As filed with the Securities and Exchange Commission on October 8, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
JEFFERSON SMURFIT CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 2653 43-1531401
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
(314) 746-1100
(Address, Including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices)
Michael E. Tierney
Vice President,
General Counsel & Secretary
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
(314) 746-1100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
copies to:
John R. Ettinger Leslie T. Lederer Frederick C. Lowinger
Davis Polk & Wardwell Stone Container Corporation Sidley & Austin
450 Lexington Avenue 150 North Michigan Avenue One First National Plaza
New York, New York 10017 Chicago, Illinois 60601 Chicago, Illinois 60603
(212) 450-4000 (312) 580-4624 (312) 853-7000
Approximate Date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
</TABLE>
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
--------------
CALCULATION OF REGISTRATION FEE
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=============================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered(1) Unit Price (2) Fee(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share... 115,798,222 N/A $983,261,418 None
=============================================================================================================================
(1) Represents the maximum number of shares of Common Stock, par value $.01
per share, of the Registrant ("JSC Common Stock") estimated to be
issuable upon the consummation of the merger of JSC Acquisition
Corporation ("Sub"), a Delaware corporation and a wholly owned
subsidiary of Jefferson Smurfit Corporation ("JSC"), with and into
Stone Container Corporation ("Stone") based on an exchange ratio of
0.99 of a share of JSC Common Stock (the maximum exchange ratio
pursuant to the Agreement and Plan of Merger among JSC, Stone and Sub,
dated as of May 10, 1998, as amended) to be exchanged for each share of
Common Stock, par value $.01 per share, of Stone (the "Stone Common
Stock").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) of the Securities Act of 1933,
as amended (the "Securities Act"), based on the product of (i) $8.40625,
the average of the high and low sales prices of Stone Common Stock on the
New York Stock Exchange Composite Tape on October 5, 1998 and (ii)
116,967,901, the number of shares of Stone Common Stock outstanding at the
close of business on September 29, 1998, assuming the exercise of all
outstanding options to purchase Stone Common Stock and the conversion of
all securities convertible into Stone Common Stock.
(3) Computed in accordance with Rule 457(f) under the Securities Act to be
$290,063, which is equal to 0.000295 multiplied by the proposed maximum
aggregate offering price of $983,261,418, and reduced in accordance with
Rule 457(b) under the Securities Act by the fee of $394,767 paid by JSC
pursuant to Rule 14a-6(i)(1) under the Securities Exchange Act of 1934, as
amended, upon the filing of its preliminary proxy materials on June 9, 1998
and to be credited against the registration fee payable in connection with
this filing.
</TABLE>
================================================================================
JEFFERSON SMURFIT CORPORATION
CROSS REFERENCE SHEET
ITEM NUMBER LOCATION IN JOINT PROXY
IN FORM S-4 STATEMENT/PROSPECTUS
- --------------------------------------- --------------------------------------
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Facing Page of the Registration
Statement; Outside Front
Cover Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Where You Can Find More Information;
Table of Contents; Comparative Per
Share Market Price and Dividend
Information
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information........................ Outside Front Cover Page of Prospectus;
Summary; Risk Factors; Interests of
Certain Persons in the Merger; Selected
Financial Information; Historical and
Pro Forma Per Share Data; The Merger;
Comparative Per Share Market Price and
Dividend Information; The Meetings;
Where You Can Find More Information**
4. Terms of the Transaction........... Outside Front Cover Page of Prospectus;
Summary; The Merger; Role of Financial
Advisors; Certain Provisions of the
Merger Agreement; Comparison of
Stockholder Rights; Description of SSCC
Capital Stock Following the Merger
5. Pro Forma Financial Information.... Pro Forma Condensed Consolidated
Financial Data
6. Material Contacts with the Company
Being Acquired..................... Summary; The Merger; Certain Provisions
of the Merger Agreement; Voting
Commitments From Certain Stockholders
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... *
8. Interests of Named Experts and
Counsel............................ *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants........................ Where You Can Find More Information
11. Incorporation of Certain Information
by Reference....................... Where You Can Find More Information
12. Information with Respect to S-2
and S-3 Registrants................. *
13. Incorporation of Certain Information
by Reference........................ *
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants..................... *
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3
Companies........................... *
16. Information with Respect to S-2 or
S-3 Companies....................... *
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies........................... Summary; Additional Information
Regarding Stone
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.. Outside Front Cover Page of Joint
Proxy Statement/Prospectus;
Summary; Interests of Certain
Persons in the Merger; Directors
and Management of SSCC After the
Merger; Stock Purchase Agreement;
Standstill Agreement; The Merger;
Certain Provisions of the Merger
Agreement; The Meetings;
Comparison of Stockholder Rights;
Description of SSCC Capital Stock
Following the Merger; Additional
Information Regarding Stone;
Where You Can Find More
Information
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer............. *
- ------------
* Omitted because the Item is inapplicable or the answer thereto is negative.
** Indicates that the Registrant has departed from the Item in certain
respects by virtue of the "Plain English" format of the Joint Proxy
Statement/Prospectus.
[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.
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<S> <C>
Michael W. J. Smurfit Roger W. Stone
Chairman of the Board Chairman of the Board, President and
Jefferson Smurfit Corporation Chief Executive Officer
Stone Container Corporation
</TABLE>
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
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PAGE
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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
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LIST OF ANNEXES
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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, Pierce,
Fenner & Smith Incorporated
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
</TABLE>
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 omitted]
[Graphic omitted]
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:
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;
create a company with an improved cost structure and reduced earnings
volatility, with an enhanced ability to perform strongly throughout the
industry cycle;
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;
enable us to reduce debt through asset divestitures and enhanced cash
flow generation;
create opportunities for significant operational and financial cost
savings through the integration of our operations; and
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:
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 82 and included in the form
of Restated Certificate of Incorporation of JSC attached as Annex B);
and
FOR the proposal to:
approve the SSCC 1998 Long Term Incentive Plan (certain terms of the
plan are summarized beginning on page 76 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:
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
75 and attached as Annex D-1); and
FOR the proposal to:
approve the SSCC 1998 Long Term Incentive Plan (certain terms of the
plan are summarized beginning on page 76 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:
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)
Roger W. Stone (Chairman of the Board, President and Chief Executive
Officer of Stone)
Ray M. Curran (Finance Director of JSG)
Dermot F. Smurfit (Joint Deputy Chairman of JSG)
Richard W. Graham (President and Chief Executive Officer of JSC)
James J. O'Connor (former Chairman and Chief Executive Officer of Unicom
Corporation)
Thomas A. Reynolds, III (Partner of Winston & Strawn)
Matthew S. Kaplan (Senior Vice President of Stone North American
Operations)
Dionisio Garza (Chairman of the Board and Chief Executive Officer of
Alfa, S.A. de C.V.)
Richard A. Giesen (Chairman of the Board and Chief Executive Officer of
Continental Glass & Plastic, Inc.)
Jerry K. Pearlman (retired Chairman of the Board and Chief Executive
Officer of Zenith Electronics Corporation)
Alan E. Goldberg (Vice Chairman of MSLEF)
If we complete the merger, the following persons will be executive officers
of SSCC:
Dr. Smurfit will chair the Board of Directors.
Mr. Stone will serve as President and Chief Executive Officer.
Mr. Curran will serve as Executive Vice President-Deputy Chief Executive
Officer.
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:
the merger proposals having been approved by the common stockholders of
JSC and Stone;
there being no law or court order that prohibits the merger;
the stock purchase described below under 'Stock Purchase Agreement'
being consummated simultaneously with the merger; and
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:
the merger is not completed by December 31, 1998;
the stockholders of either company fail to give the required stockholder
approval of such company's merger proposal;
a law or court order permanently prohibits the merger;
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;
a third party or group acquires ownership of a majority of the other
party's common shares;
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;
the other party materially and knowingly breaches the covenant
restricting its ability to negotiate with a third party concerning an
alternative transaction; or
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:
increase its authorized capital stock;
provide that its entire Board will be elected annually;
permit holders of 25% of its voting stock to call special meetings;
provide for the delivery of shares of SSCC common stock upon the
conversion of Stone's Series E preferred stock; and
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:
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:
Create one of the world's premier manufacturers of paperboard and
paper-based packaging products.
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.
Serve as a catalyst to focus the product strategy of JSC and Stone.
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.
Enable the companies to reduce debt through divestitures of non-core
businesses and assets.
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.
Enable the companies to provide their customers with better service and a
broader range of paperboard and paper-based packaging products.
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.
Create opportunities for significant synergies and cost reductions through
the integration of the two companies' operations.
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
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;
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;
Acquired assets and liabilities, including indebtedness, at fair value;
Excess purchase price as goodwill; and
Estimated JSC merger costs of $45 million directly attributable to the
cost of acquisition representing primarily financial advisor and legal
fees.
Statements of Operations
Depreciation of property, plant and equipment over an average life of
seventeen years;
Amortization of goodwill over a forty year period;
The net effect of adjusting assets and liabilities to fair value;
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
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.
(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; (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; and (xi) the October 2, 1998
draft of the joint proxy statement/prospectus to be used in connection with the
Merger (the "Draft Proxy Statement"). 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; (4) the nature and terms of certain other
transactions that Salomon Smith Barney believed to be relevant and (5) such
other financial information set forth in the Draft Proxy Statement 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.
ADDITIONAL INFORMATION REGARDING STONE
BUSINESS
Unless the context otherwise requires, references to Stone in this section
refers to Stone prior to the Merger and include its consolidated subsidiaries,
as well as certain non-consolidated affiliates.
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 that it is the world's largest producer of unbleached containerboard
and kraft paper and the world's largest converter of those products into
corrugated containers and paper bags and sacks. Stone also believes that it is
one of the world's largest paper companies in terms of annual tonnage, having
produced approximately 4.0 million, 3.9 million, 7.9 million and 7.4 million
total tons of paper and pulp for the six months ended June 30, 1998, the six
months ended June 30, 1997, and for the years ended December 31, 1997 and 1996,
respectively. Stone produced approximately 2.7 million and 2.6 million tons of
unbleached containerboard and kraft paper for the six months ended June 30, 1998
and the six months ended June 30, 1997, respectively, which accounted for
approximately 68% and 67% of its total tonnage produced for each such period,
respectively. In addition, Stone produced approximately 5.4 million and 5.0
million tons of unbleached containerboard and kraft paper for the years ended
December 31, 1997 and 1996, respectively, which accounted for approximately 68%
of its total tonnage produced for each such year. Stone had net sales of
approximately $2.5 billion, $2.4 billion, $4.8 billion and $5.1 billion for the
six months ended June 30, 1998, the six months ended June 30, 1997, and for the
years ended December 31, 1997 and 1996, respectively. Stone had net losses of
$225.7 million, $217.4 million, $417.7 million and $126.2 million for the six
months ended June 30, 1998, the six months ended June 30, 1997, and for the
years ended December 31, 1997 and 1996, respectively.
