the
following: (i) SSCC may be required to seek additional sources of capital,
including additional borrowings under the existing credit agreements of JSC and
Stone, other private or public debt or equity financings to service or refinance
its indebtedness, none of which may be available on favorable terms, (ii) a
substantial portion of SSCC'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 use in SSCC's business, (iii) SSCC'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) SSCC will be more highly leveraged
than some of its competitors, which may place it at a competitive disadvantage.
In addition, borrowings under JSC's and Stone's credit agreements will be at
variable rates of interest, which will expose SSCC to the risk of increased
interest rates.
ABILITY TO SERVICE DEBT; LIQUIDITY
Stone's income (loss) before interest expense and income taxes was
insufficient to cover interest expense for the six months ended June 30, 1998
and for the year ended December 31, 1997 by $296.8 million and $618.5 million,
respectively, and it is expected to continue to be insufficient through at least
the remainder of 1998. As of September 30, 1998, JSC and Stone, respectively,
have scheduled principal payments for existing indebtedness (exclusive of
non-recourse debt of affiliates of Stone) of approximately $2 million and $247
million in the fourth quarter of 1998, approximately $36 million and $747
million in 1999, approximately $62 million and $472 million in 2000, and
approximately $2 billion and $3.1 billion thereafter.
In connection with the Merger and pursuant to an executed commitment
letter, JSC intends to amend its existing credit agreement to borrow $550
million (the "Amended JSC Credit Agreement"), $300 million of which will be
provided to Stone. There can be no assurance that the Amended JSC Credit
Agreement, which is subject to the execution of definitive documentation and the
satisfaction of other conditions including the absence of any material adverse
change at JSC or Stone and their respective subsidiaries and the absence of any
material adverse change or condition in the loan or other financial markets that
would have a material adverse effect on the syndication of the Amended JSC
Credit Agreement, will become effective, that the terms thereof will be
satisfactory to JSC or that all of the conditions to borrowing thereunder will
be met. If the Amended JSC Credit Agreement does not become effective, there can
be no assurance as to the extent to which any alternative financings would be
available, and the terms of any such alternatives. It is expected that the funds
from the Amended JSC Credit Agreement, proceeds of any divestitures and funds
generated from operations will satisfy Stone's short term liquidity needs,
including scheduled payments of principal and interest and anticipated
capital expenditure and working capital requirements. Stone does not
expect such sources of funds to be sufficient to satisfy its long term
liquidity needs and will need to obtain additional debt or equity
financing. There can be no assurance as to the availability or terms of
any such financing.
The ability of SSCC 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 SSCC and
its subsidiaries, which will be subject to financial, business and other factors
affecting them. Many of these factors will be beyond SSCC'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 containerboard industry generally or to specific competitors.
In the event that net proceeds from borrowings or other financing sources
(including the borrowings anticipated under the Amended JSC Credit Agreement
described above) and from any divestitures and operating cash flows do not
provide sufficient liquidity for SSCC and its subsidiaries (including Stone) to
meet their operating and debt service requirements, SSCC 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 SSCC and its subsidiaries
(including Stone) to operate its business and service its obligations. If JSC or
Stone is not able to generate sufficient cash flow or otherwise obtain funds
necessary to make required debt payments, or if JSC or Stone fails to comply
with the various covenants in their respective 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 could cause defaults under
other indebtedness of JSC and Stone, as the case may be.
Stone and JSC will need to obtain amendments and waivers under their
respective credit agreements in order to waive change-of-control events of
default currently contained in such credit agreements that would occur upon the
consummation of the Merger and which would permit the acceleration of the
indebtedness of Stone and JSC, respectively. Both Stone and JSC are currently
seeking such amendments and waivers from their respective bank lenders and
believe that such amendments and waivers will be available prior to the Merger,
although no assurances can be given that such amendments and waivers will be
available or that they will be available on terms acceptable to Stone and JSC.
Furthermore, Stone intends to obtain amendments under its credit agreement in
order to extend the maturity of the revolving portion of its credit agreement
(the aggregate commitment amount of $560 million) beyond its currently scheduled
maturity of May 1999 and the scheduled repayment of a portion of its term loan
facility (the aggregate amount of $190 million) beyond its currently scheduled
repayment date of October 1999. The availability of borrowings under the Amended
JSC Credit Agreement described above may be conditioned upon Stone obtaining
some or all of such amendments. Stone is actively seeking such amendments but no
assurances can be given whether such amendments would be available or as to the
terms of such amendments. If such amendments are not obtained, the relevant
portion of Stone's indebtedness will be payable as currently scheduled and, in
such event, Stone will not have sufficient funds to satisfy its short-term
liquidity needs and will need to obtain additional debt or equity financing.
There can be no assurance as to the availability or terms of any such
financings.
The Merger will constitute a "Change of Control" under Stone's $1.85
billion outstanding senior notes and $639 million outstanding subordinated
notes. As a result thereof, Stone will be required to offer to repurchase the
subordinated notes at a price equal to 101% of the principal amount thereof
(together with accrued but unpaid interest thereon), subject to the condition
precedent that Stone has first either repaid its outstanding bank debt or
obtained the consent of its bank lenders to make such repurchase. In the case of
the senior notes, Stone will be required to make a similar offer to repurchase
the senior notes at a price equal to 101% of the principal amount thereof
(together with accrued but unpaid interest thereon) unless such a repurchase
would constitute an event of default under Stone's outstanding bank debt and
Stone has neither repaid its bank debt nor obtained the consent of its bank
lenders to such repurchase. A repurchase of the senior notes or of the
subordinated notes will be prohibited by the terms of Stone's bank debt.
Although the terms of the 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 such bank debt or alternative financing
arrangements which would cause the bank lenders to consent to the repurchase of
the senior or the subordinated notes. There can be no assurance that Stone will
be successful in obtaining such financing or consents or as to the terms of any
such financing or consents. If Stone is unsuccessful in repaying its bank debt
or obtaining the requisite consents from the lenders thereunder, the holders of
its notes may assert that the failure to do so after some period of time
constitutes a default thereunder. Certain of the notes have recently been
trading at a price below 101% of the principal amount thereof, and there can be
no assurance that such notes will not continue to trade at a price below 101% of
the principal amount thereof at the consummation of the Merger.
INDUSTRY CONDITIONS; CYCLICALITY
JSC's and Stone's operating results reflect the general cyclical pattern of
the industry. The vast majority of JSC's and Stone's products are commodities,
resulting in extreme price competition. The industry in which JSC and Stone
compete has had substantial over-capacity for several years. 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.
This has caused substantial price competition and volatility and caused Stone to
generate net losses for most of this decade. In the event of a recession, demand
and prices are likely to drop substantially.
The sales and profitability of JSC and Stone have historically been more
sensitive to price changes than changes in volume. Future decreases in price for
JSC's and Stone's products would adversely affect their operating results. These
factors, coupled with SSCC's highly leveraged financial position, may adversely
impact SSCC's ability to respond to competition and to other market conditions
or to otherwise take advantage of business opportunities.
RESTRICTIVE COVENANTS; LIMITED ABILITY TO INCUR INDEBTEDNESS
JSC's and Stone's ability to incur additional indebtedness, and in certain
cases, refinance outstanding indebtedness, is significantly limited or
restricted under the agreements relating to JSC's and Stone's existing
indebtedness, in particular their debt indentures and credit agreements. The
indentures and agreements contain covenants that restrict, among other things,
their ability 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, JSC and Stone will be
limited in their ability to move capital freely within SSCC and its
subsidiaries. The limitations contained in such agreements, together with the
highly leveraged capital structure of SSCC and its subsidiaries, could limit the
ability of SSCC and its subsidiaries to effect future debt or equity financings
and may otherwise restrict their corporate activities, including their ability
to avoid defaults, to provide for capital expenditures, to take advantage of
business opportunities or to respond to advantageous market conditions.
At September 30, 1998, Stone had borrowing availability under its revolving
credit facilities of approximately $117 million. Except for 1995, Stone has
recorded net losses annually since 1992. Stone has recorded net losses of $225.7
million, $417.7 million, $126.2 million, $204.6 million, $358.7 million and
$269.4 million for the first half of 1998, and for the years 1997, 1996, 1994,
1993 and 1992, respectively. Unless Stone achieves significant price increases
and sustains such levels in the future, Stone will continue to incur net losses
and a deficit in net cash provided by operating activities. Without additional
cash generated by operations or funds from SSCC, Stone may exhaust all or
substantially all of its cash resources and borrowing availability under its
revolving credit facilities. On March 26, June 5 and July 31, 1998, Stone sought
and obtained amendments to certain indebtedness ratio and interest coverage
ratio requirements under its credit agreement, which Stone anticipated it might
not have been able to comply with. Stone may need to obtain similar amendments
or waivers in the future. There can be no assurance, however, that such
amendments will be obtained and in the future such lenders will, if requested,
grant such relief for failure to comply with the ratios or other covenants in
Stone's credit agreement.
In addition, Stone was unable to maintain the minimum subordinated capital
base required under its indentures governing its approximately $1.85 billion of
outstanding senior notes. Accordingly, in April 1998 Stone offered to repurchase
10% of each series of the senior notes with the consent of the lenders under its
credit agreement. If, in the future, Stone continues to be unable to maintain
the minimum subordinated capital base required, and the lenders do not permit
such offer to repurchase to be made, the interest rate on its senior notes would
increase by 50 basis points per quarter up to a maximum of 200 basis points
until the minimum subordinated capital base is again attained. Beginning on the
first interest payment date after July 1, 1998, the interest rates on each
series of Stone's approximately $594 million aggregate outstanding senior
subordinated notes has increased by 50 basis points due to Stone's inability to
maintain a certain net worth as required under the applicable indentures. The
interest rates will continue to increase by 50 basis points on each succeeding
interest payment date up to a maximum of 200 basis points until Stone is able to
obtain the required net worth.
INFLUENCE OF SIGNIFICANT STOCKHOLDER
Upon consummation of the Merger, Smurfit International B.V. ("SIBV") will,
by reason of its direct and indirect ownership of shares of SSCC Common Stock,
have a significant effect on the outcome of the vote on all matters submitted to
a vote of holders of SSCC 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 SSCC, even if such events might be
favorable to SSCC or its stockholders.
EFFECT OF ASIAN ECONOMIC WEAKNESS
Recently, several countries in Asia have experienced a severe economic
crisis, which includes a significant devaluation of their currencies and general
financial difficulties. This crisis is affecting and will continue to negatively
affect the demand for, and prices of, JSC's and Stone's products. In particular,
Asian demand for paper and pulp products has declined as a result of weak
economic conditions and financial market turmoil, leading to downward pricing
pressures and a reduction of consumption in the region. In addition, producers
for the Asian markets have redirected their production to other markets, thereby
creating a downward pressure on prices elsewhere.
Weak market conditions in Asia may continue to have an adverse effect on
the level of worldwide demand for JSC's and Stone's products as producers for
the Asian markets may continue to redirect their tonnage to other regions.
Significant future weakness in Asian markets could further erode world-wide
pricing for JSC's and Stone's products, thereby adversely affecting their (and,
after the Merger, SSCC's) results of operations. In addition, Asian producers
may use their depreciated currencies to increase exports. Any significant
destabilization of one or more major Asian trading currencies could further
erode prices for commodity-grade products such as those produced by JSC and
Stone.
COMPETITION
The paperboard and packaging products industries are highly competitive,
and no single company is dominant. JSC's and Stone'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 JSC and Stone compete are particularly sensitive to price
fluctuations as well as other factors including innovation, price, design,
quality and service, with varying emphasis on these factors depending on the
product line. To the extent that one or more of JSC's and Stone's competitors
become more successful with respect to any key competitive factor, JSC's and
Stone's businesses could be materially, adversely affected. The market for
newsprint, folding cartons and market pulp are also highly competitive. Many of
JSC's and Stone's competitors are less leveraged and have financial and other
resources greater than those of JSC and Stone and are able to better withstand
the adverse nature of the business cycle.
No assurance can be given that SSCC will be able to maintain all or a
substantial majority of the sales volume to JSC's and Stone'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 JSC's and Stones 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 JSC and Stone has
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 will likely continue to cause, higher wood
fiber costs in some of the regions in which JSC and Stone procure wood. In
addition, the increase in demand of products manufactured, in whole or in part,
from recycled fiber has from time to time caused a tightness in 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 JSC and Stone have not experienced any significant
difficulty in obtaining wood fiber and recycled fiber in economic proximity to
its mills, there can be no assurance that this will continue to be the case for
any or all of their mills.
ENVIRONMENTAL MATTERS
Federal, state, foreign and local environmental requirements, particularly
relating to air and water quality, are a significant factor in JSC's and Stone's
businesses. JSC and Stone in the past have had, and SSCC in the future may face,
environmental liability for the costs of remediating soil or groundwater that is
or was contaminated by JSC or Stone or by a third party at various sites which
are now or were previously owned or operated by JSC or Stone. There may also be
similar liability at sites with respect to which either JSC or Stone 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. JSC and Stone 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. JSC and Stone
have in the past made significant expenditures to comply with environmental
regulations and expect to make significant expenditures in the future. JSC and
Stone have taken 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 SSCC's financial condition. In addition,
JSC and Stone are each 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, JSC estimates
that it may require the incurrence of approximately $140 million in capital
expenditures over the next three to five years and Stone estimates capital
expenditures of approximately $180 million during the period 1998 through 2005
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 SSCC's financial condition in the future.
FOREIGN CURRENCY/EXCHANGE RATE FLUCTUATION RISKS
Neither JSC nor Stone currently engages in, nor does SSCC currently
anticipate engaging in, hedging or other transactions intended to manage foreign
currency exchange risks. In the past, Stone has reported foreign exchange
transaction losses. See "Management Discussion and Analysis of Financial
Condition and Results of Operations." JSC has no material foreign operations,
but does have export sales that are denominated principally in U.S. dollars.
Stone has significant foreign operations and had export sales of approximately
$548 million in 1997, denominated principally in U.S. dollars. For Stone, prior
to the Merger, and, SSCC, after the Merger, the functional currency for the
majority of its foreign operations is the applicable local currency, other
than for foreign 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,
Stone's, and SSCC's after the Merger, 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, Stone
consolidates (under equity accounting) its proportionate share of the
foreign currency transaction gains or losses of Abitibi-Consolidated Inc.
("Abitibi"), a Canadian corporation which does have substantial sales in
U.S. dollars and significant exposure under foreign exchange forward
contracts hedging Abitibi's future U.S. dollar revenues. In addition,
Stone and JSC 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 Stone's and JSC's
products to be less cost competitive.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of JSC's and Stone's
computer programs that use two digits rather than four digits to specify the
year will be unable to interpret dates beyond the year 1999. This problem could
result in a system failure or miscalculations causing disruptions of operations.
The three major areas that could be critically affected are financial and
information system applications, manufacturing operations and third-party
relationships with vendors and with customers. Each of JSC and Stone has
developed plans to address this exposure. Financial and operational systems and
manufacturing equipment have been assessed, detailed plans have been and
continue to be developed and conversion efforts have commenced. Although no
assurance can be given, JSC and Stone believe that their internal systems are
Year 2000 compliant or will be upgraded or replaced in connection with
previously planned changes to information systems prior to the need to comply
with Year 2000 requirements. JSC and Stone are also communicating with critical
suppliers to ascertain whether they are addressing potential Year 2000 issues.
The failure of suppliers (including raw material suppliers, freight and
transportation companies and utilities) or customers to achieve Year 2000
compliance could materially and adversely affect JSC's and Stone's results of
operations before the Merger, and SSCC's results of operations after the Merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
The information herein contains certain forward-looking statements within
the meaning of Section 21E of the Exchange Act about JSC, Stone, their
subsidiaries and affiliates and SSCC. Although JSC believes that, in making any
such statements, its expectations are based on reasonable assumptions, any such
statement may be influenced by factors that could cause actual outcomes and
results to be materially different from those projected. When used in this Joint
Proxy Statement/Prospectus, the words "anticipates," "believes," "expects,"
"intends," and similar expressions as they relate to JSC, Stone, their
subsidiaries, affiliates or SSCC or their respective managements are intended to
identify such forward-looking statements. These forward-looking statements are
subject to numerous risks and uncertainties. Important factors that could cause
actual results to differ materially from those in forward-looking statements,
certain of which are beyond the control of JSC, Stone or their subsidiaries,
affiliates or SSCC, include: the impact of general economic conditions in the
U.S. and Canada and in other countries in which JSC, Stone, their subsidiaries,
affiliates or SSCC currently do business (including Asia, Europe and Latin and
South America); industry conditions, including competition and product and raw
material prices; fluctuations in exchange rates and currency values; capital
expenditures requirements; legislative or regulatory requirements, particularly
concerning environmental matters; interest rates; access to capital markets; the
timing of and value received in connection with asset divestitures; and
obtaining required approvals of debtholders. The actual results, performance or
achievement by JSC, Stone, their subsidiaries, affiliates or SSCC could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if any
of them do so, what impact they will have on the results of operations and
financial condition of JSC, Stone, their subsidiaries, affiliates or SSCC.
THE MERGER
GENERAL
We are furnishing this Joint Proxy Statement/Prospectus to stockholders of
JSC and Stone in connection with the solicitation of proxies by the respective
Boards of Directors of JSC and Stone for use at their respective Meetings and at
any adjournments and postponements thereof. At the JSC Meeting, holders of JSC
Common Stock will be asked to vote upon the proposal (the "JSC Proposal") to
approve the issuance of shares of JSC Common Stock to Stone common stockholders
in the Merger and the amendment of the JSC certificate of incorporation as
contemplated by the Merger Agreement. At the Stone Meeting, holders of Stone
Common Stock will be asked to vote upon the proposal (the "Stone Proposal") to
approve and adopt the Merger Agreement and the Merger and the amendments of the
Stone restated certificate of incorporation as contemplated by the Merger
Agreement. The JSC and Stone common stockholders are also being asked separately
to approve (the "SSCC Incentive Plan Proposal") the SSCC 1998 Long Term
Incentive Plan (the "Incentive Plan"). The reasons for adopting the Incentive
Plan are (i) to have sufficient authorized shares for future operation of an
equity based incentive plan by SSCC and (ii) to enable compensation payable or
arising under the Plan to be fully tax-deductible by SSCC under Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). Copies of the
Merger Agreement and the form of the JSC Restated Certificate of Incorporation,
which includes the proposed amendments (the "SSCC Charter"), are attached as
Annex A and B, respectively, and the forms of proposed amendments to the Stone
Restated Certificate of Incorporation to be effected (i) prior to the Merger is
attached as Annex D-1 and (ii) in the Merger is attached as Annex D-2. The
Merger Agreement also provides for the JSC bylaws to be amended at the time of
the Merger in the form attached hereto as Annex C (the "SSCC Bylaws").
BACKGROUND OF THE MERGER
In June 1997, Ray M. Curran, Finance Director of Jefferson Smurfit Group
plc ("JSG"), and Roger W. Stone, Chairman of the Board, President and Chief
Executive Officer of Stone, met in Chicago at the suggestion of Mr. Curran and,
after reviewing the complementary nature of JSC's and Stone's businesses, had a
brief preliminary discussion regarding the possibility of a merger between JSC
and Stone.
In July 1997, in anticipation of the meetings referred to in the next
paragraph, JSC, as well as JSG and MSLEF as affiliates of JSC, on the one hand,
and Stone, on the other hand, entered into confidentiality agreements containing
customary terms (including standstill provisions).
During July 1997, Patrick J. Moore, Vice President and Chief Financial
Officer of JSC, Alan E. Goldberg, on behalf of MSLEF, and Mr. Curran met with
Mr. Stone and Randolph C. Read, Stone's Chief Financial Officer, to explore at
greater length a possible transaction between JSC and Stone. During these
preliminary discussions, the above-mentioned representatives considered a
possible merger transaction involving JSC and Stone, as well as certain
alternative transactions, including a joint venture which would combine the
companies' unbleached paper businesses (containerboard, corrugated containers
and kraft paper) accompanied by spinoffs and/or sales of their newsprint and
market pulp businesses and possibly boxboard and folding cartons and a
combination of JSC and Stone followed by the issuance of several classes of
letter stock that would track the performance of certain of the combined
company's various businesses. The representatives also discussed the possibility
of an additional equity investment by JSG in any new company to provide the
company with future financial flexibility and to meet JSG's objective of
maintaining a significant equity ownership interest in any such new company. In
the course of considering alternatives to a full merger involving the two
companies, representatives of JSC indicated that for various business reasons,
including unfavorable tax effects and potential complexities in the managerial
and financing structure that would be introduced, they believed none of the
alternatives was viable and informed representatives of Stone of their
preference for a merger. This series of meetings concluded without the parties
reaching any agreement on the terms or the structure of a possible transaction.
On July 23, 1997, at a regular JSC Board meeting, the JSC directors
discussed the possibility of a transaction between JSC and Stone, and Michael
W.J. Smurfit, Chairman of JSC, reported on his meeting with Mr. Stone
that had occurred on July 21, 1997 and on the discussions to date with
Stone. The JSC Board agreed that Dr. Smurfit would contact Mr. Stone and
confirm to him JSC's belief that none of the alternatives to a merger of
the companies was viable but that JSC remained prepared to explore the
possibility of a merger.
From September through December 1997, there were contacts between Dr.
Smurfit, Mr. Moore, Mr. Curran, Mr. Goldberg, Mr. Stone, Mr. Read, and the
respective financial advisors of JSC, JSG, Stone and MSLEF designed to determine
whether there was a mutually acceptable merger structure. During this period,
the above-mentioned representatives and advisors discussed a variety of
structural and economic terms which were not reflected in the transaction
ultimately negotiated, including certain Board composition and governance
provisions, a possible equity investment by JSG and possible exchange ratios
higher than 0.99 to 1.00. JSC and its affiliates and Stone were unable to reach
agreement on the terms or structure of this transaction (including any proposed
exchange ratios) during this period, and discussions between the parties were
discontinued near the end of December 1997. Also, during this period of
contacts, Stone announced on October 27, 1997 its intention to sell or monetize
certain non-core assets, primarily its 25.2% equity ownership interest in
Abitibi-Consolidated Inc. (a Canadian manufacturer of publication papers) and
its market pulp operations and to use the net proceeds from such divestitures to
repay indebtedness.
In March 1998, JSG's financial advisor, on behalf of JSC and JSG, contacted
Stone to determine if Stone had any interest in renewing discussions regarding a
possible business combination of JSC and Stone. Mr. Curran and Mr. Stone met on
April 9, 1998 in Chicago to determine whether there was any such basis for
recommencing discussions. At this meeting they reviewed their respective views
of the benefits and risks of a business combination of JSC and Stone. Mr. Curran
proposed a stock-for-stock merger involving JSC and Stone with a fixed exchange
ratio that would give Stone stockholders less than one share of JSC Common Stock
for each share of Stone Common Stock that they owned. He stated that any final
determination of an exchange ratio would require a due diligence review by both
companies. He also indicated that JSG would propose to purchase a portion of the
shares of JSC Common Stock held by MSLEF and certain other investors in
connection with any merger. Mr. Stone agreed that further discussion and
evaluation of a business combination would be desirable but informed Mr. Curran
of his belief that an appropriate exchange ratio would be close to one share of
Stone Common Stock for one share of JSC Common Stock.
During the next two weeks, Mr. Curran and Mr. Stone had various further
telephone conversations regarding the possible terms of a business combination
and advisors of both companies and their affiliates continued to analyze a
possible combination. At this time, Mr. Curran and Mr. Stone discussed certain
significant terms and conditions of such a combination, including, among others,
the appropriate exchange ratio, the structure of the merger transaction, and
certain governance matters. Also, from April 20 through 23, 1998, JSG and MSLEF
discussed and agreed on the principal terms of a sale by MSLEF and certain
related parties of approximately one-half of their shares of JSC Common Stock to
JSG.
On April 23, 1998, Mr. Curran and Mr. Moore met with Mr. Stone and
presented their views on the appropriate resolution of certain significant
business terms of a business combination, including the structure of the merger,
governance matters, arrangements to secure the vote of certain JSC and Stone
stockholders and post-transaction registration rights. In the course of these
discussions, Mr. Curran and Mr. Stone agreed that each could recommend an
exchange ratio of 0.99 of a share of JSC Common Stock for each share of Stone
Common Stock, subject to resolution of various other key issues and a
satisfactory due diligence review. On April 26, 1998, Dr. Smurfit and Mr. Curran
met with Mr. Stone in Ireland at which time they reviewed the principal terms of
a possible merger between JSC and Stone and the overall business rationales of
such a combination. They agreed at this time that the senior management teams
and financial advisors of JSC, JSG, MSLEF and Stone would continue their work
analyzing the proposed combination and attempting to work out the further terms
and conditions of such a transaction.
On April 27, 1998, JSC's legal advisors sent a draft merger agreement and
certain related documents to Stone's legal advisors.
On April 28, 1998, Stone and JSC publicly announced that the two companies
were engaged in discussions regarding a possible transaction. Since that date,
neither Stone nor its financial advisors have received any indications of
interest regarding an alternative business combination.
During the weeks of April 27 and May 4, senior JSC and Stone management
members and their financial, legal and accounting advisors undertook reciprocal
due diligence investigations and in that connection exchanged and discussed
certain business, personnel, legal and financial information relating to JSC and
Stone, which was reviewed by the respective functional areas of each
organization, and made visits to various facilities of the companies. Beginning
on April 29, 1998, members of management of both companies, together with their
respective financial advisors, officers of the general partner of MSLEF, Mr.
Curran and JSG's and MSLEF's respective financial advisors, held numerous
discussions to review and negotiate the proposed terms and conditions of a
merger agreement, and various other legal and financial issues, including, among
other things, the SSCC governance arrangements, the terms of a "standstill"
agreement among JSG, MSLEF and JSC, the terms and conditions of JSG's purchase
of shares of JSC Common Stock from MSLEF and certain other investors and certain
other matters relating to the merger with respect to JSG and MSLEF.
On May 3, 1998, the Stone Board met to consider the proposed business
combination. The Stone Board reviewed with its legal and financial advisors the
status of discussions, the business rationale for, and the possible financial
implications of, the proposed business combination, certain principal provisions
of the draft merger agreement and related agreements and various financial,
legal, accounting and other issues relating to the proposed business
combination, including the financial advisor's preliminary analyses regarding
the proposed Exchange Ratio.
On May 4 through May 6, 1998, Dr. Smurfit, Mr. Moore, Mr. Stone, Mr.
Matthew S. Kaplan, Senior Vice President of Stone, Mr. Curran and Mr. Goldberg
and the respective financial advisors of JSC, Stone, JSG and MSLEF continued to
discuss unresolved issues with respect to the transaction.
On May 7, 1998, the JSC Board met to review the proposed business
combination. In connection with this review, JSC's financial advisor, Merrill
Lynch, made a presentation to the JSC Board concerning the businesses of Stone
and the strategic rationale for, and the possible financial implications of, the
merger. Outside counsel reviewed certain legal matters including the principal
provisions of the draft merger agreement and other agreements. In the course of
its presentation, JSC's financial advisor delivered its preliminary analyses
regarding the proposed Exchange Ratio.
On May 8, 1998, Dr. Smurfit and Mr. Stone met again, accompanied by Mr.
Curran, Mr. Raymond G. Duffy, a retired senior executive of JSC and now a
consultant to JSC, and Mr. Kaplan. At this meeting there was a further review of
key issues relating to the merger, including the business strategies of the
post-transaction company.
On May 10, 1998, the Stone Board met again to consider further the proposed
business combination. The Stone Board reviewed with its legal and financial
advisors the principal final terms of the Merger Agreement and related
agreements and various financial, legal, accounting and other issues relating to
the proposed business combination. As part of such review, Salomon Smith Barney
orally delivered its opinion to the Stone Board (subsequently confirmed in
writing) to the effect that, as of such date, and based upon and subject to
certain qualifications and assumptions, the Exchange Ratio was fair, from a
financial point of view, to the holders of the Stone Common Stock. The Stone
Board then unanimously approved the Merger Agreement and the Merger.
Also on May 10, 1998, the JSC Board met again. The JSC Board received an
update from its outside legal advisors on the terms and conditions of the
proposed Merger as well as various related matters such as the Standstill
Agreement (as defined below), the Stock Purchase Agreement (as defined below)
and the actions required by the JSC Board to approve these matters. At this time
Merrill Lynch orally delivered its opinion (subsequently confirmed in writing)
to the JSC Board that, as of such date and based upon and subject to certain
qualifications and assumptions, the Exchange Ratio was fair from a financial
point of view to JSC. The JSC Proposal was then unanimously approved by the JSC
directors who are not affiliated (as defined by the rules of the New York Stock
Exchange) with any major JSC stockholder and who are not JSC employees and
unanimously approved by the entire JSC board.
Shortly after the conclusion of the May 10 Board meetings, the Merger
Agreement and related documents were signed and a press release announcing the
Merger was issued.
On August 14, 1998, Stone disclosed in its Quarterly Report on Form 10-Q
that, in connection with a proposed settlement of a class action filed against
Stone, the individual directors of Stone and JSC, Stone and JSC agreed, subject
to approval by their respective boards of directors, to amend the Merger
Agreement to reduce the termination fee payable to Stone or JSC, respectively,
upon termination of the Merger in certain circumstances from $60 million to $50
million.
On October 2, 1998, the Merger Agreement was subsequently amended to
reflect the terms of the proposed settlement and to effect certain technical
amendments to the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
JSC and Stone believe that the Merger will:
o Create one of the world's premier manufacturers of paperboard and
paper-based packaging products.
o Smurfit-Stone Container Corporation will be among the world's largest
producers of corrugated containers, folding cartons, industrial bags,
recycled paperboard and paper recycling and containerboard. Based
on 1997 data, the combined company will have approximately $8
billion in annual sales and be one of the largest companies in the
industry.
o Serve as a catalyst to focus the product strategy of JSC and Stone.
o The principal products of Smurfit-Stone Container Corporation after the
divestiture of certain non-core assets will be corrugated containers,
folding cartons and industrial bags, supported by a large integrated
mill system and supported with virgin and recycled fiber resources.
This narrower product focus will allow Smurfit-Stone Container
Corporation to meet more effectively the needs of any paperboard and
paper-based packaging customer, large or small, throughout the
country.
o Enable the companies to reduce debt through divestitures of non-core
businesses and assets.
o At December 31, 1997, historical debt for the combined companies was
approximately $6.4 billion. SSCC will set as a major priority the
divestiture of non-core businesses and assets, and a special
divestiture committee charged with development and implementation of
a divestiture program will be established. It is currently expected
that these divestitures will provide in excess of $2.0 billion in
gross proceeds.
o Enable the companies to provide their customers with better service
and a broader range of paperboard and paper-based packaging products.
o The Merger will create an outstanding coast-to-coast manufacturing and
marketing system that will allow JSC and Stone, as a combined entity,
to service the needs of their customers better.
o Create opportunities for significant synergies and cost reductions
through the integration of the two companies' operations.
o JSC and Stone have identified significant annual operational and
financial cost savings, before any planned asset divestitures, in
excess of those which could be achieved by operating the two
companies independently. JSC and Stone expect the combined company
to be able to reduce expenses and increase efficiencies by
optimizing the manufacturing system, eliminating redundant overhead
costs, and utilizing increased purchasing volume. The combination
provides the opportunity to achieve substantial savings through
reduction of working capital as well as reduced interest expense in
connection with anticipated divestitures and refinancings. See
"Risk Factors."
JSC
The JSC Board made its determination after careful consideration of, and
based on, a number of factors including those described below, which are the
material factors considered by the JSC Board:
(i) all the reasons described above under "Reasons for the Merger";
(ii) the oral opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") to the JSC Board, subsequently confirmed in
writing, that, as of the date thereof, the Exchange Ratio was fair to JSC
from a financial point of view (see "Role of Financial Advisors--Opinion
of Financial Advisor to JSC");
(iii) information concerning the business, assets, capital structure,
financial performance and condition and prospects of JSC and Stone;
(iv) current and historical market prices and trading information
with respect to each company's common stock;
(v) the anticipated consolidation and increasing worldwide
competition in the paperboard and paper packaging industry;
(vi) the composition and strength of the senior management of the
combined company and the proximity and familiarity of the companies and
their similar corporate cultures;
(vii) the fact that SIBV would be a significant stockholder of SSCC
immediately after the consummation of the Merger, with certain preemptive
rights that would enable it to maintain its ownership level in the case of
certain subsequent issuances of common stock by SSCC, but that certain
acquisitions of additional shares of SSCC's common stock by JSG, SIBV and
their respective subsidiaries would be limited under the Standstill
Agreement;
(viii) the fact that pursuant to the Stock Purchase Agreement, MSLEF
and certain other JSC stockholders would sell a significant portion of
their holdings to SIBV upon consummation of the Merger and that such sale
would be at a price that, at the time of the JSC Board's approval of the
Merger Agreement, represented a premium to the market price of JSC Common
Stock;
(ix) the existence of various interests that certain directors and
executive officers of JSC and Stone have with respect to the Merger in
addition to their interests as stockholders of JSC and Stone generally (see
"Interests of Certain Persons in the Merger");
(x) the composition of the SSCC Board immediately following the
Merger and the other governance arrangements for SSCC contemplated by the
Merger Agreement;
(xi) the challenges of combining the businesses of two major
corporations of this size and the attendant risk of not achieving the
expected cost savings or synergies or improvement in earnings and of
diverting management focus and resources from other strategic opportunities
and from operational matters for an extended period of time;
(xii) the enhancement of the strategic and market position of the
combined entity beyond that achievable by JSC alone;
(xiii) the risk that the merger would not be consummated;
(xiv) the effect of the public announcement of the Merger on customer
and supplier relationships, operating results and the ability to retain
employees;
(xv) the likelihood of obtaining required regulatory approvals, the
possibility that regulatory authorities may impose conditions to the grant
of such approvals and the extent of the commitment of the parties to take
actions to obtain required regulatory approvals;
(xvi) the strategic fit between JSC and Stone, the complementary
nature of their respective businesses, the opportunity for significant cost
savings and synergies and the possibility that JSC on its own might not be
able to achieve the level of cost savings, operating efficiencies and
synergies that may be available as a result of the Merger;
(xvii) the terms and structure of the transaction and the terms and
conditions of the Merger Agreement, including the Exchange Ratio, the size
of the termination fees and the circumstances in which they are
payable and the ability of both companies to negotiate with third
parties that make takeover proposals and to accept superior proposals;
(xviii) the ability to consummate the Merger as a reorganization under
the Code; and
(xix) the accounting treatment for the Merger.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger and the complexity of these matters, the JSC Board did
not find it practicable to and did not attempt to quantify, rank or otherwise
assign relative weights to these factors. The JSC Board relied on the experience
and expertise of Merrill Lynch, its financial advisor, for quantitative analysis
of the financial terms of the Merger. See "Role of Financial Advisors--Opinion
of Financial Advisor to JSC." In addition, the JSC Board did not undertake to
make any specific determination as to whether any particular factor was
favorable or unfavorable to the JSC Board's ultimate determination or assign any
particular weight to any factor, but rather conducted an overall analysis of the
factors described above, including through discussions with and questioning of
JSC's management and legal, financial and accounting advisors. In considering
the factors described above, individual members of the JSC Board may have given
different weight to different factors. The JSC Board considered all these
factors as a whole, and overall considered the factors to be favorable to and to
support its determination.