As of June 30, 1998, Stone owned or had an interest in 127 manufacturing
facilities in the United States, 20 in Canada, 16 in Germany, seven in France,
five in Venezuela, four in Spain, three in Argentina, Belgium, China, Mexico and
the Netherlands, two each in Australia and the United Kingdom and one each in
Chile, Colombia and Puerto Rico. These facilities include 23 mills. Stone also
maintains sales offices in North America, Europe, Central and South America and
Asia and has forestry operations in Costa Rica and Venezuela.
Stone requires a large volume of recycled fiber for its products, and in
1997 Stone processed approximately 3.4 million tons of recycled fiber. Recycled
fiber is obtained from a variety of sources, including through Paper Recycling
International L.P., a fifty percent-owned joint venture, which is paid a fee by
Stone for procuring recycled fiber.
The following table presents the annual production capacity of Stone at
December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
----- -----
(SHORT TONS
IN THOUSANDS)
<S> <C> <C>
United States(1)............................................................. 6,059 6,041
Canada(2)(3)................................................................. 2,096 2,174
Europe(3).................................................................... 534 643
----- -----
8,689 8,858
----- -----
----- -----
</TABLE>
- ------------
(1) Includes 50% of the Florida Coast Paper Company, L.L.C. mill.
(2) Includes 69% and 45% of the Celgar mill in Castlegar, British Columbia for
1997 and 1996, respectively.
(3) Includes 25.2% of Abitibi-Consolidated for 1997 and 46.6% of
Stone-Consolidated for 1996.
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.
PAPERBOARD/PACKAGING PRODUCTS
Stone believes that its integrated unbleached paperboard and paper
packaging business is the largest in the world with 21 mills and 171 converting
plants located throughout North America and in South America, Europe, Australia
and China. The major products in this business are containerboard and corrugated
containers, which are primarily sold to a broad range of manufacturers of
consumable and durable goods; kraft paper and paper bags and sacks, which are
sold primarily to supermarket chains, retailers of consumer products and, in the
case of multiwall shipping sacks, to the agricultural, chemical and cement
industries; and boxboard and folding cartons, which are sold to manufacturers of
consumable goods and other box manufacturers. The unbleached packaging business
of Stone has an annual capacity of approximately 5.9 million tons and is more
than 80% integrated. For the six months ended June 30, 1998, total sales for the
paperboard and paper packaging business of Stone were approximately $2.2
billion, or approximately 88% of total consolidated sales, compared to $2.0
billion, or approximately 83% of total consolidated sales for the six months
ended June 30, 1997. In 1997, total sales for the paperboard and paper packaging
business of Stone were approximately $4.1 billion, or approximately 85% of total
consolidated sales.
CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS
Stone believes that it is the world's largest producer of containerboard,
of which more than 80% is converted by Stone into corrugated shipping
containers. Stone's total sales of corrugated shipping containers were $1.3
billion, $1.2 billion and $2.4 billion for the six months ended June 30, 1998,
the six months ended June 30, 1997 and for the year ended December 31, 1997,
respectively.
Stone's mills produce containerboard, including unbleached kraft
linerboard, recycled linerboard, corrugating medium and paper. Containerboard
tons produced and converted for the last three years were:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- -----------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
(SHORT TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Containerboard
Produced................................................ 2,508 2,393 4,935 4,591 4,624
Converted............................................... 1,927 1,870 3,948 3,747 3,742
</TABLE>
Containerboard is produced at Stone's mills located in Bernal, Argentina;
Snowflake, Arizona; Jacksonville, Florida; Panama City, Florida; Port Wentworth,
Georgia; Hoya, Germany; Hodge, Louisiana; Missoula, Montana; New Richmond,
Quebec; Florence, South Carolina; Cordoba, Spain and Hopewell, Virginia.
Corrugating medium is produced at Stone's mills located in Bernal, Argentina;
Uncasville, Connecticut; Hoya, Germany; Viersen, Germany; Hodge, Louisiana;
Ontonagon, Michigan; Bathurst, New Brunswick; Coshocton, Ohio; York,
Pennsylvania and Cordoba, Spain.
Stone's containerboard and corrugated container operations are more than
80% integrated and Stone believes that this integration enhances its ability to
respond quickly and efficiently to customers and to fill orders on short lead
times. Stone believes that it is the largest producer of corrugated shipping
containers in the U.S., with more than 100 containerboard converting operations.
Corrugated shipping containers, manufactured from containerboard in converting
plants, are used to ship such diverse products as home appliances, electric
motors, small machinery, grocery products, produce, books, tobacco and
furniture, and for many other applications. Stone stresses the value-added
aspects of its corrugated containers, such as labeling and multi-color graphics,
to differentiate its products and respond to customer requirements. Stone's
container plants serve local customers and large national accounts and are
located in the United States, Argentina, Australia, Belgium, Canada, Chile,
China, Colombia, France, Germany, Mexico, the Netherlands, Puerto Rico, Spain,
the United Kingdom and Venezuela, generally in or near large metropolitan areas.
Corrugated shipping container sales volumes were 29.2, 27.2, 55.7, 53.1 and
53.0 billion square feet for the six months ended June 30, 1998, the six months
ended June 30, 1997, and for the years ended December 31, 1997, 1996 and 1995,
respectively.
KRAFT PAPER AND BAGS AND SACKS
On July 12, 1996, Stone and Gaylord Container Corporation entered into a
joint venture whereby the retail packaging businesses of these two companies
were combined to form S&G. Stone owns 65% of the equity interest of S&G, which
is a non-consolidated affiliate accounted for by Stone under the equity method
of accounting.
Stone also has a highly integrated kraft paper and converted product
operation and is a net buyer of kraft paper from third parties. Stone operates
19 paper converting facilities, which shipped approximately 247 thousand tons
and 248 thousand tons of paper bags and sacks nationwide for the six months
ended June 30, 1998 and six months ended June 30, 1997, respectively, and
shipped approximately 509 thousand tons and 538 thousand tons of paper bags and
sacks nationwide for the years ended December 31, 1997 and 1996, respectively.
Stone believes that it is the largest producer of grocery bags and sacks. Kraft
paper volume produced and converted for the last three years was:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------- -----------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Kraft Paper
Produced................................................ 211.8 200.1 436.5 439.1 384.8
Converted............................................... 250.6 261.0 530.7 578.4 613.5
</TABLE>
Stone produces kraft paper and recycled paper for conversion into bags and
sacks at its mills in Snowflake, Arizona; Jacksonville, Florida; Hodge,
Louisiana; and Florence, South Carolina.
Grocery bags and sacks are sold primarily to supermarket chains, and
merchandise bags are sold to retailers of consumer products. Multiwall shipping
sacks, considered a premium product, are sold to the agricultural, chemical and
cement industries, among other industries. Stone's total sales of industrial
bags and sacks were $236.0 million, $231.2 million and $479.7 million for the
six months ended June 30, 1998, the six months ended June 30, 1997 and for the
year ended December 31, 1997, respectively.
MARKET PULP
Stone believes that it is a major producer of market pulp in North America
and currently owns and operates four market pulp mills in North America. These
four mills have the capacity to produce approximately 930,000 tons of market
pulp annually and produced approximately 830,000 tons in 1997. The geographic
diversity of Stone's mills enables Stone to offer its customers a product mix of
bleached northern and southern hardwood and bleached northern softwood pulp.
Market pulp is sold to manufacturers of paper products, including fine papers,
photographic papers, tissue and newsprint.
ABITIBI-CONSOLIDATED INC.
In December of 1993, Stone sold in a Canadian public offering approximately
25% of its then indirect, wholly owned subsidiary Stone-Consolidated, a
newsprint and uncoated groundwood paper company. On November 1, 1995,
Stone-Consolidated amalgamated its operations with Rainy River Forest Products
Inc., a Toronto-based Canadian pulp and paper company, and formed a new company
under the name Stone-Consolidated. Due to the amalgamation, Stone's ownership of
Stone-Consolidated common stock was reduced to approximately 46.6%. On May 30,
1997, Stone-Consolidated amalgamated with Abitibi-Price to form
Abitibi-Consolidated, a Canadian-based manufacturer and marketer of publication
papers. Stone currently owns approximately 25.2% of the common stock of
Abitibi-Consolidated and accounts for its interest therein under the equity
method of accounting.
FIBER SUPPLY
Wood fiber, particularly from wood chips, and waste paper constitute the
basic raw materials for linerboard, corrugating medium, unbleached kraft paper
and market pulp. At December 31, 1997, Stone owned approximately two thousand
and 137 thousand acres of private fee timberland in the United States and
Canada, respectively.
Wood fiber and recycled fiber 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, are dependent upon a variety of factors over which Stone has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. Stone purchases or
cuts a variety of species of timber from which Stone utilizes wood fiber
depending upon the product being manufactured and each mill's geographic
location. 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
Stone procures wood. In addition, the increase in demand for products
manufactured, in whole or in part, from recycled fiber has from time to time
caused a tightness in the supply of recycled fiber and at those times a
significant increase in the cost of such fiber used in the manufacture of
recycled containerboard and related products. Such costs are likely to continue
to fluctuate based upon demand/supply characteristics. Stone's paper and paper
packaging products use a large volume of recycled fiber. While Stone has not
experienced any significant difficulty in economically obtaining wood fiber and
recycled fiber in economic proximity to its mills, there can be no assurances
that this will continue to be the case for any or all of its mills.
COMPETITION
Stone's products compete with similar products manufactured by others and,
in some instances, with similar products manufactured from other materials.
Because these products are globally traded commodities, the industries in which
Stone competes are particularly sensitive to price fluctuations as well as other
competitive factors including innovation, design, quality and service, with
varying emphasis on these factors depending on product line. The industry is
also affected by cyclical industry conditions and economic factors such as
industry capacity, growth in the economy, interest rates, unemployment levels
and fluctuations in foreign currency exchange rates which have had a significant
impact on prices and sales of Stone's products.
Stone's products and the raw materials needed to manufacture those products
have historically exhibited price and demand cyclicality. The availability and
cost of wood fiber, including wood chips, and waste paper may be subject to
substantial variation, depending upon economic, political and conservation
considerations. Many of Stone's competitors have financial and other resources
greater than those of Stone and are able to better withstand the adverse nature
of the current business cycle.
Stone's business is not dependent upon a single customer or upon a small
number of major customers. The loss of any one customer would not have a
material adverse effect on Stone.
BACKLOG
Backlogs are not a significant factor in the industry in which Stone
operates; most orders placed with Stone are for delivery within 60 days or less.
RESEARCH AND DEVELOPMENT
Stone expenses research and development expenditures as incurred. Research
and development costs were $8 million and $9 million for 1997 and 1996,
respectively.
PATENTS, LICENSES AND TRADEMARKS
Stone owns patents, licenses, trademarks and tradenames on products. The
loss of any patent, license, trademark or tradename would not have a material
adverse effect on Stone's operations.
EMPLOYEES
As of December 31, 1997, Stone had approximately 24,600 employees, of whom
approximately 19,900 were employees of U.S. operations and the remainder were
employees of foreign operations. Stone currently has in existence approximately
105 collective bargaining agreements with terms ranging from 3 to 5 years
covering approximately 13,100 U.S. union employees. The Merger will have no
effect on such collective bargaining agreements. While the terms of these
agreements may vary, Stone believes that the material terms of its collective
bargaining agreements are customary for the industry and the type of facility,
the classification of the employees and the geographic location covered thereby.
PROPERTIES
Stone, including its subsidiaries and affiliates, maintains manufacturing
facilities and sales offices throughout North America, Europe, Central and South
America, Australia and Asia.
All mills and converting facilities are owned, or partially owned through
investments in other companies, by Stone, except for 43 converting plants in the
United States, which are leased.
Stone owns certain properties that have been mortgaged or otherwise
encumbered. These properties include 12 paper mills, 78 corrugated container
plants and a pledge of a 51% stock interest in Stone's 100% owned Canadian
subsidiary, Stone Container (Canada), Inc. including those subject to a
leasehold mortgage.
Stone's properties and facilities are properly equipped with machinery
suitable for their use. Such facilities and related equipment are well
maintained and adequate for Stone's current operations. See also Notes 2, 3, 10
and 12 to Stone's Consolidated Financial Statements which are included elsewhere
herein.
LEGAL PROCEEDINGS
On October 27, 1992, the FDER, predecessor to the Department of
Environmental Protection ('DEP'), filed a civil complaint in the Fourteenth
Judicial Circuit Court of Bay County, Florida against Stone seeking injunctive
relief, an unspecified amount of fines and civil penalties, and other relief
based on alleged groundwater contamination at Stone's Panama City, Florida pulp
and paperboard mill. In addition, the complaint alleges operation of a solid
waste facility without a permit and discrepancies in hazardous waste shipping
manifests. The case had been stayed since September 1993 pending the conclusion
of a related administrative proceeding petitioned by Stone in June 1992
following FDER's proposal to deny Stone a permit renewal to continue operating
its wastewater pretreatment facility at the mill site. The administrative
proceeding had been referred to a hearing officer for an administrative hearing
on the consolidated issues of compliance with a prior consent order, denial of
the permit renewal, completion of a contamination assessment and denial of a
sodium exemption. The consolidated cases are scheduled for hearing in 1998. The
parties have reached a settlement in principle pursuant to which DEP will issue
a full operating permit for the mills' wastewater pretreatment facility and a
compliance order requiring the installation and continued operation of a
hydrologic barrier system at two locations on the mill site's perimeter. As part
of the settlement, the parties have also agreed to a stipulation dismissing the
enforcement action with respect to the groundwater contamination allegations.
On April 20, 1994, Carolina Power & Light ('CP&L') commenced proceedings
against Stone before The Federal Energy Regulatory Commission ('FERC') (the
'Stone FERC Proceeding') and in the United States District Court for the Eastern
District of North Carolina (the 'CP&L Federal Court Action'). Both proceedings
relate to Stone's electric cogeneration facility located at its Florence, South
Carolina plant (the 'Florence Facility') and the Electric Power Purchase
Agreement (the 'Electric Agreement') between Stone and CP&L.
In the Stone FERC Proceeding, CP&L alleged that in August 1991 when Stone
elected to switch to a 'buy-all/sell-all mode of operation' pursuant to the
Electric Agreement, the Florence Facility lost its qualifying facility ('QF')
certification under the Public Utility Regulatory Policy Act of 1978 thereby
making it a public utility. In the CP&L Federal Court Action, CP&L had requested
declaratory judgments that (i) sales of electric energy by Stone after August
1991 were subject to a reasonable rate determination by the FERC, and (ii)
Stone's failure to maintain the Florence Facility's QF status terminated the
Electric Agreement. On September 20, 1994, the United States District Court (the
'District Court') stayed the CP&L Federal Court Action pending the FERC's
decision.
On February 11, 1998, the FERC entered its order (the 'FERC Order')
denying CP&L's motion to revoke the Florence Facility's QF status, and Stone
may, therefore, continue to sell electric power to CP&L pursuant to the
Electric Agreement's buy-all/sell-all option. The FERC Order was issued not
only in the Stone FERC Proceeding, but also in two separate QF proceedings
before the FERC (the 'Other Proceedings'). While the Other Proceedings involve
unrelated parties and different facts and circumstances, the FERC Order
established a policy applicable to the Stone FERC Proceeding and the Other
Proceedings. Subsequent to the FERC Order, the District Court, at CP&L's
request, dismissed the CP&L Federal Court Action with prejudice. Certain
parties in the Other Proceedings have applied to the FERC for rehearing of the
FERC Order. The FERC may either grant or deny a rehearing and, if a rehearing
is denied, the FERC Order would be final but also appealable to the appropriate
U.S. Court of Appeals. There can be no assurance that the FERC Order will not
be revised or reversed upon any rehearing or appeal in connection with the
Other Proceedings or what affect any such revision or reversal would have on
the Stone FERC Proceeding. Stone believes that in the Stone FERC Proceeding,
where no party has requested rehearing, the FERC Order should be final,
regardless of the outcome of the Other Proceedings. Moreover, Stone believes
that the facts and policies at issue in the Stone FERC Proceeding differ
materially from those at issue in the Other Proceedings.
On May 7, 1998, Stone received a Notice of Violation from EPA alleging
noncompliance with air emission limitations for the #6 boiler at Stone's
Coshocton, Ohio mill. Stone met with EPA in June, 1998 and proposed to make
certain improvements to the control equipment on the #6 boiler and run
additional compliance tests. Stone expects to negotiate a consent order with EPA
that will require these improvements and additional testing as well as the
payment of a civil penalty.
On January 22, 1996, the United States of America filed a suit against
Stone in the United States District Court for the District of Montana seeking
injunctive relief and an unspecified amount in civil penalties based on the
alleged failure of Stone to comply with certain provisions of the Clean Air Act
('CAA'), its implementing regulations, and the Montana State Implementation Plan
at Stone's Missoula, Montana kraft pulp mill, (the 'Missoula Mill'). The
complaint specifically alleged that Stone exceeded the 20% opacity limitation
for recovery boiler emissions; failed to properly set the span on a recovery
boiler continuous emissions monitor; and violated limitations on venting of an
air contaminant by improperly venting non-condensible gasses. On May 19, 1998,
Stone, the United States Department of Justice, the United States Environmental
Protection Agency and other intervening parties entered into a consent decree
settling this case. In addition to, among other things, agreeing to certain
emissions limitations and monitoring and reporting requirements, Stone paid a
civil penalty of $312,500.
In a related matter, on January 29, 1996 a Complaint was filed in the
United States District Court for the District of Montana by the Montana
Coalition for Health, Environmental and Economic Rights, Inc.; Cold Mountain,
Cold Rivers, Inc. and Native Forest Network, Inc. (collectively 'Plaintiffs')
alleging numerous violations at the Missoula Mill of the provisions of the CAA,
the Federal Water Pollution Control Act and the Emergency Planning and Community
Right-to-Know Act. The Complaint, as amended, sought declaratory and injunctive
relief together with civil penalties of $25,000 per day for each day of alleged
violation. After extensive discussions with Plaintiffs, on May 19, 1998 the
District Court entered a Consent Decree between Stone and Plaintiffs pursuant to
which Stone has agreed to (i) the payment of a penalty of $50,000; (ii) the
funding of $300,000 over five years for specified projects to be undertaken by
the Missoula City-County Air Pollution Control Board, the Missoula Water Quality
District Board and the Missoula County Local Emergency Planning Committee; (iii)
the payment for specified habitat restoration and creation projects along the
Clark Fork River ($100,000 over five years) and Clark Fork River Basin ($50,000
over three years); (iv) the development and implementation of a Pollution
Prevention Program at the Missoula Mill; and (v) undertake specified analyses
with respect to alternative bleaching technologies, UCC rejects handling
technologies and use of alternative fibers in the production process. Stone has
paid the $50,000 penalty and will pay the requisite portion of the projects
funding as required.
On September 4, 1997, Stone received a Notice of Violation and a Compliance
Order from the EPA alleging noncompliance with air emissions limitations for the
smelt dissolving tank at Stone's Hopewell, Virginia mill and for failure to
comply with New Source Performance Standards applicable to certain other
equipment at the mill. In cooperation with EPA, Stone has conducted tests and
taken measures to ensure continued compliance with applicable emission limits.
The Clean Air Act authorizes EPA to assess a penalty of $25,000 per day of each
violation, however, no penalties have yet been assessed. If EPA decides to
commence an enforcement action to assess penalties in this matter, Stone intends
to vigorously contest such action.
By letter dated November 8, 1994, the FTC informed Stone that it was
conducting a non-public investigation to determine whether containerboard
manufacturers may have engaged in unfair methods of competition or unfair acts
and practices in violation of 'SS'5 of the Federal Trade Commission Act (the
'FTC Act'). Stone agreed to voluntarily provide certain documents and
information requested by the FTC. In November, 1995, after Stone provided all
voluntary requests, the FTC authorized the use of compulsory process in
connection with its investigation and proceeded to subpoena documents and
conduct investigational hearings of current and former employees.