Recommendation of the JSC Board
THE JSC BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF JSC AND ITS STOCKHOLDERS AND RECOMMENDS TO ITS STOCKHOLDERS
THAT THEY VOTE "FOR" THE PROPOSAL TO ISSUE SHARES OF JSC COMMON STOCK IN THE
MERGER AND AMEND THE JSC CERTIFICATE OF INCORPORATION AS CONTEMPLATED BY THE
MERGER AGREEMENT. THE JSC BOARD HAS UNANIMOUSLY APPROVED SUCH PROPOSAL BY VOTE
OF THE JSC DIRECTORS WHO ARE NOT AFFILIATED WITH ANY MAJOR JSC STOCKHOLDER AND
WHO ARE NOT JSC EMPLOYEES AND BY VOTE OF THE ENTIRE BOARD.
STONE
The Stone Board made its determination after careful consideration of, and
based on, a number of factors including those described below, which are the
material factors considered by the Stone Board:
(i) all the reasons described above under "Reasons for the Merger";
(ii) information relating to the business, assets, liabilities,
management, financial condition, highly leveraged capital structure,
competitive position and prospects of Stone if it were to continue as an
independent company;
(iii) the financial condition, cash flows, results of operations and
prospects of Stone and JSC as separate entities and on a combined basis;
(iv) the anticipated consolidation and increasing worldwide
competition in the paperboard and paper packaging industry, and the need
to anticipate and best position Stone in light of its existing capital
structure, restrictions on its financial and operating flexibility and
industry trends;
(v) the strategic fit between Stone and JSC and the complementary
nature of their respective businesses;
(vi) the enhancement of the strategic and market position of the
combined entity beyond that achievable by Stone alone;
(vii) the potential efficiencies, cost savings and other synergies
that could be realized as a result of the combination of Stone's and JSC's
operations, as well as the many management challenges associated with
successfully integrating the business of two major corporations;
(viii) the composition and strength of the senior management of the
combined company and the proximity and familiarity of the companies and
their similar corporate cultures;
(ix) the oral opinion of Salomon Smith Barney (as defined below) to
the Stone Board, subsequently confirmed in writing, that, as of the date
thereof, the Exchange Ratio was fair to the holders of Stone Common Stock
from a financial point of view (see "Role of Financial Advisors--Opinion
of Financial Advisor to Stone");
(x) the historical market prices and trading information with respect
to the shares of Stone Common Stock and JSC Common Stock;
(xi) the fact that the number of shares of JSC Common Stock to be
issued in the Merger to the Stone common stockholders for each of their
shares of Stone Common Stock is fixed and will not fluctuate with changes
in the price per share of JSC Common Stock;
(xii) the fact that, after giving effect to the shares of JSC Common
Stock to be issued in the Merger, the common stockholders of Stone
immediately prior to the Merger would hold approximately 48% of the total
shares of JSC Common Stock that will be outstanding and the JSC
stockholders would hold the remaining 52%;
(xiii) the fact that SIBV would be a significant stockholder of SSCC
immediately after the consummation of the Merger and the Stock Purchase
Agreement, with certain preemptive rights that would enable it to maintain
its ownership level in the case of certain subsequent issuances of SSCC
Common Stock, but that certain acquisitions of additional shares of SSCC's
common stock by JSG, SIBV and their respective subsidiaries (in addition to
MSLEF) would be limited under the Standstill Agreement;
(xiv) the fact that pursuant to the Stock Purchase Agreement MSLEF and
certain other JSC stockholders would sell a significant portion of their
holdings to SIBV upon consummation of the Merger and that such sale would
be at a price that, at the time of the Stone Board's approval of the Merger
Agreement, represented a premium to the market price of JSC Common Stock;
(xv) the fact that neither Stone nor its financial advisors received
any indications of interest regarding a possible business combination
during the period from April 28, 1998 (the date on which Stone and JSC
publicly announced that the two companies were engaged in discussions
regarding a possible transaction) through May 10, 1998 (the date that the
Stone Board approved the Merger Agreement);
(xvi) the course of the negotiations regarding the terms of the Merger
Agreement;
(xvii) the terms and conditions of the Merger Agreement, including the
fact that each company may provide information to interested third parties
if its board of directors determines in good faith after consultation with
legal counsel that its fiduciary obligations require it to do so and that,
subject to certain limitations, each company may terminate the Merger
Agreement if its board of directors has determined to recommend to its
stockholders a Takeover Proposal (as defined below) and to enter into a
binding written agreement concerning such Takeover Proposal after
determining in good faith (taking into account the advice of independent
financial advisors) that such Takeover Proposal is more favorable to the
company and its stockholders than the Merger (and any revised proposal made
by the other party to the Merger Agreement) and for which financing, to the
extent required, is then fully committed or reasonably determined to be
available by the board of directors (i.e., that such Takeover Proposal
constitutes a Superior Proposal (as defined below)) (See "--Background of
the Merger");
(xviii) the existence of various interests that certain directors and
executive officers of JSC and Stone have with respect to the Merger in
addition to their interests as stockholders of JSC and Stone generally (see
"Interests of Certain Persons in the Merger");
(xix) the composition of the SSCC Board immediately following the
Merger and the other governance arrangements for SSCC contemplated by the
Merger Agreement;
(xx) the tax effects of the Merger on Stone stockholders; and
(xxi) the fact that the Merger would be accounted for as a purchase
rather than as a pooling of interests.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger and the complexity of these matters, the Stone Board
did not find it practicable to and did not attempt to quantify, rank or
otherwise assign relative weights to these factors. The Stone Board relied on
the experience and expertise of Salomon Smith Barney, its financial advisor, for
quantitative analysis of the financial terms of the Merger. See "Role of
Financial Advisors--Opinion of Financial Advisor to Stone." In addition, the
Stone Board did not undertake to make any specific determination as to whether
any particular factor was favorable or unfavorable to the Stone Board's ultimate
determination or assign any particular weight to any factor, but rather
conducted an overall analysis of the factors described above, including through
discussions with and questioning of Stone's management and legal, financial and
accounting advisors. In considering the factors described above, individual
members of the Stone Board may have given different weight to different factors.
The Stone Board considered all these factors as a whole, and overall considered
the factors to be favorable to and to support its determination.
Recommendation of the Stone Board
THE STONE BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN
THE BEST INTERESTS OF THE HOLDERS OF STONE COMMON STOCK AND RECOMMENDS TO ITS
STOCKHOLDERS THAT THEY VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGER AND AMEND THE STONE RESTATED CERTIFICATE OF
INCORPORATION AS CONTEMPLATED BY THE MERGER AGREEMENT.
ACCOUNTING TREATMENT
This merger will be accounted for by JSC as a purchase of a business. Under
this method of accounting, the assets and liabilities of Stone will be recorded
at their fair value, and any excess of JSC's purchase price over such fair value
will be accounted for as goodwill. The revenues and expenses of Stone will be
included in JSC's consolidated financial statements from the date of
consummation of the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Tax Opinion. Sidley & Austin, counsel to Stone, has rendered an opinion to
Stone, a copy of which has been filed as an exhibit to the Registration
Statement, that (i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and JSC, Sub and Stone will each be a
party to such reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by JSC, Sub or Stone as a result of the
Merger; (iii) no gain or loss will be recognized by the common stockholders of
Stone upon the exchange of their Stone Common Stock solely for shares of JSC
Common Stock pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of JSC Common Stock; (iv) the aggregate
tax basis of the shares of JSC Common Stock received solely in exchange for
Stone Common Stock pursuant to the Merger (including fractional shares of JSC
Common Stock for which cash is received) will be the same as the aggregate tax
basis of the Stone Common Stock exchanged therefor; (v) the holding period for
shares of JSC Common Stock received in exchange for Stone Common Stock pursuant
to the Merger will include the holding period of such Stone Common Stock
exchanged therefor, provided such Stone Common Stock was held as a capital asset
by the common stockholder at the Effective Time; (vi) a common stockholder of
Stone who receives cash in lieu of a fractional share of JSC Common Stock will
recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis in such fractional share (as described in (iv) above)
and the amount of cash received; (vii) no gain or loss will be recognized by the
holders of Stone Series E Preferred Stock as a result of the Merger or the Stone
Charter Amendment (as defined below); and (viii) a holder of Series E Cumulative
Convertible Exchangeable Preferred Stock, par value $0.01 per share, of Stone
(the "Stone Series E Preferred Stock") will recognize gain or loss upon
conversion of such Stone Series E Preferred Stock into JSC Common Stock in an
amount equal to the difference, if any, between a holder's tax basis for such
Stone Series E Preferred Stock and the value of the JSC Common Stock received in
exchange therefor. In rendering this opinion, Sidley & Austin has relied
upon representations contained in certificates from Stone and JSC delivered for
purposes of the opinion and has assumed that such representations will be true
as of the Effective Time. The opinion also assumes that the Merger will be
consummated in accordance with the provisions of the Merger Agreement. It is a
condition to Stone's obligation to consummate the Merger that a substantially
similar opinion of Sidley & Austin be rendered at the Effective Time. Stone does
not currently intend to waive this condition. If Stone does decide to waive this
condition, however, Stone will recirculate this Joint Proxy Statement/Prospectus
to disclose the waiver of this condition and all related material disclosures,
including the risks to Stone common stockholders resulting from the waiver, and
will resolicit proxies from the Stone common stockholders.
The foregoing discussion is a summary of the opinion of Sidley & Austin as
to the material United States federal income tax consequences of the Merger to a
United States stockholder who holds Stone Common Stock as a capital asset but
does not purport to be a complete analysis or description of all potential tax
effects of the Merger. In addition, the discussion does not address all of the
tax consequences that may be relevant to particular taxpayers in light of their
personal circumstances or to taxpayers subject to special treatment under the
Code (for example, insurance companies, financial institutions, dealers in
securities, tax-exempt organizations, foreign corporations, foreign partnerships
or other foreign entities and individuals who are not citizens or residents of
the United States).
No information is provided herein with respect to the tax consequences, if
any, of the Merger under applicable foreign, state, local and other tax laws.
The foregoing discussion is based upon the provisions of the Code, applicable
Treasury regulations thereunder, Internal Revenue Service rulings and judicial
decisions, as in effect as of the date of this Joint Proxy Statement/Prospectus.
There can be no assurance that future legislative, administrative or judicial
changes or interpretations will not affect the accuracy of the statements or
conclusions set forth herein. Any such change could apply retroactively and
could affect the accuracy of such discussion. No rulings have or will be sought
from the Internal Revenue Service concerning the tax consequences of the Merger.
Each stockholder of Stone is urged to consult such stockholder's own tax
advisor as to the specific tax consequences to such stockholder of the Merger
under U.S. federal, state, local or any other applicable tax laws.
REGULATORY MATTERS
All material regulatory approvals required to permit consummation of the
Merger have already been obtained from the applicable U.S. and foreign
regulatory authorities, including the antitrust authorities in the United States
and Canada and for the European Union.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act"), JSC and
Stone were prohibited from consummating the Merger until notifications were
given to the Federal Trade Commission (the "FTC") and the Antitrust Division of
the United States Department of Justice (the "Antitrust Division"), certain
information was furnished to the FTC and the Antitrust Division and specified
waiting period requirements were satisfied or terminated. In early June 1998,
JSG, MSLEF and Stone each filed in connection with the Merger a Notification and
Report Form under the HSR Act with the FTC and the Antitrust Division. The
applicable waiting period under the HSR Act relating to the Merger expired at
midnight on July 2, 1998.
Notwithstanding the expiration of the waiting period under the HSR Act
relating to the Merger, at any time before or after the completion of the
Merger, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking the
divestiture of substantial assets of JSC or Stone. Private parties and the state
attorneys general may also bring actions under the U.S. antitrust laws under
certain circumstances. Although JSC and Stone believe that the Merger is legal
under the U.S. antitrust laws, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or if such a challenge is made,
that it would not be successful.
Under Council Regulation No. 4064/89 of the European Community (the "EC
Merger Regulation") and accompanying regulations, JSC and Stone were prohibited
from consummating the Merger until a decision was made by the European
Commission ("EC") not to oppose the Merger and declaring it compatible with
the common market and with the European Economic Area Agreement. On June
5, 1998, JSG filed a notification under the EC Merger Regulation, and the
EC granted approval on July 8, 1998.
Under Part IX of the Competition Act (Canada), subject to the expedited
process described in the next paragraph, JSC and Stone were prohibited from
consummating the Merger until notification was given to the Director of
Investigation and Research (the "Competition Act Director"), certain information
was furnished to the Competition Act Director and the applicable waiting period
expired or terminated.
On June 12, 1998, JSC applied to the Competition Act Director for a
certificate under Section 102 of the Competition Act (Canada) (an "Advance
Ruling Certificate") permitting consummation of the Merger. On July 24, 1998,
the Competition Act Director issued an Advance Ruling Certificate in respect of
the Merger. The effect of the Advance Ruling Certificate is that (a) the merger
is exempt from the notification and waiting period provisions of the Competition
Act (Canada) described in the immediately preceding paragraph and (b) the
Competition Act Director may not apply to the Competition Tribunal under the
merger provisions for an order in respect of the proposed transaction solely on
the basis of information that is the same or substantially the same as the
information on the basis of which the Advance Ruling Certificate was issued,
provided the transaction is substantially completed within one year after the
Advance Ruling Certificate was issued.
JSC and Stone conduct operations in a number of other foreign countries
where regulatory filings, notifications or approvals with applicable commissions
and other authorities may be required in connection with consummation of the
Merger.
CERTAIN LITIGATION
In May 1998, four putative class action complaints were filed against the
individual directors of Stone, Stone and JSC in the Court of Chancery of the
State of Delaware in and for New Castle County. On June 15, 1998, the Court of
Chancery signed an order which consolidated the four actions. Now captioned as
In re Stone Container Shareholders Litigation, C.A. 16375 (the "Action"), the
complaint in the Action (the "Complaint") alleges, among other things, that the
Stone directors violated the fiduciary duties of due care and loyalty that they
owed to the public stockholders of Stone because, the Complaint contends, the
Stone directors failed to undertake an appropriate evaluation of Stone's net
worth as a merger/acquisition candidate, actively evaluate the proposed
transaction and engage in a meaningful auction with third parties in an attempt
to obtain the best value for Stone's stockholders. The Complaint further alleges
that the Stone directors failed to make an informed decision and that the Stone
stockholders will not receive fair value for their shares of Stone Common Stock
in the Merger, will be largely divested of their right to share in Stone's
future growth and development and will be prevented from obtaining fair and
adequate consideration for their shares of Stone Common Stock. The Complaint
requests that the Court of Chancery, among other things, declare that the Action
is a proper class action and enjoin the Merger and require that the Stone
directors place Stone up for auction and/or conduct a market-check to ascertain
Stone's value.
On August 11, 1998, the parties to the Action entered into a memorandum of
understanding setting forth the terms of a proposed settlement of the Action,
subject to certain conditions. While Stone, the Stone directors and JSC continue
to deny the allegations of the Complaint or that they have breached any duty or
engaged in any wrongdoing in connection with the Merger, the defendants have
agreed to enter into the proposed settlement to eliminate the burden, expense
and uncertainty of litigation. In connection with the proposed settlement, (a)
Stone and JSC agreed to provide plaintiffs' counsel with an opportunity to
review and comment upon the disclosure to be provided to Stone stockholders in
this Joint Proxy Statement/Prospectus, (b) Stone agreed to obtain the Salomon
Smith Barney Update Opinion (as defined below) (see "Role of Financial
Advisors--Opinion of Financial Advisor to Stone") and (c) Stone and JSC
agreed, subject to approval by their respective boards of directors, to amend
the Merger Agreement to reduce the termination fee payable to Stone or JSC, as
the case may be, upon termination of the Merger Agreement in certain
circumstances, from $60 million to $50 million. The defendants in the Action
agreed not to oppose an application to the Court of Chancery by plaintiffs'
counsel for fees and expenses in an amount not to exceed $650,000, which would
be paid by Stone. The proposed settlement set forth in the memorandum of
understanding is subject to a number of conditions, including discovery by
plaintiffs' counsel, approval of the proposed settlement by the Court of
Chancery and consummation of the Merger. If the proposed settlement is approved
by the Court of Chancery and the other conditions are satisfied, the Court will
certify a non-opt out class of Stone stockholders for the period from May 10,
1998 through the Effective Time, the Action will be dismissed with prejudice and
Stone, the Stone directors, JSC and their respective officers, directors,
employees and agents will receive a release for all claims that were or could
have been asserted in the Action.
NO APPRAISAL RIGHTS
Holders of Stone Common Stock are not entitled to appraisal or dissenters'
rights under Delaware law in connection with the Merger because the Stone Common
Stock was listed on the NYSE on the Record Date and the shares of JSC Common
Stock that such holders will be entitled to receive in the Merger will be quoted
on The Nasdaq National Market (the "Nasdaq") or listed on the NYSE at the
Effective Time.
Holders of Stone Series E Preferred Stock are not entitled to appraisal or
dissenters' rights under Delaware law in connection with the Merger because the
shares of Stone Series E Preferred Stock were listed on the NYSE on the Record
Date.
Holders of JSC Common Stock are not entitled to appraisal or dissenters'
rights under Delaware law in connection with the Merger because JSC is not a
constituent corporation in the Merger.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS
This Joint Proxy Statement/Prospectus does not cover any resales of the JSC
Common Stock to be received by the Stone stockholders upon consummation of the
Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
All shares of JSC Common Stock received by Stone stockholders in the Merger
will be freely transferable, except that shares of JSC Common Stock received by
persons who are deemed to be "affiliates" of Stone under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"1933 Act"), at the time of the Stone Meeting may be resold by them only in
transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted
under the 1933 Act. Persons who may be deemed to be affiliates of Stone for such
purposes generally include individuals or entities that control, are controlled
by, or are under common control with, Stone and may include certain officers,
directors and principal stockholders of Stone. The Merger Agreement requires
Stone to use its best efforts to deliver or cause to be delivered to JSC on or
prior to the Closing Date (as defined therein) from each of such affiliates an
executed letter agreement to the effect that such persons will not offer or sell
or otherwise dispose of any of the shares of JSC Common Stock issued to such
persons in the Merger in violation of the 1933 Act.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
JSC Common Stock is quoted on the Nasdaq under the symbol JJSC. Stone
Common Stock is listed on the NYSE under the symbol STO.
The table below sets forth, for the calendar quarters indicated, the high
and low sale prices of JSC Common Stock as quoted on the Nasdaq and Stone Common
Stock as reported on the NYSE Composite Transaction Tape, in each case based on
published financial sources, and the dividends declared on Stone Common Stock.
There were no cash dividends declared on JSC Common Stock for the calendar
quarters indicated below.
<TABLE>
<CAPTION>
JSC COMMON STOCK STONE COMMON STOCK
------------------------ ------------------------------------
MARKET PRICE MARKET PRICE CASH
------------------------ ------------------------ DIVIDENDS
HIGH LOW HIGH LOW DECLARED
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1995
First Quarter.......................... $ 20.38 $ 14.38 $ 24.38 $ 17.00 $ --
Second Quarter......................... 16.50 11.88 23.38 16.50 --
Third Quarter.......................... 16.75 13.00 24.38 19.00 .15
Fourth Quarter......................... 15.63 9.00 18.88 12.50 .15
1996
First Quarter.......................... 12.38 9.38 15.38 12.38 .15
Second Quarter......................... 14.13 10.25 17.25 13.50 .15
Third Quarter.......................... 12.25 10.50 15.50 12.50 .15
Fourth Quarter......................... 16.13 11.88 16.00 13.88 .15
1997
First Quarter.......................... 16.38 11.88 16.63 11.13 --
Second Quarter......................... 18.63 11.88 14.63 9.63 --
Third Quarter.......................... 21.63 15.50 17.75 14.25 --
Fourth Quarter......................... 20.50 13.25 15.88 10.25 --
1998
First Quarter.......................... 17.75 13.00 13.03 10.19 --
Second Quarter......................... 22.00 15.00 21.13 11.94 --
Third Quarter.......................... 16.75 9.75 16.13 6.69 --
Fourth Quarter (through October 6)..... 12.13 11.25 8.81 8.06
</TABLE>
On May 8, 1998, the last full trading day prior to the public announcement
of the proposed Merger, the closing price of JSC Common Stock quoted on the
Nasdaq was $20.50 per share and the closing price of Stone Common Stock reported
on the NYSE Composite Transaction Tape was $18.00 per share. On October 6, 1998,
the most recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the closing price of JSC Common Stock on the Nasdaq was
$11.63 per share and the closing price of Stone Common Stock reported on the
NYSE Composite Transaction Tape was $8.63 per share. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH RESPECT TO
THE MERGER.
JSC and Stone do not expect that SSCC will pay dividends to holders of SSCC
Common Stock in the foreseeable future. As of August 15, 1998 Stone had
accumulated dividend arrearages on the Stone Series E Preferred Stock of
approximately $12 million, which represents six consecutive quarters for which
dividends have not been paid. Until the dividends accumulated on the Stone
Series E Preferred Stock have been declared and paid or set aside for payment,
holders of outstanding shares of Stone Series E Preferred Stock will be entitled
to elect two additional directors to the Stone Board. Absent the consent of its
senior and senior subordinated noteholders, Stone is not likely to make dividend
payments in 1998. The Merger will have no effect on such dividend arrearages.
See "Information Regarding Stone--Market Price and Dividends for Stone's
Common Stock and Related Stockholder Matters."
SELECTED FINANCIAL INFORMATION
The selected financial data presented below should be read in conjunction
with the financial statements and the notes thereto incorporated by reference
for JSC and included elsewhere in this Joint Proxy Statement/Prospectus for
Stone.
JEFFERSON SMURFIT CORPORATION
JSC's selected historical financial information for each of the five years
in the period ended December 31, 1997 and for the six months ended June 30, 1998
and 1997 is set forth below. The statement of operations data for the years
ended December 31, 1997, 1996 and 1995 and the balance sheet data as of
December 31, 1997 and 1996 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements and notes
thereto appearing in JSC's Annual Report on Form 10-K for the year ended
December 31, 1997 incorporated herein by reference. The statement of operations
data for the years ended December 31, 1994 and 1993 and the balance sheet data
as of December 31, 1995, 1994 and 1993 are derived from audited consolidated
financial statements not incorporated herein by reference. The statement of
operations data for the six months ended June 30, 1998 and 1997 and the balance
sheet data as of June 30, 1998 are derived from unaudited consolidated interim
financial statements appearing in JSC's Quarterly Report on Form 10-Q for the
six months ended June 30, 1998 incorporated herein by reference. Operating
results for the six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993(A)
------ ------ ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................................... $1,688 $1,563 $3,238 $3,410 $4,093 $3,233 $2,947
Income (loss) before extraordinary item and
cumulative effect of accounting changes........... 22 (11) 1 117 247 12 (175)
Basic income (loss) per common share before
extraordinary item and cumulative effect of
accounting changes................................ $ .20 $ (.10) $ .01 $ 1.05 $ 2.23 $ .12 $(2.75)
Diluted income (loss) per common share before
extraordinary item and cumulative effect of
accounting changes................................ $ .19 $ (.10) $ .01 $ 1.04 $ 2.21 $ .12 $(2.75)
Weighted average common shares
outstanding--Basic.............................. 111 111 111 111 111 101 64
Weighted average common shares
outstanding--Diluted............................ 113 112 113 112 112 101 64
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------
1998 1997 1996 1995 1994 1993(A)
----------- ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total assets............................................. $ 2,773 $2,771 $2,688 $2,783 $2,759 $2,597
Long-term debt, less current maturities.................. 2,051 2,025 1,934 2,111 2,392 2,619
Deferred income tax liability............................ 361 362 363 328 208 232
Stockholders' deficit.................................... (365) (374) (375) (487) (730) (1,058)
Cash dividends per common share.......................... $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
- ------------
(a) Results for 1993 included a $96 million pre-tax restructuring charge to
improve JSC's long-term competitive position and a $54 million pre-tax
charge for environmental and other charges.
STONE CONTAINER CORPORATION
Stone's selected historical financial information for each of the five
years in the period ended December 31, 1997 and for the six months ended June
30, 1998 and 1997 is set forth below. The statement of operations data for the
years ended December 31, 1997, 1996 and 1995 and the balance sheet data as of
December 31, 1997 and 1996 are derived from the audited consolidated financial
statements included elsewhere in this Joint Proxy Statement/Prospectus. The
statement of operations data for the years ended December 31, 1994 and 1993 and
the balance sheet data as of December 31, 1995, 1994 and 1993 are derived from
audited consolidated financial statements not included herein. The statement of
operations data for the six months ended June 30, 1998 and 1997 and the balance
sheet data as of June 30, 1998 are derived from the unaudited consolidated
financial statements included elsewhere in this Joint Proxy
Statement/Prospectus. Operating results for the six-month period ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................................... $2,539 $2,381 $4,849 $5,142 $7,351 $5,749 $5,060
Income (loss) before extraordinary item and
cumulative effect of accounting changes........... (225) (204) (404) (123) 445 (129) (319)
Basic income (loss) per common share before
extraordinary item and cumulative effect of
accounting changes................................ $(2.30) $(2.10) $(4.16) $(1.32) $ 4.64 $(1.60) $(4.59)
Diluted income (loss) per common share before
extraordinary item and cumulative effect of
accounting changes................................ $(2.30) $(2.10) $(4.16) $(1.32) $ 3.89 $(1.60) $(4.59)
Weighted average common shares
outstanding--Basic.............................. 100 99 99 99 94 88 71
Weighted average common shares
outstanding--Diluted............................ 100 99 99 99 115 88 71
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
(UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total assets............................................. $ 5,706 $5,824 $6,354 $6,399 $7,005 $6,837
Long-term debt, less current maturities.................. 3,909 3,936 3,951 3,885 4,432 4,268
Deferred income tax liability............................ 129 216 410 493 381 471
Stockholders' equity..................................... 18 277 795 1,005 648 607
Cash dividends per common share.......................... $ -- $ -- $ .60 $ .30 $ -- $ --
</TABLE>
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth selected historical and unaudited pro forma
per share data for JSC and historical and equivalent unaudited pro forma per
share data for Stone. The unaudited pro forma financial data assume that the
Merger was consummated at the beginning of the earliest period presented and
give effect to the Merger as a purchase under generally accepted accounting
principles. The unaudited pro forma per share data for JSC are based upon the
number of outstanding shares of JSC Common Stock adjusted to include the number
of shares of JSC Common Stock that would be issued in the Merger. The unaudited
pro forma equivalent per share data for Stone are based on the unaudited pro
forma amounts per share for JSC, multiplied by the Exchange Ratio. The
information set forth below should be read in conjunction with the historical
consolidated financial data of JSC incorporated by reference herein and of Stone
included herein.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED AT OR FOR THE
DECEMBER 31, SIX MONTHS ENDED
1997 JUNE 30, 1998
------------- ----------------
<S> <C> <C>
JSC (A):
Basic earnings (loss) per common share before extraordinary item
Historical................................................................ $ .01 $ .20
Pro forma combined........................................................ (1.94) (1.00)
Book value per share
Historical................................................................ (3.37) (3.29)
Pro forma combined........................................................ 9.60 8.53
STONE (A):
Basic earnings (loss) per common share before extraordinary item
Historical................................................................ (4.16) (2.30)
Pro forma equivalent...................................................... (1.92) (.99)
Book value per share
Historical................................................................ 2.79 .18
Pro forma equivalent...................................................... 9.50 8.44
</TABLE>
- ------------
(a) JSC has not declared or paid any cash dividends on the JSC Common Stock for
any of the periods presented. Stone has not declared or paid any cash
dividends on the Stone Common Stock for any of the periods presented.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statements of
operations and condensed consolidated balance sheet of SSCC were prepared to
illustrate the estimated effects of the Merger, as if the transaction had
occurred for the statement of operations as of the beginning of the periods
presented and for the balance sheet presentation as of June 30, 1998.
The pro forma adjustments are based upon available information and upon
certain assumptions that JSC and Stone believe are reasonable. The pro forma
condensed consolidated financial statements and accompanying notes should be
read in conjunction with the historical financial statements of JSC and Stone,
and the related notes thereto, incorporated by reference or included in this
Joint Proxy Statement/Prospectus.
The pro forma condensed consolidated financial statements are provided for
informational purposes only in response to Securities and Exchange Commission
("SEC") requirements and do not purport to represent what SSCC's financial
position or results of operations would actually have been if the Merger had in
fact occurred at such dates or to project SSCC's financial position or results
of operations for any future date or period.