In early 1997, the staff of the FTC advised Stone that it intended to seek
authority to pursue an administrative complaint against Stone alleging
violations of 'SS'5 of the FTC Act, based on Stone's decision to reduce or
suspend production at certain of its linerboard mills during 1993, coupled with
certain public announcements and alleged discussions.
Believing the allegations to be without merit and without admitting
liability, Stone entered into a consent agreement with the FTC (the 'Consent
Agreement') to resolve the matter. The Consent Agreement was approved by the FTC
on June 3, 1998. In pertinent part, the Consent Agreement requires Stone to
cease and desist from 'requesting, suggesting, urging or advocating that any
manufacturer or seller of linerboard raise, fix, or stabilize prices or price
levels . . .' and from 'entering into, or attempting to enter into . . . any
agreement . . . to fix, raise, establish, maintain or stabilize prices or price
levels. . . .'
There are no monetary fines, sanctions or damages imposed by the FTC in
connection with the Consent Agreement. However, Stone will be required to file
certain reports on an annual basis with the FTC to evidence its compliance with
the Consent Agreement.
On April 6, 1998, a suit was filed against Stone in Los Angeles Superior
Court by Chesterfield Investments and DP Investments L.P. alleging that Stone
owes them approximately $120 million relating to Stone's purchase of the
plaintiff's interest in Stone Savannah River Pulp & Paper Corporation ('SSR').
In 1991, Stone purchased from Chesterfield Investments its shares of common
stock of SSR for approximately $6 million with a contingent payment payable in
March 1998 based upon the performance of the operations which were contained in
SSR. Stone is vigorously disputing the plaintiff's calculation of the contingent
payment amount. Stone has recently settled the portion of the suit relating to
amounts owed to DP Investments L.P.
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, 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 Proxy Statement/Prospectus, (b) Stone agreed to obtain the
Salomon Smith Barney Update Opinion 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.
Three class action complaints, General Refractories Company v. Stone
Container Corporation, Crest Meat Co., Inc. v. Stone Container Corporation and
Albert I. Halper Corrugated Box Co., Inc. v. Stone Container Corporation have
been filed in the United States District Court for the Northern District of
Illinois. The suits allege that Stone reached agreements in restraint of trade
with other producers of corrugated sheets in violation of Section 1 of the
Sherman Antitrust Act, 15 U.S.C. 'SS'1. Stone is the only named defendant,
though that the suits allege that other unnamed firms participated in the
purported restraints of trade, and specifically allege, on information and
belief, that JSC also participated. The suit seeks an unspecified amount of
damages arising out of the sale of corrugated sheets for the period October 1,
1993 through March 31, 1995. Under the provisions of the antitrust laws, any
award of actual damages would be trebled. Stone moved to dismiss the General
Refractories and Crest Meat Co. complaints on August 7, 1998 and intends to move
to dismiss the Halper complaint as well. Discovery has not yet commenced, and a
trial date has not been set. Stone believes it has meritorious defenses to these
actions, and intends to vigorously defend itself.
A class action complaint, Winoff Industries v. Stone Container Corporation,
has been filed in the United States District Court for the Eastern District of
Pennsylvania. The suit alleges that Stone engaged in restraint of trade in the
sale and production of liner board which effected the sale and production of
corrugated containers in violation of Section 1 of the Sherman Antitrust Act,
15 U.S.C. 'SS'1. The suit seeks an unspecified amount of damages. Under the
provisions of the antitrust laws, any award of actual damages would be trebled.
Discovery has not yet commenced, and a trial date has not been set. Stone
believes it has meritorious defenses to this action, and intends to vigorously
defend itself.
In addition, Stone is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. Stone has been named as a PRP at a number of
sites which are the subject of remedial activity under CERCLA or comparable
state laws. Although Stone is subject to joint and several liability imposed
under CERCLA, at most of the multi-PRP sites there are organized groups of PRPs
and costs are being shared among PRPs.
Stone is involved in contractual disputes, administrative and legal
proceedings and investigations of various types. Although any litigation,
proceeding or investigation has an element of uncertainty, Stone believes that
the outcome of any proceeding, lawsuit or claim which is pending or threatened,
or all of them combined, would not have a material adverse effect on its
consolidated financial position, results of operations or liquidity.
MARKET PRICE AND DIVIDENDS FOR STONE'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Stone paid cash dividends of $.60 and $.30 per share on the Stone Common
Stock in 1996 and 1995, respectively. The declaration of dividends by the Stone
Board is subject to, among other things, certain restrictive provisions
contained in Stone's amended and restated credit agreement with its lenders,
which includes certain term loans and revolving credit facilities (the 'Credit
Agreement'), indentures with respect to its outstanding senior notes (the
'Senior Note Indentures') and an indenture relating to certain senior
subordinated indebtedness dated as of March 15, 1992 (the 'Senior Subordinated
Indenture'). Due to these restrictive provisions, Stone cannot declare or pay
dividends on the Stone Series E Preferred Stock or the Stone Common Stock until
(i) Stone generates income or issues capital stock to replenish the dividend
pool under various of its debt instruments and (ii) Net Worth (as defined)
equals or exceeds $750 million. Additionally, Stone Common Stock cash dividends
cannot be declared and paid in the event Stone Series E Preferred Stock
dividend arrearages exist. At June 30, 1998, the dividend pool under the Senior
Subordinated Indenture (which contains the most restrictive dividend pool
provision) had a deficit of approximately $522 million and Net Worth (as
defined) was $115.8 million. 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 'Comparative Per Share Market Price and Dividend Information' and Notes 10,
13 and 14 to Stone's Consolidated Financial Statements.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the beneficial
ownership of Stone Common Stock by (i) each stockholder known by Stone to own
beneficially more than 5% of the Stone Common Stock, (ii) each named executive
officer of Stone, (iii) each member of the Stone Board and (iv) all directors
and executive officers of Stone as a group. This information is as of February
15, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF STONE COMMON
STOCK PERCENT OF STONE
BENEFICIALLY COMMON STOCK
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ----------------------------------------------------------------------------- --------------- ----------------
<S> <C> <C> <C>
Wellington Management Company, L.L.P.(2)(3) ................................. 9,470,000 9.53%
75 State Street
Boston, MA 02109
Vanguard/Windsor Funds, Inc.(3) ............................................. 9,470,000 9.53%
100 Vanguard Boulevard
Post Office Box 2600
Malvern, PA. 19355
Massachusetts Financial Services Company(4) ................................. 8,855,854 8.9%
500 Boylston Street
Boston, MA. 02116
Goldman, Sachs & Co ......................................................... 5,672,374 5.7%
The Goldman Sachs Group, L.P.(5)
85 Broad Street
New York, NY. 10004
Gordon L. Jones.............................................................. 11,856 *
Matthew S. Kaplan............................................................ 266,143 * (6)
Randolph C. Read............................................................. 38,871 *
Roger W. Stone............................................................... 1,183,203 1.2% (6)
Harold D. Wright............................................................. 13,928 *
William F. Aldinger.......................................................... 1,475 *
Dionisio Garza............................................................... 12,620 *
Richard A. Giesen............................................................ 15,317 *
James J. Glasser............................................................. 11,720 *
Jack M. Greenberg............................................................ 1,100 *
John D. Nichols.............................................................. 2,640 *
Jerry K. Pearlman............................................................ 7,772 *
Richard J. Raskin............................................................ 613,347 * (6)
Phillip B. Rooney............................................................ 5,920 *
Ira N. Stone................................................................. 901,164 * (6)
James H. Stone............................................................... 644,697 * (6)
All directors and executive officers as a group.............................. 8,883,762 8.9% (6)
</TABLE>
- --------------------
(1) Information with respect to beneficial ownership is based upon information
furnished by each owner.
(2) Wellington Management Company, L.L.P. ('WMC'), in its capacity as investment
adviser, may be deemed to have beneficial ownership of these shares, which
are owned by the Vanguard/Windsor Funds, Inc. WMC reports that it has no
sole or shared voting power as to such shares, but has shared dispositive
power as to such shares.
(3) Vanguard/Windsor Funds, Inc. reports that it has sole voting power and
shared dispositive power with respect to the reported shares. These shares
are also included in the shares beneficially owned by Wellington Management
Company, L.L.P. as investment adviser to Vanguard/Windsor Funds, Inc., as
described in note (2).
(4) Massachusetts Financial Services Company reports that it has sole voting
power with respect to 8,808,254 of such shares and sole dispositive power as
to all 8,855,854 shares.
(5) Goldman Sachs & Co/The Goldman Sachs Group, L.P. reports that it has shared
voting power with respect to 5,328,174 of such shares and shared dispositive
power as to all 5,672,374 shares.
(6) The shares of Stone Common Stock owned by all directors and executive
officers as a group include those of Jerome H. Stone and Marvin N. Stone,
each of whom is a Founding Director and as such is, pursuant to Stone's
By-laws, entitled to attend and participate at meetings of directors but has
no vote. Jerome H. Stone, Marvin N. Stone and Norman H. Stone (deceased) are
brothers. Ira N. Stone is the son of Norman H. Stone. Roger W. Stone is the
son of Marvin N. Stone. James H. Stone is the son and Richard J. Raskin is
the son-in-law of Jerome H. Stone. Matthew S. Kaplan is the son-in-law of
Roger W. Stone. The members of the Stone family own an aggregate (but not as
a group) of approximately 12,107,719 shares of Stone Common Stock
(approximately 12.1% of the outstanding shares).
CERTAIN TRANSACTIONS
During 1997, Stone paid approximately $225,000 to Decade Films, Inc. for
production services related to Stone's BREAKTIME video, an internal employee
communication presentation produced quarterly. Lauren Stone, daughter of Roger
Stone, is President of Decade Films, Inc.
At December 31, 1997, Sunland Sales Company owed Stone approximately
$480,000 as a result of sales made by Stone of kraft paper to Sunland. Avery
Stone owns the controlling interest of Sunland and is the brother of Roger
Stone.
During 1997, Stone sold to Morton International industrial bags for
approximately $4.9 million. Roger Stone is a Director of Morton International.
During 1997, Stone sold to Prairie Packaging, Inc. containers produced by
Stone for $1.1 million. Roger Stone is a 6.45% owner of Prairie Packaging.
Stone believes that the foregoing transactions were consummated on terms no
less favorable to it than could have been obtained from unaffiliated parties in
arm's-length negotiations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Stone's
Consolidated Financial Statements and the Notes thereto appearing elsewhere
herein.