For financial accounting purposes, the acquisition of Stone will be
accounted for using the purchase method of accounting. Accordingly, Stone's
assets and liabilities have been adjusted, on a preliminary basis, to reflect
their fair values in the pro forma condensed consolidated balance sheet as of
June 30, 1998. The estimated effects resulting from these adjustments have been
reflected in the pro forma condensed consolidated statements of operations. The
allocation of the estimated purchase price and the estimated transaction fees
and expenses included in the pro forma condensed consolidated financial
statements are preliminary; final amounts may differ from those set forth herein
and such differences may be material.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
SMURFIT-STONE CONTAINER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------------------
JSC STONE PRO FORMA SSCC
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 15 $ 110 $ $ 125
Receivables......................................................... 305 685 (7)(b) 983
Inventories......................................................... 266 734 59 (a) 1,059
Deferred income taxes............................................... 30 24 54
Prepaid expenses and other current assets........................... 19 113 132
---------- ---------- ----------- ---------
Total current assets........................................... 635 1,666 52 2,353
Property, plant and equipment, net....................................... 1,512 2,314 1,519 (a) 5,520
175 (c)
Timberland, net.......................................................... 264 48 312
Goodwill, net............................................................ 233 451 1,388 (a) 2,161
42 (e)
47 (g)
Investment in non-consolidated affiliates................................ 8 844 (26)(a) 826
Other assets............................................................. 121 383 (73)(a) 456
25 (f)
---------- ---------- ----------- ---------
$2,773 $5,706 $ 3,149 $11,628
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................................ $ 22 $ 639 $ 1 (a) $ 445
(217)(f)
Accounts payable.................................................... 294 323 (7)(b) 610
Other accrued liabilities........................................... 188 349 537
---------- ---------- ----------- ---------
Total current liabilities...................................... 504 1,311 (223) 1,592
Long-term debt, less current maturities.................................. 2,051 3,909 176 (a) 6,495
175 (c)
242 (f)
(58)(g)
Other long-term liabilities.............................................. 222 339 57 (a) 618
Deferred income taxes.................................................... 361 129 506 (a) 996
Minority interest........................................................ 93 (a) 93
Stockholders' equity (deficit):
Preferred stock..................................................... 115 (115)(a)
Common stock and additional paid-in capital......................... 1,169 974 (974)(a) 3,368
2,052 (a)
42 (e)
105 (g)
Retained earnings (deficit)......................................... (1,534) (705) 705 (a) (1,534)
Accumulated other comprehensive income.............................. (366) 366 (a)
---------- ---------- ----------- ---------
Total stockholders' equity (deficit)........................... (365) 18 2,181 1,834
---------- ---------- ----------- ---------
$2,773 $5,706 $ 3,149 $11,628
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Common stock shares outstanding.......................................... 111 100 (1)(d) 215
5 (g)
</TABLE>
See accompanying notes to the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
SMURFIT-STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JSC STONE PRO FORMA SSCC
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1998:
Net sales.................................................. $1,688 $2,539 $ (44)(b) $ 4,195
12 (c)
Cost of goods sold......................................... 1,406 2,267 12 (a) 3,651
(44)(b)
10 (c)
Selling and administrative expenses........................ 143 248 391
---------- ---------- ----------- ---------
Income from operations..................................... 139 24 (10) 153
Interest expense........................................... 96 237 (17)(a) 328
8 (c)
7 (f)
(3)(g)
Equity (loss) from affiliates.............................. (1) (36) (37)
Other income (expense)--net.............................. (47) (47)
---------- ---------- ----------- ---------
Income (loss) before income taxes, minority interest and
extraordinary item....................................... 42 (296) (5) (259)
Provision for (benefit from) income taxes.................. 20 (71) 4 (a) (47)
Minority interest expense.................................. 4 (a) 4
---------- ---------- ----------- ---------
Income (loss) before extraordinary item.................... $ 22 $ (225) $ (13) $ (216)
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Basic earnings (loss) per common share before extraordinary
item..................................................... $ .20 $(2.30) $(1.00)
----------
----------
Diluted earnings (loss) per common share before
extraordinary item....................................... $ .19 $(2.30) $(1.00)
----------
----------
Weighted average common shares outstanding --
Basic................................................. 111 100 (1)(d) 215
5 (g)
Weighted average common shares outstanding --
Diluted............................................... 113 100 (3)(d) 215
5 (g)
</TABLE>
See accompanying notes to the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
SMURFIT-STONE CONTAINER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
JSC STONE PRO FORMA SSCC
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Net sales.................................................. $3,238 $4,849 $ (100)(b) $ 8,014
27 (c)
Cost of goods sold......................................... 2,776 4,456 1 (a) 7,158
(100)(b)
25 (c)
Selling and administrative expenses........................ 258 482 740
---------- ---------- ----------- ---------
Income from operations..................................... 204 (89) 1 116
Interest expense........................................... 190 457 (34)(a) 636
16 (c)
13 (f)
(6)(g)
Equity (loss) from affiliates.............................. (2) (71) (73)
Other income--net........................................ 12 12
---------- ---------- ----------- ---------
Income (loss) before income taxes, minority interest and
extraordinary item....................................... 12 (605) 12 (581)
Provision for (benefit from) income taxes.................. 11 (201) 16 (a) (174)
Minority interest expense.................................. 8 (a) 8
---------- ---------- ----------- ---------
Income (loss) before extraordinary item.................... $ 1 $ (404) $ (12) $ (415)
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Basic earnings (loss) per common share before extraordinary
item..................................................... $ .01 $(4.16) $ (1.94)
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Diluted earnings (loss) per common share before
extraordinary item....................................... $ .01 $(4.16) $ (1.94)
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Weighted average common shares outstanding --
Basic................................................. 111 99 (1)(d) 214
5 (g)
Weighted average common shares outstanding --
Diluted............................................... 113 99 (3)(d) 214
5 (g)
</TABLE>
See accompanying notes to the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(a) To record:
Balance Sheet
o The conversion of 99.6 million shares of Stone common stock into 98.6
million shares of JSC common stock at a fair value of $2,052 million,
determined based upon an average market price of $20.87 for JSC shares
five days before and after May 10, 1998, the date of the Merger
Agreement, net of estimated registration costs of $5 million;
o The reclassification of preferred stock outstanding of $115 million to
minority interest at fair value determined based on the quoted market
price for 4.6 million shares of Stone Series E Preferred Stock of $20.25
at June 30, 1998;
o Acquired assets and liabilities, including indebtedness, at fair value;
o Excess purchase price as goodwill; and
o Estimated JSC merger costs of $45 million directly attributable to the
cost of acquisition representing primarily financial advisor and legal
fees.
Statements of Operations
o Depreciation of property, plant and equipment over an average life of
seventeen years;
o Amortization of goodwill over a forty year period;
o The net effect of adjusting assets and liabilities to fair value;
o The net effect to interest expense resulting from the elimination
of Stone deferred financing cost, adjustment of long term debt to
fair value, and additional debt resulting from estimated merger
costs; and
o The reclassification of preferred stock dividends to minority
interest expense.
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, 1997. In addition, the fair value
of certain of Stone's major contracts has yet to be finalized and
any resulting asset or liability would result in an increase or
decrease in goodwill and related amortization.
(b) To eliminate the effects of sales transactions between JSC and Stone.
(c) To record the effects of the acquisition of a containerboard machine
pursuant to the asset purchase agreement dated as of May 10, 1998 between
JSCUS, as buyer, and Smurfit Paperboard, Inc. as seller.
(d) To convert Stone Common Stock to JSC Common Stock using a 0.99 conversion
factor and eliminate anti-dilutive options for diluted weighted average
common shares.
(e) To record the vesting of 6.1 million Stone stock options based on their
intrinsic value. No compensation expense was included in the pro forma
statements of operations because the acceleration of vesting would not
require the determination of a new measurement date under APB No. 25.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(f) To record the effects of the Amended JSC Credit Agreement including:
<TABLE>
<CAPTION>
BALANCE SHEET PRINCIPAL
- ------------- -------------
<S> <C>
New Borrowing June 30, 1998
Term Loan A (variable rate of 8.84%) due 2001............. $ 325
</TABLE>
The interest rate on the term loan is based on the assumed LIBOR rate of
5.60%. A one-eighth of one percent change in the interest rate would impact
interest expense by less than $1 million for both the six months ended June
30, 1998 and the year ended December 31, 1997.
REPAYMENT OF CERTAIN EXISTING STONE SENIOR DEBT:
<TABLE>
<S> <C>
12.625% senior notes due 1998................................................... $ 150
Revolving credit facility (8.6% weighted average rate) due May 15, 1999......... 150
------
Total Stone Debt to be Repaid................................................... 300
------
Net increase to total debt...................................................... $ 25
======
</TABLE>
The $325 million term loan excludes additional new borrowings of $225
million. Those borrowings are assumed to be used to pay Merger and
registration costs of $50 million, reflected in Note (a) and to acquire a
containerboard machine from Smurfit Paperboard, Inc. for $175 million,
reflected in Note (c).
The net increase to total debt results from payments of deferred debt
issuance costs of $25 million.
A reclassification adjustment was made to properly state the current and
long-term portions of total debt.
In addition to the new borrowing, approximately $2 billion of JSC and Stone
debt will be modified, resulting in increased interest rates. For accounting
purposes, the debt modification is not considered substantially different
and does not result in an extinguishment of debt. The effect on interest
expense is reflected under the Statements of Operations section of this
footnote.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
STATEMENT OF OPERATIONS 1998 1997
--------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Interest expense on the $325 million Term Loan............................. $ 14 $ 29
Amortization of new deferred debt issuance costs........................... 4 8
Less interest expense on extinguished debt................................. (16) (32)
Net interest expense increase on modified debt............................. 5 8
---- ----
Net interest expense increase.............................................. $ 7 $ 13
==== ====
</TABLE>
(g) To record the July, 1998 conversion of $58 million of Stone 8.875%
convertible senior subordinated notes (convertible at $11.55 per share) into
5.06 million shares of Stone Common Stock. Stone Common Stock is assumed to
be converted into 0.99 shares of JSC common stock at a fair value of $105
million, determined based upon an average market price of $20.87 for JSC
shares five days before and after May 10, 1998, the date of the Merger
Agreement. The statements of operations reflect the reduction in interest
expense related to the converted debt.
ROLE OF FINANCIAL ADVISORS
OPINION OF FINANCIAL ADVISOR TO JSC
JSC retained Merrill Lynch to act as its exclusive financial advisor in
connection with a possible business combination. On May 10, 1998, Merrill Lynch
rendered its oral opinion to the JSC Board (subsequently confirmed in writing)
(the "Merrill Lynch Opinion") that, as of such date and based upon and subject
to certain factors and assumptions, the Exchange Ratio was fair from a financial
point of view to JSC.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL LYNCH, IS
ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH
OPINION. THE MERRILL LYNCH OPINION WAS PROVIDED TO THE JSC BOARD FOR ITS
INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE EXCHANGE RATIO TO JSC, DOES NOT ADDRESS THE MERITS OF THE UNDERLYING
DECISION BY JSC TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY JSC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE STOCK
ISSUANCE OR ANY MATTER RELATED THERETO. STOCKHOLDERS OF JSC SHOULD READ SUCH
OPINION IN ITS ENTIRETY.
The Exchange Ratio was determined through negotiations between Stone and
JSC and was approved by the JSC Board. Merrill Lynch provided advice to JSC
during the course of such negotiations.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the JSC Board. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, JSC or Stone. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, the Merrill Lynch Opinion was among several factors taken into
consideration by the JSC Board in making its determination to approve the Merger
Agreement and the Merger. Consequently, the Merrill Lynch analyses described
below should not be viewed as determinative of the decision of the JSC Board
or JSC's management with respect to the fairness of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information relating to Stone
and JSC which Merrill Lynch deemed to be relevant, (ii) reviewed certain
information, including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of Stone and JSC (with respect to
Stone such financial forecasts were limited to forecasts for fiscal year 1998),
as well as the amount and timing of the cost savings, related expenses and
synergies expected to result from the Merger (the "Expected Synergies"),
furnished to Merrill Lynch by JSC, (iii) conducted discussions with members
of senior management and representatives of Stone and JSC concerning the
matters described in clauses (i) and (ii) above, as well as their
respective businesses and prospects before and after giving effect to the
Merger and the Expected Synergies, (iv) reviewed the market prices and
valuation multiples for the Stone Common Stock and the JSC Common Stock and
compared them with those of certain publicly traded companies which Merrill
Lynch deemed to be relevant, (v) reviewed the results of operations of
Stone and JSC and compared them with those of certain publicly traded
companies which Merrill Lynch deemed to be relevant, (vi) compared the
proposed financial terms of the Merger with the financial terms of certain
other transactions which Merrill Lynch deemed to be relevant, (vii)
participated in certain discussions and negotiations among representatives
of Stone and JSC and their financial and legal advisors, (viii) reviewed
the potential pro forma impact of the Merger, (ix) reviewed a draft of the
Merger Agreement and (x) reviewed such other financial studies and analyses
and took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information and Merrill Lynch has not undertaken an independent
evaluation or appraisal of any of the assets or liabilities of Stone or JSC or
been furnished with any such evaluation or appraisal. In addition, Merrill Lynch
did not assume any obligation to conduct any physical inspection of the
properties or facilities of Stone or JSC. With respect to the financial forecast
information and the Expected Synergies furnished to or discussed with Merrill
Lynch by Stone or JSC, Merrill Lynch assumed that they have been reasonably
prepared or reviewed and reflect the best currently available estimates and
judgment of Stone's or JSC's management as to the expected future financial
performance of Stone or JSC, as the case may be, and the Expected Synergies.
Merrill Lynch has not been provided with financial forecasts for Stone beyond
1998 and has relied exclusively on publicly available analysts' forecasts for
Stone for 1999 and thereafter. Merrill Lynch further assumed that the Merger
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
Merrill Lynch also assumed that the final form of the Merger Agreement would be
substantially similar to the last draft reviewed by Merrill Lynch.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, and on the
information made available to us as of, the date of such opinion. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger.
The following is a summary of the material financial analyses presented by
Merrill Lynch to the JSC Board in connection with the rendering of the Merrill
Lynch Opinion.
STONE VALUATION
Historical Stock Performance. Merrill Lynch analyzed the historical stock
price of Stone Common Stock. In conducting its analysis, Merrill Lynch examined
the performance of Stone Common Stock over the twelve months preceding April 27,
1998. Merrill Lynch analyzed both the stock price (noting the timing of various
events relating to Stone) and the trading volume during this period. In
addition, Merrill Lynch analyzed the relative trading performance of Stone
Common Stock by comparing it to the average stock performance of the Container
Group (as defined below) over the twelve months preceding April 27, 1998.
Premiums Paid Analysis. Merrill Lynch calculated the premium of the implied
offer price of $20.54 per share of Stone Common Stock to the share price as of
April 27, 1998, and to certain historical closing share prices of Stone Common
Stock over the two-year period through April 27, 1998. The historical periods
used included the one-week, two-week, three-week, high, low, 30-day, 60-day,
90-day, 180-day, one-year and two-year average share prices. The premiums to the
share price for these periods respectively were 37.7%, 43.0%, 48.6%, 17.4%,
113.3%, 52.5%, 58.4%, 61.7%, 68.5%, 51.8% and 48.1%. These premiums were
then compared with historical premiums paid on all deals from 1992 to 1997.
The average premium paid on all deals during any one of the years from 1992
to 1997 ranged from 35.7% to 44.7% (based on the closing share price five
days prior to the announcement of the transaction). Merrill Lynch also
compared the historical premiums paid using a transaction specific
analysis. Merrill Lynch calculated the premiums of the offer price to the
1-day, 1-week, 1-month, 3-month and 6-month trailing closing share price of
the target paid in the Bowater Inc./Avenor Inc. transaction, the James
River Corporation of Virginia/Fort Howard Corporation transaction, the
Abitibi-Price Inc./Stone-Consolidated Corporation transaction and the
Kimberly-Clark Corporation/Scott Paper Company transaction. Finally,
Merrill Lynch applied premiums ranging from 30% to 45% to the Stone share
price of $15.50 per share as of April 27, 1998, and derived a summary
reference range of implied per share equity values of $20.15 to $22.48.
Selected Comparable Companies Analysis. Merrill Lynch compared the trading
multiples for Stone to corresponding multiples of a selected group of container
companies consisting of Temple-Inland Inc., JSC, Stone, Willamette Industries
Inc., Gaylord Container Corporation and Union Camp Corporation (the "Container
Group"). Market Capitalization (defined as market value of common equity plus
liquidation value of redeemable preferred stock, minority interest and total
debt, less cash and cash equivalents) as a multiple of Stone's average of 1995
and 1997 earnings before interest, taxes, depreciation and amortization
("Normalized EBITDA"), Stone's 1995 EBITDA ("Peak EBITDA") and Stone's 1997
EBITDA were 6.6x, 3.6x and 38.4x, respectively, based on the closing price of
Stone Common Stock on April 27, 1998 of $15.50. Based on April 27, 1998 closing
share prices, Merrill Lynch calculated the mean Normalized EBITDA, Peak EBITDA
and 1997 EBITDA multiples for the Container Group to be 7.2x, 4.9x and 16.3x,
respectively. Based on its analysis, Merrill Lynch derived a summary reference
range of implied per share equity values of $15.07 to $36.28 for Peak EBITDA and
$15.26 to $27.76 for Normalized EBITDA.
The use of EBITDA as a tool in financial analyses is an accepted benchmark
in the financial community, generally, and is a primary benchmark with respect
to the forest products industry, in particular. It provides meaningful and
useful information concerning the operating cash flow of a business and is
frequently used in this context as a measure of the ability of an entity to
service debt. Its use also facilitates comparisons between companies by focusing
the comparison on the operating results of the businesses and minimizing the
effects on the comparison of differences in non-operating aspects of the various
businesses, such as leverage and treatment of fixed assets (e.g., owned or
leased, depreciation methods). While EBITDA is used by the financial community
for these purposes, it does not replace, and is not intended as an alternative
to, GAAP earnings (loss) as a measure of financial performance, or GAAP cash
flow as a measure of liquidity.
The companies in this industry have experienced substantial cyclicality in
the operations and financial results; accordingly, a comparison of the financial
data of one year to another, or of one company to that of another from a
different year, might be misleading if it did not take into account the point in
the business cycle from which the data was derived. The analysis included herein
attempts to recognize the cyclicality and to note, where relevant, that the data
derives from a high point in the business cycle (e.g., Peak EBITDA) or has been
"normalized" by averaging across differing points in the business cycle.
No company in the Container Group is identical to Stone. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Stone and the companies in the Container Group.
Selected Comparable Transactions Analysis. Merrill Lynch reviewed certain
publicly available information regarding five selected acquisitions relating to
paper, forest products and linerboard businesses and calculated historical
EBITDA multiples for such transactions. The mean and median of Transaction Value
(defined as fully-diluted (on a treasury stock basis) shares outstanding for the
target company multiplied by the offer price per share plus net debt,
liquidation value of redeemable preferred stock and minority interest) as a
multiple of LTM EBITDA for the comparable transactions were 9.0x and 9.3x,
respectively. The mean and median of Transaction Value as a multiple of trailing
five-year average EBITDA for the comparable transactions were 11.6x and 11.6x,
respectively. The mean and median of Transaction Value as a multiple of
trailing five-year Peak EBITDA for the comparable transactions were 6.8x
and 5.8x, respectively. Based on its analysis of such multiples, Merrill
Lynch calculated a summary reference range of implied per share equity
values of Stone Common Stock of $29.75 to $50.96 based on Peak EBITDA and
$27.76 to $45.62 based on Normalized EBITDA.
No company or transaction used in the above analysis as a comparison was
identical to JSC or Stone or the Merger, respectively. Accordingly, an analysis
of the results of the comparison is not purely mathematical; rather it involves
complex considerations and judgments concerning differences in historical
projected financial and operating characteristics of the comparable acquired
companies and other factors that could affect the acquisition value of such
companies and Stone.
Segment Valuation. Merrill Lynch performed separate valuations of the
separate business segments of Stone by applying the appropriate peak and
normalized multiples to the respective historical Peak and Normalized EBITDA of
each segment. Merrill Lynch valued the core consolidated linerboard, corrugated,
kraft paper and bag assets ("Brown Assets") within a range of $4,669 million to
$5,699 million and the non-core assets and equity instruments ("Non-Brown
Assets") within a range of $1,563 million to $1,704 million. Based on such
analysis, Merrill Lynch calculated a summary reference range of implied per
share equity values of $20.05 to $31.84.
Discounted Cash Flow Analysis. In rendering its opinion, Merrill Lynch
placed no reliance on a discounted cash flow analysis due to the cyclicality of
the industry. However, Merrill Lynch calculated, using a discounted cash flow
methodology, a range of per share equity values for Stone based on (i)
projections of Salomon Smith Barney research for the years 1998 to 2001, (ii) a
range of normalized terminal EBITDA multiples of 6.6x to 8.0x, (iii) a range of
discount rates from 10.0% to 12.0%, (iv) 99.7 million fully-diluted shares
outstanding, (v) net debt and preferred stock of $3,476 million and (vi)
Expected Synergies, all of which were allocated to Stone, based on estimates
provided by JSC management. Based on its analysis, Merrill Lynch derived a
summary reference range of implied per share equity values of $12.41 to $23.92
(with synergies).
JSC VALUATION
Historical Stock Performance. Merrill Lynch analyzed the historical stock
price of JSC Common Stock. In conducting its analysis, Merrill Lynch examined
the performance of JSC Common Stock over the twelve months preceding April 27,
1998. Merrill Lynch analyzed both the stock price (noting the timing of various
events relating to JSC) and the trading volume during this period. In addition,
Merrill Lynch analyzed the relative trading performance of JSC Common Stock by
comparing it to the average stock performance of the Container Group over the
twelve months preceding April 27, 1998.
Selected Comparable Companies Analysis. Merrill Lynch compared the trading
multiples for JSC to corresponding multiples of the Container Group. The ratio
of JSC's price to Normalized EBITDA, Peak EBITDA and 1997 EBITDA were 8.0x, 5.8x
and 13.1x, respectively, based on the closing price of JSC Common Stock on
April 27, 1998 of $20.75. Based on April 27, 1998 closing share prices, Merrill
Lynch calculated the mean Normalized EBITDA for the Container Group to be 7.2x,
the mean Peak EBITDA multiple to be 4.9x, and the mean 1997 EBITDA multiple to
be 16.3x. Based on its analysis, Merrill Lynch derived a summary reference range
of implied per share equity values of $16.37 and $21.73 using Normalized EBITDA,
$12.22 to $21.02 using Peak EBITDA and $9.46 to $20.75 using 1997 EBITDA.
No company in the Container Group is identical to JSC. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of JSC and the companies in the Container Group.
Segment Valuation Analysis. Merrill Lynch performed separate valuations of
the separate business segments of JSC by applying the appropriate peak and
normalized multiples to the respective historical Peak and Normalized EBITDA of
each segment. Merrill Lynch valued the Brown Assets within a range of $2,426
million to $2,965 million and the Non-Brown Assets within a range of $1,889
million to $2,392 million. Based on such analysis, Merrill Lynch calculated a
summary reference range of implied per share equity values of $20.60 to $29.98.
Discounted Cash Flow Analysis. In rendering its opinion, Merrill Lynch
placed no reliance on a discounted cash flow analysis due to the cyclicality of
the industry. However, Merrill Lynch calculated, using a discounted cash flow
methodology, a range of per share equity values for JSC based on (i) projections
prepared by management of JSC for the years 1998 to 2002, (ii) a range of
Normalized EBITDA multiples from 7.1x to 8.2x, (iii) a range of discount rates
from 8.5% to 10.5% and (iv) 111.0 fully-diluted shares outstanding. Based on its
analysis, Merrill Lynch derived a summary reference range of implied per share
equity values of $10.96 to $16.59.
RELATIVE VALUATION SUMMARY
Merrill Lynch reviewed the relative valuations of JSC and Stone using
relative historical exchange ratio analysis, relative premiums paid analysis,
relative comparable public companies analysis, relative segment valuation
analysis, relative contribution analysis and relative discounted cash flow
analysis with and without Expected Synergies.
Historical Exchange Ratio Analysis. Merrill Lynch compared the Exchange
Ratio to the historical implied exchange ratio of Stone Common Stock to JSC
Common Stock. In conducting its analysis, Merrill Lynch examined the implied
ratio over the twelve months preceding April 27, 1998. Merrill Lynch calculated
the implied exchange ratio for the current, high, low, 30-day average, 60-day
average, 90-day average, 180-day average, one-year average and two-year average
periods. The implied exchange ratios over these periods were 0.747x, 1.391x,
0.668x, 0.738x, 0.749x, 0.764x, 0.759x, 0.793x and 0.944x, respectively.
Relative Premium Paid Analysis. Merrill Lynch noted the premium of the
Exchange Ratio to the current market exchange ratio of 0.747x, based on closing
share prices of JSC and Stone of $20.75 and $15.50 as of April 27, 1998,
respectively, to be 32.5%. Merrill Lynch compared the current exchange ratio
premium with historical premiums paid on all deals from 1992 to 1997 and with
historical premiums paid in selected transactions, per the stand alone Premiums
Paid Analysis of Stone. Based on a range of premiums of 30% to 45%, Merrill
Lynch derived a summary reference range of implied exchange ratios of 0.97x to
1.08x.
Relative Comparable Public Companies Analysis. Based on the comparable
public companies analysis for JSC and Stone, Merrill Lynch calculated implied
exchange ratios by comparing the highest implied per share equity price for JSC
to the highest implied per share equity price for Stone, and the lowest implied
per share equity price for JSC to the lowest per share equity price for Stone.
Using a Normalized EBITDA multiple valuation range, Merrill Lynch derived a
summary reference range of implied exchange ratios of 0.93x to 1.28x. Using a
Peak EBITDA multiple valuation range, Merrill Lynch derived a summary reference
range of implied exchange ratios of 1.23x to 1.73x.
Relative Segment Valuation Analysis. Based on the segment valuation
analysis for JSC and Stone, Merrill Lynch calculated implied exchange ratios by
comparing the highest implied per share equity price for JSC to the highest
implied per share equity price for Stone, and the lowest implied per share
equity price for JSC to the lowest per share equity price for Stone. The high
and the low implied equity values per share for JSC were $20.60 and $29.98,
respectively. The high and the low implied equity values per share for Stone
were $20.05 and $31.84, respectively. Based on 99.7 million shares outstanding
for Stone and 111.0 million shares outstanding for JSC, Merrill Lynch derived a
summary reference range of implied exchange ratios of 0.97x to 1.06x.
Relative Contribution Analysis. Merrill Lynch compared the pro forma fully
diluted enterprise value ownership interest of 21.2% for the stockholders of JSC
to the relative pro forma equity contributions of JSC and Stone to both Peak and
Normalized Pro Forma Sales, Pro Forma EBITDA and Pro Forma EBIT of the combined
company (excluding the impact of potential synergies). The equity contribution
of JSC stockholders to Normalized and Peak Pro Forma Sales was 19.9% and 19.0%,
respectively. The equity contribution of JSC stockholders to Normalized and Peak
Pro Forma EBITDA was 16.8% and 20.1%, respectively. The equity contribution of
JSC stockholders to Normalized and Peak Pro Forma EBIT was 17.7% and 22.8%,
respectively. As a result, Merrill Lynch derived a summary reference range of
implied exchange ratios of 0.88x to 1.43x.
Relative Discounted Cash Flow Analysis. In rendering its opinion, Merrill
Lynch placed no reliance on a discounted cash flow analysis due to the
cyclicality of the industry. However, using a relative discounted cash flow
methodology, Merrill Lynch calculated a range of implied exchange ratios based
on (i) projections prepared by the management of JSC (for JSC) and Salomon Smith
Barney research (for Stone), (ii) a range of terminal EBITDA multiples of 6.6x
to 8.0x for JSC and 7.1x to 8.2x for Stone, (iii) a range of discount rates of
10.0% to 12.0% for JSC and 8.5% to 10.5% for Stone, (iv) 111.0 million shares
outstanding for JSC and 99.7 million shares outstanding for Stone and (v)
Expected Synergies based on estimates provided by JSC management. The summary
reference range of implied exchange ratios resulting from the relative
discounted cash flow analysis ranged from 0.68x to 1.05x without synergies and
1.13x to 1.44x with synergies.
Merger Consequences Analysis. Due to the cyclicality of the industry,
projections relating to the consequences of the Merger are not necessarily the
reflection of actual results and such projections may be influenced by factors
that could cause actual outcomes and results to be materially different from
those projected. Merrill Lynch examined the pro forma impact of the Merger on
JSC's earnings per share based upon estimates of Stone projected financial
performance prepared by Salomon Smith Barney research, and estimates of JSC
projected financial performance and Expected Synergies prepared by the
management of JSC. This analysis indicated that, compared to JSC management
estimates for JSC, the Merger would be dilutive in fiscal year 1998, and highly
accretive to JSC's earnings per share in each of fiscal years 1999 to 2001.
Merrill Lynch also examined a street case pro forma impact of the Merger on
JSC's earnings per share based upon estimates of Stone and JSC projected
financial performance prepared by Salomon Smith Barney research and Expected
Synergies prepared by the management of JSC. This analysis indicated that,
compared to Salomon Smith Barney estimates for JSC, the Merger would be dilutive
in fiscal year 1998 and highly accretive to JSC's earnings per share in 1999.
Pursuant to a letter agreement between JSC and Merrill Lynch, JSC agreed to
pay Merrill Lynch a fee of $10,000,000 contingent upon and payable in cash upon
the consummation of (i) a merger, consolidation, reorganization or other
business combination pursuant to which a majority of the business of Stone is
combined with a majority of JSC, (ii) the acquisition by JSC, whether by tender
or exchange offer, negotiated purchase or other means of a majority of the stock
of Stone, or (iii) the acquisition by JSC of all or a substantial portion of the
assets of Stone. Additionally, JSC agreed to reimburse Merrill Lynch for
reasonable out-of-pocket expenses, including, without limitation, reasonable
fees and disbursements of its legal counsel. JSC has also agreed to indemnify
Merrill Lynch and certain related persons for certain liabilities related to or
arising out of its engagement, including liabilities under the federal
securities laws.
JSC retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
Merrill Lynch has, in the past, provided financial advisory and financing
services to JSC and Stone and/or its affiliates and may continue to do so and
has received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of JSC and Stone
for their own account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
OPINION OF FINANCIAL ADVISOR TO STONE
Stone retained Salomon Brothers Inc and Smith Barney Inc., which
subsequently merged to form Salomon Smith Barney Inc. (together with such
predecessors, "Salomon Smith Barney"), pursuant to a letter agreement dated
December 1, 1997, as amended through the date of this Joint Proxy
Statement/Prospectus (the "Engagement Letter"), to render financial advisory and
investment banking services to Stone in connection with a potential merger with
JSC. Pursuant to the Engagement Letter, Salomon Smith Barney rendered an
oral opinion to the Stone Board on May 10, 1998 (subsequently confirmed in
writing, the "Salomon Smith Barney May Opinion") to the effect that, based
upon and subject to certain considerations, as of such date, the Exchange
Ratio was fair, from a financial point of view, to the holders of Stone
Common Stock. Salomon Smith Barney has confirmed the Salomon Smith Barney
May Opinion with a written opinion dated the date of this Joint Proxy
Statement/Prospectus (the "Salomon Smith Barney Update Opinion"). In
connection with the Salomon Smith Barney Update Opinion, Salomon Smith
Barney updated certain of the analyses performed in connection with the
Salomon Smith Barney May Opinion and reviewed the assumptions on which such
analyses were based and the factors considered in connection therewith.
THE FULL TEXT OF THE SALOMON SMITH BARNEY UPDATE OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY,
IS ATTACHED AS ANNEX F TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE SALOMON SMITH BARNEY UPDATE
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE SALOMON SMITH BARNEY UPDATE OPINION. NO LIMITATIONS WERE IMPOSED BY
STONE OR THE STONE BOARD WITH RESPECT TO THE INVESTIGATIONS MADE OR PROCEDURES
FOLLOWED BY SALOMON SMITH BARNEY IN RENDERING ITS OPINIONS. SALOMON SMITH BARNEY
WAS NOT REQUESTED TO, NOR DID IT, SEEK ALTERNATIVE PARTICIPANTS FOR A PROPOSED
TRANSACTION WITH STONE. STOCKHOLDERS ARE URGED TO READ THE SALOMON SMITH BARNEY
UPDATE OPINION IN ITS ENTIRETY.
In connection with rendering the Salomon Smith Barney Update Opinion,
Salomon Smith Barney reviewed and analyzed, among other things, the following:
(i) the Merger Agreement, the Standstill Agreement (as amended, the "Standstill
Agreement") dated as of May 10, 1998 among JSG, MSLEF and JSC, the Voting
Agreement (the "Voting Agreement") dated as of May 10, 1998, as amended, among
SIBV, MSLEF and Roger W. Stone, the Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of May 10, 1998 among SIBV, JSG, MSLEF, JSC and
certain other parties and the Asset Purchase Agreement (the "Asset Purchase
Agreement") dated as of May 10, 1998 between Jefferson Smurfit Corporation
(U.S.) ("JSCUS"), as buyer, and Smurfit Packaging Corporation, as seller; (ii)
certain publicly available information concerning Stone, including the Annual
Reports on Form 10-K of Stone for each of the years in the three year period
ended December 31, 1997 and the Quarterly Reports on Form 10-Q of Stone for the
quarters ended March 31, 1998 and June 30, 1998; (iii) certain internal
information concerning the business and operations of Stone, furnished to
Salomon Smith Barney by Stone for purposes of its analysis; (iv) certain
publicly available information concerning the trading of, and the trading market
for, Stone Common Stock; (v) certain publicly available information concerning
JSC, including the Annual Reports on Form 10-K of JSC for each of the years in
the three year period ended December 31, 1997 and the Quarterly Reports on Form
10-Q of JSC for the quarters ended March 31, 1998 and June 30, 1998; (vi)
certain internal information concerning the business and operations of JSC,
furnished to Salomon Smith Barney by JSC for purposes of its analysis; (vii)
certain publicly available information concerning the trading of, and the
trading market for, the JSC Common Stock; (viii) certain publicly available
information with respect to certain other companies that Salomon Smith Barney
believed to be comparable to Stone or JSC and the trading markets for certain of
such other companies' securities; (ix) certain publicly available information
concerning the nature and terms of certain other transactions that Salomon Smith
Barney considered relevant to its inquiry; and (x) certain publicly available
information, prepared by third parties, including equity research analysts,
concerning the business, operations and financial prospects of Stone and JSC and
the sectors in which they operate. Salomon Smith Barney also considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that it deemed relevant. Salomon Smith Barney met
with certain officers and employees of Stone and JSC to discuss the foregoing as
well as other matters Salomon Smith Barney believed were relevant to its
inquiry.
In its review and analysis and in arriving at each opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available and neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and further relied upon the assurances of the management
of Stone that they are not aware of any facts that would make any of such
information inaccurate or misleading. Salomon Smith Barney did not conduct a
physical inspection of any of the properties or facilities of Stone or JSC nor
did it make or obtain or assume any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties or facilities.
With respect to financial forecasts, Salomon Smith Barney relied on publicly
available third party equity research forecasts, which had been approved by the
management of Stone. Salomon Smith Barney expressed no view with respect to such
projections or the assumptions on which they were based. Salomon Smith Barney
further assumed that the Merger will be consummated in a timely manner and in
accordance with the terms of the Merger Agreement.
In conducting its analysis and arriving at its opinions, Salomon Smith
Barney considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: (1) the
historical and current financial position and results of operations of Stone and
JSC; (2) the business prospects of Stone and JSC; (3) the historical and current
market for the Stone Common Stock, the JSC Common Stock and the equity
securities of certain other companies that Salomon Smith Barney believed to be
comparable to Stone or JSC; and (4) the nature and terms of certain other
transactions that Salomon Smith Barney believed to be relevant. Salomon Smith
Barney also took into account its assessment of general economic, market and
financial conditions as well as its experience in connection with similar
transactions and securities valuation generally. Salomon Smith Barney was not
asked to consider, and its opinions do not address, the relative merits of the
Merger as compared to any alternative business strategy that might exist for
Stone. Salomon Smith Barney's opinions necessarily were based on conditions as
they existed and could be evaluated on the respective dates thereof and Salomon
Smith Barney assumed no responsibility to update or revise its opinions based
upon circumstances or events occurring after such dates. Salomon Smith Barney's
opinions do not constitute opinions or imply any conclusions as to the likely
trading range for the JSC Common Stock following consummation of the Merger.
Salomon Smith Barney's opinions were for the benefit of the Stone Board and
management in their consideration of the Merger and were, in any event, limited
to the fairness, from a financial point of view, of the Exchange Ratio and did
not address Stone's underlying business decision to effect the Merger or
constitute a recommendation of the Merger to Stone or a recommendation to any
holder of Stone Common Stock as to how such holder should vote with respect to
the Merger.
In connection with rendering the Salomon Smith Barney May Opinion, Salomon
Smith Barney made a presentation to the Stone Board on May 10, 1998, with
respect to certain analyses performed by Salomon Smith Barney in evaluating the
Exchange Ratio. The following is a summary of such Salomon Smith Barney
presentation. The following quantitative information, to the extent it is based
on market data, is based on market data as it existed at May 8, 1998 and is not
necessarily indicative of current market conditions.
Historical Premium and Multiple Analyses. Salomon Smith Barney reviewed
certain historical financial and stock market data for Stone and JSC and
analyzed certain premiums and multiples implied by such data.
Salomon Smith Barney calculated the premiums to the market prices of Stone
Common Stock at certain dates and for certain periods represented by the
consideration implied by multiplying the Exchange Ratio by a range of share
prices of JSC Common Stock. Using the then current JSC Common Stock price of
$20.50 per share, and the $20.30 consideration per share of Stone Common Stock
implied thereby, Salomon Smith Barney calculated the premiums implied by the
Exchange Ratio. Salomon Smith Barney noted that the Exchange Ratio as of such
date resulted in a premium of 12.8% to the last closing price of Stone Common
Stock prior to the presentation (May 8, 1998), a 30.9% premium to the closing
price of Stone Common Stock one day prior to the announcement that the parties
were engaged in merger discussions (April 27, 1998), a 40.0% premium to the
closing price of Stone Common Stock one week prior to such announcement (April
21, 1998), a 64.0% premium to the closing price of Stone Common Stock one
month prior to the last close (April 8, 1998), a 68.2% premium to the
closing price of Stone Common Stock three months prior to the last close
(February 9, 1998), a 28.3% premium to the thirty calendar day closing
average, a 51.7% premium to the ninety calendar day closing average, a
14.0% premium to the pre-announcement twelve month high (September 2, 1997)
and a 110.9% premium to the pre-announcement twelve month low (April 30,
1997).
Salomon Smith Barney also calculated the multiples of certain Stone
financial data represented by the consideration implied by multiplying the
Exchange Ratio by a range of share prices of JSC Common Stock. Salomon Smith
Barney calculated the adjusted firm value of Stone (implied market
capitalization, based on the $20.30 consideration per share of Stone Common
Stock implied by multiplying the Exchange Ratio by the then current JSC Common
Stock price of $20.50 per share, plus shares subject to options, net of option
proceeds, plus net debt, minus the value of Stone's minority-owned equity
investments) and the implied multiples of such adjusted firm value to earnings
before interest, taxes, depreciation and amortization ("EBITDA") for each of the
years 1995, 1998, 1999 and 2000 (utilizing equity research analyst estimates for
1998, 1999 and 2000) and for the normalized average of EBITDA for 1995 and 1997:
4.3x 1995 EBITDA (at a peak in the business cycle), 7.3x 1995 and 1997
normalized EBITDA, 12.0x 1998 expected EBITDA, 5.8x 1999 expected EBITDA and
4.3x 2000 expected EBITDA.
The use of EBITDA as a tool in financial analyses is an accepted benchmark
in the financial community, generally, and is a primary benchmark with respect
to the forest products industry, in particular. It provides meaningful and
useful information concerning the operating cash flow of a business and is
frequently used in this context as a measure of the ability of an entity to
service debt. Its use also facilitates comparisons between companies by focusing
the comparison on the operating results of the businesses and minimizing the
effects on the comparison of differences in non-operating aspects of the various
businesses, such as leverage and treatment of fixed assets (e.g., owned or
leased, depreciation methods). While EBITDA is used by the financial community
for these purposes, it does not replace, and is not intended as an alternative
to, GAAP earnings (loss) as a measure of financial performance, or GAAP cash
flow as a measure of liquidity.
The companies in this industry have experienced substantial cyclicality in
the operations and financial results; accordingly, a comparison of the financial
data of one year to another, or of one company to that of another from a
different year, might be misleading if it did not take into account the point in
the business cycle from which the data was derived. The analysis included herein
attempts to recognize the cyclicality and to note, where relevant, that the data
derives from a high point in the business cycle (e.g., Peak EBITDA) or has been
"normalized" by averaging across differing points in the business cycle.
Historical Trading Ratio Analysis. Salomon Smith Barney also reviewed the
daily closing prices of Stone Common Stock and JSC Common Stock during the
period from April 29, 1997 through May 8, 1998 and the historical implied
exchange ratios, determined by dividing the price per share of Stone Common
Stock by the price per share of JSC Common Stock (the "Historical Implied
Exchange Ratio"), over such period. Salomon Smith Barney calculated that during
the period the Historical Implied Exchange Ratio ranged from a high of 0.94 to a
low of 0.67 with an average of 0.79. During the one-month period preceding May
8, 1998, the mean Historical Implied Exchange Ratio was 0.81. During the
three-month period preceding May 8, 1998, the mean Historical Implied Exchange
Ratio was 0.77. During the six-month period preceding May 8, 1998, the mean
Historical Implied Exchange Ratio was 0.76. The ratio on May 8, 1998 was 0.88.
Salomon Smith Barney noted that the Exchange Ratio is higher than any of the
implied exchange ratios for the last twelve months ("LTM") based on daily
closing prices of JSC and Stone.
Comparable Companies Review. Salomon Smith Barney reviewed certain publicly
available financial, operating and stock market information for Stone and eight
other publicly-traded companies in the containerboard, corrugated containers,
kraft paper and bags industry (Temple-Inland Inc., Weyerhaeuser Corp.,
International Paper, JSC, Gaylord Corp., Union Camp Corp., Willamette Industries
Inc. and Georgia-Pacific Group (the "Comparable Companies")). For each of the
Comparable Companies, Salomon Smith Barney calculated the ratio of (1) current
firm value (market capitalization based on common stock price as of May 8, 1998
plus shares subject to options, net of option proceeds, plus net debt as of
the latest available public financials) to EBITDA for each of the years
1995 through 2000 (utilizing equity research analyst estimates for 1998,
1999 and 2000) and for the normalized average of EBITDA for 1995 and 1997
and (2) current common stock price to earnings per share ("EPS") for 1995,
1999 and 2000. For purposes of comparison, Salomon Smith Barney calculated
similar ratios for Stone utilizing the following measures of current common
stock price: the per share price ($20.30) derived from the Exchange Ratio
multiplied by the last closing per share price of JSC Common Stock as of
May 8, 1998; the last closing per share price of Stone Common Stock as of
May 8, 1998 ($18.00); the last closing per share price of Stone Common
Stock as of the day before the public announcement that Stone and JSC were
engaged in merger discussions ($15.50); the last closing per share price of
Stone Common Stock as of the day one week prior to such announcement
($14.50); and the average closing per share price of Stone Common Stock for
the one-month period prior to such announcement ($12.86). Salomon Smith
Barney also compared the implied multiples described in the fourth
preceding paragraph to the mean of the multiples of firm value to EBITDA
for such periods for the Comparable Companies (5.8x 1995 EBITDA, 7.9x 1995
and 1997 normalized EBITDA, 10.8x 1998 expected EBITDA, 6.4x 1999 expected
EBITDA and 4.8x 2000 expected EBITDA). Salomon Smith Barney presented this
analysis for comparison purposes, but did not utilize the Comparable
Companies or their public market valuation multiples to derive an implied
value per share of Stone Common Stock or an implicit exchange ratio range.
Private Market Valuation--Stone. Salomon Smith Barney determined a
private market valuation range for Stone Common Stock and from such valuation
range it calculated an implied exchange ratio range of Stone Common Stock to JSC
Common Stock.
In order to arrive at a private market valuation range for Stone Common
Stock, Salomon Smith Barney started with an analysis of certain publicly
available financial, operating and stock market information for nine selected
merger or acquisition transactions in the paperboard industry announced since
February 1989 (the "Precedent Transactions"). The Precedent Transactions
reviewed were International Paper/Weston Paper, Abitibi-Price Inc./
Stone-Consolidated Corporation, St. Laurent Paperboard/Chesapeakeboard Assets,
Clayton Dubilier & Rice/Riverwood International, International Paper/Federal
Paper, Manville Corp./Macon Kraft, Packaging Corp. of America/GP Valdosta &
Tomahawk Mills, JSG & MSLEF/Jefferson Smurfit Corp. and Stone/Consolidated
Bathurst. Salomon Smith Barney considered the Precedent Transactions to be
reasonably similar to the Merger, but noted that information on precedent
comparable transactions is scarce and inconsistent due to transactions occurring
at different points in the business cycle, and due to differences in size,
combination of businesses, transaction structure and form of consideration.
Accordingly, the analysis of Precedent Transactions was not purely mathematical.
Rather it involved complex considerations and judgments. For each transaction
reviewed, Salomon Smith Barney established the point in the business cycle at
which each transaction occurred, and calculated the premium paid in each
transaction based on the market price of the acquired company three days before
the announcement of the transaction and twenty days before such announcement and
the multiples of (1) firm value to LTM revenues and EBITDA and (2) per share
transaction price to LTM EPS.
In order to determine a private market valuation of Stone, Salomon Smith
Barney utilized a multiple range of 4.0x to 4.2x 1995 EBITDA (at a peak in the
business cycle) and 6.5x to 7.5x 1995 and 1997 normalized EBITDA. This range was
selected based on the range of multiples of firm value to LTM EBITDA in the
Precedent Transactions (5.5x to 15.1x, with a median of 6.5x and average of
7.0x), as modified to reflect the excessive leverage of Stone. Using this range
of multiples, Salomon Smith Barney derived an implied private market valuation
range of approximately $16 to $21 for each share of Stone Common Stock. By
dividing this implied private market valuation range by JSC Common Stock's
public market price of $20.50 per share as of May 8, 1998, Salomon Smith Barney
derived an implied exchange ratio range of 0.7683 to 1.0244.
Sum of Parts Analysis--Stone and JSC. Salomon Smith Barney reviewed
certain financial and operating information for Stone and JSC in order to
determine a range of values of the constituent businesses and equity investments
of each entity. Salomon Smith Barney derived a value for the core consolidated
containerboard, corrugated containers, kraft paper and bags assets of Stone and
JSC by applying a multiple of 4.5x such assets' consolidated 1995 EBITDA (at a
peak in their respective business cycles). Salomon Smith Barney added the
value ranges of each entity's non-containerboard, corrugated containers,
kraft paper and bags assets and equity investments. Salomon Smith Barney
chose these value ranges based upon, among other things, the prices at
which companies comparable to such assets or equity investments are valued
in the public markets and, with respect to Stone's assets and equity
investments, estimates of such values provided by the management of Stone.
For Stone, Salomon Smith Barney also added net operating losses ("NOLs"),
among other things. For each entity, Salomon Smith Barney then subtracted
outstanding debt and preferred stock. Salomon Smith Barney also calculated
Stone's value without regard to NOLs.
Based on this analysis, Salomon Smith Barney derived an implied share price
valuation range of approximately $18 to $22 per share for Stone and
approximately $20 to $23 per share for JSC. Salomon Smith Barney also noted that
the valuation ranges for Stone calculated by this method are not adjusted for
the potential discount to Stone's value due to its excessive leverage. Using
these per share valuation ranges, Salomon Smith Barney derived an implied
exchange ratio range of 0.8609 to 1.0014.
Discounted Cash Flow Analysis--Stone and JSC. Salomon Smith Barney
performed a discounted cash flow ("DCF") analysis to establish a range of equity
value per share for Stone Common Stock. Free cash flow represented the amount of
cash generated and available for principal, interest and dividend payments after
providing for ongoing business operations. In the DCF for Stone, Salomon Smith
Barney applied discount rates ranging from 10% to 12% to calculate (1) the
present value of the projected unlevered free cash flows for fiscal years 1997
through 2001 and (2) the present value of the range of terminal values derived
by applying a range of multiples between 6.5x and 8.5x to the average of Stone's
EBITDA in 1997 and its projected EBITDA in 2000. From this calculation, Salomon
Smith Barney derived a range of equity value per share for Stone of
approximately $15 to $21.
Salomon Smith Barney also performed a DCF analysis to establish a range of
equity value per share for the JSC Common Stock. Applying the same discount
rates ranging from 10% to 12% to calculate (1) the present value of the
projected unlevered free cash flows for fiscal years 1997 through 2001 and (2)
the present value of the range of terminal values by applying the same range of
multiples between 6.5x and 8.5x to the average of JSC's EBITDA in 1997 and its
projected EBITDA in 2000, Salomon Smith Barney derived a range of equity value
per share for JSC of approximately $17 to $22.
Using the equity value per share data described above, Salomon Smith Barney
derived an implied exchange ratio range of 0.8786 to 0.9799.
Salomon Smith Barney noted that the Exchange Ratio was at the high end of
the implied exchange ratios derived by each of the three valuation analyses it
performed. Salomon Smith Barney also noted that these valuation analyses had
been performed without including any adjustment to value for the significant
positive impact from operating synergies that are expected to result from the
Merger. Salomon Smith Barney also noted, however, that the valuation was
impacted by a recent increase in the price of each of Stone Common Stock and JSC
Common Stock resulting from rumors about a potential deal and from the April 28,
1998 announcement confirming the effect of discussions between the two
companies.
Pro Forma Analysis of the Merger. Salomon Smith Barney analyzed the pro
forma impact of the Merger on an EPS basis to Stone's and JSC's stockholders for
1998 through 2001. The analysis was performed utilizing stand-alone earnings
estimated by an equity research analyst for the years 1998 through 2001 for
Stone and JSC combined, taking into account the operating synergies expected to
be derived from the Merger as estimated by Stone and assuming an interest
expense reduction relating to Stone debt which will be refinanced. Based upon
such analysis, the Merger would be accretive to Stone stockholders in 1998
(81.7%), 1999 (24.5%), 2000 (5.2%) and 2001 (17.3%) and would be dilutive to JSC
stockholders in 1998 (-149.4%) and accretive to such stockholders in 1999
(13.3%), 2000 (34.8%) and 2001 (53.8%).
Salomon Smith Barney also analyzed the potential pro forma impact of the
Merger on Stone's credit statistics, assuming Stone's current debt would be
refinanced at a 100 basis point reduction in interest expense and operating
synergies would be achieved equal to Stone's management's estimates of $100
million in 1998, $200 million in 1999 and $350 million thereafter. Utilizing
these assumptions, Salomon Smith Barney compared, for Stone on a stand-alone
basis and for the merged entity on a pro forma basis, (1) the ratio of
EBITDA to net interest for each of 1998 (1.0x and 1.6x, respectively), 1999
(2.1x and 3.0x, respectively), 2000 (3.0x and 4.7x, respectively) and 2001
(2.7x and 4.3x, respectively) and (2) the ratio of total debt to EBITDA for
each of 1998 (9.3x and 6.8x, respectively), 1999 (4.4x and 3.5x,
respectively), 2000 (3.1x and 2.2x, respectively) and 2001 (3.6x and 2.3x,
respectively). Salomon Smith Barney noted that Stone could significantly
accelerate the deleveraging of its balance sheet following the Merger.
Salomon Smith Barney also analyzed the potential valuation impact of the
operating synergies that are expected to result from the Merger. Using a range
of multiples of 5.0x to 8.0x EBITDA and a range of pre-tax operating synergies
of $250 million to $350 million, Salomon Smith Barney calculated the implied
value per pro forma share following the Merger of the operating synergies as
ranging from $5.45 to $12.20. Using a range of multiples of 7.0x to 10.0x EPS
and a range of after-tax operating synergies of $153 million to $214 million,
Salomon Smith Barney calculated the implied value per pro forma share following
the Merger of the operating synergies as ranging from $4.65 to $9.31.
The foregoing summary does not purport to be a complete description of the
analyses performed by Salomon Smith Barney or of its presentations to the Stone
Board. The preparation of financial analyses and fairness opinions is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analysis or summary description. Salomon Smith Barney made no attempt to
assign specific weights to particular analyses or factors considered, but rather
made qualitative judgments as to the significance and relevance of the analyses
and factors considered. Accordingly, Salomon Smith Barney believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analyses and of the factors considered by
Salomon Smith Barney, without considering all of such analyses and factors,
could create a misleading or incomplete view of the processes underlying the
analyses conducted by Salomon Smith Barney and its opinions. With regard to the
comparable public company analysis and the comparable transaction analysis
summarized above, Salomon Smith Barney selected comparable public companies on
the basis of various factors, including the size of the public company and
similarity of the line of business; however, no public company or transaction
utilized as a comparison is identical to JSC or Stone, any business segment of
JSC or Stone or the Merger. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and other factors that could affect the transaction or
public trading value of the Comparable Companies and transactions to which JSC
and Stone, the business segments of JSC and Stone and the Merger are being
compared. In its analyses, Salomon Smith Barney made numerous assumptions with
respect to JSC, Stone, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of JSC and Stone. Any estimates contained in Salomon Smith Barney's analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because such estimates are inherently subject to uncertainty, none of
JSC, Stone, the JSC Board, the Stone Board, Salomon Smith Barney or any other
person assumes responsibility if future results or actual values differ
materially from the estimates. Salomon Smith Barney's analyses were prepared
solely as part of Salomon Smith Barney's analysis of the fairness of the
Exchange Ratio and were provided to the Stone Board in that connection. The
opinion of Salomon Smith Barney was one of the factors taken into consideration
by the Stone Board in making its determination to approve the Merger Agreement
and the Merger.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged, among other things, in the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Stone selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Stone. Salomon Smith Barney or its affiliates had previously rendered investment
banking and financial advisory services to Stone and JSC, for which such entity
received customary compensation. In addition, in the ordinary course of its
business, Salomon Smith Barney may trade the debt and equity securities of
both JSC and Stone for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Pursuant to the Engagement Letter, Stone has agreed, among other things, to
pay Salomon Smith Barney a fee, contingent upon consummation of the Merger, in
the amount of $7,500,000. In addition, whether or not the Merger is consummated,
Stone has agreed, pursuant to the Engagement Letter, to reimburse Salomon Smith
Barney for all reasonable fees and disbursements of Salomon Smith Barney's
counsel and all of Salomon Smith Barney's reasonable travel and other
out-of-pocket expenses and to indemnify Salomon Smith Barney against certain
liabilities and expenses relating to or arising out of its engagement, including
certain liabilities under the federal securities laws.
As noted under the caption "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors," the fairness opinion of Salomon
Smith Barney was one of several factors considered by the Stone Board in
determining to approve the Merger Agreement and the Merger. The Exchange Ratio
was determined by arms'-length negotiations between Stone and JSC, in
consultation with their respective financial advisors and other representatives,
and was not established by such financial advisors.
VOTING COMMITMENTS FROM CERTAIN STOCKHOLDERS
Concurrently with the execution of the Merger Agreement, SIBV and MSLEF,
the two largest JSC stockholders, entered into separate agreements (the "SIBV
Support Agreement" and the "MSLEF Support Agreement", respectively, and
collectively the "JSC Support Agreements") with Stone pursuant to which MSLEF
and SIBV each agreed, subject to the exception described below, to vote all of
the shares of JSC Common Stock beneficially owned by it on the Record Date in
favor of the JSC Proposal. On the Record Date, SIBV and MSLEF beneficially owned
sufficient shares of JSC Common Stock to approve the JSC Proposal without the
vote of any other JSC stockholder.
Also concurrently with the execution of the Merger Agreement, Roger W.
Stone, the Chairman of the Board, President and Chief Executive Officer ("CEO")
of Stone, entered into an agreement (the "Stone Support Agreement" and
collectively with the JSC Support Agreements, the "Support Agreements") with JSC
pursuant to which Mr. Stone agreed, subject to the exception described below, to
vote all of the shares of Stone Common Stock beneficially owned by him on the
Record Date in favor of (and to use reasonable best efforts to persuade members
of his family to vote in favor of) the Stone Proposal. On the Record Date, Mr.
Stone owned approximately 1.1% of the outstanding shares of Stone common stock,
and members of Mr. Stone's family owned approximately 11.2% of the outstanding
shares of Stone common stock.
The following summary of the Support Agreements is qualified in its
entirety by reference to the complete texts of the Support Agreements, which are
incorporated by reference herein and attached as exhibits to the Registration
Statement in which this Joint Proxy Statement/Prospectus is included.
The Support Agreements (other than the MSLEF Support Agreement) do not
permit, subject to the exception described below, the stockholder party thereto
to directly or indirectly sell or otherwise dispose of its shares of JSC Common
Stock or Stone Common Stock, as the case may be. The MSLEF Support Agreement
contains no such restriction.
The JSC Support Agreements provide that the obligations of each of SIBV and
MSLEF to vote in favor of the JSC Proposal and, in the case of SIBV, to not sell
or transfer its shares of JSC Common Stock will be suspended if the JSC Board
does not recommend the JSC Proposal or modifies in a manner materially adverse
to Stone, or withdraws, its recommendation of the JSC Proposal. The Stone
Support Agreement provides that the obligations of Mr. Stone to vote in favor of
the Stone Proposal and to not sell or transfer his shares of Stone Common Stock
will be suspended if the Stone Board does not recommend the Stone Proposal or
modifies in a manner materially adverse to JSC, or withdraws, its recommendation
of the Stone Proposal.
Each of the Support Agreements terminate upon the earlier of the (i)
termination of the Merger Agreement and (ii) consummation of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the JSC Board and the Stone Board
with respect to the Proposals, stockholders of JSC and Stone should be aware
that certain directors and members of management of JSC and Stone have interests
in the Merger that are in addition to their interests as stockholders of JSC or
Stone generally. The JSC Board and the Stone Board were aware of such interests
and considered them, among other matters, in approving the Merger.
INTERESTS OF STONE OFFICERS AND DIRECTORS
SSCC Directors. The Merger Agreement provides that Roger W. Stone, as well
as four additional persons designated by Stone (the "Stone Designees"), are to
become directors of the SSCC Board as of the Effective Time. At least two of the
Stone Designees must be "independent directors" (as defined in the Merger
Agreement). The Stone Board has selected Dionisio Garza, Richard A. Giesen,
Jerry K. Pearlman and Matthew S. Kaplan as its additional designees. Upon the
election of such individuals, the SSCC Board will consist of 12 directors, 4 of
whom were directors of Stone as of the date of the Merger Agreement. In
addition, the SSCC Charter, the SSCC Bylaws and the Voting Agreement contain
additional provisions relating to the renomination and election of directors,
the filling of vacancies and certain other corporate governance and management
matters. See "Comparison of Stockholder Rights."
SSCC Executive Officers. The Merger Agreement provides that Roger W. Stone
will serve as President and CEO of SSCC. Prior to the Effective Time, Mr. Stone
will enter into an Employment Agreement (the "Stone Employment Agreement") with
SSCC effective as of the Effective Time. The Stone Employment Agreement will
provide Mr. Stone with compensation and benefits no less favorable than he
currently receives. In accordance with the terms of the Merger Agreement, the
Stone Employment Agreement will provide that as CEO of SSCC, Mr. Stone will be
the officer principally responsible for the day-to-day operations of SSCC and
have general supervisory responsibilities with respect to the business affairs
and officers of SSCC and will report directly to the SSCC Board. Mr. Stone's
term as CEO will cease upon the SSCC Annual Meeting immediately following
achievement of his 66th birthday. Stone has agreed to pay the legal expenses
incurred by Mr. Stone in connection with the negotiation of the Stone Employment
Agreement in an amount not to exceed $50,000.
Stock Options. Pursuant to the plans under which they were issued, most
outstanding Stone stock options vest and become exercisable as a result of the
consummation of the Merger. With respect to those that do not, the Merger
Agreement provides that all rights with respect to shares of Stone Common Stock
pursuant to Stone stock options outstanding immediately prior to the Effective
Time, regardless of the extent vested or exercisable, will vest and become
exercisable and be converted into and become rights with respect to shares of
SSCC Common Stock at the Effective Time. Accordingly, all unvested options
listed in the table below will vest at the Effective Time. See "Certain
Provisions of the Merger Agreement--Certain Covenants--Stone Stock Options."
The five most highly compensated executive officers of Stone for the year
ending December 31, 1997 had as of September 30, 1998 vested and unvested Stone
stock options as follows:
<TABLE>
<CAPTION>
UNVESTED AVERAGE
NAME AND PRINCIPAL POSITION VESTED OPTIONS OPTIONS EXERCISE PRICE
- ------------------------------------------------------------ -------------- -------- --------------
<S> <C> <C> <C>
Roger W. Stone ............................................. 170,560 896,143 $14.00
Chairman, President & CEO
Randolph C. Read ........................................... 25,000 199,198 $13.04
Senior Vice President
Harold D. Wright ........................................... 20,538 175,015 $13.25
Senior Vice President
Matthew S. Kaplan .......................................... 35,081 222,084 $13.68
Senior Vice President
Gordon L. Jones ............................................ 15,523 120,024 $13.38
Senior Vice President
</TABLE>
In addition, as of September 30, 1998, approximately 300 other present or
former employees of Stone had, in the aggregate, 1,290,984 vested and 3,064,528
unvested Stone stock options to purchase 4,355,512 shares of Stone Common
Stock at an average exercise price of $14.44 per share. No directors of
Stone, other than Roger W. Stone, owned any Stone stock options as of
September 30, 1998.
Severance. Stone and certain of its corporate and divisional officers
(including all executive officers named in the immediately preceding table) are
parties to change in control agreements (the "Change in Control Agreements")
which will remain in effect following the Effective Time. These Change in
Control Agreements by their terms are binding upon any successor to Stone. Among
other things, the Change in Control Agreements provide for a lump sum payment
based on a specified multiple of salary and bonus plus the payment of certain
fringe benefits and, in Mr. Stone's case, payments providing for reimbursement
of golden parachute excise taxes (the "Stone Severance Benefit") in the event of
a termination of employment of the officer by Stone without cause or by the
officer for "good reason" after a "change in control" (as each term is defined
in the Change in Control Agreement). The Merger will constitute a change in
control under the Change in Control Agreements.
The maximum Stone Severance Benefit, including the value of pension and
welfare benefits, fringe benefits and perquisites payable under the Change in
Control Agreements, which would be payable under the Change in Control
Agreements to each of Stone's five most highly compensated executive officers in
the event of termination of employment by Stone without "cause" or resignation
by the executive officer for "good reason", without regard to any excise tax
gross-up payments, based upon a $13 per share market price of Stone Common Stock
is as follows:
<TABLE>
<CAPTION>
MAXIMUM
AGGREGATE STONE
INDIVIDUAL SEVERANCE BENEFIT
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Roger W. Stone ...................................................................... $ 4,781,175
Chairman, President & CEO
Randolph C. Read .................................................................... $ 1,387,162
Senior Vice President
Harold D. Wright .................................................................... $ 1,428,370
Senior Vice President
Matthew S. Kaplan ................................................................... $ 1,765,623
Senior Vice President
Gordon L. Jones ..................................................................... $ 1,181,529
Senior Vice President
</TABLE>
In addition, 41 other employees of Stone have executed Change in Control
Agreements and would be entitled to a maximum aggregate Stone Severance Benefit
in the event of a termination of employment by Stone without "cause" or by the
employee for "good reason" following the Effective Time of approximately
$22,976,316.
Indemnification and Insurance. Under the Merger Agreement, SSCC has agreed
to (or cause Stone to) (i) indemnify and hold harmless present or former
directors or officers of Stone or its subsidiaries for all acts or omissions
occurring prior to the Effective Time (including the transactions contemplated
by the Merger Agreement) to the same extent such persons are indemnified and
held harmless in Stone's restated certificate of incorporation or bylaws as of
the date of the Merger Agreement and (ii) provide, for a period of six years
after the Effective Time, an insurance and indemnification policy that provides
Stone's officers and directors in office immediately prior to the Effective Time
coverage substantially equivalent to Stone's policy in effect as of the date of
the Merger Agreement; provided, however,that in no event will expenditures in
any one year for such coverage exceed 300% of the annual premiums currently paid
by Stone; provided, further, that if the annual premiums for such coverage
exceed such amount, then a policy providing the best available coverage not
exceeding such amount will be provided.
See "Certain Provisions of The Merger Agreement--Certain
Covenants--Benefits Continuation" for a description of the benefits provided
by the Merger Agreement for employees of Stone generally.
INTERESTS OF JSC OFFICERS AND DIRECTORS
SSCC Directors. The Merger Agreement provides that Michael W.J. Smurfit,
Ray M. Curran, four additional persons designated by SIBV (the "JSC Designees")
and a person designated by MSLEF (the "MSLEF Designee") are to become
directors of the SSCC Board as of the Effective Time. At least two of the
JSC Designees must be "independent directors" (as defined in the Merger
Agreement). SIBV has selected Dermot F. Smurfit, Richard W. Graham,
Thomas A. Reynolds, III and James J. O'Connor as its additional designees
and MSLEF has selected Alan E. Goldberg. Upon the election of such
individuals, the SSCC Board will consist of 12 directors, 3 of whom were
directors of JSC as of the date of the Merger Agreement. The Merger
Agreement also provides that the MSLEF Designee will chair SSCC's
compensation committee so long as MSLEF Beneficially Owns (as defined in
the SSCC Bylaws) at least 1,000,000 shares of SSCC Common Stock. In
addition, the SSCC Charter, the SSCC Bylaws and the Voting Agreement
contain additional provisions relating to the renomination and election of
directors, the filling of vacancies and certain other corporate governance
and management matters. See "Comparison of Stockholder Rights."
SSCC Executive Officers. The Merger Agreement provides that (i) Dr. Smurfit
will serve as non-executive Chairman of the SSCC Board and will have general
supervisory responsibilities with respect to the business affairs and officers
of SSCC; (ii) Mr. Curran will serve as Executive Vice President-Deputy Chief
Executive Officer ("EVP") and will be principally responsible for the
development of SSCC's cost reduction and divestiture plan; and (iii) Patrick J.
Moore will serve as Chief Financial Officer ("CFO").
Stock Options. The Merger Agreement provides that all rights with respect
to shares of JSC Common Stock pursuant to JSC stock options outstanding
immediately prior to the Effective Time, regardless of the extent vested and
exercisable, will vest and become exercisable at the Effective Time.
Accordingly, all unvested options listed in the table below will vest at the
Effective Time. See "Certain Provisions of The Merger Agreement--Certain
Covenants--JSC Stock Options."
The five most highly compensated executive officers of JSC for the year
ending December 31, 1997 and the directors of JSC as of December 31, 1997 had as
of September 30, 1998 vested and unvested JSC stock options as follows:
<TABLE>
<CAPTION>
UNVESTED AVERAGE
NAME AND PRINCIPAL POSITION VESTED OPTIONS OPTIONS EXERCISE PRICE
- ------------------------------------------------------------ -------------- -------- --------------
<S> <C> <C> <C>
Michael W.J. Smurfit, Chairman of the Board................. 1,026,000 0 $10.00
Richard W. Graham, President and CEO........................ 377,500 422,500 $12.76
Patrick J. Moore, Vice President and CFO.................... 146,500 178,500 $12.63
F. Scott Macfarlane, Vice President and General
Manager--Folding Carton and Boxboard Mill Division...... 74,000 76,000 $11.88
David C. Stevens, Vice President and General
Manager--Smurfit Recycling Company...................... 75,000 75,000 $12.17
Howard E. Kilroy, Director.................................. 423,000 0 $10.00
James E. Terrill, Vice Chairman of the Board................ 625,000 125,000 $12.06
</TABLE>
In addition, as of September 30, 1998, approximately 450 other present or
former employees of JSC and JSG had, in the aggregate, 3,854,648 vested and
894,375 unvested JSC stock options to purchase 4,749,023 shares of JSC Common
Stock at an average exercise price of $10.67 per share.
Severance. JSC and certain of its officers (including all executive
officers named in the immediately preceding table) are parties to Employment
Security Agreements (the "Severance Agreements") which will remain in effect
following the Effective Time. 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 (the "JSC Severance Benefit") in the
event of a termination of employment under certain circumstances within two
years after a "change in control" (as such term is defined in the Severance
Agreement). The Merger will constitute a change in control under the Severance
Agreements.
The maximum JSC Severance Benefit, including the value of pension and
welfare benefits, fringe benefits and perquisites payable under the Severance
Agreements, which would be payable under the Severance Agreements to each of
JSC's five most highly compensated executive officers in the event of
termination of employment by JSC without "cause" or resignation by the executive
officer for "good reason" is as follows:
<TABLE>
<CAPTION>
MAXIMUM
AGGREGATE JSC
INDIVIDUAL SEVERANCE BENEFIT
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Michael W.J. Smurfit, Chairman of the Board.......................................... N/A
Richard W. Graham, President and CEO................................................. $ 3,637,882
Patrick J. Moore, Vice President and CFO............................................. $ 1,369,481
F. Scott Macfarlane, Vice President and General Manager--Folding Carton and
Boxboard Mill Division............................................................. $ 1,095,821
David C. Stevens, Vice President and General Manager--Smurfit Recycling Company.... $ 820,855
</TABLE>
In addition, 13 other officers of JSC have executed Severance Agreements
and would be entitled to a maximum aggregate JSC Severance Benefit of up to
$12,057,582 in the event of a termination of employment by JSC without "cause"
or by the employee for "good reason" following the Effective Time.