OVERVIEW
Market conditions and demand for containerboard, corrugated shipping
containers, newsprint and market pulp, Stone's primary products, are generally
subject to cyclical changes in the economy and changes in industry capacity,
both of which can significantly impact selling prices and Stone's operating
results. The industry in which Stone competes is capital intensive, which leads
to high fixed costs and results in continued production as long as prices are
sufficient to cover marginal costs. See 'Risk Factors Industry Conditions;
Cyclicality.'
Containerboard markets were strong in the first half of 1995. Healthy
demand enabled linerboard prices to reach a high of $535 per ton in April 1995.
Market conditions steadily declined, however, in the second half of 1995 and in
1996 due to new capacity added within the industry. The new added capacity
resulted in excess inventories and selling prices for containerboard and
corrugated shipping containers began to fall. Market conditions remained weak
during 1996 and the first half of 1997, when linerboard prices reached a low of
approximately $300 per ton in April 1997. Demand for containerboard has improved
since the first half of 1997, but many companies, including Stone, have been
forced to take economic downtime at their mills in order to reduce excess
inventories. The price of linerboard in June 1998 was approximately $380 per
ton.
Demand for newsprint was strong throughout 1995, resulting in an all-time
record price of approximately $760 per metric ton in October 1995. Market
conditions weakened in 1996, however, and excess inventories and lower selling
prices developed. Newsprint prices fell to below $500 per metric ton in the
first quarter of 1997. Many newsprint producers, including Stone, took economic
downtime at their newsprint mills during 1996 to reduce inventories. Improvement
in newsprint demand in 1997, coupled with an extended strike at a competitor's
mills, resulted in a reduction in the excess inventory levels and provided an
opportunity to raise prices. Two attempts to raise prices during 1997 were
successful and by December 1997, newsprint prices had risen to approximately
$600 per metric ton. Demand for newsprint has been stable in 1998 and a strike
at a competitor's mills has served to keep inventory levels at a reasonable
level. Newsprint prices in June were approximately $600 per metric ton.
Stone's costs of sales include primarily: reclaimed and virgin wood fiber;
chemicals; starch; inks; direct wages, salaries and benefits; outside
maintenance and repair materials; environmental process cost; electricity
generation and utilities; and rent. With the exception of reclaimed and virgin
wood fiber, the cost of materials used in Stone's production processes are
generally stable. Reclaimed and virgin wood fiber costs are subject to highly
competitive, price-sensitive market conditions. In addition, the supply and
price of wood fiber are dependent upon a variety of factors, including
environmental and conservation regulations, natural disasters and weather. In
early 1995, during a period of tight supply and strong demand, reclaimed fiber
escalated to record levels, resulting in higher costs at the recycled paper
mills of Stone. The price of reclaimed fiber dropped sharply in the second half
of 1995 and has remained relatively stable through June 1998.
A portion of Stone's operations are located outside of the United States.
Because of this, movements in exchange rates can have an impact on Stone's
financial condition and results of operations. Stone's significant foreign
exchange exposures are the Canadian dollar and the German Mark. In general, a
weakening of the German Mark and Canadian dollar relative to the U.S. dollar has
a negative translation effect on Stone's financial condition and results of
operations. Conversely, a strengthening of these currencies relative to the U.S.
dollar would have the opposite effect.
JUNE 30, 1998 COMPARED WITH JUNE 30, 1997
Results of Operations
Provided below is certain financial data for the six months ended June 30,
1998 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales.................................................................................. $2,539.2 $2,381.1
Depreciation and amortization.............................................................. 135.9 159.6
Interest expense........................................................................... 237.3 226.1
Equity loss from affiliates................................................................ 35.7 23.2
Loss before income taxes, minority interest and extraordinary charge....................... (296.3) (315.1)
Net loss................................................................................... (225.7) (217.4)
</TABLE>
For the six months ended June 30, 1998, Stone incurred a net loss of $225.7
million, or $2.30 per share of Stone Common Stock, as compared with a net loss
of $217.4 million for the first half of 1997, or $2.23 per share of Stone Common
Stock. The net loss for the first half of 1998 includes a one-time write-off of
Stone's interest in Stone Venepal (Celgar) Pulp, Inc. ('SVCPI') of $53.5
million. Stone's share of SVCPI's net losses were $25.6 million for the six
months ended June 30, 1998. The net loss for the first half of 1997 included a
non-cash extraordinary charge of $13.3 million, or $.13 per share of Stone
Common Stock, representing Stone's share of a loss from the early extinguishment
of debt incurred by Abitibi-Consolidated Inc. in connection with the May 1997
merger of Stone-Consolidated Corporation ('Stone-Consolidated') with
Abitibi-Price Inc.
Net sales for the six months ended June 30, 1998 increased $158 million, or
6.6%, to $2,539 million from $2,381 million over the same period of 1997. The
increase resulted primarily from improved selling prices for corrugated
containers and containerboard and increased corrugated container sales volumes,
which more than offset the effect of lower average market pulp selling prices
and sales volume. Sales for the first half of 1997, included $62 million of
sales generated by SVCPI, which became a non-consolidated affiliate effective
June 26, 1997. On a pro forma basis excluding SVCPI in 1997, sales for the first
half of 1998 increased 9.5% over the prior year period. Additionally, the
strengthening of the U.S. dollar relative to the German Mark and Canadian dollar
had a negative effect on sales, by making Stone's products less price
competitive with foreign products. In addition, if foreign currency denominated
sales had been translated at 1997 exchange rates, net sales in the first six
months of 1998 would have been approximately $21 million higher.
Cost of products sold decreased as a percent of net sales to 82.2% for the
first half of 1998 from 84.1% in the prior year period. These improvements were
mainly due to increased selling prices for most of Stone's products over prior
year levels. See 'Risk Factors -- Industry Condition; Cyclicality.' Selling,
general and administrative expenses remained fairly constant as a percent of net
sales, at approximately 12% during the period reported. Depreciation and
amortization decreased 14.8% from the prior year first half, due in part to the
deconsolidation of SVCPI and due to the full depreciation of certain assets in
the prior year. Stone's share of losses from equity affiliates increased $12.5
million in the first half, largely as a result of approximately $13 million of
foreign exchange transaction losses recorded by certain non-consolidated
affiliates in the current year period. Additionally, Stone's 1998 earnings were
negatively affected by $8.5 million of foreign exchange transaction losses
included in Other (income) expense for the first half of 1998 as compared to
$3.6 million of exchange losses recognized in the first half of 1997. Interest
expense was $11.2 million higher in the first half of 1998, primarily due to
increased average borrowings.
PRODUCT LINE SALES DATA
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-----------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- -----------------
SALES SALES
1998 1997 REVENUE VOLUME
------ ------ ------- ------
<S> <C> <C> <C> <C>
Corrugated containers..................................................... $1,337 $1,203 11.1% 6.6%
Paperboard and kraft paper................................................ 613 542 13.1 (2.4)
Industrial paper bags and sacks........................................... 236 231 2.2 1.8
Market pulp............................................................... 155 238 (34.9) (6.4)
Other..................................................................... 198 167 18.6 nm
------ ------ ------- ------
Total Net Sales........................................................... 2,539 2,381 6.6
Sales of SVCPI (deconsolidated June 1997)................................. -- (62)
------ ------ -------
Pro forma sales excluding SVCPI........................................... $2,539 $2,319 9.5%
------ ------ -------
------ ------ -------
</TABLE>
- ------------
nm = not meaningful
------------------------
For the first six months of 1998 corrugated container sales increased
11.1% over the prior year period as a result of improved selling prices and a
6.6% increase in sales volume. Shipments of corrugated containers were 29.2
billion square feet for the first six months of 1998 versus 27.2 billion for
the first six months of 1997.
Sales of paperboard and kraft paper increased 13.1% over the first half of
1997, despite a 2.4% reduction in sales volume, as a result of significant price
improvements from 1997 levels. Production of containerboard and kraft paper was
2.72 million tons for the six months ended June 30, 1998, compared to 2.59
million tons for the prior year period.
For the six months ended June 30, 1998, industrial bag sales increased 2.2%
over the prior year period, primarily due to a 1.8% increase in sales volume.
Slightly higher average selling prices also contributed to the improved sales.
Shipments of paper bags and sacks, including Stone's proportionate share of
retail bag shipments of S&G Packaging Company, L.L.C. ('S&G'), were 247 thousand
tons for the six months ended June 30, 1998, compared with 248 thousand tons
shipped during the comparable 1997 period.
Sales of market pulp for the first half of 1998 decreased $83 million, or
34.9%, from the first half of 1997. Excluding $62 million of SVCPI's sales
during the first half of 1997, market pulp sales decreased 11.9% from the first
half of 1997 due to a 6.1% decline in sales volume and lower average selling
prices.
Foreign Currency Risk
During the first six months of 1998, the average exchange rates for the
Canadian dollar and the German Mark strengthened (weakened) against the U.S.
dollar as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
----------------
<S> <C>
Canadian dollar................................................... (3.9)%
German mark....................................................... (4.2)%
</TABLE>
Stone also has experienced foreign currency transaction gains and losses on
the translation of U.S. dollar denominated obligations of certain of its
Canadian subsidiaries and non-consolidated affiliates. Stone incurred foreign
currency transaction (gains) losses of $8.5 million in the first half of 1998
which have been recorded in Other (income) expense, net. Additionally, Stone's
share of foreign exchange transaction (gains) losses, net of tax incurred by its
non-consolidated affiliates was $12.7 million for the first half of 1998. Most
of the exchange gains and losses incurred by non-consolidated affiliates pertain
to Abitibi-Consolidated, Stone's 25.2% owned Canadian affiliate.
Abitibi-Consolidated is subject to foreign exchange exposures which arise from
its foreign currency sales, international operations and U.S. dollar denominated
debt. Abitibi-Consolidated partially manages its foreign exchange exposure with
a program of foreign exchange forward contracts with major banks as
counterparties for periods up to 5 years. Included in Equity (income) loss from
affiliates for the first half of 1998 is Stone's share of Abitibi-Consolidated's
foreign exchange transaction losses (approximately $14 million, net of tax)
which resulted from adjusting outstanding foreign exchange forward contracts to
fair market value and recording exchange losses on U.S. dollar denominated debt.