INTERESTS OF CERTAIN JSC STOCKHOLDERS
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, MSLEF
and certain other JSC stockholders who are parties thereto have agreed to sell
in the aggregate 20,000,000 shares of JSC Common Stock to SIBV at a cash price
of $25 per share with interest to the date of closing (and an additional cash
payment, not to exceed $0.50 per share of JSC Common Stock, in an amount per
share of JSC Common Stock equal to 25% of the excess of the market price for JSC
Common Stock over $28.00 during a specified period after the closing of the
stock purchase). In addition, JSC provides an indemnity in the Stock Purchase
Agreement to MSLEF, SIBV, JSG, the other JSC stockholders who are party to the
Stock Purchase Agreement and certain related parties of MSLEF and SIBV for
losses arising out of or resulting from any claim based on or arising out of the
Stock Purchase Agreement, the Merger Agreement or the transactions contemplated
by the Merger Agreement. Consummation of the Merger is conditioned upon the
simultaneous consummation of the transactions contemplated by the Stock Purchase
Agreement. See "Stock Purchase Agreement."
Registration Rights Agreement. In connection with the Merger Agreement,
JSC, SIBV, MSLEF and certain other JSC stockholders associated with MSLEF have
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") dated as of May 10, 1998 that grants to SIBV, MSLEF and such other
JSC stockholders (collectively, the "Holders") certain rights to require that
JSC register shares of JSC 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, which replaces an existing
registration rights agreement, becomes effective upon the closing of the Merger.
The following summary of the Registration Rights Agreement is qualified in its
entirety by reference to the complete text of the Registration Rights Agreement,
which is incorporated by reference herein and attached as an exhibit to the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included.
Under the Registration Rights Agreement and subject to certain limitations
contained therein, each of SIBV and MSLEF is entitled to two demand
registrations. MSLEF has the right to effect its two demand registrations before
SIBV is allowed to effect a demand registration; provided that if the MSLEF
demand registrations are not effected by the third anniversary of the Effective
Time, SIBV is permitted to exercise its rights to request registration. The
Registration Rights Agreement requires that each of SIBV's and MSLEF's demand
registrations include at least 1,000,000 Registrable Securities. In addition,
MSLEF has agreed in the Registration Rights Agreement to use reasonable best
efforts to sell or cause to be sold in each of its demand registrations the
lesser of (x) all Registrable Securities that it owns at the time of such demand
registration and (y) all Registrable Securities which the managing underwriter
advises MSLEF can be sold in such demand registration; provided that
notwithstanding the foregoing, neither MSLEF nor any Morgan Holder (as defined
in the Registration Rights Agreement) who has requested that its Registrable
Securities be included in such demand registration will be under any obligation
to sell its Registrable Securities pursuant to the first MSLEF demand
registration if the price per share of JSC Common Stock on the NYSE or the
Nasdaq on the effective date of the registration statement relating to such
demand registration has decreased by 5% since the date on which MSLEF
requested such demand registration.
JSC is entitled to delay the filing or effectiveness of the foregoing
demand registrations or to suspend sales under the registration statement
relating to the foregoing demand registrations for one period of up to 90 days
during any 270-day period during the term of the Registration Rights Agreement.
Subject to certain exceptions specified therein, the Registration Rights
Agreement also entitles each of SIBV, MSLEF and JSC to include shares for its
own account or, in the case of JSC, for the account of any JSC stockholders
other than the Holders, in the registrations initiated by the other parties;
provided that SIBV is not permitted to exercise its "piggyback" rights until the
third anniversary of the Effective Time; provided, further, that each of SIBV,
MSLEF and JSC has priority with respect to registrations initiated by it.
In connection with any demand registration or piggyback registration, JSC
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 1933 Act, or will
contribute to payments the Holders may be required to make in respect thereof.
The Registration Rights Agreement terminates, except with respect to rights
to indemnification, upon the earlier to occur of the mutual agreement of the
parties thereto and December 31, 2010. However, the rights and obligations of
each of the Morgan Holders and the SIBV Holders (as defined in the Registration
Rights Agreement) terminate when such Morgan Holders or SIBV Holders, as the
case may be, cease to own, in the aggregate, at least 1,000,000 shares of JSC
Common Stock.
Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, JSCUS,
a wholly owned subsidiary of JSC, has agreed to purchase from Smurfit Packaging
Corporation, a wholly owned subsidiary of JSG, the No. 2 Linerboard Machine
located at the Fernandina Beach, Florida paper mill and certain related assets
(the "Purchased Assets") for a purchase price of $175,000,000. The consummation
of the purchase and sale of the Purchased Assets will take place on January 15,
1999, subject to the satisfaction or waiver of the conditions to closing
contained in the Asset Purchase Agreement, or at such other time as the parties
agree.
If the Merger Agreement is terminated, JSCUS will be entitled, by delivery
of notice (the "Rescission Notice") within 30 days of termination of the Merger
Agreement, to terminate the Asset Purchase Agreement (in the event that the
transactions contemplated by the Asset Purchase Agreement have not yet been
consummated), or to rescind the transactions contemplated thereby (in the event
that the transactions contemplated by the Asset Purchase Agreement have been
consummated). A decision as to whether JSCUS should deliver a Rescission Notice
must be made by members of the JSC Board, other than members selected by SIBV
pursuant to the Stockholders Agreement (as defined in the Asset Purchase
Agreement).
JSG--SIBV Fee and Expense Reimbursement Letter. Pursuant to a letter
dated May 10, 1998 from JSC to JSG and SIBV, JSC has agreed to pay up to $2.5
million of the fees of legal counsel to JSG and SIBV in connection with the
transactions contemplated by the Merger Agreement and the Stock Purchase
Agreement. JSC has also agreed in the letter to pay any and all amounts due to
the financial advisor to SIBV, BT Wolfensohn, provided for in the letter
agreement dated as of January 27, 1998 between SIBV and BT Wolfensohn and to
assume all obligations regarding the payment of indemnity amounts provided for
therein (except for any such amounts that have resulted from the bad faith or
gross negligence of JSG or SIBV or any of their affiliates, other than JSC or
its subsidiaries). The letter agreement provides for a fee of $7,500,000 and the
reimbursement of BT Wolfensohn for expenses incurred in connection with the
financial advisory assignment.
Release Letter and Executive Bonus Program. Pursuant to a letter agreement
dated October 2, 1998 between JSC and JSG, JSC has agreed to pay JSG or one of
its subsidiaries, in consideration of JSG or one of its subsidiaries making Mr.
Curran available to SSCC to serve as EVP, an amount not to exceed $6,500,000 in
reimbursement of amounts paid by JSG or one of its subsidiaries (i) to Mr.
Curran, in an amount not to exceed $1,500,000, or in relation to funding
pension payments for him, in an amount not to exceed $2,400,000, in
connection with these matters, or (ii) to Mr. Curran pursuant to the terms
of a Long Term Incentive Plan dated as of July 1, 1996 between JSG and Mr.
Curran. Such payments are conditioned on the closing of the Merger and Mr.
Curran's availability to assume his duties with JSC.
After the Effective time, it is expected that SSCC will adopt a bonus
program to award certain members of senior management for their efforts in
negotiating and consummating the Merger.
Morgan Stanley Fee. Pursuant to a letter agreement dated May 1, 1998
between JSC and Morgan Stanley & Co. Incorporated ("MS&Co."), JSC agreed to pay
MS&Co. (for acting as financial advisor to MSLEF) upon consummation of the
Merger a fee of $7,500,000 and to reimburse MS&Co. for expenses incurred in
connection with the financial advisory assignment.
Relationships with JSG and MSLEF. Michael W.J. Smurfit, who is currently
the Chairman of the Board of JSC, is also Chairman of the Board of JSG. Howard
E. Kilroy, who is currently a director of JSC, is also a director of JSG.
Messrs. Alan E. Goldberg, Leigh J. Abramson, Michael M. Janson and Michael C.
Hoffman (collectively, the "MS Directors"), who are currently directors of JSC,
are also employees of MS&Co., an affiliate of The Morgan Stanley Leveraged
Equity Fund II, L.P. and SIBV/MS Equity Investors, L.P. (collectively, the
"Funds"), and officers of the general partners of the Funds.
Upon consummation of the Merger and the related stock purchase pursuant to
the Stock Purchase Agreement, the general partners of the Funds may receive a
portion of the Funds' profits on the sale to JSG based on the amount of the
gains on the Funds' investments in JSC. The MS Directors' compensation depends
in part on the profits received by the general partner of The Morgan Stanley
Leveraged Equity Fund II, L.P.
MacMillan-Bathurst Inc. On September 4, 1998, Stone announced that its
Canadian subsidiary, Stone Container (Canada) Inc. ("Stone Canada") purchased a
50% partnership interest in MacMillan-Bathurst Inc. ("MBI"), a Canadian
corrugated box company, from MacMillan Bloedel Inc. for $185 million (Cdn.).
Stone Canada, which already owned 50% of MBI, immediately re-sold the newly-
acquired 50% interest to a subsidiary of JSG.
Certain Stockholder Rights. The SSCC Charter, the SSCC Bylaws and the
Voting Agreement contain provisions relating to the nomination and election of
directors, the filling of vacancies and certain other corporate governance and
management matters. See "Comparison of Stockholder Rights."
As of the date of this Joint Proxy Statement/Prospectus, JSG beneficially
owns approximately 46.5% of the outstanding shares of JSC Common Stock, and
MSLEF beneficially owns approximately 28.6% of the outstanding shares of JSC
Common Stock.
DIRECTORS AND MANAGEMENT OF SSCC AFTER THE MERGER
DIRECTORS
The directors of SSCC following the Merger are expected to include the
following individuals: Dr. Smurfit, Mr. Stone, Mr. Curran, Dr. Dermot Smurfit (a
SIBV nominee), Richard W. Graham (a SIBV nominee), James J. O'Connor (a SIBV
independent nominee), Thomas A. Reynolds, III (a SIBV independent nominee),
Matthew S. Kaplan (a Stone nominee), Dionisio Garza (a Stone independent
nominee), Richard A. Giesen (a Stone independent nominee), Jerry K. Pearlman (a
Stone independent nominee) and Mr. Goldberg (the MSLEF nominee).
Background information for the 12 individuals who will be members of the
SSCC Board at the Effective Time follows:
Dr. Smurfit, 61, has been Chairman and CEO of JSG since 1977 and has
been Chairman of the Board of JSC since 1989. He was CEO of JSC prior to
July 1990.
Mr. Stone, 63, is Chairman of the Board, President and CEO of Stone.
Mr. Stone is a director of Abitibi-Consolidated, Inc. and Venepal S.A.C.A.,
both affiliates of Stone (and, following the Merger, SSCC), and McDonald's
Corporation, Morton International, Inc., Option Care, Inc., Continere
Corporation and Autoliv, Inc.
Mr. Curran, 52, is Finance Director of JSG. He has been the CFO of JSG
since 1992.
Dr. Dermot Smurfit, 53, has been Joint Deputy Chairman of JSG since
January 1984 and World Vice President--Marketing and Sales since July
1997. Prior to July 1997, he held various senior positions in JSG. Dr.
Dermot Smurfit is also a member of the Board of the Confederation of
European Paper Industries. Dr. Dermot Smurfit is a brother of Dr. Smurfit.
Mr. Graham, 63, has been President and Chief Executive Officer of JSC
since January 1997. He was President of JSC from July 1996 to December 1996
and Senior Vice President from February 1994 to July 1996. Prior to 1994,
he held various positions in the Folding Carton and Boxboard Mill Division,
including Vice President and General Manager from February 1991 to January
1994. Mr. Graham also serves as a director of Mercantile Bank of St. Louis
N.A.
Mr. O'Connor, 61, is the former Chairman and Chief Executive Officer
of Unicom Corporation and its subsidiary, Commonwealth Edison Company. He
is a director of American National Can Company, Corning Incorporated, First
Chicago NBD Corporation, The First National Bank of Chicago, The Tribune
Company, United Airlines, The Chicago Board of Trade and various other
Chicago businesses, cultural and charitable organizations.
Mr. Reynolds, 45, has been a Partner with Winston & Strawn, a law firm
that regularly represents JSC on numerous matters, since 1984. Mr. Reynolds
is an adjunct faculty member in trial advocacy at Northwestern University
School of Law. Mr. Reynolds also serves as a director of Georgetown
University.
Matthew S. Kaplan, 41, has been Senior Vice President North American
Operations of Stone since April, 1997. Previously, Mr. Kaplan was Senior
Vice President and General Manager, Stone Corrugated Container Division
since June, 1993 and prior to that Vice President and General Manager,
Stone Retail Bag Division since May, 1990. Mr. Kaplan is the son-in-law of
Roger W. Stone.
Dionisio Garza, 44, is Chairman of the Board and Chief Executive
Officer of Alfa, S.A. de C.V., since 1994. He has been Chairman and CEO
since 1994. Previously, Mr. Garza was President of Sigma Alimentos, S.A. de
C.V. from 1990 to 1993. Mr. Garza is a director of Vitro, S.A., Grupo
Financiero Serfin, S.A., Grupo Financiero Bancomer, S.A., Cydsa, S.A.,
Cementos Mexicanos, S.A., Seguros Comercial America, S.A., Afore Banamex,
S.A. de C.V., Hylsamex, S.A. de C.V. and Sigma Alimentos, S.A. de C.V.
Richard A. Giesen, 68, Chairman of the Board and CEO of Continental
Glass & Plastic, Inc. Mr. Giesen is a director of GATX Corporation and
Chairman and CEO of Continere Corporation.
Jerry K. Pearlman, 59, is the retired Chairman of the Board and CEO of
Zenith Electronics Corporation. Mr. Pearlman is a director of Ryerson-Tull,
Inc., Royal Packaging Industries Van Lier NV and Parsons Group L.L.C.
Mr. Goldberg, 44, is Head of Morgan Stanley Dean Witter Private Equity
and has been a Managing Director of Morgan Stanley & Co. Incorporated since
1988. Mr. Goldberg serves as a Director of Amerin Corporation, Catalytica,
Inc., CIMIC Holdings Limited, Direct Response Corporation, Equant, N.V. and
several private companies.
SENIOR EXECUTIVES
The senior management team of SSCC following the Merger is expected to
include the following individuals from JSC and Stone:
<TABLE>
<CAPTION>
SSCC POSITION CURRENT POSITION
----------------------------------- -----------------------------------
<S> <C> <C>
Roger W. Stone............... President and Chief Executive Chairman of the Board, President
Officer and Chief Executive Officer of
Stone
Ray M. Curran................ Executive Vice President, Deputy Finance Director of JSG (in
Chief Executive Officer connection with the Merger and
assuming his duties with SSCC, Mr.
Curran will resign from his
position with JSG)
Patrick J. Moore............. Vice President and Chief Financial Vice President and Chief Financial
Officer Officer of JSC
</TABLE>
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
GENERAL
The Merger Agreement contemplates the merger of Sub with and into Stone,
with Stone surviving the Merger as a subsidiary of JSC (which will be renamed
Smurfit-Stone Container Corporation). The Merger will become effective in
accordance with the Certificate of Merger to be filed with the Secretary of
State of the State of Delaware. It is anticipated that such filing will be made
immediately after the Closing (as defined in the Merger Agreement), which
Closing, in turn, should occur as soon as practicable after the last of the
conditions precedent to the Merger set forth in the Merger Agreement has been
satisfied or waived. The Merger Agreement obligates JSC to have the shares of
JSC Common Stock to be issued in connection with the Merger approved for listing
on the NYSE or approved for quotation on the Nasdaq, in each case subject to
official notice of issuance, prior to the Effective Time. The following
description of the Merger Agreement is qualified by reference to the complete
text of the Merger Agreement, which is incorporated by reference herein and
attached hereto as Annex A.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, (a) each issued and outstanding share of Stone
Common Stock, together with any associated Right (as defined in the Merger
Agreement) (other than shares to be canceled pursuant to clause (b) immediately
below), will be converted into 0.99 of a share of JSC Common Stock (with cash
being paid in lieu of any fractional shares of JSC Common Stock that would
otherwise be issuable), (b) each share of Stone Common Stock, together with any
associated Right, owned by JSC or any of its wholly owned Subsidiaries or held
in the treasury of Stone will be canceled and retired and (c) each issued and
outstanding share of Stone Series E Preferred Stock will remain outstanding and
be convertible pursuant to its terms into the number of shares of JSC Common
Stock that its holder would have received in the Merger had such holder
converted such share of Stone Series E Preferred Stock immediately prior to the
Effective Time.
EXCHANGE OF SHARES
Subject to the terms and conditions of the Merger Agreement, at or prior to
the Effective Time, JSC will deposit with an exchange agent designated by JSC
and reasonably acceptable to Stone (the "Exchange Agent") certificates
representing the shares of JSC Common Stock issuable in exchange for the
outstanding shares of Stone Common Stock and will from time to time deposit cash
in an amount required to be paid for fractional shares of JSC Common Stock and
dividends and other distributions on the JSC Common Stock. Commencing
immediately after the Effective Time, holders of Stone Common Stock may
surrender their certificates to the Exchange Agent (or, if at the time of such
surrender there is no Exchange Agent, to JSC directly). In exchange for such
share certificates, holders will receive JSC Common Stock certificates
representing such number of shares as described under "--Consideration to be
Received in the Merger." Holders of unexchanged shares of Stone Common Stock
will not be entitled to receive any dividends or other distributions payable by
JSC until their certificates are surrendered. Upon surrender, however, subject
to applicable laws, such holders will receive accumulated dividends and
distributions, without interest, together with cash in lieu of fractional
shares.
No fractional shares of JSC Common Stock will be issued to holders of Stone
Common Stock. For each fractional share that would otherwise be issued, the
Exchange Agent will pay the holder thereof by check an amount equal to such
fractional part of a share of JSC Common Stock multiplied by the last reported
sale price of JSC Common Stock, as reported on the NYSE or the Nasdaq, as the
case may be, on the last full trading day immediately preceding the Closing Date
(as defined in the Merger Agreement).
SSCC FOLLOWING THE MERGER
Name. The Merger Agreement provides that at the Effective Time JSC will be
renamed Smurfit-Stone Container Corporation.
Headquarters. The Merger Agreement provides that the corporate headquarters
of SSCC will be located in Chicago, Illinois.
Board. See "Directors and Management of SSCC After the Merger."
Management. See "Directors and Management of SSCC After the Merger."
Committees. See "Comparison of Rights of Stockholders--Comparison of
Rights of JSC Stockholders Currently and Following the Merger--Board
Committees" and "Comparison of Rights of Stockholders--Comparison of Rights of
JSC Stockholders Currently and Following the Merger--Management Committees."
Amendments to the JSC Certificate of Incorporation. The Merger Agreement
provides that JSC will cause the JSC Certificate of Incorporation to be restated
as of the Effective Time to read in full as set forth in Annex B to this Joint
Proxy Statement/Prospectus. For a summary of certain provisions of the SSCC
Charter (including the amendments to the JSC Certificate of Incorporation
contemplated by the Merger Agreement) and of the rights of SSCC stockholders
thereunder, see "Comparison of Stockholder Rights."
Amendments to the JSC Bylaws. The Merger Agreement provides that JSC will
cause the JSC Bylaws to be amended and restated as of the Effective Time to read
in full as set forth in Annex C to this Joint Proxy Statement/Prospectus. These
amendments, among other things, implement certain governance arrangements
relating to Board composition, Board and other committees, management and
certain related matters. For a summary of certain provisions of the SSCC Bylaws
(including the amendments to the JSC Bylaws contemplated by the Merger
Agreement) and the rights of the SSCC stockholders thereunder, see "Comparison
of Stockholder Rights."
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain reciprocal representations and
warranties of JSC and Stone as to, among other things, due organization and good
standing, corporate authority to enter into the contemplated transactions,
conflicts with organizational documents and material agreements,
capitalization, ownership of subsidiaries and other investments, recent
reports filed with the SEC, financial statements, undisclosed liabilities,
litigation, material changes or events, compliance with laws, contractual
defaults, tax matters, intellectual property, environmental matters,
employee benefits matters, information supplied for use in this Joint Proxy
Statement/Prospectus and required stockholder approvals. Many of these
representations and warranties are qualified by "Material Adverse Effect",
which for purposes of the Merger Agreement means with respect to JSC or
Stone, as the case may be, a material adverse effect on the business,
properties, assets, liabilities (contingent or otherwise) or financial
condition of JSC and its Subsidiaries, taken as a whole, or Stone and its
Subsidiaries, taken as a whole, as the case may be, or on the ability of
JSC or Stone, as the case may be, to perform its obligations under or to
consummate the transactions contemplated by the Merger Agreement, other
than effects caused by (x) changes resulting from the announcement of the
Merger Agreement and the proposed consummation of the Merger and the other
transactions contemplated by the Merger Agreement or (y) changes resulting
from conditions affecting the containerboard or newsprint industries
generally. None of the representations and warranties contained in the
Merger Agreement will survive the Effective Time.
CERTAIN COVENANTS
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
Stone has agreed that from the date of the Merger Agreement until the Effective
Time, except as set forth in its disclosure schedule or as otherwise expressly
contemplated by the Transaction Agreements (as defined in the Merger Agreement)
or with the prior written consent of JSC, Stone and its Subsidiaries (as defined
in the Merger Agreement) will conduct their business in the ordinary course
consistent with past practice and will use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date of
the Merger Agreement until the Effective Time, except as set forth in its
disclosure schedule or as expressly contemplated by the Transaction Agreements,
without the prior written consent of JSC, Stone has agreed in the Merger
Agreement that it will not, and will not permit any of its Subsidiaries to:
(a) adopt or propose any change in its certificate of incorporation or
bylaws or equivalent documents;
(b) amend any material term of any outstanding security of Stone or
any of its Subsidiaries;
(c) merge or consolidate with any other person;
(d) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any
shares of capital stock of Stone or any of its Subsidiaries (other than the
issuance of shares by a wholly owned Subsidiary of Stone to Stone or
another wholly owned Subsidiary of Stone), or securities convertible or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock or such convertible or exchangeable securities, or any other
ownership interest of Stone or any of its Subsidiaries or (ii) except in
the ordinary course of business and in a manner consistent with past
practice, any property or assets (including, without limitation, by merger,
consolidation, spinoff or other dispositions of stock or assets) of Stone
or any of its Subsidiaries, except in the case of either clause (i) or
(ii), (A) the issuance of shares of Stone Common Stock upon the exercise of
Stone stock options or the conversion or exchange of Stone's outstanding
convertible preferred stock or convertible debt, (B) the award of options
in connection with promotions and new employee hires in the ordinary course
of business and consistent with past practice, (C) pursuant to contracts or
agreements in force at the date of the Merger Agreement, (D) sales,
transfers or dispositions of receivables in connection with the
securitization of such receivables, (E) the calling for redemption of
Stone's 8 7/8% Convertible Senior Subordinated Notes or (F) sales or other
dispositions of property and assets of Stone and its Subsidiaries listed in
its disclosure schedule in an aggregate amount that does not exceed
$390,000,000 less the amount of indebtedness for borrowed money incurred by
Stone and its Subsidiaries pursuant to clause (i)(ii)(B) of this covenant
(except to the extent that the proceeds from such indebtedness to be
incurred under such clause (i)(ii)(B) will be used to repay borrowings
under clause (i)(ii)(C)(y) of this covenant) or pursuant to clause
(i)(ii)(C)(y) of this covenant; provided that the proceeds of these sales
or other dispositions are used by Stone to make payments on its senior
debt;
(e) create or incur any material Lien (as defined in the Merger
Agreement) on any material asset other than in the ordinary course of
business and consistent with past practice;
(f) make any material loan, advance or capital contributions to or
investments in any person other than loans, advances or capital
contributions to or investments in wholly owned Subsidiaries of Stone made
in the ordinary course and consistent with past practice;
(g) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock (except for dividends paid by any direct or
indirect wholly owned Subsidiary of Stone to Stone or to any other direct
or indirect wholly owned Subsidiary of Stone in the ordinary course and
consistent with past practice and except for the regular quarterly cash
dividend of $0.4375 per share of Stone Series E Preferred Stock together
with any accrued but unpaid dividends in respect of prior quarters) or
enter into any agreement with respect to the voting of its capital stock;
(h) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock, except
in connection with (x) conversions of Stone Series E Preferred Stock by the
holders thereof and (y) any redemption of the Rights during the ten
business days prior to the Effective Time (which redemption will be in the
sole discretion of Stone);
(i) (i) acquire (including, without limitation, by merger,
consolidation, spinoff or acquisition of stock or assets) any interest in
any person or any division thereof (other than a wholly owned Subsidiary)
or any assets, other than acquisitions of assets in the ordinary course of
business and consistent with past practice and any other acquisitions for
consideration that does not exceed $3,000,000 individually or $15,000,000
in the aggregate, (ii) incur any indebtedness for borrowed money or
guarantee such indebtedness of another person, or issue or sell any debt
securities or warrants or other rights to acquire any debt security of
Stone or any of its Subsidiaries, except for (A) indebtedness for borrowed
money incurred in the ordinary course of business and consistent with past
practice or in connection with transactions otherwise permitted under this
covenant, (B) other indebtedness for borrowed money with a maturity of not
more than 1 year in a principal amount not, in the aggregate, in excess of
$100,000,000, less amounts borrowed under clause (C)(y) below (except that
such reduction will not apply to the extent that the proceeds from such
indebtedness to be incurred under this clause (B) will be used to repay
borrowings under clause (C)(y) below) and (C) other indebtedness for
borrowed money incurred under Stone's revolving credit agreement for (x)
working capital purposes and for (y) the repayment of any of the
outstanding senior debt of Stone and its Subsidiaries, (iii) terminate,
cancel, waive any rights under or request any material change in, or agree
to any material change in, any Stone Material Contract (as defined in the
Merger Agreement) or, except in connection with transactions permitted
under this paragraph (i), enter into any contract or agreement material to
the business, results of operations or financial condition of Stone and its
Subsidiaries, taken as a whole, in either case other than in the ordinary
course of business and consistent with past practice, (iv) make or
authorize any capital expenditure, other than capital expenditures that are
not, in the aggregate, in excess of $25,000,000 from the date of the Merger
Agreement through June 30, 1998 and $37,500,000 during any calendar quarter
thereafter, for Stone and its Subsidiaries, taken as a whole; provided that
any capital expenditure allowance unused during any period may be carried
forward to increase the capital expenditure allowance for the succeeding
period or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this
paragraph (i);
(j) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice or except as required by changes in generally accepted
accounting principles;
(k) make any material Tax (as defined in the Merger Agreement)
election or take any position on any Tax Return (as defined in the Merger
Agreement) filed on or after the date of the Merger
Agreement or adopt any method therefor that is inconsistent with elections
made, positions taken or methods used in preparing or filing similar Tax
Returns in prior periods;
(l) except as may be required by contractual commitments or corporate
policies with respect to severance or termination pay in existence on the
date of the Merger Agreement, (i) increase the compensation payable or to
become payable to its officers or employees (except for increases in the
ordinary course of business and consistent with past practice in salaries
or wages of employees of Stone or any of its Subsidiaries), (ii) establish,
adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, except as contemplated by the Merger
Agreement or to the extent required by applicable law or the terms of a
collective bargaining agreement, (iii) increase the benefits payable under
any existing severance or termination pay policies or employment or other
agreements or (iv) take any affirmative action to accelerate the vesting of
any stock-based compensation;
(m) take any action that, individually or in the aggregate, would
reasonably be expected to make any representation and warranty of Stone
under the Merger Agreement untrue in any material respect at, or as of any
time prior to, the Effective Time; or
(n) agree or commit to do any of the foregoing.
Pursuant to the Merger Agreement, JSC has also agreed to a covenant that
imposes restrictions on the conduct of its business from the date of the Merger
Agreement until the Effective Time. JSC's conduct of business covenant is the
same as Stone's conduct of business covenant in all material respects.
No Solicitation of Transactions. Pursuant to the Merger Agreement, each of
JSC and Stone has agreed that it will not, nor will it permit any of its
Subsidiaries to, nor will it authorize or permit any officer, director or
employee or any investment banker, attorney, accountant, agent or other advisor
or representative of Stone or JSC, as the case may be, or any of their
respective Subsidiaries to, (i) solicit, initiate or knowingly encourage the
submission of any Takeover Proposal (as defined below), (ii) enter into any
agreement with respect to a Takeover Proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal; provided, however, that to the extent required by the
fiduciary obligations of the Board of Directors of Stone or JSC, as the case may
be, as determined in good faith by a majority of the members thereof (after
consultation with outside legal counsel), such party may, in response to
unsolicited requests therefor, participate in discussions or negotiations with,
or furnish information pursuant to a confidentiality agreement no less favorable
to such party than the confidentiality agreement between JSC and Stone to, any
person who indicates a willingness to make a Superior Proposal (as defined
below). For all purposes of the Merger Agreement, "Takeover Proposal" means any
proposal for a merger, consolidation, share exchange, business combination or
other similar transaction involving Stone or JSC, as the case may be, or any of
their respective Significant Subsidiaries (as defined in the Merger Agreement)
or any proposal or offer to acquire, directly or indirectly, an equity interest
in, any voting securities of, or a substantial portion of the assets of, Stone
or JSC, as the case may be, or any of their respective Significant Subsidiaries,
other than the transactions contemplated by the Merger Agreement or the
transactions contemplated by Stone's disclosure schedule.
The Merger Agreement also provides that neither the Stone Board nor any
committee thereof will (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to JSC or Sub, the approval or recommendation by the Stone
Board or any such committee of the Merger Agreement or the Merger or the
amendments to the Stone restated certificate of incorporation contemplated by
the Merger Agreement or (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal. The Merger Agreement further provides that
neither the JSC Board nor any committee thereof will (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Stone, the approval or
recommendation by the JSC Board or any such committee of the issuance of shares
of JSC Common Stock in the Merger or the amendments to the JSC certificate of
incorporation contemplated by the Merger Agreement or (ii) approve or recommend,
or propose to approve or recommend, any Takeover Proposal. Notwithstanding the
foregoing, the Merger Agreement does permit each of the JSC and Stone
Boards (i) to the extent required by its fiduciary obligations, as
determined in good faith by a majority of the members thereof (after
consultation with outside legal counsel), to approve or recommend a
Superior Proposal (and, in connection therewith, withdraw or modify its
approval or recommendation of the Merger Agreement or the Merger or the
amendments to the Stone restated certificate of incorporation contemplated
by the Merger Agreement (in the case of Stone) and the issuance of shares
of JSC Common Stock in the Merger or the amendments to the JSC certificate
of incorporation contemplated by the Merger Agreement (in the case of JSC))
and (ii) to comply with Rule 14d-9 and Rule 14e-2 promulgated under the
1934 Act with regard to a Takeover Proposal. For all purposes of the
Merger Agreement, "Superior Proposal" means a bona fide written proposal
made by a third party to acquire Stone or JSC, as the case may be, pursuant
to a tender or exchange offer, a merger, a share exchange, a sale of all or
substantially all its assets or otherwise on terms which a majority of the
members of the Stone Board or JSC Board, as the case may be, determines in
good faith (taking into account the advice of independent financial
advisors) to be more favorable to Stone or JSC, as the case may be, and
their respective stockholders than the Merger (and any revised proposal
made by the other party to the Merger Agreement) and for which financing,
to the extent required, is then fully committed or reasonably determined to
be available by the Stone Board or JSC Board, as the case may be.
Stone and JSC have each agreed in the Merger Agreement to notify the other
party promptly (but in no event later than 24 hours) after receipt by Stone or
JSC (or its advisors), respectively, of any Takeover Proposal or any request for
nonpublic information in connection with a Takeover Proposal or for access to
the properties, books or records of such party by any person or entity that
informs such party that it is considering making, or has made, a Takeover
Proposal. The Merger Agreement specifies that such notice to the other party
will be made orally and in writing and will indicate the identity of the offeror
and the terms and conditions of such proposal, inquiry or contact. Such party
will keep the other party informed, on a current basis, of the status and
details (including amendments or proposed amendments) of any such Takeover
Proposal or request and the status of any negotiations or discussions.
Indemnification and Insurance. See "Interests of Certain Persons in the
Merger--Interests of Stone Officers and Directors--Indemnification and
Insurance."
Stone Stock Options. The Merger Agreement provides that at the Effective
Time, each Stone stock option outstanding immediately prior to the Effective
Time, regardless of the extent vested and exercisable, will vest and become
exercisable and will be amended and converted into an option to acquire, on the
same terms and conditions as were applicable under the Stone stock option, the
number of shares of JSC Common Stock (rounded down to the nearest whole share)
determined by multiplying the number of shares of Stone Common Stock subject to
such Stone stock option by the Exchange Ratio, at a price per share of JSC
Common Stock equal to (A) the aggregate exercise price for the shares of Stone
Common Stock otherwise purchasable pursuant to such Stone stock option divided
by (B) the aggregate number of shares of JSC Common Stock deemed purchasable
pursuant to such Stone stock option (rounded up to the nearest whole cent).
JSC Stock Options. The Merger Agreement provides that at the Effective
Time, each then outstanding JSC stock option granted under the JSC Amended and
Restated 1992 Stock Option Plan, regardless of the extent vested and
exercisable, will vest and become exercisable.
Benefits Continuation. For not less than one year following the Effective
Time, JSC has agreed in the Merger Agreement that it will maintain, or will
cause Stone and its Subsidiaries to maintain, compensation and employee benefits
plans and arrangements for employees of Stone and its Subsidiaries ("Affected
Employees") that are, in the aggregate, no less favorable than as provided under
the Stone compensation and employee benefits plans and arrangements as in effect
on the date of the Merger Agreement. For not less than one year following the
Effective Time, JSC has also agreed in the Merger Agreement that it will
maintain, or will cause Stone and its Subsidiaries to maintain, for Affected
Employees, welfare benefit plans that are, on an individual basis, no less
favorable than as provided under specified Stone welfare benefit plans. JSC has
further agreed that, for not less than one year following the Effective Time,
JSC will provide, or will cause Stone and its Subsidiaries to provide, severance
pay and other severance benefits to each Affected Employee as of the Effective
Time that are no less favorable than under the Stone employee plans and
current practices of Stone as in effect as of the date of the Merger
Agreement.
Stock Purchase Agreement. JSC has agreed in the Merger Agreement that it
will not amend, modify or waive any provision of the Stock Purchase Agreement or
agree to terminate the Stock Purchase Agreement, in each case without the
consent of Stone.
Other Covenants. The Merger Agreement contains certain other covenants
including covenants relating to preparation and distribution of this Joint Proxy
Statement/Prospectus, coordination of stockholders' meetings, access to
information, mutual notification of certain events, public announcements and
cooperation regarding filings with governmental and other agencies and
organizations. In addition, the Merger Agreement contains a general covenant
requiring each of the parties thereto to use its best efforts to effect the
consummation of the Merger.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. Each party's
obligation to consummate the Merger and the transactions contemplated by the
Merger Agreement is subject to the satisfaction of the following conditions:
(a) Stockholder Approvals. (i) The Merger Agreement and the Merger and
the amendments to the Stone restated certificate of incorporation
contemplated by the Merger Agreement having been approved and adopted by
the Stone stockholders and (ii) the issuance of the shares of JSC Common
Stock in the Merger and the amendments to the JSC certificate of
incorporation contemplated by the Merger Agreement having been approved by
the JSC stockholders.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint prohibiting
consummation of the Merger being in effect.
(c) Listing or Quotation of Stock. The shares of JSC Common Stock to
be issued in the Merger having been approved for listing on the NYSE or
approved for quotation on the Nasdaq, subject to official notice of
issuance.
(d) Consummation of Stock Purchase. The consummation of the stock
purchase pursuant to the Stock Purchase Agreement occurring concurrently
with consummation of the Merger.
The condition described above under clause (d) may not be waived without
the express written consent of JSG and MSLEF, who are third party beneficiaries
of the condition.
Additional Conditions to Obligations of JSC. The obligation of JSC and Sub
to consummate the Merger and the transactions contemplated by the Merger
Agreement is subject to the satisfaction of each of the following additional
conditions, any of which may be waived in writing exclusively by JSC:
(a) Representations and Warranties. The representations and warranties
of Stone set forth in the Merger Agreement that are qualified as to Stone
Material Adverse Effect being true and correct as of the Closing Date and
the representations and warranties that are not so qualified, taken
together, being true and correct in all material respects, in each case as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date).
(b) Performance of Obligations. Stone having performed in all material
respects each obligation and agreement and having complied in all material
respects with each covenant required to be performed and complied with by
it under the Merger Agreement at or prior to the Effective Time.
Additional Conditions to Obligations of Stone. The obligation of Stone to
effect the Merger is subject to the satisfaction of each of the following
additional conditions, any of which may be waived in writing exclusively by
Stone:
(a) Representations and Warranties. The representations and warranties
of JSC set forth in the Merger Agreement that are qualified as to JSC
Material Adverse Effect being true and correct as of the Closing Date and
the representations and warranties that are not so qualified, taken
together, being true and correct in all material respects, in each case as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date).
(b) Performance of Obligations. JSC having performed in all material
respects each obligation and agreement and having complied in all material
respects with each covenant required to be performed or complied with by it
under the Merger Agreement at or prior to the Effective Time.
(c) Tax Opinion. Stone having received a written opinion from Sidley &
Austin, counsel to Stone, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (with respect to clauses (b) through (m) below, by written notice by the
terminating party to the other party), whether before or after approval of the
matters presented in connection with the Merger by the stockholders of JSC or
the stockholders of Stone:
(a) by mutual written consent of JSC and Stone; or
(b) by either JSC or Stone, if the Merger has not been consummated by
December 31, 1998 (the "End Date"); provided, however, that the right to
terminate the Merger Agreement under this clause (b) will not be available
to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before the End Date; or
(c) by either JSC or Stone, if a court of competent jurisdiction or
other Governmental Authority has issued a final, non-appealable order,
decree or ruling, or taken any other action, that has the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or
(d) by either JSC or Stone (i) if, at the Stone Stockholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of
the stockholders of Stone in favor of the Merger Agreement and the Merger
and the amendments to the Stone restated certificate of incorporation
contemplated by the Merger Agreement is not obtained or (ii) if, at the JSC
Stockholders' Meeting (including any adjournment or postponement thereof),
the requisite vote of the stockholders of JSC in favor of the issuance of
shares of JSC Common Stock in the Merger and the amendments to the JSC
certificate of incorporation contemplated by the Merger Agreement is not
obtained; or
(e) by Stone, if the JSC Board has not recommended or has modified in
a manner materially adverse to Stone its recommendation of the issuance of
shares of JSC Common Stock in the Merger or the amendments to the JSC
certificate of incorporation contemplated by the Merger Agreement; or
(f) by Stone, if JSC or any of its affiliates has materially and
knowingly breached the covenant described under "--No Solicitation of
Transactions"; or
(g) by Stone or JSC, if the JSC Board has determined to recommend a
Takeover Proposal to its stockholders and to enter into a binding written
agreement concerning such Takeover Proposal after determining, pursuant to
the covenant described under "--No Solicitation of Transactions," that
such Takeover Proposal constitutes a Superior Proposal; provided that JSC
may not exercise its right to terminate under this clause (g) (and may not
enter into a binding written agreement with respect to such Takeover
Proposal) until 45 days after the date of the Merger Agreement, but not
later than the date that is the later of (x) the date that is 120 days
after the date of the Merger Agreement and (y) the date on which the
necessary approvals from the JSC stockholders are obtained, and unless and
until (i) JSC shall have provided Stone prior written notice at least five
business days prior to such termination that the JSC Board has authorized
and intends to effect the termination of the Merger Agreement pursuant to
this clause (g), specifying the material terms and conditions of such
Takeover Proposal and attaching the most current version of the agreement
relating thereto, (ii) Stone does not make, within five business days of
receipt of JSC's written notice, an offer such that the JSC Board
determines, in good faith and after consultation with its financial
advisors, that the foregoing Takeover Proposal no longer constitutes a
Superior Proposal, (iii) JSC shall otherwise be in compliance with
its obligations under the Merger Agreement (including, without
limitation, the covenant described under "--No Solicitation of
Transactions") and (iv) on or prior to such termination JSC shall have
paid to Stone the fee provided for in "--Termination Fees Payable by
JSC"; in connection with the foregoing, JSC agrees that it will not
enter into a binding agreement with respect to such a Takeover
Proposal until at least the fifth business day after it has provided
the notice to Stone required by the Merger Agreement and that it will
notify Stone promptly if its intention to enter into such written
agreement shall change at any time after giving such notification; or
(h) by JSC, if a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of Stone set forth in the
Merger Agreement has occurred which would cause the conditions set forth
under "--Conditions to the Consummation of the Merger--Additional
Conditions to Obligations of JSC" not to be satisfied, and such conditions
are incapable of being satisfied by the End Date; or
(i) by JSC, if the Stone Board has not recommended or has modified in
a manner materially adverse to JSC its recommendation of the Merger
Agreement and the Merger or the amendments to the Stone restated
certificate of incorporation contemplated by the Merger Agreement; or
(j) by JSC, if Stone or any of its Affiliates has materially and
knowingly breached the covenant described under "--No Solicitation of
Transactions"; or
(k) by JSC or Stone, if the Stone Board has determined to recommend a
Takeover Proposal to its stockholders and to enter into a binding written
agreement concerning such Takeover Proposal after determining, pursuant to
the covenant described under "--No Solicitation of Transactions," that
such Takeover Proposal constitutes a Superior Proposal; provided that Stone
may not exercise its right to terminate under this clause (k) (and may not
enter into a binding written agreement with respect to such Takeover
Proposal) until 45 days after the date of the Merger Agreement, but not
later than the date that is the later of (x) the date that is 120 days
after the date of the Merger Agreement and (y) the date on which the
necessary approvals from the Stone stockholders are obtained, and unless
and until (i) Stone shall have provided JSC prior written notice at least
five business days prior to such termination that the Stone Board has
authorized and intends to effect the termination of the Merger Agreement
pursuant to this clause (k), specifying the material terms and conditions
of such Takeover Proposal and attaching the most current version of the
agreement relating thereto, (ii) JSC does not make, within five business
days of receipt of Stone's written notice, an offer such that the Stone
Board determines, in good faith and after consultation with its financial
advisors, that the foregoing Takeover Proposal no longer constitutes a
Superior Proposal, (iii) Stone shall otherwise be in compliance with its
obligations under the Merger Agreement (including, without limitation, the
covenant described under "--No Solicitation of Transactions") and (iv) on
or prior to such termination Stone shall have paid to JSC the fee provided
for in "--Termination Fees Payable by Stone"; in connection with the
foregoing, Stone agrees that it will not enter into a binding agreement
with respect to such a Takeover Proposal until at least the fifth business
day after it has provided the notice to JSC required by the Merger
Agreement and that it will notify JSC promptly if its intention to enter
into such written agreement changes at any time after giving such
notification; or
(l) by Stone, if a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of JSC or Sub set forth in the
Merger Agreement has occurred which would cause the conditions set forth in
"--Conditions to the Consummation of the Merger--Additional Conditions
to Obligations of Stone" not to be satisfied, and such conditions are
incapable of being satisfied by the End Date; or
(m) (i) by Stone if a third party or group (other than the parties to
the JSC Support Agreements) has acquired ownership of a majority of the
then outstanding shares of JSC Common Stock or (ii) by JSC if a third party
or group (other than the stockholder party to the Stone Support Agreement)
has acquired ownership of a majority of the then outstanding shares of
Stone Common Stock.
TERMINATION FEES PAYABLE BY JSC
If the Merger Agreement is terminated pursuant to paragraph (e), (f), (g)
or (m)(i) under "--Termination" above, JSC will pay to Stone a termination fee
of $50 million in cash within one business day after such termination.
If the Merger Agreement is terminated pursuant to paragraph (d)(ii) under
"--Termination" above and a Takeover Proposal with respect to JSC has been
made prior to the JSC Stockholders' Meeting, JSC will pay to Stone a termination
fee of $50 million in cash within one business day after such termination;
provided that if the JSC Board did not exercise any of its rights described
under "--No Solicitation of Transactions" above with respect to the Takeover
Proposal, such fee will not be payable unless concurrently with or within 9
months after such termination, a JSC Third Party Acquisition Event occurs.
A "JSC Third Party Acquisition Event" means any of the following events:
(A) any person (other than Stone or its Affiliates) acquires or becomes the
beneficial owner of a majority of the outstanding shares of JSC Common Stock; or
(B) the consummation of a merger or other business combination involving JSC or
the completion of the acquisition of a majority interest in, or a majority of
the assets of, JSC (other than a transaction with Stone or its Affiliates or as
contemplated by the Merger Agreement).
TERMINATION FEES PAYABLE BY STONE
If the Merger Agreement is terminated pursuant to paragraphs (i), (j), (k)
or (m)(ii) under "--Termination" above, Stone will pay to JSC a termination
fee of $50 million in cash within one business day after such termination.
If the Merger Agreement is terminated pursuant to paragraph (d)(i) under
"--Termination" above and a Takeover Proposal with respect to Stone has been
made prior to the Stone Stockholders' Meeting, Stone will pay to JSC a
termination fee of $50 million in cash within one business day after such
termination; provided that the Stone Board did not exercise any of its rights
described under "--No Solicitation of Transactions" above with respect to the
Takeover Proposal, such fee will not be payable unless concurrently with or
within 9 months after such termination, a Stone Third Party Acquisition Event
occurs.
A "Stone Third Party Acquisition Event" means any of the following events:
(A) any person (other than JSC or its Affiliates) acquires or becomes the
beneficial owner of a majority of the outstanding shares of Stone Common Stock;
or (B) the consummation of a merger or other business combination involving
Stone or the completion of the acquisition of a majority interest in, or a
majority of the assets of, Stone (other than a transaction with JSC or its
Affiliates or as contemplated by the Merger Agreement).
EXPENSES
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated by the Merger Agreement will be paid by the party
incurring such expenses, whether or not the Merger is consummated; provided,
however, that JSC and Stone will share equally all fees and expenses, other than
attorneys' and accounting fees and expenses, incurred in relation to the
printing and filing of this Joint Proxy Statement/Prospectus and the
Registration Statement in which this Joint Proxy Statement/Prospectus is
included and any amendments or supplements thereto.
STOCK PURCHASE AGREEMENT
General. In connection with the Merger Agreement, JSC, JSG, SIBV, MSLEF and
certain other JSC stockholders have entered into the Stock Purchase Agreement
providing for the sale by MSLEF and such other JSC stockholders (the "Sellers")
to SIBV of 20,000,000 shares of JSC Common Stock and providing for certain other
matters relating to the Merger. The following description of the Stock Purchase
Agreement is qualified by reference to the complete text of the Stock Purchase
Agreement, which is incorporated by reference herein and attached hereto as
Annex G.
Purchase Price. The Stock Purchase Agreement provides that at the closing
of the stock purchase SIBV will pay the Sellers for each share of JSC Common
Stock being purchased an amount equal to $25.00 plus interest thereon from and
including the date of the Stock Purchase Agreement to but excluding the date on
which payment is made at a rate of 6% per annum (the "Initial Purchase Price").
The Stock Purchase Agreement also provides that SIBV will make an additional
payment to the Sellers, not to exceed $0.50 per share of JSC Common Stock, in an
amount per share of JSC Common Stock equal to 25% of the excess of the
Post-Merger Average Market Price over $28.00. For purposes of the Stock Purchase
Agreement, the "Post-Merger Average Market Price" means the arithmetic average
of the "Volume Weighted Prices". For purposes of the Stock Purchase Agreement,
"Volume Weighted Prices" means, for each of the ten trading days beginning on
and including the second trading day after date on which the closing of the
stock purchase occurs, the number obtained by dividing (x) the sum, for each
trade on such trading day, of (i) the price at which such trade was transacted
times (ii) the number of shares in such trade by (y) the aggregate number of
shares traded on such trading day.
Conditions to Obligations of SIBV, JSC and the Sellers. The respective
obligations of SIBV, JSC and the Sellers to consummate the transactions
contemplated by the Stock Purchase Agreement are subject to the satisfaction or
waiver by SIBV, JSC and MSLEF of certain conditions, including the following:
(a) No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction having
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent) that
prohibits consummation of the transactions contemplated by the Stock Purchase
Agreement.
(b) The Merger being consummated in accordance with the terms of the Merger
Agreement concurrently with the consummation of the transactions contemplated by
the Stock Purchase Agreement.
(c) Sellers delivering an aggregate of 20,000,000 shares of JSC Common
Stock at the Closing.
Indemnification. The Stock Purchase Agreement provides that SIBV, the
Sellers and JSC indemnify each other and certain related parties (including JSG)
for Losses (as defined in the Stock Purchase Agreement) arising out of their
breach of any of the representations or warranties contained in the Stock
Purchase Agreement or their non-performance of any covenant or agreement under
the Stock Purchase Agreement. The Stock Purchase Agreement also provides that
JSC indemnify SIBV, the Sellers and certain related parties (including JSG)
against any Losses arising out of or resulting from any claim, action, suit,
proceeding or investigation based on or arising out of the Stock Purchase
Agreement, the Merger Agreement or the transactions contemplated by the Merger
Agreement regardless of whether any such claim, action, suit, proceeding or
investigation is asserted or commenced prior to or after the date of the Stock
Purchase Agreement; provided that this indemnification is not available to the
extent that (A) a Loss is determined by a court of competent jurisdiction to
have resulted from the bad faith or willful misconduct of a Seller or certain
related parties (in the case of indemnification of a Seller or such related
parties) or SIBV or certain related parties (in the case of indemnification of
SIBV or such related parties); (B) SIBV, a Seller or certain related parties
have indemnification obligations in respect of such Loss pursuant to the first
sentence of this paragraph; (C) a Loss relates to a claim between the parties to
any of the Transaction Agreements or the Asset Purchase Agreement relating to
the subject matter of such Agreement; (D) a Loss relates to a claim by JSC (in
its own right and not derivatively) against anyone to enforce its rights under
an agreement to which it is party; or (E) a Loss relates to a direct claim (and
not a third-party or derivative claim) between JSG and its affiliates (other
than JSC and its subsidiaries), on the one hand, and MSLEF and its affiliates
(other than JSC and its subsidiaries), on the other hand. The indemnification by
JSC contained in the immediately preceding sentence survives the closing
under the Stock Purchase Agreement for ten months and the termination of
the Stock Purchase Agreement for eighteen months (and thereafter with
respect to any claims for which notice is given within such periods).
Termination. The Stock Purchase Agreement automatically terminates if the
Merger Agreement is terminated.
The Guaranty. Pursuant to the Stock Purchase Agreement, JSG has guaranteed
all obligations of SIBV under the Stock Purchase Agreement.
Expenses. Except as provided in the Merger Agreement, all costs and
expenses incurred in connection with the Stock Purchase Agreement and the
transactions contemplated by the Stock Purchase Agreement will be paid by the
party incurring such cost or expense; provided that JSC has agreed in the Stock
Purchase Agreement and in a related letter agreement that it will pay at the
closing under the Stock Purchase Agreement the fees of legal counsel (in an
amount not to exceed $2,500,000) and the fees of the financial advisor to JSG
and SIBV in connection with the transactions contemplated by the Stock Purchase
Agreement and the Merger Agreement. See "Interests of Certain Persons in the
Merger."
Termination of Stockholders' Agreement and Related Registration Rights
Agreement. The Stock Purchase Agreement provides that the Stockholders'
Agreement dated as of May 3, 1994 among SIBV, The Morgan Stanley Leveraged
Equity Fund II, L.P. and JSC (as amended, the "Stockholders' Agreement") and the
related registration rights agreement will terminate as of the closing under the
Stock Purchase Agreement. The Stock Purchase Agreement further provides that the
MS Holders (as defined in the Stockholders' Agreement) will be entitled to the
same rights that they had on the date of execution of the Stock Purchase
Agreement through the closing under the Stock Purchase Agreement (or termination
thereof) notwithstanding any sale by any of the MS Holders of any shares of JSC
Common Stock.
STANDSTILL AGREEMENT
General. In connection with the Merger Agreement, JSG, MSLEF and JSC
entered into the Standstill Agreement. The following description of the
Standstill Agreement is qualified by reference to the complete text of the
Standstill Agreement, which is incorporated by reference herein and attached
hereto as Annex H.
Standstill. JSG has agreed in the Standstill Agreement that, subject to
specified exceptions contained therein, until the fifth anniversary of the
Effective Time, it will not, and will cause each of its Subsidiaries not to,
directly or indirectly, acquire any Voting Securities (as defined in the
Standstill Agreement) if, after giving effect to such acquisition, JSG and its
Subsidiaries would beneficially own Voting Securities representing more than 40%
of the Total Voting Power (as defined in the Standstill Agreement) represented
by all outstanding Voting Securities. MSLEF has also agreed in the Standstill
Agreement that, until the fifth anniversary of the Effective Time, it will not,
and will cause each of its Subsidiaries not to, directly or indirectly, acquire
any Voting Securities (except pursuant to a stock split, stock dividend, rights
offering, recapitalization, reclassification or similar transaction).
Certain Other Matters. Except as expressly contemplated by the Amended JSC
Bylaws or the Voting Agreement, from the Effective Time until the Article 5
Termination Date (or, in the case of clause (g) below, until the fifth
anniversary of the Effective Time), JSG has agreed in the Standstill Agreement
that it will not, and will cause each of its Subsidiaries not to: (a) make, or
in any way participate in, any "solicitation" of "proxies" to vote (as such
terms are defined in Rule 14a-1 under the 1934 Act), solicit any consent or
communicate with or seek to advise or influence any person or entity with
respect to the voting of any Voting Securities (as defined in the Standstill
Agreement) or become a "participant" in any "election contest" (as such terms
are defined or used in Rule 14a-11 under the 1934 Act) with respect to JSC; (b)
form, join or encourage the formation of any "group" (within the meaning of
Section 13(d)(3) of the 1934 Act) with respect to any Voting Securities, (c)
deposit any Voting Securities into a voting trust or subject any such Voting
Securities to any arrangement or agreement with respect to the voting thereof
(other than with its subsidiaries); (d) initiate, propose or otherwise solicit
stockholders for the approval of one or more stockholder proposals with respect
to JSC as described in Rule 14a-8 under the 1934 Act, or induce or attempt
to induce any other person or entity to initiate any such stockholder
proposal; (e) seek election to or seek to place a representative on the
JSC Board or seek the removal of any member of the JSC Board; (f) call or
seek to have called any meeting of the stockholders of JSC; (g) solicit,
seek to effect, negotiate with or provide any information to any other
party with respect to, or make any statement or proposal (except for any
statement or proposal in response to an acquisition or business combination
proposal by a party other than JSG or its Subsidiaries), whether written or
oral, to the JSC Board 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 JSG or its Subsidiaries) whatsoever with respect to, any form of
acquisition or business combination transaction involving JSC 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 JSC; or (h)
instigate or encourage any third party to do any of the foregoing.
Transfer Restrictions. From the Effective Time until the Article 5
Termination Date, JSG has agreed in the Standstill Agreement that it will not,
and will cause its Subsidiaries not to, directly or indirectly, sell or
otherwise transfer in any manner any Voting Securities to any "person" (within
the meaning of Section 13(d)(3) of the 1934 Act) who, to the knowledge of JSG,
after reasonable inquiry, owns (or as a result of such sale or transfer would
own) JSC securities representing more than 5% of the Total Voting Power.
Suspension; Termination. (a) The Standstill Agreement provides that the
restrictions set forth in the preceding three paragraphs as to JSG and its
Subsidiaries will be suspended (and during such period of suspension be of no
force and effect) in the event that JSC enters into a written agreement
concerning an Acquisition Proposal (as defined below). The Standstill Agreement
further provides that if such written agreement is terminated without the
consummation of the Acquisition Proposal, then such restrictions will be
reinstated, subject to further suspension or reinstatement in the event of the
occurrence of further events described in the preceding sentence or this
sentence, respectively. For purposes of the Standstill Agreement, "Acquisition
Proposal" means any proposed acquisition of Voting Securities representing more
than 30% of the Total Voting Power, whether by business combination, tender or
exchange offer, or otherwise, or the proposed acquisition of all or
substantially all the assets of JSC and its Subsidiaries, taken as a whole
(other than the Merger or any other transaction between JSC or any of its
Subsidiaries, on the one hand, and JSG or any of its Subsidiaries, on the other
hand).
(b) The Standstill Agreement also provides that in the event that any
person (other than JSG or any of its Subsidiaries or any person acting on behalf
of or in participation with any of the foregoing) commences a tender or exchange
offer that, if fully consummated, would result in such person, together with
such person's subsidiaries, or any other person acting on behalf of or in
participation with such person or its subsidiaries, becoming the beneficial
owner of Voting Securities representing more than 30% of the Total Voting Power,
then the restrictions set forth in the first three paragraphs under "Standstill
Agreement" as to JSG and its Subsidiaries will be suspended (and during such
period of suspension be of no force and effect). If, upon the expiration of such
tender or exchange offer, the person making such tender or exchange offer does
not acquire an amount of Voting Securities sufficient to make the provisions of
the next paragraph applicable, the Standstill Agreement provides that such
restrictions will be reinstated, subject to further suspension or reinstatement
in the event of the occurrence of further events described in the preceding
sentence or this sentence, respectively.
(c) The Standstill Agreement further provides that in the event that it is
publicly announced or JSG or JSC becomes aware (in which case it must promptly
notify the other) that any person (other than JSG or any of its subsidiaries or
any person acting on behalf of or in participation with any of the foregoing),
together with such person's subsidiaries, or any other person acting on behalf
of or in participation with such person or its subsidiaries has become the
beneficial owner of Voting Securities representing more than 15% of the Total
Voting Power, then the restrictions set forth under "--Standstill" and
"--Certain Other Matters" as to JSG and its subsidiaries will terminate
(without reinstatement); provided that with respect to certain institutional and
other passive investors who, after becoming the beneficial owner of Voting
Securities representing more than 15% of the Total Voting Power, do not state
any intention to or reserve the right to seek to control or influence the
management or policies of JSC, such restrictions will not terminate but
will be suspended on the 30th day after public announcement that such
person has acquired such ownership and such restrictions will be reinstated
provided that such investor divests a sufficient number of Voting
Securities such that such investor and its subsidiaries no longer
beneficially own more than 15% of the Total Voting Power.
Termination. The Standstill Agreement may be terminated with respect to
MSLEF and its subsidiaries or JSG and its subsidiaries, as the case may be, by
mutual written agreement of MSLEF (in the case of a termination of provisions
binding on MSLEF and its subsidiaries) or JSG (in the case of a termination of
provisions binding on JSG and its subsidiaries), on the one hand, and JSC, on
the other hand, and in no other manner; provided that any such written agreement
of JSC will be effective only if approved by a majority of (a) Disinterested
Directors with respect to MSLEF (as defined below) in the case of any
termination of obligations binding on MSLEF and its subsidiaries or (b)
Disinterested Directors with respect to JSG (as defined below) in the case of
any termination of obligations of JSG and its subsidiaries. For purposes of the
Standstill Agreement, (i) "Disinterested Director with respect to MSLEF" means a
member of the JSC Board who (x) is not the MSLEF Director (as such term is
defined in the SSCC Bylaws) and (y) would otherwise constitute an "Independent
Director" (as such term is defined in the SSCC Bylaws) vis-a-vis MSLEF and (ii)
a "Disinterested Director with respect to JSG" means the MSLEF Director, if any,
or a member of the JSC Board who (x) is not a JSC Director (as such term is
defined in the SSCC Bylaws) and (y) would otherwise constitute an Independent
Director (as such term is defined in the SSCC Bylaws) vis-a-vis JSG. In addition
to the foregoing, the Standstill Agreement terminates automatically in the event
the Merger Agreement terminates without consummation of the Merger.
AMENDMENTS TO THE STONE CERTIFICATE OF INCORPORATION
As part of the Stone Proposal, in order to ensure that, for federal income
tax purposes, the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code and that no gain or loss will be recognized by the
holders of shares of Stone Common Stock upon exchange of such shares in the
Merger for shares of JSC Common Stock (except with respect to any cash received
for fractional shares of JSC Common Stock), Stone common stockholders will vote
on a proposal to amend (the "Stone Charter Amendment") the Stone restated
certificate of incorporation to provide holders of Stone Series E Preferred
Stock with additional voting rights. Specifically, the Stone Charter Amendment
provides that, except as otherwise required by law, the holders of shares of
Stone Series E Preferred Stock will be entitled, in addition to their existing
voting rights, to vote upon all matters upon which holders of shares of Stone
Common Stock have the right to vote and will be entitled to one vote per share
of Stone Series E Preferred Stock upon such matters. The Stone Charter Amendment
further provides that, except as otherwise required by law, the holders of
shares of Stone Common Stock and Stone Series E Preferred Stock will vote
together as a single class on all matters (other than with respect to matters on
which holders of shares of Stone Series E Preferred Stock are currently entitled
to vote upon separately as a class, including any right to elect two additional
directors of Stone in the event that six quarterly dividends on the Stone Series
E Preferred Stock are not paid). In elections of directors (other than the two
additional Stone Series E Preferred Stock directors, if applicable) the holders
of Stone Series E Preferred Stock will have the same cumulative voting rights as
holders of Stone Common Stock. If the Stone Proposal is approved by the Stone
common stockholders and all other conditions to the Merger are satisfied or
waived, a certificate of amendment effecting the Stone Charter Amendment will be
filed with the Secretary of State of the State of Delaware and become effective
prior to the Merger. A copy of the full text of the Stone Charter Amendment is
attached as Annex D-1.
Pursuant to the Merger Agreement, and to comply with Section 6 of Subpart
I.B. of the Stone Restated Certificate of Incorporation, after the Merger each
issued and outstanding share of Stone Series E Preferred Stock will remain
outstanding and become convertible pursuant to its terms into that number of
shares of JSC Common Stock that its holder would have received in the Merger had
such holder converted such share of Stone Series E Preferred Stock immediately
prior to the Effective Time. In accordance with Section 6 of Subpart I.B. of the
Stone Restated Certificate of Incorporation, the Stone Restated Certificate of
Incorporation will be amended in the Merger (and not as part of the Stone
Charter Amendment) to provide that (subject to certain conditions and
exceptions described therein) holders of shares of Stone Series E Preferred
Stock will have the right to convert all or any of such shares into SSCC Common
Stock at the conversion price of $34.28 (equivalent to a conversion rate of .729
shares of SSCC Common Stock per share of Stone Series E Preferred Stock so
converted), subject to adjustment pursuant to certain anti-dilution provisions
with respect to SSCC and the SSCC Common Stock. Also in accordance with Section
6 of Subpart I.B. of the Stone Restated Certificate of Incorporation, after the
Merger Stone will be obligated to deliver shares of SSCC Common Stock upon the
conversion of the Stone Series E Preferred Stock. A copy of the full text of
such amendments is attached as Annex D-2.
SSCC INCENTIVE PLAN PROPOSAL
The JSC Board and the Stone Board each have recommended that their
stockholders vote in favor of the SSCC Incentive Plan Proposal. The Incentive
Plan that is the subject of such Proposal will provide 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 SSCC and its
affiliates.
The continued success of SSCC depends upon its ability to attract and
retain highly qualified and competent employees. The Incentive Plan enhances
that ability and provides additional incentive to such personnel to advance the
interests of SSCC and its stockholders. THE JSC AND STONE BOARDS EACH RECOMMEND
A VOTE IN FAVOR OF THE APPROVAL OF THE INCENTIVE PLAN.
The following brief description of the material features of the Incentive
Plan is qualified in its entirety by reference to the full text of the Incentive
Plan, a copy of which is attached to this Joint Proxy Statement/Prospectus as
Annex I.
SHARES AUTHORIZED UNDER THE INCENTIVE PLAN
The initial number of shares of SSCC Common Stock with respect to which
awards may be granted under the Incentive Plan will not exceed 15,000,000 shares
of SSCC Common Stock. No individual may receive awards under the Incentive Plan
in any calendar year covering more than 2,000,000 shares of SSCC Common Stock.
The number of shares of SSCC Common Stock authorized under the Incentive Plan,
and the maximum individual grant level, are subject to adjustment in the event
of any distribution (whether in the form of shares of SSCC Common Stock, other
securities or other property), recapitalization (including, without limitation,
any subdivision or combination of shares of SSCC Common Stock), reorganization,
consolidation, combination, repurchase, or exchange of shares of SSCC Common
Stock or other securities of SSCC, issuance of warrants or other rights to
purchase shares of SSCC Common Stock or other securities of SSCC, or other
similar transaction or event affecting the shares of SSCC Common Stock such that
an adjustment is determined to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Incentive Plan. Such adjustments may be made by the Compensation
Committee of the SSCC Board. Also, shares of SSCC Common Stock surrendered to
SSCC to pay the exercise price or tax liability associated with equity awards of
SSCC and shares of SSCC Common Stock underlying canceled or forfeited equity
awards will again become available for grant under the Incentive Plan. Awards
issued in assumption of or substitution for awards previously granted by a
company acquired by SSCC or with which SSCC combines are not counted against the
shares remaining available for grant under the Incentive Plan. The shares of
SSCC Common Stock issuable under the Incentive Plan may be drawn from either
authorized but previously unissued shares or from reacquired shares of SSCC
Common Stock.
MATERIAL FEATURES OF THE INCENTIVE PLAN
The Incentive Plan will be administered by the Compensation Committee of
the SSCC Board. The Compensation Committee will have, among other powers, the
power to interpret, waive, amend, establish, or suspend rules and
regulations of the Incentive Plan in its administration of the Incentive
Plan.
The Compensation Committee will have 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 SSCC Board.
The Compensation Committee will have the sole discretion to determine the number
or amount of any Award to be awarded to any participant.
Each Award will be evidenced by an award agreement that will be delivered
to the participant specifying the terms and conditions of the Award and any
rules applicable to such Award. The material terms and features of the various
forms of Awards available under the Incentive Plan are set forth below.
Options. These are options to purchase shares of SSCC Common Stock upon
payment of a pre-established exercise price. The exercise price, vesting
schedule (if any) and other terms and conditions of options granted under the
Incentive Plan will be established at the time of grant by the Compensation
Committee.
Performance Awards. These are rights to receive amounts, denominated in
shares of SSCC Common Stock, based upon SSCC's (or any of its operating units')
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 will be established by the Compensation
Committee at the time of grant. Performance will be measured by earnings,
earnings per share, earnings from operations, specified operational objectives,
return on equity, return on assets, share price and/or the extent of increase or
decrease of any one or more of such measures over a specified period.
ELIGIBLE PARTICIPANTS
Under the Incentive Plan, any officer or employee of or any adviser or
consultant to SSCC or any of its affiliates or any SSCC Board member may be a
participant in the Incentive Plan and receive Awards thereunder.