Dividend Arrearages
The declaration of dividends by the Stone Board is subject to, among other
things, certain restrictive provisions contained in the Stone Credit Agreement,
the indentures governing Stone's senior notes (the 'Stone Senior Notes
Indentures') and the indentures governing Stone's senior subordinated notes
(the 'Stone Senior Subordinated Notes Indentures'). Due to these restrictive
provisions, Stone cannot declare or pay dividends on the Stone Series E
Preferred Stock or Stone Common Stock until (i) Stone generates income or
issues capital stock to replenish the dividend pool under various of its debt
instruments and (ii) Net Worth (as defined therein) equals or exceeds $750
million. Additionally, Stone Common Stock cash dividends cannot be declared and
paid in the event Stone Series E Preferred Stock dividend arrearages exist. At
June 30, 1998, the dividend pool under the Stone Senior Subordinated Notes
Indentures (which contains the most restrictive dividend pool provision) had a
deficit of approximately $522 million and Net Worth was $115.8 million. 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 an amendment from its senior and senior subordinated
note holders, Stone is not likely to make any dividend payments in 1998 on
Stone Series E Preferred Stock. The Merger will have no effect on such dividend
arrearages. There can be no assurance, however, that such payments will be
made. See 'Comparative Per Share Market Price and Dividend Information' and
Notes 10, 13 and 14 to Stone's Consolidated Financial Statements.
1997 COMPARED TO 1996
In 1997, Stone incurred a loss before extraordinary charges from the early
extinguishment of debt of $405 million or $4.16 per share of Stone Common Stock.
Stone recorded an extraordinary charge of $13 million, net of income tax benefit
or $.13 per share of Stone Common Stock, representing its share of a loss from
the early extinguishment of debt incurred by Stone-Consolidated in connection
with the May 30, 1997 merger of Stone-Consolidated with Abitibi-Price Inc. (the
'Abitibi Merger'), resulting in a net loss for 1997 of $418 million, or $4.29
per share of Stone Common Stock. See also Note 2 of the Stone Consolidated
Financial Statements for a discussion of the Abitibi Merger. In 1996, Stone
incurred a loss of $122 million or $1.32 per share of Stone Common Stock, before
extraordinary charges from the early extinguishments of debt. Stone recorded
extraordinary charges from the early extinguishments of debt totaling $4
million, net of income tax benefit or $.03 per share of Stone Common Stock,
resulting in a net loss for 1996 of $126 million, or $1.35 per share of Stone
Common Stock.
The significantly higher net loss for 1997 over 1996 resulted primarily
from lower operating margins mainly due to a decrease in average selling prices
for most of Stone's products. Cost of products sold increased to 83.9% of net
sales from 79.5% in 1996 mainly as a result of these lower selling prices.
Selling, general and administrative expenses remained constant as a percent of
net sales. Additionally, Stone's 1997 results were adversely impacted by its
share of losses incurred at non-consolidated affiliates, higher interest expense
resulting primarily from increased borrowings and by a $10 million increase in
foreign currency transaction losses. Depreciation and amortization expense
decreased $13.1 million primarily due to the deconsolidation of SVCPI (discussed
below) for the second half of 1997. Stone recorded an income tax benefit of $201
million on a pretax loss of $605 million in 1997 as compared with a 1996 income
tax benefit of $66 million on a pretax loss of $189 million. Stone's effective
income tax rates for both years reflect the impact of non-deductible
amortization of intangibles.
PRODUCT LINE SALES DATA
<TABLE>
<CAPTION>
NET SALES PERCENTAGE CHANGE
---------------- -----------------
YEAR ENDED 1997 VS 1996
DECEMBER 31, -----------------
---------------- SALES SALES
1997 1996 REVENUE VOLUME
------ ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Corrugated containers..................................................... $2,448 $2,670 (8.3)% 4.0%
Paperboard and kraft paper................................................ 1,177 1,115 5.6 18.5
Industrial paper bags and sacks........................................... 479 470 1.9 2.7
Market pulp............................................................... 395 330 19.7 8.7
Other..................................................................... 350 365 (4.1) nm
------ ------ ------- ------
Sub-total................................................................. 4,849 4,950 (2.0)
Net sales of retail bag operations (prior to
July 1996 de-consolidation)............................................. -- 120
Net sales of wood product operations (prior to
October 1996 sale)...................................................... -- 72
------ ------ -------
Total net sales........................................................... $4,849 $5,142 (5.7)%
------ ------ -------
------ ------ -------
</TABLE>
- ------------
nm = not meaningful
Net sales for 1997 decreased $293 million, or 5.7%, to $4.85 billion from
$5.14 billion in 1996. Included in Stone's 1996 sales are sales contributed from
certain wood product operations ($72 million) which were sold in October 1996
and sales from retail bag operations ($120 million) which, in July 1996 were
contributed, together with those of Gaylord Container Corporation to form S&G, a
joint venture that Stone reports as a non-consolidated affiliate under the
equity method of accounting. On a pro forma basis excluding sales generated by
the wood product and retail bag operations for 1996, sales for 1997 decreased
approximately $101 million or 2% from 1996. Additionally the strengthening of
the U.S. dollar relative to the German mark and Canadian dollar had a negative
effect on sales, by making Stone's products less price competitive with foreign
products. In addition, if foreign currency denominated sales had been translated
at 1996 exchange rates, net sales in 1997 would have been approximately $66
million higher.
Net sales of corrugated containers decreased 8.3% from 1996 as
significantly lower average selling prices more than offset a 4% improvement in
sales volume. Corrugated container sales volume, including the proportionate
share of Stone's non-consolidated affiliates, increased 4.9% to 55.7 billion
square feet, up from 53.1 billion square feet shipped in 1996.
Net sales of paperboard and kraft paper increased 5.6% as an 18.5%
improvement in sales volume more than offset significantly lower selling prices.
Production of containerboard and kraft paper was 5.4 million tons in 1997
compared to 5.0 million tons in the prior year.
Net sales of industrial paper bags and sacks increased 1.9% as a 2.7% sales
volume increase more than offset decreases in average selling prices.
Market pulp sales increased 19.7% to $395 million in 1997 as a result of an
8.7% increase in sales volume and improved selling prices. Despite this
improvement, market pulp prices continue to remain at low levels. Effective June
26, 1997, Stone sold half of its interest in SVCPI and began reporting SVCPI
under the equity method of accounting. Excluding SVCPI's sales for 1997 and
1996, market pulp sales increased 28.1% on a pro forma basis over the prior
year.
Stone's share of losses from affiliates reported under the equity method of
accounting was $71 million in 1997, which represents a $134 million decrease
from 1996 earnings from non-consolidated affiliates of $63 million.
Approximately $84 million of this decrease was attributable to a decrease in the
results of operations of Abitibi-Consolidated which primarily resulted from a
substantial decrease in average selling prices for publication papers. The $23
million equity loss from Abitibi-Consolidated for 1997 was also unfavorably
impacted by foreign exchange transaction losses (approximately $16 million, net
of tax) and by non-recurring merger related restructuring charges (approximately
$7 million, net of tax). Stone's equity losses from non-consolidated affiliates
for 1997 was also adversely affected by its share of net losses incurred at
SVCPI, Florida Coast Paper Company, L.L.C. ('Florida Coast') and S&G, which
aggregated approximately $49 million.
Foreign Currency Risk
In 1997, the average exchange rates for the Canadian dollar and the German
mark strengthened (weakened) against the U.S. dollar as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1997 1996
----- ----
<S> <C> <C>
Canadian dollar................................................... (1.5)% 0.7%
German mark....................................................... (15.3)% (5.1)%
</TABLE>
Stone also has experienced foreign currency transaction gains and losses
on the translation of U.S. dollar denominated obligations of certain of its
Canadian subsidiaries and non-consolidated affiliates. Stone incurred foreign
currency transaction losses of $10.7 million in 1997 and $.5 million in 1996,
which have been recorded in Other (income) expense, net. Additionally, Stone's
share of foreign exchange transaction (gains) losses, net of tax incurred by
its non-consolidated affiliates was $23.0 million in 1997 and $(1.0) million in
1996. Abitibi-Consolidated partially manages its foreign exchange exposure with
a program of foreign exchange forward contracts with major banks as
counterparties for periods up to 5 years. Included in Equity (income) loss from
affiliates for the year ended 1997 is Stone's share of Abitibi-Consolidated's
foreign exchange transaction losses (approximately $16 million, net of tax)
which resulted from adjusting outstanding foreign exchange forward contracts to
fair market value and recording exchange losses on U.S. dollar denominated
debt.
1996 COMPARED TO 1995
In 1996, Stone incurred a loss before extraordinary charges from the early
extinguishments of debt of $122 million, or $1.32 per share of Stone Common
Stock. Stone recorded extraordinary charges from the early extinguishments of
debt totaling $4 million, net of income tax benefit or $.03 per share of Stone
Common Stock, resulting in a net loss for 1996 of $126 million, or $1.35 per
share of Stone Common Stock. In 1995, Stone reported income before extraordinary
charges from the early extinguishments of debt of $445 million, or $4.64 per
share of Stone Common Stock and $3.89 per share of Stone Common Stock on a
diluted basis. Stone recorded extraordinary charges from the early
extinguishments of debt totaling $189 million, net of income tax benefit, or
$2.01 per share of Stone Common Stock and $1.65 per share of Stone Common Stock
on a diluted basis, resulting in net income for 1995 of $256 million, or $2.63
per share of Stone Common Stock and $2.24 per share of Stone Common Stock on a
diluted basis.
The net loss for 1996 represented a significant decrease from the net
earnings of 1995. This decrease resulted from substantially lower operating
margins primarily attributable to significantly lower average selling prices for
most of Stone's products. Additionally, Stone's 1996 results included a non-
recurring $5 million pretax loss associated with the sale of certain assets and
foreign exchange transaction losses of $.5 million as compared with foreign
exchange transaction gains of $8 million in 1995. Stone recorded an income tax
benefit of $66 million on a pretax loss of $189 million in 1996 as compared with
a 1995 income tax provision of $321 million on pretax earnings of $795 million.
Stone's effective income tax rates for both years reflect the impact of
non-deductible amortization of intangibles.