The Incentive Plan is a discretionary plan and, accordingly, it is not
possible at present to determine the amount or form of any Award that would have
been granted or that will be available for grant to any individual during the
term of the Incentive Plan.
AMENDMENTS TO THE INCENTIVE PLAN
The SSCC Board (or the Compensation Committee if authorized by the SSCC
Board) may amend, alter, suspend, discontinue, or terminate the Incentive Plan
or any portion thereof at any time; provided that no such action will be made
without stockholder approval if such approval is necessary to comply with any
tax or regulatory requirement with which the SSCC Board deems it necessary or
desirable to comply.
DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under current federal income tax law, the grant and/or exercise of Awards
under the Incentive Plan would have the following material tax consequences.
Options. A participant will not recognize taxable income solely as a result
of being granted an option or holding an unexercised option. When a participant
exercises an option, the participant will recognize ordinary income equal to the
excess, if any, of the fair market value of the option shares of SSCC Common
Stock purchased thereunder over the purchase price. When a participant disposes
of the option shares of SSCC Common Stock, any amount received in excess of the
fair market value of the shares of SSCC Common Stock on the date of exercise
generally will be treated as long- or short-term capital gain, depending upon
the holding period of the shares of SSCC Common Stock. If the amount received on
disposition of the option shares of SSCC Common Stock is less than the fair
market value of the shares of SSCC Common Stock on the date of exercise, the
loss generally will be treated as long- or short-term capital loss,
depending upon the holding period of the shares of SSCC Common Stock. Upon
a participant's exercise of an option, SSCC (or, if a subsidiary is the
employer in a given case, the subsidiary) will generally be entitled to a
deduction for federal income tax purposes in an amount equal to the amount
of ordinary income recognized by the participant in respect of the
exercise.
To the extent that a participant pays all or part of the purchase price of
option shares of SSCC Common Stock by surrendering shares of SSCC Common Stock
owned by the participant, the rules described in the preceding paragraph will
apply, except that the number of shares of SSCC Common Stock received upon the
exercise which is equal to the number of shares of SSCC Common Stock so
surrendered will generally have the same basis and tax holding period as the
shares of SSCC Common Stock surrendered. Generally, the additional option shares
of SSCC Common Stock received upon such purchase will have a holding period
which commences on the date of purchase and a basis equal to the per share fair
market value on the date of exercise.
A participant will not recognize gain or loss with respect to shares of
SSCC Common Stock used to pay the purchase price upon exercise of an option.
Awards Settled in Property. Performance Awards under the Incentive Plan
that are settled in shares of SSCC Common Stock will generally cause the
recipient to realize ordinary income, at the time of receipt, in the amount of
the fair market value of the shares of SSCC Common Stock received. SSCC (or, if
a subsidiary is the employer in a given case, the subsidiary) will generally be
entitled to a deduction of the same amount.
The foregoing discussion is based upon current provisions of the Code,
which are subject to change. The summary does not cover any state or local tax
consequences.
The Incentive Plan is not subject to any provision of the Employee
Retirement Income Security Act of 1974, as amended, nor is it a qualified
employee benefit plan under Section 401(a) of the Code.
THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of shares of JSC Common Stock by
the JSC Board for use at the JSC Meeting and (ii) from the holders of shares of
Stone Common Stock by the Stone Board for use at the Stone Meeting. This Joint
Proxy Statement/Prospectus and accompanying form of proxy are first being mailed
to the respective stockholders of JSC and Stone on or about October 9, 1998.
TIMES AND PLACES; PURPOSES
The JSC Meeting will be held at Renaissance Hotel, 9801 Natural Bridge
Road, St. Louis, Missouri on November 17, 1998, starting at 10:30 a.m., local
time. At the JSC Meeting, the JSC stockholders will be asked to consider and
vote upon the JSC Proposal and the SSCC Incentive Plan Proposal.
The Stone Meeting will be held at The Mid-America Club, 200 East Randolph
Drive, Chicago, Illinois on November 17, 1998, starting at 10:30 a.m., local
time. At the Stone Meeting, the Stone stockholders will be asked to consider and
vote upon the Stone Proposal and the SSCC Incentive Plan Proposal.
Representatives of Ernst & Young LLP are expected to be present at the JSC
Meeting, where they will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Stone Meeting, where they will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
JSC. The JSC Board has fixed the close of business on September 29, 1998 as
the record date (the "JSC Record Date") for JSC stockholders entitled to notice
of and to vote at the JSC Meeting.
The only outstanding voting securities of JSC are the shares of JSC Common
Stock. Only holders of record of shares of JSC Common Stock on the JSC Record
Date are entitled to notice of and to vote at the JSC Meeting. Each holder
of record, as of the JSC Record Date, of shares of JSC Common Stock is
entitled to cast one vote per share on each of the JSC Proposal and the
SSCC Incentive Plan Proposal.
On the JSC Record Date, there were 110,997,612 shares of JSC Common Stock
outstanding and entitled to vote at the JSC Meeting, held by approximately
13,000 stockholders.
The favorable vote of two-thirds of the shares of JSC Common Stock
outstanding on the JSC Record Date is required to approve the JSC Proposal, and
the favorable vote of a majority of the shares of JSC Common Stock present in
person or by proxy at the JSC Meeting and entitled to vote at the JSC Meeting is
required to approve the SSCC Incentive Plan Proposal submitted at the JSC
Meeting, assuming a quorum is present.
On the JSC Record Date, the directors and executive officers of JSC and
their affiliates beneficially owned and were entitled to vote approximately
83,865,000 shares of JSC Common Stock, or approximately 75.6% of the shares of
JSC Common Stock outstanding on the JSC Record Date. This includes the shares of
JSC Common Stock beneficially owned by SIBV (approximately 46.5% of the JSC
Common Stock outstanding on the JSC Record Date), and the shares of JSC Common
Stock beneficially owned by MSLEF and certain related stockholders
(approximately 28.7% of the JSC Common Stock outstanding on the JSC Record
Date). Pursuant to the applicable JSC Support Agreement, each of SIBV and MSLEF
has agreed, subject to certain exceptions specified therein, to vote all shares
of JSC Common Stock that it beneficially owned on the JSC Record Date in favor
of the JSC Proposal. See "Voting Commitments from Certain Stockholders."
Stone. The Stone Board has fixed the close of business on September 29,
1998 as the record date (the "Stone Record Date") for Stone stockholders
entitled to notice of and to vote at the Stone Meeting.
Currently, the only outstanding voting securities of Stone are the shares
of Stone Common Stock. If the Stone Proposal is approved, the Stone Series E
Preferred Stock will also be voting securities of Stone. Only holders of record
of shares of Stone Common Stock on the Stone Record Date are entitled to vote at
the Stone Meeting, and only holders of record of shares of Stone Common Stock
and Stone Series E Preferred Stock on the Stone Record Date are entitled to
notice of the Stone Meeting. Each holder of record, as of the Stone Record Date,
of shares of Stone Common Stock is entitled to cast one vote per share on each
of the Stone Proposal and the SSCC Incentive Plan Proposal.
On the Stone Record Date, there were approximately 104,977,686 shares of
Stone Common Stock outstanding and entitled to vote at the Stone Meeting, held
by approximately 5,760 stockholders of record.
The favorable vote of two-thirds of the shares of Stone Common Stock
outstanding on the Stone Record Date is required to approve the Stone Proposal,
and the favorable vote of a majority of the votes cast is required to approve
the SSCC Incentive Plan Proposal submitted at the Stone Meeting, assuming a
quorum is present.
On the Stone Record Date, the directors and executive officers of Stone and
their affiliates beneficially owned and were entitled to vote 7,519,619 shares
of Stone Common Stock, or approximately 7.2% of the shares of Stone Common Stock
outstanding on the Stone Record Date. Pursuant to the Stone Support Agreement,
Mr. Stone has agreed, subject to certain exceptions specified therein, to vote
all shares of Stone Common Stock that he beneficially owned on the Stone Record
Date in favor of (and to use reasonable best efforts to persuade members of his
family to vote in favor of) the Stone Proposal. On the Record Date, Mr. Stone
and related family members beneficially owned approximately 11.2% of the
outstanding shares of Stone Common Stock. See "Voting Commitments from Certain
Stockholders."
VOTING OF PROXIES
All shares of JSC Common Stock and Stone Common Stock represented by
properly executed proxies received prior to or at the respective JSC Meeting or
Stone Meeting, as the case may be, and not revoked, will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, such proxies will be voted
FOR the approval of the JSC Proposal and the SSCC Incentive Plan Proposal
or the Stone Proposal and the SSCC Incentive Plan Proposal, as the case may
be.
If any other matters are properly presented at the JSC Meeting (in the case
of the JSC stockholders) or at the Stone Meeting (in the case of the Stone
common stockholders) for consideration, the persons named in the enclosed form
of proxy, and acting thereunder, will have discretion to vote on such matters in
accordance with their best judgment (unless authorization to use such discretion
is withheld). If a proposal to adjourn the JSC Meeting or the Stone Meeting is
properly presented, the persons named in the enclosed form of proxy will not
have discretion to vote shares voted against the JSC Proposal and the SSCC
Incentive Plan Proposal or the Stone Proposal and the SSCC Incentive Plan
Proposal, as the case may be, in favor of the adjournment proposal. Neither JSC
nor Stone is aware of any matters expected to be presented at its respective
meeting other than as described in its respective Notice of Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
(including by telegram or telecopy) with the Secretary of JSC or the Secretary
of Stone, as the case may be, before taking of the vote at the relevant meeting,
a written notice of revocation bearing a later date than the date of the proxy
or a later-dated proxy relating to the same shares, or (ii) attending the
relevant meeting and voting in person. In order to vote in person at either the
JSC Meeting or the Stone Meeting, JSC stockholders and Stone common stockholders
must attend the relevant meeting and cast their votes in accordance with the
voting procedures established for such meeting. Attendance at a meeting will not
in and of itself constitute a revocation of a proxy. Any written notice of
revocation or subsequent proxy must be sent so as to be delivered at or before
the taking of the vote at the applicable meeting as follows:
(i) in the case of JSC stockholders, to Jefferson Smurfit Corporation,
Jefferson Smurfit Centre, 8182 Maryland Avenue, St. Louis, Missouri 63105,
Telecopy: (314) 746-1184, Attention: Secretary; and
(ii) in the case of Stone common stockholders, to Stone Container
Corporation, 150 North Michigan Avenue, Chicago, Illinois 60601, Telecopy:
(312) 580-4919, Attention: Secretary.
JSC stockholders and Stone common stockholders who require assistance in
changing or revoking a proxy should contact D. F. King & Co., Inc. at the
address or phone number provided in this Joint proxy Statement/Prospectus under
the caption "Who Can Help Answer Your Questions."
Abstentions may be specified on each of the JSC Proposal, the Stone
Proposal and the JSC and Stone SSCC Incentive Plan Proposals. Since the
favorable vote of at least two-thirds of all outstanding shares entitled to vote
on each of the JSC Proposal and the Stone Proposal is required to approve such
proposal and the affirmative vote of a majority of the shares of JSC Common
Stock present in person or by proxy at the JSC Meeting and entitled to vote on
the JSC SSCC Incentive Plan Proposal is required to approve such proposal, a
proxy marked "ABSTAIN" with respect to any such proposal will have the effect of
a vote against such proposal. However, since the favorable vote of a majority of
the votes cast on the Stone SSCC Incentive Plan Proposal is required to approve
such proposal, a proxy marked "ABSTAIN" with respect to such proposal will have
no effect on the outcome of the vote on such proposal. In addition, the failure
of a JSC stockholder to return a proxy will have the effect of a vote against
the JSC Proposal and the failure of a Stone stockholder to return a proxy will
have the effect of a vote against the Stone Proposal. The failure of a JSC
stockholder or Stone stockholder to return a proxy, however, will have no effect
with respect to the SSCC Incentive Plan Proposal, assuming a quorum is present
at each of the JSC Meeting and Stone Meeting.
Under NYSE and Nasdaq rules, brokers who hold shares in street name for
customers have the authority to vote on certain "routine" proposals when they
have not received instructions from beneficial owners. Under NYSE and Nasdaq
rules, such brokers are precluded from exercising their voting discretion with
respect to the approval and adoption of non-routine matters such as the JSC
Proposal, the Stone Proposal and the SSCC Incentive Plan Proposal and thus,
absent specific instructions from the beneficial owner of such shares, brokers
are not empowered to vote such shares with respect to the approval and adoption
of such proposals (i.e., "broker non-votes"). Since the affirmative votes
described above are required for approval of each of the JSC Proposal and
the Stone Proposal, a "broker non-vote" with respect to any such proposal
will have the effect of a vote against such proposal. With respect to the
SSCC Incentive Plan Proposal, however, a "broker non-vote" will have no
effect on the outcome of the vote on such proposal, assuming a quorum is
present at each of the JSC Meeting and Stone Meeting.
It is the policy of each of JSC and Stone to keep confidential proxy cards,
ballots and voting tabulations that identify individual stockholders, except
where disclosure is mandated by law and in other limited circumstances.
The cost of solicitation of proxies will be paid by JSC for JSC proxies and
by Stone for Stone proxies. In addition to solicitation by mail, arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners; and JSC or Stone,
as the case may be, will, upon request, reimburse such brokerage houses and
custodians for their reasonable expenses in so doing. JSC has retained
ChaseMellon Shareholder Services, L.L.C. and Stone has retained D.F. King & Co.,
Inc. to aid in the solicitation of proxies and to verify certain records related
to the solicitations. Each such firm will receive customary fees and expense
reimbursement for such services. To the extent necessary in order to ensure
sufficient representation at its Meeting, JSC or Stone may request by telephone
or telegram the return of proxy cards. The extent to which this will be
necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
Stockholders should not send in any stock certificates with their proxy
cards. A transmittal form with instructions for the surrender of certificates
representing shares of Stone Common Stock will be mailed by SSCC to former Stone
common stockholders as soon as practicable after the consummation of the Merger.
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
The rights of JSC stockholders are currently governed by the Delaware
General Corporation Law (the "Delaware Law") and the restated certificate of
incorporation and bylaws of JSC (the "Old JSC Charter" and the "Old JSC Bylaws",
respectively). The rights of Stone stockholders are currently governed by
Delaware Law and the restated certificate of incorporation and bylaws of Stone
(the "Stone Charter" and the "Stone Bylaws", respectively).
At the Effective Time, JSC will amend and restate the Old JSC Charter (as
so amended and restated, the "SSCC Charter") and the Old JSC Bylaws (as so
amended and restated, the "SSCC Bylaws") as provided for in the Merger
Agreement. Accordingly, upon consummation of the Merger, the rights of JSC
stockholders and the rights of Stone stockholders who become stockholders of
SSCC in the Merger will be governed by Delaware Law, the SSCC Charter and the
SSCC Bylaws.
The following discussions are not intended to be complete and are qualified
by reference to Delaware Law, the Old JSC Charter, the Old JSC Bylaws, the Stone
Charter, the Stone Bylaws, the SSCC Charter and the SSCC Bylaws. Copies of the
SSCC Charter and the SSCC Bylaws are attached as Annex B and Annex C to this
Joint Proxy Statement/Prospectus and are incorporated by reference herein. See
"Where You Can Find More Information."
COMPARISON OF RIGHTS OF JSC STOCKHOLDERS CURRENTLY AND FOLLOWING THE MERGER
The following summarizes the principal differences between the rights of
JSC stockholders under Delaware Law, the Old JSC Charter and the Old JSC Bylaws
prior to the Merger, and the rights of such stockholders under Delaware Law, the
SSCC Charter and the SSCC Bylaws following the Merger.
The principal differences between the rights of JSC stockholders prior to
and after the Merger are generally set forth in the SSCC Charter and in Article
5 of the SSCC Bylaws ("Article 5"). The provisions of Article 5 relate primarily
to the composition of the SSCC Board, the composition and authority of certain
of the Board and management committees and the authority of certain of SSCC's
executive officers. The SSCC Bylaws provide that Article 5 will automatically
terminate upon the earlier of (i) the date on which Mr. Stone ceases to be CEO
(which term as CEO is scheduled to expire upon the date of the first annual
meeting of stockholders occurring after February 16, 2001, unless changed by a
vote of at least 75% of the members of the entire SSCC Board) or (ii) February
16, 2001 (the "Article 5 Termination Date"). However, the SSCC Bylaws will
provide that certain provisions contained in Article 5 will survive the Article
5 Termination Date, namely: (x) certain rights relating to MSLEF will survive
for so long as MSLEF beneficially owns at least 1,000,000 shares of SSCC Common
Stock (determined on a primary basis and adjusted, as appropriate, for any stock
dividend or similar distribution of JSC Capital Stock, stock split,
reclassification, recapitalization, stock combination or similar change
involving the JSC Common Stock, the "MSLEF Threshold Amount of Shares"), (y)
certain provisions relating to the authority and composition of the Independent
Committee (as described below) will survive until the fifth anniversary of the
Effective Time and (z) the provision relating to the term of office of Mr. Stone
as CEO will survive until the first annual meeting of stockholders occurring
after February 16, 2001, subject to the termination of his employment as CEO for
Cause (as defined in the SSCC Bylaws) as determined by at least 75% of the
members of the entire SSCC Board.
Additional differences between the rights of JSC stockholders currently and
after the Merger relate to the fact that the Stockholders' Agreement will
terminate upon consummation of the Merger. See "Stock Purchase
Agreement--Termination of Stockholders' Agreement and Related Registration
Rights Agreement." Certain provisions of the Old JSC Charter and the Old JSC
Bylaws relating to the approval of certain actions, the composition and
designation of committees of the JSC Board and the amendment of the Old JSC
Charter and the Old JSC Bylaws reflect the requirements of the Stockholders'
Agreement. Accordingly, such provisions will be modified or eliminated in the
SSCC Charter and the SSCC Bylaws due to the termination of the Stockholders'
Agreement.
Authorized Capital. The authorized capital of JSC currently consists of
250,000,000 shares of JSC Common Stock and 50,000,000 shares of preferred stock,
par value $0.01 per share. The authorized capital of SSCC following the Merger
will be as set forth under "Description of SSCC Capital Stock Following the
Merger--Authorized Capital Stock."
Pursuant to the SSCC Charter, after the Effective Time, SSCC will be
required, among other things, to make available to Stone sufficient shares of
SSCC Common Stock (or other securities and property of SSCC, if applicable) to
permit Stone to satisfy the terms of the Stone Series E Preferred Stock upon
conversion thereof (or upon conversion of any 7% Convertible Subordinate
Exchange Debentures due 2007 issued in exchange for the Stone Series E Preferred
Stock (the "7% Convertible Debentures")). SSCC will be required to deliver such
shares of SSCC Common Stock (or other securities and property of SSCC, if
applicable) to Stone no later than the time when Stone is required to deliver
such securities upon conversion of the Stone Series E Preferred Stock (or upon
conversion of any 7% Convertible Debentures). In addition, the SSCC Charter will
require SSCC to take all action contemplated to be taken by SSCC pursuant to
(i) the provisions of the Stone Charter relating to the conversion of the Stone
Series E Preferred Stock or (ii) the indenture under which the 7% Convertible
Debentures were issued.
Number of Directors. The Old JSC Charter provides for the JSC Board to
consist of not fewer than 3 nor more than 15 members, with the exact number to
determined by the JSC Board. The JSC Board currently consists of 10 members. The
SSCC Charter and the SSCC Bylaws will provide for the SSCC Board to consist of
12 members. The SSCC Charter and the SSCC Bylaws will provide that, until the
Article 5 Termination Date, the total authorized number of directors comprising
the entire SSCC Board may not be increased or decreased without the affirmative
vote of stockholders holding at least 75% of the voting power of SSCC's then
outstanding capital stock entitled to vote thereon.
Term of Directors. Currently, JSC directors are divided into three classes,
with each class serving a staggered three-year term. The SSCC Charter will
require all directors of the SSCC Board to be elected at each annual meeting of
stockholders for a term of one year.
The SSCC Bylaws will provide that, until the Article 5 Termination Date,
each director must retire no later than the date of the first annual meeting of
stockholders to be held following that director's 72nd birthday.
Composition of the Board/Nomination of Directors. The JSC Board is
currently constituted in accordance with the Stockholders' Agreement. Pursuant
to the Stockholders' Agreement, each of SIBV and MSLEF have agreed to vote for
five nominees of the other (with one of each of the five nominees not being
"affiliated", as that term is defined in the Stockholders' Agreement, with SIBV,
MSLEF and certain other parties), subject to adjustment in the event of certain
changes in ownership of JSC Common Stock by MSLEF and certain other investors
and the receipt by such parties of a certain specified return on their
investment (the "Investment Return").
Under the Old JSC Bylaws and under the SSCC Bylaws following the Article 5
Termination Date, nominations of persons for election to the JSC Board may be
made at any annual meeting or special meeting of stockholders (i) by or at the
direction of the JSC Board or (ii) by any stockholder who is entitled to vote in
the election of directors, and complies with the procedures set forth in such
Bylaws.
The SSCC Bylaws will provide for there to be established the following
three board committees for nominating persons for election as directors and
filling director vacancies: the Stone Committee, the JSC Committee and the MSLEF
Committee (each, a "Nominating Committee"). The Stone Committee and the JSC
Committee will continue to function until the Article 5 Termination Date and
will thereafter be dissolved. The MSLEF Committee will continue to function
until such time as MSLEF beneficially owns less than the MSLEF Threshold Amount
of Shares. Prior to each meeting of the stockholders at which SSCC directors are
to be elected:
(x) the Stone Committee will have the authority to designate four
persons as nominees for election as directors and, in addition, one person
as nominee both for election as a director and for appointment as CEO;
(y) the JSC Committee will have the authority to designate four
persons as nominees for election as directors and, in addition, one person
as nominee both for election as a director and for appointment as
Chairman of the SSCC Board (the "Chairman") and one person as nominee
both for election as a director and for appointment as EVP; and
(z) the MSLEF Committee will have the authority to designate one
person as nominee for election as a director.
The SSCC Bylaws will provide that at each meeting of stockholders at which
directors are to be elected, the officer of SSCC presiding at such meeting will
nominate, on behalf of the Nominating Committees (if such committees exist), the
persons designated for nomination by the Nominating Committees. At any such
meeting, neither the SSCC Board nor any committee thereof will be permitted to
nominate or direct there to be nominated as a director any person not designated
by one of the Nominating Committees.
Effective as of the Effective Time, the SSCC Board will, by resolution,
designate certain of the SSCC directors (including the CEO) as "Stone
Directors", certain of the SSCC directors (including the Chairman and the EVP)
as "JSC Directors" and one of the SSCC directors as the "MSLEF Director". After
the Effective Time, each director nominated or appointed to the SSCC Board (i)
by the Stone Committee, will be considered a "Stone Director", (ii) by the JSC
Committee, will be considered a "JSC Director", (iii) by the MSLEF Committee,
will be considered the "MSLEF Director" and (iv) by the entire SSCC Board (and
not by any of the Nominating Committees), will be considered an "Unaffiliated
Director". In addition, if there is then otherwise no MSLEF Director and MSLEF
has at no time owned less than the MSLEF Threshold Amount of Shares, the holders
of at least a majority of the voting power of SSCC's then outstanding capital
stock may designate up to one director to serve as the MSLEF Director. The Stone
Committee will be comprised exclusively of each of the Stone Directors; the JSC
Committee will be comprised exclusively of each of the JSC Directors; and the
MSLEF Committee will be comprised exclusively of the MSLEF Director. Any person
elected to the SSCC Board by the stockholders who was not nominated to the SSCC
Board by any of the Nominating Committees will be considered an "Unaffiliated
Director" and will not sit on any of the Nominating Committees, unless such
director was designated as the MSLEF Director by the holders of at least a
majority of the voting power of SSCC's then outstanding capital stock.
The SSCC Charter will provide that to the extent and for so long as
provided in Article 5, the Nominating Committees will be constituted in
accordance with, and will be vested with such powers and authority as provided
in, Article 5.
Pursuant to the Voting Agreement, each of the parties thereto has agreed to
vote or cause to be voted all shares of SSCC Common Stock beneficially owned by
such stockholder in favor of (i) the persons designated for nomination to the
SSCC Board by the Nominating Committees and (ii) Mr. Stone (if Mr. Stone has not
been designated for nomination by any of the Nominating Committees). The
obligation of the parties to vote for Mr. Stone as a director terminates (i) if
Mr. Stone is removed as CEO for Cause or (ii) when Mr. Stone reaches the age of
72.
Removal of Directors. Under the Old JSC Charter, directors may be removed
by stockholders only for cause. The SSCC Charter will not include such a
limitation. However, the SSCC Charter and SSCC Bylaws will provide that until
the Article 5 Termination Date, the SSCC Board will not request that a special
meeting of stockholders be called for the purpose of removing an SSCC director
from office, unless the SSCC Board has first determined, by the affirmative vote
of at least 75% of the members of the entire SSCC Board, that there exists Cause
to remove such director. This 75% voting requirement will not apply to the SSCC
Board calling a special meeting for the removal of the MSLEF Director if MSLEF
beneficially owns less than the MSLEF Threshold Amount of Shares. Unlike the Old
JSC Charter and the Old JSC Bylaws, the SSCC Charter and the SSCC Bylaws will
provide that a special meeting of stockholders may be called, for any purpose,
at the written request of stockholders holding at least 25% of the voting power
of SSCC's then outstanding capital stock entitled to vote.
Pursuant to the Voting Agreement, if at any time MSLEF owns less than the
MSLEF Threshold Amount of Shares, each of MSLEF, SIBV and Mr. Stone has agreed
that, at the request of either of the other parties, it will vote or cause to be
voted all shares of SSCC Common Stock beneficially owned by it in favor of (x)
calling a special meeting of SSCC stockholders for the purpose of removing the
MSLEF Director and (y) removing the MSLEF Director at such special meeting of
stockholders. Other than as described in the preceding sentence, pursuant
to the Voting Agreement each of SIBV, MSLEF and Mr. Stone has agreed not
to vote or cause to be voted any shares of SSCC Common Stock beneficially
owned by such stockholder in favor of the removal of any director nominated
or appointed to the SSCC Board by any Nominating Committee (in accordance
with the SSCC Bylaws) other than for Cause.
Removal of Officers. The Old JSC Bylaws provide, and after the Article 5
Termination Date the SSCC Bylaws will provide, that officers may be removed at
any time by the affirmative vote of a majority of the directors. The SSCC Bylaws
will provide that until the Article 5 Termination Date, the Chairman, the CEO
and the EVP of SSCC (in his or her capacity as an officer) will be subject to
removal only for Cause as determined by at least 75% of the members of the
entire SSCC Board.
Filling of Vacancies. Under the Old JSC Charter and the Old JSC Bylaws and
under the SSCC Bylaws after the Article 5 Termination Date, vacancies on the
SSCC Board resulting from the removal from office, resignation, retirement,
death or other unavailability of any of the directors may be filled only by the
affirmative vote of a majority of the directors then in office or by the
stockholders at a special meeting called for such purpose.
Until the Article 5 Termination Date, the SSCC Bylaws will provide that,
subject to the immediately succeeding sentence, if any director (other than an
Unaffiliated Director) is removed from the SSCC Board, resigns, retires, dies or
otherwise cannot continue to serve as a member of the SSCC Board, if that
director is (i) a Stone Director, then the Stone Committee will have the
exclusive authority to appoint a person to fill such vacancy, (ii) a JSC
Director, then the JSC Committee will have the exclusive authority to appoint a
person to fill such vacancy or (iii) a MSLEF Director, then a majority of the
members of the entire SSCC Board will have the exclusive authority to appoint a
person to fill such vacancy (in which case, that newly appointed director will
be considered an Unaffiliated Director). The SSCC Bylaws will also provide that
(i) if a director who is removed from the SSCC Board, resigns, retires, dies or
otherwise cannot continue to serve as a member of the SSCC Board, is also the
Chairman or the EVP and (ii) if JSG and its subsidiaries beneficially own less
than 15% of the then outstanding shares of SSCC Common Stock, then a majority of
the members of the entire SSCC Board will have the exclusive right to appoint a
person to fill that vacancy (in which case that newly appointed director will be
considered an Unaffiliated Director). The SSCC Bylaws will further provide that
if (i) a MSLEF Director tenders his or her resignation from the SSCC Board
effective as of a future date, (ii) prior to and in contemplation of such future
date, the MSLEF Committee designates a person to replace the resigning MSLEF
Director and (iii) at such future date, MSLEF beneficially owns at least the
MSLEF Threshold Amount of Shares, then the person so designated by the MSLEF
Committee shall be appointed to fill the vacancy effective as of such future
date and shall be considered the MSLEF Director.
Pursuant to the Voting Agreement, each of the parties thereto has agreed
that, so long as MSLEF has at no time beneficially owned less than the MSLEF
Threshold Amount of Shares, if at any time there is no MSLEF Director on the
SSCC Board (due to the MSLEF Director's resignation, retirement, death or
otherwise), it will vote or cause to be voted all shares of SSCC Common Stock
beneficially owned by it in favor of (x) calling a special meeting of SSCC
stockholders for the purpose of removing an Unaffiliated Director (if any) and
replacing such Unaffiliated Director (or filling the vacancy left by the MSLEF
Director) with a person designated by MSLEF and (y) at such special meeting,
removing such Unaffiliated Director, electing the designee of MSLEF to the SSCC
Board and designating such person as the "MSLEF Director" on the SSCC Board.
The SSCC Bylaws will provide that, if an Unaffiliated Director is removed
from the SSCC Board or resigns, retires, dies or otherwise cannot continue to
serve as a member of the SSCC Board, then a majority of the members of the
entire SSCC Board will have the authority to appoint a person to fill such
vacancy.
The SSCC Bylaws will provide that the Stone Committee will use its best
efforts to ensure that at all times at least two of its designees for nomination
or appointees to the SSCC Board are Independent Directors (as defined in the
SSCC Bylaws), and will also provide that the JSC Committee will use its best
efforts to ensure that at all times at least two of its designees for nomination
or appointees to the SSCC Board are Independent Directors.
Special Meetings of Stockholders. Currently, special meetings of JSC
stockholders may be called by the Chairman of the JSC Board, the President, the
Secretary or any Vice President or at the request of a majority of the JSC
Board. Under the SSCC Charter and the SSCC Bylaws, this right will continue
(except as described above under "--Removal of Directors"). In addition, under
the SSCC Charter and the SSCC Bylaws, stockholders holding at least 25% of the
voting power of SSCC's then outstanding capital stock entitled to vote will have
the right to call a special meeting of stockholders. Assuming SIBV, currently
JSC's largest stockholder, does not sell a significant percentage of its shares
of JSC Common Stock, this amendment will permit SIBV to call a special meeting
of stockholders without the consent of any other SSCC stockholder. The SSCC
Charter and the SSCC Bylaws will further provide that in order for a stockholder
to nominate a person to be elected at a special meeting to serve as a director
on the SSCC Board, such stockholder must comply with certain advance notice
requirements (as provided in the SSCC Bylaws). Pursuant to the Voting Agreement,
the parties thereto have entered into certain agreements with respect to voting
to call and voting at special meetings of the SSCC stockholders. See
"--Removal of Directors."
Amendment of Charter. Pursuant to Delaware Law, amendment of a company's
certificate of incorporation generally requires the approval of the board of
directors and a majority of the outstanding stock entitled to vote thereon. The
Old JSC Bylaws provide that in order for the JSC Board to amend the Old JSC
Charter such amendment must be approved by (i) the number of directors equal to
the sum of the majority of the entire JSC Board plus one (the "Required
Majority"), (ii) two of the four directors selected by SIBV (the "SIBV
Nominees") pursuant to the Stockholders' Agreement and (iii) two of the four
directors selected by MSLEF (the "MSLEF Nominees") pursuant to the Stockholders'
Agreement. Pursuant to the Old JSC Charter, a two-thirds majority vote of the
stockholders is required to amend certain provisions of the Old JSC Charter
relating to the following: (i) the number of directors to serve on the JSC
Board, (ii) the classification of the JSC directors into three "staggered"
classes, (iii) the term of service for the JSC directors, (iv) the provisions
for filling vacancies on the JSC Board, (v) the requirement that JSC directors
be removed only for "cause", (vi) the amendment by the stockholders of the Old
JSC Bylaws, (vii) the requirement that all stockholder action be taken at an
annual or special meeting (no action by written consent) and (viii) the
prohibition against stockholders calling a special meeting.
The SSCC Charter will not require a two-thirds stockholder vote in order to
amend any of its provisions. Pursuant to the SSCC Charter, however, the
amendment of the following SSCC Charter provisions will require the affirmative
vote of stockholders holding at least 75% of the voting power of SSCC's then
outstanding capital stock entitled to vote: (x) SSCC Charter provisions
requiring a 75% stockholder vote to amend certain SSCC Bylaw provisions and (y)
SSCC Charter provisions which repeat certain Article 5 provisions where,
pursuant to the SSCC Bylaws, stockholder amendment of such Article 5 provisions
requires a 75% stockholder vote. In addition, the SSCC Bylaws will require the
approval of at least 75% of the members of the entire SSCC Board in order to
make certain recommendations to the stockholders. See "--Approval of Certain
Actions."
Pursuant to the Voting Agreement, each of the parties thereto has agreed
not to vote in favor of any resolution by any stockholder that seeks to amend,
repeal, or adopt any provision inconsistent with (i) Article 5 or (ii) the SSCC
Charter provisions requiring, in the case of stockholder amendment or repeal of
certain SSCC Bylaw provisions, the vote of holders of at least 75% of the voting
power SSCC's outstanding capital stock.
Amendment of Bylaws. Generally, the Old JSC Bylaws may be altered, amended
or repealed either
(x) by the JSC Board, only with the approval of (i) the Required
Majority, (ii) two SIBV Nominees and (iii) two MSLEF Nominees; or
(y) by the stockholders, only with the affirmative vote of the holders
of not less than two-thirds of the voting power of JSC's outstanding
capital stock entitled to vote thereon.
The SSCC Charter and the SSCC Bylaws will provide that, until the Article 5
Termination Date, amendment of Article 5 will require the approval of at least
75% of the members of the entire SSCC Board or the affirmative vote of the
holders of at least 75% of the voting power of SSCC's outstanding capital stock
entitled to vote thereon. From and after the Article 5 Termination Date, the
SSCC Bylaws will provide that the SSCC Bylaws may not be amended except by
a majority of the members of the entire SSCC Board or by the affirmative
vote of the stockholders as required by Delaware law.
In addition, the SSCC Charter and the SSCC Bylaws will provide that,
notwithstanding the Article 5 Termination Date, so long as MSLEF beneficially
owns not less than the MSLEF Threshold Amount of Shares, the amendment of any
provision of the SSCC Bylaws relating to (i) the authority and membership of the
MSLEF Committee and the SSCC Compensation Committee, (ii) the inclusion of the
MSLEF Director on the Independent Committee and the JSG Supervisory Committee
(if such committees exist) or (iii) the designee for nomination, removal or
replacement of the MSLEF Director, will require the unanimous vote of each of
the members of the SSCC Board or the affirmative vote of the holders of at least
75% of the voting power of SSCC's outstanding capital stock entitled to vote
thereon.
Stock Purchase Rights. JSC is a party to a Stock Subscription Agreement
(the "Subscription Agreement") dated as of May 3, 1994 among JSC, JSC-US and
SIBV. Pursuant to the Subscription Agreement, SIBV has been granted certain
contractual rights, which generally allow SIBV to maintain its percentage
ownership of JSC Common Stock in the event of public or private issuances of JSC
Common Stock (or securities of JSC convertible into or exchangeable for JSC
Common Stock).
Pursuant to a Letter Agreement dated May 10, 1998 between SIBV and JSC,
SIBV agreed to waive its purchase rights under the Subscription Agreement with
respect to shares of JSC Common Stock to be issued in connection with the
consummation of the Merger, including shares of JSC Common Stock issuable upon
the conversion of debt or equity securities of Stone outstanding as of May 10,
1998.
Approval of Certain Actions. The Old JSC Bylaws provide that until the
occurrence of a Trigger Event (as described below), certain actions require the
approval of (i) the Required Majority, (ii) two SIBV Nominees and (iii) two
MSLEF Nominees. These actions generally include (a) the amendment of the Old JSC
Charter and Old JSC Bylaws by the JSC Board or amendment of the certificate of
incorporation or bylaws of JSC's subsidiaries; (b) the issuance, sale, purchase
or redemption of securities of JSC or any of its subsidiaries (other than to JSC
or any of its wholly owned subsidiaries and other than pursuant to the
Subscription Agreement); (c) the establishment of and appointments to the Audit
Committee of the JSC Board; (d) sales of assets to or investments in, or certain
transactions with, JSG or its affiliates in excess of a specified amount or any
other person in excess of other specified amounts; (e) certain mergers,
consolidations, dissolutions or liquidations of JSC or any of its subsidiaries;
(f) the filing of a petition in bankruptcy; (g) any payment or distribution to
the stockholders of JSC or any of its subsidiaries, except for any such payments
or distributions to JSC or its wholly owned subsidiaries; (h) the incurrence of
certain new indebtedness, the creation of certain liens or guarantees, the
institution, termination or settlement of material litigation, the surrender of
property or rights, the making of certain investments, commitments, capital
expenditures or donations, in each case in excess of certain specified amounts;
(i) the entry into any lease (other than a capitalized lease) of assets of JSC
in excess of a specified amount; (j) the entry into any agreement or material
transaction between JSC and a director or officer of JSC, JSC-US, JSG, Container
Corporation of America ("CCA"), SIBV or MSLEF or their affiliates; (k) the
replacement of the independent accountants for JSC or any of its subsidiaries or
modification of significant accounting methods; (l) the amendment or termination
of JSC's 1992 Stock Option Plan; (m) the election or removal of directors and
officers of each of JSC-US and CCA, except as provided in the Stockholders'
Agreement; (n) the increase or decrease of the number of directors comprising
the JSC Board; and (o) any decision regarding registration of any securities,
except in accordance with the existing registration rights agreement.
The Old JSC Bylaws define a Trigger Event (which has not yet occurred) by
reference to various reductions in the holdings of JSC Common Stock by MSLEF and
certain other holders, or by SIBV, and by whether MSLEF and those other holders
has received the Investment Return.
The SSCC Bylaws will provide that, until the Article 5 Termination Date,
approval of at least 75% of the members of the entire SSCC Board will be
required for (i) any recommendation to the stockholders to change the number of
directors constituting the entire SSCC Board, (ii) any change in the tenure of
Mr. Stone as CEO or any removal of the CEO other than for Cause, (iii) any
change in the title or any material diminution in the responsibilities of the
Chairman, the CEO or the EVP, (iv) any stock repurchase that would result in the
aggregate beneficial ownership by JSG and its subsidiaries of capital stock
of SSCC representing more than 40% of the voting power represented by all
outstanding capital stock of SSCC (or, if such ownership is already greater
than 40%, increasing such beneficial ownership), or (v) any change in the
scope or composition of any of the committees of the SSCC Board (including
any change of the chairman of the Compensation Committee) or the two
management committees (including any change of the chairman of the Cost
Reduction/Divestiture Committee) described in the SSCC Bylaws. In
addition, the SSCC Bylaws will confer on various SSCC Board Committees
certain powers and authority of the SSCC Board. See "--Board
Committees."
Board Committees. The JSC Board has designated three committees pursuant to
the Old JSC Bylaws: the Compensation Committee, the Audit Committee and the
Appointment Committee. The Stockholders' Agreement contains various provisions
which generally are designed, subject to certain exceptions and depending on
certain changes in ownership of JSC Common Stock by MSLEF and certain other
investors from current levels and the receipt by MSLEF and certain other
investors of the Investment Return, to cause (i) MSLEF Nominees (other than the
independent MSLEF Nominee) to constitute a majority of the members of the
Compensation Committee and any other committees that administer any option or
incentive plan of JSC; and (ii) (a) SIBV Nominees (other than the independent
SIBV Nominee) to constitute a majority of the members of the Appointment
Committee, (b) a MSLEF Nominee (other than the independent MSLEF Nominee) to be
a member of the Appointment Committee, (c) nominees of the Appointment
Committee's SIBV Nominees to be appointed or elected officers of JSC (other than
the CFO) and (d) a nominee of the MSLEF Nominee to be appointed or elected CFO.
The Old JSC Bylaws provide that the Compensation Committee has the duty to
review at least once each fiscal year and to establish compensation (including
fringe benefits) for the CFO and for all other officers or employees of JSC and
its subsidiaries (i) who are directors of JSC (other than the CEO) or (ii) who
are officers of or employed by (or a significant portion of whose time is spent
as a consultant to) JSG or any of its affiliates and whose primary employment is
not with JSC and its subsidiaries. The Appointment Committee has the duty to
review at least once each fiscal year and to establish compensation (including
fringe benefits) for all other officers of JSC and its subsidiaries.
Pursuant to the Old JSC Bylaws, the adoption of amendments to all bonus and
incentive plans (other than those involving stock and options) requires the
approval of the Compensation Committee and the JSC Board, but the JSC Board
alone may approve the allocation of awards thereunder. Under the Old JSC Bylaws,
the JSC Board is authorized to approve the adoption of or amendments to (i)
stock compensation, stock option and stock incentive plans and (ii) pension and
profit sharing plans. Pursuant to the Old JSC Bylaws, the Compensation Committee
is authorized to make all decisions under JSC's stock compensation, stock option
and stock incentive plans, provided that, except under certain limited
circumstances, the JSC Board is to make all decisions relating to grants or
awards under such plans.
In addition to the Nominating Committees, the SSCC Bylaws will provide for
the establishment of six committees of the SSCC Board: (i) the Compensation
Committee, which will determine compensation payable to all Executive Officers
(as defined in the SSCC Bylaws) of SSCC and its subsidiaries and approve the
adoption of, amendment to and make all decisions with respect to, all bonus,
incentive and other employee benefit plans and will make all decisions with
respect to grants or awards made thereunder, (ii) the Audit Committee, which
will perform functions customary for the audit committee of a public company,
(iii) the Independent Committee, which will have the responsibilities described
below, (iv) the JSG Supervisory Committee, which will seek to ensure the
enforcement against JSG of the Standstill Agreement, (v) the MSLEF Supervisory
Committee (together with the JSG Supervisory Committee, the "Supervisory
Committees"), which will seek to ensure the enforcement against MSLEF of the
Standstill Agreement and (vi) the Officer Appointment Committee, which will have
the responsibilities described below.
The SSCC Bylaws will provide that the Compensation Committee will be
comprised exclusively of (i) one Independent Director designated by the Stone
Committee (until the Article 5 Termination Date), (ii) one Independent Director
designated by the JSC Committee (until the Article 5 Termination Date) and
(iii) one director, who will be chairman of the committee, designated by the
MSLEF Committee (so long as there is a MSLEF Committee and the MSLEF Committee
has not waived such right). In the event that there is no MSLEF Committee
(or if the MSLEF Committee has waived its right to designate a director on
the Compensation Committee), the Compensation Committee will include a
third director designated by a majority of the members of the SSCC Board
and will be chaired by one of the directors on the committee designated by
at least 75% of the members of the entire SSCC Board.
The SSCC Bylaws will require that, until the Article 5 Termination Date,
the Independent Committee be comprised exclusively of (i) two Independent
Directors designated by the Stone Committee (until the Article 5 Termination
Date), (ii) two Independent Directors designated by the JSC Committee (until the
Article 5 Termination Date) and (iii) the MSLEF Director (so long as there is a
MSLEF Director).
From and after the Article 5 Termination Date and until the fifth
anniversary of the Effective Time (the "Fifth Anniversary"), the SSCC Bylaws
will require the Independent Committee to consist exclusively of Independent
Directors designated by not less than a majority of the members of the entire
SSCC Board. For the purposes of this requirement, any MSLEF Director will be
considered an Independent Director so long as such MSLEF Director is not an
officer or employee of SSCC or a director, officer or employee of any beneficial
owner of 15% or more of the capital stock of SSCC.
Until the Fifth Anniversary, the SSCC Bylaws will generally prohibit the
SSCC Board from authorizing or approving any commercial or other transactions
(including, without limitation, any squeeze-out of other stockholders effected
by merger, reverse stock split or otherwise) or agreements between SSCC and its
subsidiaries, on the one hand, and JSG and its subsidiaries (other than SSCC and
its subsidiaries), on the other hand, unless such actions have first been
recommended by at least a majority of the members of the entire Independent
Committee. This requirement is subject to certain exceptions, including
exceptions for (x) transactions pursuant to agreements in effect on the date of
the Merger Agreement or entered into in connection with the Merger Agreement or
replacement agreements, (y) any sale of assets below specified levels, and (z)
product sales in the ordinary course of business effected on arm's length
equivalent terms and not otherwise requiring SSCC Board approval.
The JSG Supervisory Committee will be comprised exclusively of the MSLEF
Director and each director who is both Independent with respect to JSG and not a
JSC Director. The MSLEF Supervisory Committee will be comprised exclusively of
each director, other than the MSLEF Director (if any), who is Independent with
respect to MSLEF.
The Officer Appointment Committee will have the exclusive authority to
appoint or terminate the employment of Executive Officers other than the CEO,
the EVP and the CFO, including the authority to create additional Executive
Officer positions. The Officer Appointment Committee will be comprised of the
Chairman and, if and for so long as the CEO is a director, the CEO. The Officer
Appointment Committee will be permitted to exercise its authority only in
accordance with the recommendations of the CEO, subject to the unanimous
approval of the Officer Appointment Committee. In the event of any disagreement
between the Officer Appointment Committee and the CEO with respect to any
decision of the Officer Appointment Committee, then the SSCC Bylaws will provide
that the Independent Committee (instead of the Officer Appointment Committee)
will have the exclusive authority with respect to the subject of such
disagreement.
The SSCC Charter will provide that to the extent and for so long as
provided in Article 5, the Compensation Committee, the Audit Committee, the
Independent Committee, the Supervisory Committees and the Officer Appointment
Committee will each be constituted in accordance with, and will be vested with
the powers provided in, Article 5.
Management Committees. The SSCC Bylaws will establish two management
committees which will report to the SSCC Board: the Cost Reduction/Divestiture
Committee and the Management Operating Committee.
Pursuant to the SSCC Bylaws, until the Article 5 Termination Date, the Cost
Reduction/Divestiture Committee will have responsibility for the development and
implementation, subject to approval by the SSCC Board, of a plan that is
designed to achieve asset divestitures by SSCC and the development of a program
of cost reductions and other synergies. Pursuant to the SSCC Bylaws, until the
Article 5 Termination Date, the Cost Reduction/Divestiture Committee will
be comprised of the Chairman, the CEO, the EVP (who will be chairman of the
Committee) and the CFO.
Pursuant to the SSCC Bylaws, until the Article 5 Termination Date, the
Management Operating Committee will be responsible for setting and implementing,
subject to approval of the SSCC Board, policies and objectives of SSCC and
reviewing performance and the achievement of such policies and objectives.
Pursuant to the SSCC Bylaws, until the Article 5 Termination Date, the committee
will be comprised of the Chairman, the CEO, the EVP, the CFO and certain other
officers as are designated by the CEO, subject to review and approval by the
Officer Appointment Committee. There will be no chairman of the Management
Operating Committee.
Officers. The Old JSC Bylaws establish the positions of Chairman of the
Board of Directors, President, Secretary, CFO and Treasurer. The JSC Board, in
its discretion, may also choose one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Under the Old JSC Bylaws,
the officers of JSC are elected by the Appointment Committee of the JSC Board at
the first annual meeting held after each annual meeting of stockholders.
Pursuant to the SSCC Bylaws, the responsibilities of the President under
the Old JSC Bylaws are given to the CEO and a new officer position of EVP is
established. Pursuant to the SSCC Bylaws, until the Article 5 Termination Date,
(i) the JSC Committee will have the authority to appoint one of the directors to
serve as Chairman and a person to serve as EVP, (ii) the Stone Committee will
have the authority to appoint a person to serve as CEO, and (iii) the
termination of employment of either the CEO or the EVP will be permissible only
for Cause as determined by at least 75% of the members of the entire SSCC Board.
Pursuant to the SSCC Bylaws, until the Article 5 Termination Date, the CEO
will be the officer principally responsible for the day-to-day operations of
SSCC and will report directly to the SSCC Board. The Chairman and the CEO
together will have general supervisory responsibilities with respect to the
business affairs and officers of SSCC. The SSCC Bylaws will also provide that
the EVP will have the authority of a Vice President of SSCC and, in his or her
capacity as chairman of the Cost Reduction/Divestiture Committee, will be the
officer principally responsible for the development of SSCC's asset divestiture
program and cost reduction program, implementation of the asset divestiture
program (subject to the control of the SSCC Board) and, in consultation with the
CEO, implementation of the cost reduction program (subject to the control of the
SSCC Board). In addition to the normal responsibilities of the EVP, the EVP will
also have the operating responsibilities of the CEO (in the absence of the CEO)
and such other operating responsibilities as may be determined by the SSCC Board
that are not inconsistent with the responsibilities of the CEO as provided in
the SSCC Bylaws.
Pursuant to the SSCC Bylaws, until the Article 5 Termination Date,
termination of the employment or any material diminution in the responsibilities
of the CFO will require the approval of at least a majority of the members of
the entire SSCC Board.
Notwithstanding anything to the contrary contained in the SSCC Bylaws and
notwithstanding the Article 5 Termination Date, the SSCC Bylaws will provide
that the term of office of Mr. Stone as CEO will expire upon the date of the
first annual meeting of stockholders occurring after February 16, 2001. Pursuant
to the Voting Agreement, each of the parties thereto has agreed, so long as Mr.
Stone has not been removed as CEO for Cause, to vote in favor of Mr. Stone
serving as a director until Mr. Stone reaches the age of 72.
COMPARISON OF RIGHTS OF STONE STOCKHOLDERS CURRENTLY AND FOLLOWING THE MERGER
The rights of Stone stockholders after the Merger will be substantially the
same as they were prior to the Merger, with the following principal exceptions.
Authorized Capital. The authorized capital of Stone consists of 200,000,000
shares of Stone Common Stock and 10,000,000 shares of preferred stock, par value
$.01 per share. The authorized capital of SSCC under the SSCC Charter and
certain provisions of the SSCC Charter relating thereto is set forth under
"Description of SSCC Capital Stock Following the Merger--Authorized Capital
Stock."
Board of Directors. The Stone Bylaws require the number of directors to
consist of not fewer than 10 nor more than 15, with the exact number to be
determined by the Stone Board. The Stone Bylaws also provide that no person may
be nominated or elected as director if he or she is over the age of 70. The
Stone Board currently consists of 12 members.
A description of the SSCC Charter and SSCC Bylaw provisions governing the
number of SSCC directors and the constitution of the SSCC Board is set forth in
"-- Comparison of Rights of JSC Stockholders Currently and Following the
Merger--Number of Directors" and "--Comparison of Rights of JSC Stockholders
Currently and Following the Merger--Composition of the Board/Nomination of
Directors."
Election of Board of Directors. The Stone Charter and Stone Bylaws provide
for cumulative voting for the election of directors. Neither the SSCC Charter
nor the SSCC Bylaws will provide for cumulative voting for the election of
directors.
Nomination of Directors. The Stone Bylaws provide that nominations of
persons for election to the Stone Board may be made at any annual meeting of
stockholders (i) by or at the direction of the Stone Board or (ii) by any
stockholder who is entitled to vote in the election of directors and who
complies with the procedures set forth in the Stone Bylaws.
A description of SSCC Charter and SSCC Bylaw provisions governing the
nomination of directors is set forth in "--Comparison of Rights of JSC
Stockholders Currently and Following the Merger--Composition of the
Board/Nomination of Directors."
Removal of Directors. The Stone Bylaws provide that any director may be
removed, with or without cause, by the affirmative vote or consent of holders of
a majority of the votes represented by all outstanding shares entitled to vote.
A description of the SSCC Charter and SSCC Bylaw provisions governing
removal of SSCC directors is set forth under "--Comparison of Rights of JSC
Stockholders Currently and Following the Merger--Removal of Directors."
Removal of Officers. Under the Stone Bylaws, any officer elected or
appointed by the Stone Board may be removed by the Stone Board if, in its
judgment, the best interests of Stone would be served.
A description of the SSCC Charter and SSCC Bylaw provisions governing
removal of SSCC officers is set forth under "--Comparison of Rights of JSC
Stockholders Currently and Following the Merger--Removal of Officers."
Filling of Vacancies. The Stone Bylaws provide that any vacancy occurring
in the Stone Board and any directorship to be filled by reason of an increase
in the number of directors may be filled by a majority of the Stone Board
or by the Stone stockholders.
A description of the SSCC Charter and SSCC Bylaw provisions governing the
filling of SSCC Board vacancies is set forth under "--Comparison of Rights of
JSC Stockholders Currently and Following the Merger--Filling of Vacancies" and
"--Comparison of Rights of JSC Stockholders Currently and Following the
Merger--Composition of the Board/Nomination of Directors."
Stockholder Action by Written Consent. Under the Stone Bylaws, any action
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing setting forth the action taken is signed by holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
The SSCC Charter will provide that stockholder action may not be taken by
written consent.
Special Meetings of Stockholders. The Stone Bylaws provide that special
meetings of stockholders may only be called by the Stone Board or the Chairman
of the Stone Board.
A description of the SSCC Charter and SSCC Bylaw provisions governing
special meetings of stockholders is set forth under "--Comparison of Rights of
JSC Stockholders Currently and Following the Merger--Special Meetings of
Stockholders."
Amendment of Charter. Generally, any amendment of the Stone Charter
requires approval by a majority of the Stone Board and the holders of at least a
majority of votes represented by all outstanding shares of capital stock
entitled to vote thereon. Notwithstanding the foregoing, if a proposed
amendment to the Stone Charter would (i) create, authorize or issue any
class or series of capital stock ranking, as to payment of dividends or
distribution of assets upon liquidation, prior to the Stone Series E
Preferred Stock or (ii) adversely alter or change the powers, preference or
special rights of the Stone Series E Preferred Stock, the affirmative vote
of holders of at least two-thirds of the outstanding shares of Stone Series
E Preferred Stock, voting separately as a series, is required to approve
the amendment. In addition, an amendment to the Stone Charter that would
materially alter or change the powers, preference or special rights of
Series D Junior Participating Preferred Stock (the "Series D Preferred
Stock"), par value $0.01 per share, so as to affect holders adversely must
be approved by the affirmative vote of holders of at least two-thirds of
the outstanding shares of the Series D Preferred Stock.
A description of the SSCC Charter provisions and certain provisions of
Delaware law governing amendment of the SSCC Charter are set forth under
"--Comparison of Rights of JSC Stockholders Currently and Following the
Merger--Amendment of Charter."
Amendment of Bylaws. The Stone Bylaws may be amended or repealed by (i) the
affirmative vote of the holders of 66 2/3% of the votes represented by all
outstanding shares of capital stock entitled to vote generally in the election
of directors, voting as a single class, or (ii) the affirmative vote of a
majority of the Stone Board. Notwithstanding the foregoing, amendment or repeal
of provisions relating to cumulative voting requires the affirmative vote of
holders of 80% of the votes represented by all outstanding shares of Stone
capital stock entitled to vote generally in the election of directors.
A description of the SSCC Bylaw provisions governing amendment of the SSCC
Bylaws are set forth under "--Comparison of Rights of Current JSC
Stockholders' Currently and Following the Merger--Amendment of Bylaws."
Preemptive Rights. Holders of Stone Common Stock have no preemptive rights
to purchase or subscribe for any stock or other securities.
A description of rights to purchase securities of SSCC is set forth under
"--Comparison of Rights of JSC Stockholders Currently and Following the
Merger--Stock Purchase."
Approval of Certain Actions. The Stone Charter provides that the
affirmative vote of holders of 66 2/3% of the votes represented by all
outstanding shares of capital stock entitled to vote generally in the election
of directors will be required to authorize (i) any merger or consolidation or
(ii) the sale of all or substantially all of the assets of Stone and its
subsidiaries taken as a whole.
Under Delaware Law, SSCC will be permitted to merge, consolidate or sell
all or substantially all of its assets with the approval of the holders of a
majority of the outstanding capital stock entitled to vote thereon. A
description of the SSCC Charter and SSCC Bylaw provisions governing approval of
certain actions is set forth under "--Comparison of Rights of JSC Stockholders
Currently and Following the Merger--Approval of Certain Actions."
Board Committees. The Stone Board has designated four committees pursuant
to the Stone Bylaws: the Audit Committee, the Finance Committee, the Nominating
Committee and the Compensation Committee. Under the Stone Bylaws, the Stone
Board has the authority to change the members of any committee, to fill
vacancies and to discharge any committee.
A description of the SSCC Charter and SSCC Bylaws provisions governing
SSCC Board Committees is set forth under "--Comparison of Rights of JSC
Stockholders Currently and Following the Merger--Board Committees."
Management Committees. The Stone Charter and Stone Bylaws do not provide
for the creation of management committees.
A description of the SSCC Bylaw provisions governing SSCC Management
Committees is set forth under "--Comparison of Rights of JSC Stockholders
Currently and Following the Merger--Management Committees."
Officers. The Stone Bylaws provide for a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer, and such
Assistant Secretaries, Assistant Treasurers or other officers as may be elected
or appointed by the Stone Board.
The officers of Stone are elected annually by the Stone Board at the first
meeting of the Stone Board held after each annual meeting of stockholders.
Pursuant to the Stone Bylaws, the Chairman of the Stone Board (the "Stone
Chairman") is the CEO of Stone and supervises and controls the day-to-day
operations of Stone. The President of Stone will perform the duties of the
Chairman in the event that the Stone Chairman is unable to fulfill his or her
duties.
A description of the SSCC Charter and Bylaw provisions governing SSCC
officers is set forth under "--Comparison of Rights of JSC Stockholders
Currently and Following the Merger--Officers."
Consideration of Non-Stockholder Constituencies. The Stone Charter provides
that the Stone Board, in determining whether to take or refrain from taking
action on any matter, may take into account the interests of creditors,
customers, employees and other constituencies of Stone and its subsidiaries,
and the effect upon the communities in which Stone conducts business.
No provision relating to the consideration of non-stockholder rights will
be applicable to SSCC.
Stockholder Rights Plan. Pursuant to the Rights Agreement (the "Rights
Agreement") dated as of July 25, 1988, as amended, between Stone and The First
Chicago Trust Company of New York, Stone declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Stone Common
Stock held of record on August 8, 1988. Each Right entitles its holder to
purchase from Stone one one-hundredth of a share of Series D Preferred Stock at
an exercise price of $130, subject to adjustment. The Rights will no longer be
exercisable after the earlier of (i) the close of business on (x) the date on
which the Effective Time occurs or (y) December 31, 1998, (ii) the redemption of
the Rights or (iii) the exchange of the Rights for Stone Common Stock.
Under the Rights Agreement, upon the occurrence of certain triggering
events, such as the acquisition by any person or group (an "Acquiring Person")
of 15% or more of the outstanding shares of Stone Common Stock, each holder of a
Right will be entitled to receive, upon exercise of the Right, the amount of
Stone Common Stock having a market value equal to two times the exercise price
of the Right.
If Stone is acquired in a merger or other business combination, or sells
50% or more of its consolidated assets or earning power, each holder of a Right
will have the right to receive, upon exercise of the Right, the amount of the
acquiring company's common stock having a market value equal to two times the
exercise price of the Right.
Pursuant to the Merger Agreement Stone has amended the Rights Agreement to
render it inapplicable to the Merger and the other transactions contemplated by
the Merger Agreement.
JSC has no present intention to adopt a stockholder rights plan, but could
do so without stockholder approval at any future time. See "Description of SSCC
Capital Stock Following the Merger--Preferred Stock."
DESCRIPTION OF SSCC CAPITAL STOCK FOLLOWING THE MERGER
The summary of the terms of the capital stock of JSC (which will be renamed
Smurfit-Stone Container Corporation in connection with the Merger) set forth
below does not purport to be complete and is qualified by reference to the SSCC
Charter and SSCC Bylaws, respectively, which are attached as Annex B and Annex
C, respectively.
AUTHORIZED CAPITAL STOCK
As of the Effective Time, the Old JSC Charter will be amended to, among
other things, increase the authorized capital stock to 400,000,000 shares of
SSCC Common Stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.01 per share. In connection with the Merger, currently
outstanding shares of Stone Series E Preferred Stock will become convertible
pursuant to their terms into SSCC Common Stock.
COMMON STOCK
The holders of SSCC Common Stock will be entitled to receive, from funds
legally available for the payment thereof, dividends when, as and if declared by
the SSCC Board 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 SSCC Common Stock will be
entitled to share pro rata in any distribution of SSCC'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 SSCC Common Stock will be
entitled to one vote for each share of SSCC 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 SSCC Common Stock will 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 will be no
conversion rights or redemption rights or sinking fund provisions with respect
to SSCC Common Stock. The outstanding shares of SSCC Common Stock and the shares
of SSCC Common Stock issued pursuant to the Merger will be duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
As of the JSC Record Date, no shares of preferred stock were issued or
outstanding. Under the Old JSC Charter (which provisions will remain in effect
following the Effective Time), the board of directors has the authority, without
further stockholder approval but subject to certain limitations set forth in the
Old JSC 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, following
the Effective Time, the SSCC Board 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 SSCC 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 SSCC by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of SSCC's
management. The issuance of such shares of capital stock may have the effect of
delaying, deferring or preventing a change in control of SSCC without any
further action by the stockholders of SSCC. JSC has no present intention to
adopt a stockholder rights plan, but could do so without stockholder approval at
any future time.
SUBSCRIPTION AGREEMENT
See "Comparison of Stockholder Rights--Comparison of Rights of JSC
Stockholders Currently and Following the Merger--Preemptive Rights."
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services, L.L.C. will be the transfer agent and
registrar for the SSCC Common Stock.
LISTING OR QUOTATION OF COMMON STOCK; DELISTING OF STONE COMMON STOCK
It is a condition to the Merger that the shares of JSC Common Stock
issuable in the Merger be approved for quotation on the Nasdaq or approved for
listing on the NYSE on or prior to the Closing Date, subject to official notice
of issuance. JSC expects to have such shares approved for quotation on the
Nasdaq. If the Merger is consummated, Stone Common Stock will cease to be listed
on the NYSE.
RECENT DEVELOPMENTS
On July 23, 1998, SVCPI, a non-consolidated Canadian affiliate of Stone and
the owner of the Celgar pulp mill in Castlegar, British Columbia, filed for
bankruptcy protection. Stone and its partners, after evaluating SVCPI's
losses and cash flows under current market conditions, decided to end their
relationship with SVCPI. Stone is not obligated or liable with respect to
any indebtedness or other obligations of SVCPI.
On August 16, 1998, Stone and Four M Corporation, the equity owners of
Florida Coast Paper Company, L.L.C. ("FCPC"), which owns a linerboard mill in
Jacksonville, Florida, announced the shutdown of FCPC's mill for an
indeterminate time due to economic conditions in the industry.
On September 4, 1998, Stone announced that its Canadian subsidiary, Stone
Canada, purchased a 50% partnership interest in MBI, a Canadian corrugated box
company, from MacMillan Bloedel Inc. for $185 million (Cdn.). Stone Canada,
which already owned 50% of MBI, immediately re-sold the newly-acquired 50%
interest to a subsidiary of JSG.
On September 17, 1998, Stone announced its intention to sell its Snowflake,
Arizona newsprint manufacturing operations and related assets to
Abitibi-Consolidated for approximately $250 million. Included in the transaction
are two newsprint machines and a 38-mile railroad. Stone will retain ownership
of a corrugating medium machine located in the same facility.
Abitibi-Consolidated will operate the medium machine for Stone, which uses the
output to make corrugated boxes.
On October 27, 1997, Stone announced its intent to, among other things,
sell its ownership interest in Stone Container (Canada) Inc. ("Stone Canada")
which at that time would have included its 25.2% ownership interest in
Abitibi-Consolidated, its 50% interest in MBI and its wholly owned pulp mill
located at Portage-du-Fort, Quebec. Stone still intends to sell its interest in
the Abitibi-Consolidated shares and possibly other Canadian assets which are not
as yet determined. If completed, this transaction would have provided a
significant amount of cash to Stone, which would have been used to repay debt.
Additionally, Stone intended to sell or monetize certain other of its assets
(including any remaining pulp operations) with any proceeds received therefrom
to also be applied towards debt reduction. Due to the proposed Merger, Stone is
reevaluating the previously announced divestitures. While Stone currently
intends to sell or otherwise divest certain non-core assets, the determination
of non-core assets to be divested and the timing of any such transactions will
be dependent on, among other things, the consummation and effective date of the
Merger, discussion with management of JSC, pending planning for integration of
divestiture and cost reduction plans for JSC and Stone post-merger, potential
refinancing plans related to the Merger and market conditions. Stone currently
believes that these sales and/or monetizations may be consummated, subject,
among other things, to market conditions and market values for such assets;
however, no assurance can be given that such asset sales or monetizations will
be completed. Currently, Stone's debt agreements require that proceeds from
asset sales be used only for debt reduction.
RECENT DEVELOPMENTS
On October 20, 1998, two of Stone's Preferred Stockholders filed a
complaint against Stone in Delaware Chancery Court. The plaintiffs allege
that Stone is violating its certificate of incorporation by failing to call
a meeting of Preferred Stockholders for the purpose of electing two
directors by those Stockholders. The plaintiffs also allege that, in
connection with its pending merger with JSC, Stone is seeking to change the
Preferred Stockholders' rights without a two-thirds class vote of the
Preferred Stockholders and that such Stockholders should be entitled to
vote with respect to the Merger. Among other things, the plaintiffs are
seeking injunctive relief with respect to the Merger.
On November 4, 1998, Stone reported a net loss of $275.5 million for
the third quarter ended September 30, 1998, or $2.66 per share of Stone
common stock, which does not include any tax benefit on losses incurred by
its U.S. operations. Stone's net loss for the third quarter ended
September 30, 1997 was $98.7 million, or $1.01 per share of Stone common
stock, and its net loss for the second quarter ended June 30, 1998 was
$158.6 million, or $1.59 per share of Stone common stock. Stone's revenue
for the third quarter ended September 30, 1998 was $1.22 billion, compared
to $1.18 billion for the third quarter ended September 30, 1997, and $1.27
billion for the second quarter ended June 30, 1998.
Stone's net loss for the third quarter of 1998 included a non-
recurring charge for asset write-downs, and losses related to downtime at
its paper mills to balance inventories. Additionally, the results included
foreign exchange losses incurred by a Canadian affiliate. Pursuant to
accounting standards, Stone's net loss for the third quarter of 1998 also
included the impact of establishing reserves against deferred tax assets on
net operating loss carryforwards, which may not be realizable in the
future.