PRODUCT LINE SALES DATA
<TABLE>
<CAPTION>
NET SALES PERCENTAGE CHANGE
---------------- -----------------
YEAR ENDED 1996 VS 1995
DECEMBER 31, -----------------
---------------- SALES SALES
1996 1995 REVENUE VOLUME
------ ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Corrugated containers..................................................... $2,670 $3,078 (13.3)% (0.9 )%
Paperboard and kraft paper................................................ 1,115 1,425 (21.8) 10.9
Industrial paper bags and sacks........................................... 470 460 2.2 (0.6 )
Market pulp............................................................... 330 750 (56.0) (21.1 )
Other..................................................................... 365 363 .6 nm
------ ------ ------- ------
Sub-total................................................................. 4,950 6,076 (18.5)
Net sales of retail bag operations (prior to
July 1996 de-consolidation)............................................. 120 283
Net sales of wood product operations (prior to
October 1996 sale)...................................................... 72 100
Net sales of Stone-Consolidated........................................... -- 892
------ ------ -------
Total net sales........................................................... $5,142 $7,351 (30.1)%
------ ------ -------
------ ------ -------
</TABLE>
- ------------
nm = not meaningful
------------------------
Net sales for 1996 decreased $2.2 billion, or 30.1%, from 1995. Net sales
for 1995 included $892 million of sales of Stone-Consolidated. Excluding the
effect of Stone-Consolidated, sales for 1996 decreased approximately $1.3
billion or 20.4% from 1995. The change in foreign exchange rates from 1995 to
1996 did not materially affect net sales.
Net sales of corrugated containers, paperboard and kraft paper and market
pulp decreased 13.3%, 21.8% and 56.0%, respectively, from 1995 mainly due to
sharply lower selling prices. Additionally, a 21% reduction in market pulp sales
volume also contributed to the sales decrease. Corrugated container sales volume
of 53.1 billion square feet, including the proportionate share of Stone's
non-consolidated affiliates, was virtually unchanged from that of the prior
year, while paperboard and kraft paper volume improved modestly.
The decrease in sales for retail bags was primarily attributable to the
de-consolidation of Stone's retail bag packaging operations effective with the
previously mentioned July 12, 1996 formation of S&G, a joint venture that Stone
reports as a non-consolidated affiliate under the equity method of accounting.
Net sales of industrial paper bags and sacks increased 2.2% from 1995 as modest
price improvement more than offset a slight volume decrease.
As previously mentioned, Stone began reporting Stone-Consolidated as a
non-consolidated affiliate under the equity method of accounting effective
November 1, 1995 (the 'SCI de-consolidation'). Largely as a result of this,
equity earnings increased to $63 million in 1996 from $20 million in 1995.
However, 1996 equity earnings decreased approximately $41 million when compared
to equity earnings for 1995 on a restated basis (restated to reflect
Stone-Consolidated historical results as those of a non-consolidated affiliate
under the equity method of accounting effective January 1, 1995). This decrease
was mainly due to reduced operating margins at Stone-Consolidated primarily
attributable to lower average selling prices for newsprint and groundwood
papers.
Stone incurred substantial interest expense due to its significant level of
indebtedness. Interest expense decreased in 1996 to $414 million from $460
million in 1995. This decrease was partially due to the SCI de-consolidation as
interest expense for 1995 included approximately $28 million of Stone-
Consolidated's interest expense. The remainder of the decrease primarily
reflected the effect of lower average outstanding borrowings in 1996 as compared
with 1995.
Foreign Currency Risk
In 1996, the average exchange rates for the Canadian dollar and the German
Mark strengthened (weakened) against the U.S. dollar as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Canadian dollar.................................................... 0.7% (0.5)%
German mark........................................................ (5.1)% 11.7%
</TABLE>
Stone also has experienced foreign currency transaction gains and losses on
the translation of U.S. dollar denominated obligations of certain of its
Canadian subsidiaries and non-consolidated affiliates. Stone incurred foreign
currency transaction (gains) losses of $.5 million in 1996 and $(8.0) million in
1995, which have been recorded in Other (income) expense, net. Additionally,
Stone's share of foreign exchange transaction (gains) losses, net of tax
incurred by its non-consolidated affiliates, was $(1.0) million and $0 in 1996
and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
STONE
Stone's working capital ratio was 1.3 to 1 at June 30, 1998 and 1.5 to 1 at
December 31, 1997. Stone's long-term debt to total capitalization ratio was
96.3% at June 30, 1998 and 88.8% at December 31, 1997. Capitalization, for
purposes of this ratio, includes long-term debt, deferred income taxes, minority
interest and stockholders' equity.
Stone's primary capital requirements consist of debt service and capital
expenditures, including capital investment for compliance with certain
environmental legislation requirements and ongoing maintenance expenditures and
improvements.
Stone's credit agreement contains covenants that include, among other
things, the maintenance of certain financial tests and ratios. On March 26,
1998, on June 5, 1998 and on July 31, 1998, Stone and its lenders amended
Stone's credit agreement to, among other things, modify certain financial
covenant requirements. At June 30, 1998, Stone's credit agreement, as amended,
provided for four senior secured term loans aggregating $1,001 million which
mature through October 1, 2003 and $560 million of senior secured revolving
credit facilities commitments maturing May 15, 1999.
At September 30, 1998, Stone had borrowing availability of approximately
$117 million (net of letters of credit which reduce the amount available to be
borrowed) under its revolving credit facilities in addition to its cash and cash
equivalents. The weighted average interest rates on outstanding term loan and
revolver borrowings under Stone's credit agreement for the six months ended June
30, 1998 were 9.0% and 8.6%, respectively. The weighted average rates do not
include the effect of the amortization of deferred debt issuance costs.
The Stone Senior Notes Indentures (under which approximately $2 billion of
debt is outstanding as of June 30, 1998) provide that if Stone does not maintain
a minimum Subordinated Capital Base (as defined therein) of $1 billion for any
two successive quarters, then Stone will be required to semi-annually offer to
purchase 10% of such outstanding indebtedness at par until the minimum
Subordinated Capital Base is again attained. In the event that Stone's credit
agreement does not permit the offer to repurchase, then Stone will be required
to increase the rates on the notes outstanding under the Stone Senior Notes
Indentures by 50 basis points per quarter up to a maximum of 200 basis points
until the minimum Subordinated Capital Base is attained. Stone's Subordinated
Capital Base was $636.0 million at June 30, 1998, $840.0 million at March 31,
1998 and $898.6 million at December 31, 1997. In April 1998, Stone, as permitted
by an amendment to its credit agreement, made a one-time offer for the
repurchase of 10% of the senior notes issued under the Stone Senior Notes
Indentures. The offer expired on April 28, 1998 with approximately $1.3 million
of notes having been tendered and purchased at par.
The Stone Senior Subordinated Notes Indentures (under which approximately
$594 million of debt was outstanding at June 30, 1998) provide that if Stone
does not maintain $500 million of Net Worth (as defined therein) for any two
successive quarters, Stone will be required to increase the interest rate on
indebtedness outstanding under the Stone Senior Subordinated Notes Indentures by
50 basis points on each succeeding interest payment date up to a maximum amount
of 200 basis points until the required Net Worth is attained. Stone's Net Worth
was $115.8 million at June 30, 1998, $319.8 million at March 31, 1998 and $378.4
million at December 31, 1997. Effective August 15, 1998, Stone was required to
increase the interest rate on its 11% Senior Subordinated Debentures due August
15, 1999 by 50 basis points. Effective October 1, 1998, Stone was also required
to increase the interest rate on its 10 3/4% Senior Subordinated Debentures due
April 1, 2002 and its Senior Subordinated Units due April 1, 2002.
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 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.
Stone has developed plans to address the Year 2000 Issue. Financial and
operational systems and manufacturing equipment have been assessed, detailed
plans have been and continue to be developed and conversion efforts have
commenced. Stone is also communicating with critical suppliers to ascertain that
they are addressing potential year 2000 issues. Based on current assessments,
management believes that Stone's systems and equipment will be year 2000
compliant before December 31, 1999 and that the costs required to achieve this
will not materially impact Stone's consolidated financial position, results of
operations or cash flows.
ENVIRONMENTAL MATTERS
Stone's operations are subject to extensive environmental regulation by
federal, state and local authorities in the United States and, in addition,
regulatory authorities with jurisdiction over its foreign operations. Stone has,
in the past, made significant capital and other expenditures to comply with
water, air and solid and hazardous waste regulations and expects to make
significant expenditures in the future. Capital expenditures for environmental
control equipment and facilities were approximately $24 million in 1997, and
Stone anticipates that 1998 and 1999 environmental capital expenditures will
approximate $18 million and $50 million, respectively. The majority of the 1999
expenditures relate to amounts that Stone currently anticipates will be required
to comply with the Cluster Rule. Although capital expenditures for environmental
control equipment and facilities and compliance costs in future years will
depend on legislative and technological developments which cannot be predicted
at this time, such costs could increase as environmental regulations become more
stringent. Environmental control expenditures include projects which, in
addition to meeting environmental concerns, yield certain benefits to Stone in
the form of increased capacity and production cost savings. In addition to
capital expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance (including
any remediation) represent ongoing costs to Stone.
Stone currently believes it will be required to make capital expenditures
of approximately $180 million during the period of 1998 through 2005 in order to
meet the requirements of the Cluster Rule. Also, additional operating expense
will be incurred as capital installations required by the Cluster Rule are put
into service. Such incremental expense will ultimately increase to as much as
$20 million per year by the year 2005. The ultimate cost of complying with the
Cluster Rule cannot be predicted with certainty until further engineering
studies are completed and additional regulations are finalized.
In addition, Stone is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. Stone has been named a PRP at a number of
sites which are the subject of remedial activity under CERCLA or comparable
state laws. Although Stone is subject to joint and several liability imposed
under CERCLA, at most of the multi-PRP sites there are organized groups of PRPs
and costs are being shared among PRPs. Future environmental regulations or the
identification of new information may have an unpredictable and potentially
material adverse effect on Stone's operations and earnings, but based on current
information they are not expected to adversely affect Stone's competitive
position.
LEGAL MATTERS
The validity of the JSC Common Stock to be issued to Stone stockholders
pursuant to the Merger will be passed upon by Davis Polk & Wardwell, special
counsel to JSC. It is a condition to the consummation of the Merger that Stone
receive an opinion from Sidley & Austin, special counsel to Stone, to the effect
that, among other things, neither Stone nor any of its stockholders will
recognize gain or loss for U.S. federal income tax purposes as a result of the
Merger (other than in respect of any cash paid in lieu of fractional shares).
See 'The Merger Agreement Conditions to the Merger' and 'The Merger -- Certain
U.S. Federal Income Tax Consequences.'
EXPERTS
The consolidated financial statements and the schedule of JSC appearing in
JSC's Annual Report on Form 10-K for the year ended December 31, 1997 and JSCE
appearing in JSCE's Annual Report on Form 10-K for the year ended December 31,
1997 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports thereon and incorporated in this Joint Proxy
Statement/Prospectus by reference. Such consolidated financial statements and
schedule have been incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Stone as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Joint Proxy Statement/Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Abitibi-Consolidated Inc. as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997, the financial information of Abitibi-Consolidated Inc. prepared in
accordance with United States generally accepted accounting principles as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, and the financial statements of Stone-Consolidated
Corporation as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 included in this Joint Proxy
Statement/Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
FUTURE STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting
of Stockholders of JSC must be received by the Secretary of JSC (or, if the
Merger is consummated prior thereto, by SSCC) not later than December 10, 1998
for inclusion in the proxy materials for such meeting.
If proxy materials are required to be delivered, stockholder proposals
intended to be presented at the 1999 Annual Meeting of Stockholders of Stone
must be received by the Secretary of Stone not later than December 9, 1998 for
inclusion in the proxy materials for such meeting.
WHERE YOU CAN FIND MORE INFORMATION
JSC and Stone file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at 'http://www.sec.gov.'
JSC filed a Registration Statement on Form S-4 to register with the SEC the
JSC Common Stock to be issued to Stone stockholders in the Merger. This Joint
Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of JSC in addition to being a proxy statement of JSC
and Stone for their respective Meetings. As permitted by SEC rules, this Joint
Proxy Statement/Prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration Statement.
The SEC allows JSC and JSCE to 'incorporate by reference' information into
this Joint Proxy Statement/Prospectus, which means that JSC and JSCE can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus incorporates by reference the documents set forth
below that JSC has previously filed with the SEC. These documents contain
important information about JSC and its financial performance.
<TABLE>
<CAPTION>
JSC SEC FILINGS (FILE NO. 0-23876) PERIOD
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Annual Report on Form 10-K......................... Fiscal Year ended December 31, 1997
Quarterly Reports on Form 10-Q..................... Quarter ended March 31, 1998 and June 30, 1998
Current Reports on Form 8-K........................ Filed on May 12, 1998
Description of JSC Common Stock from Registration
Statement on Form 8-A............................ Filed on April 19, 1994 and amended on April 24,
1994
</TABLE>
JSC is also incorporating by reference additional documents that JSC files
with the SEC between the date of this Joint Proxy Statement/Prospectus and the
date of the JSC Meeting.
JSC has supplied all information contained or incorporated by reference in
this Joint Proxy Statement/Prospectus relating to JSC, and Stone has supplied
all such information contained in this Joint Proxy Statement/Prospectus relating
to Stone.
If you are a stockholder of JSC, JSC may have sent you some of the
documents incorporated by reference, but you can obtain any of them through JSC
or the SEC. Documents incorporated by reference are available from JSC without
charge, excluding all exhibits unless JSC has specifically incorporated by
reference an exhibit in this Joint Proxy Statement/Prospectus. Stockholders may
obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone at the
following address:
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Tel: (314) 746-1223
If you would like to request documents from JSC, please do so by November
10, 1998 to receive them before the Meetings. JSC will send such documents by
first-class mail within one business day of receiving any such request.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote on the JSC Proposal
and the Stone Proposals. We have not authorized anyone to provide you with
information that is different from what is contained in this Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus is dated October 8,
1998. You should not assume that the information contained in this Joint Proxy
Statement/Prospectus is accurate as of any date other than such date, and
neither the mailing of this Joint Proxy Statement/Prospectus to stockholders nor
the issuance of shares of JSC Common Stock in the Merger shall create any
implication to the contrary.
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ---------------------------------------------- --------
<S> <C>
1933 Act...................................... 31
1992 Plan..................................... F-24
1993 Plan..................................... F-23
1995 Plan..................................... F-23
7% Convertible Debentures..................... 83
Abitibi....................................... 20
Abitibi Merger................................ 109
Abitibi-Consolidated.......................... F-10
Acquiring Person.............................. 93
Acquisition Proposal.......................... 74
Action........................................ 30
Advance Ruling Certificate.................... 30
Affected Employees............................ 67
affiliated.................................... 83
affiliates.................................... 31
Amalco........................................ F-10
Amalgamation.................................. F-10
Amended JSC Credit Agreement.................. 15
Antitrust Division............................ 29
Article 5..................................... 82
Article 5 Termination Date.................... 82
Asset Purchase Agreement...................... 48
Award......................................... 77
broker non-vote............................... 80
Brown Assets.................................. 45
CAA........................................... 101
CCA........................................... 87
Celgar Mill................................... F-10
CEO........................................... 54
CERCLA........................................ 19
Certificate of Merger......................... 14
CFO........................................... 57
Chairman...................................... 84
change in control............................. 57
Change in Control Agreements.................. 56
CITIC......................................... F-10
Cluster Rule.................................. 19
Code.......................................... 21
Comparable Companies.......................... 50
Competition Act Director...................... 30
Complaint..................................... 30
Consent Agreement............................. 102
Container Group............................... 44
CP&L.......................................... 100
CP&L Federal Court Action..................... 100
Credit Agreement.............................. 103
DCF........................................... 53
Delaware Law.................................. 82
DEP........................................... 100
Disinterested Director with respect to JSG.... 75
Disinterested Director with respect to
MSLEF....................................... 75
District Court................................ 100
E Tranche Facility............................ F-18
EBITDA........................................ 50
EC............................................ 30
EC Merger Regulation.......................... 29
Effective Time................................ 14
Electric Agreement............................ 100
End Date...................................... 69
Engagement Letter............................. 47
EPA........................................... 19
EPS........................................... 51
EVP........................................... 57
Exchange Agent................................ 63
Exchange Ratio................................ 14
Expected Synergies............................ 42
FASB.......................................... F-7
FCP........................................... F-25
FCPC.......................................... 96
FERC.......................................... 100
FERC Order.................................... 100
Fifth Anniversary............................. 89
Florence Facility............................. 100
Florida Coast................................. 110
FTC........................................... 29
FTC Act....................................... 101
Funds......................................... 60
GAAP.......................................... F-64
Holders....................................... 58
HSR Act....................................... 29
Incentive Plan................................ 21
Independent Director.......................... 75
independent directors......................... 57
Initial Purchase Price........................ 72
Investment Return............................. 83
JSC........................................... 1
JSC Common Stock.............................. 14
JSC Designees................................. 56
JSC Director.................................. 84
JSC Directors................................. 84
JSC Meeting................................... 14
JSC Proposal.................................. 21
JSC Record Date............................... 78
JSC Severance Benefit......................... 57
JSC Support Agreements........................ 54
JSC Third Party Acquisition Event............. 71
JSG........................................... 25
LIFO.......................................... F-8
LTM........................................... 50
MacBlo........................................ F-39
Material Adverse Effect....................... 64
MBI........................................... 60
Meetings...................................... 14
Merger........................................ 14
Merger Agreement.............................. 14
Merrill Lynch................................. 25
Merrill Lynch Opinion......................... 42
Missoula Mill................................. 101
MS Directors.................................. 60
MS&Co......................................... 60
MSLEF......................................... 7
MSLEF Designee................................ 57
MSLEF Director................................ 84
MSLEF Nominees................................ 86
MSLEF Support Agreement....................... 54
MSLEF Threshold Amount of Shares.............. 82
Nasdaq........................................ 31
NOLs.......................................... 52
Nominating Committee.......................... 83
Non-Brown Assets.............................. 45
normalized.................................... 44
Normalized EBITDA............................. 44
Notes......................................... F-39
Old JSC Bylaws................................ 82
Old JSC Charter............................... 82
Other Proceedings............................. 100
Peak EBITDA................................... 44
piggyback..................................... 59
Plaintiffs.................................... 101
Post-Merger Average Market Price.............. 72
Precedent Transactions........................ 51
PRP........................................... 19
Purchased Assets.............................. 59
QF............................................ 100
Rainy River................................... F-10
Registrable Securities........................ 58
Registration Rights Agreement................. 58
Required Majority............................. 86
Rescission Notice............................. 59
Right......................................... 93
Rights Agreement.............................. 93
S&G........................................... 108
Salomon Smith Barney.......................... 47
Salomon Smith Barney May Opinion.............. 48
Salomon Smith Barney Update Opinion........... 48
SCI de-consolidation.......................... 112
SEC........................................... 36
Sellers....................................... 72
Senior Note Indentures........................ 103
Senior Subordinated Indenture................. 103
Series D Preferred Stock...................... 92
Series E Cumulative Preferred Stock........... F-22
Severance Agreements.......................... 57
SFAS 123...................................... F-24
SFAS 128...................................... F-7
SFAS 130...................................... F-9
SFAS 131...................................... F-10
SIBV.......................................... 18
SIBV Nominees................................. 86
SIBV Support Agreement........................ 54
SOP 98-5...................................... F-38
SSCC.......................................... 1
SSCC Bylaws................................... 21
SSCC Charter.................................. 21
SSCC Common Stock............................. 14
SSCC Incentive Plan Proposal.................. 21
SSR........................................... 102
standstill.................................... 23
Standstill Agreement.......................... 48
Stock Purchase Agreement...................... 48
Stockholders' Agreement....................... 73
Stone......................................... 14
Stone Bylaws.................................. 62
Stone Canada.................................. 60
Stone Chairman................................ 93
Stone Charter................................. 82
Stone Charter Amendment....................... 75
Stone Common Stock............................ 14
Stone Designees............................... 55
Stone Director................................ 84
Stone Directors............................... 84
Stone Employment Agreement.................... 55
Stone FERC Proceeding......................... 100
Stone Meeting................................. 14
Stone Proposal................................ 21
Stone Record Date............................. 79
Stone Senior Notes Indentures................. 108
Stone Senior Subordinated Notes Indentures.... 108
Stone Series E Preferred Stock................ 28
Stone Severance Benefit....................... 56
Stone Support Agreement....................... 54
Stone Third Party Acquisition Event........... 71
Stone-Consolidated............................ 107
Stone's....................................... F-36
Sub........................................... 14
Subscription Agreement........................ 87
Superior Court................................ F-62
Superior Proposal............................. 67
Supervisory Committees........................ 88
Support Agreements............................ 54
SVCPI......................................... 107
Takeover Proposal............................. 66
Unaffiliated Director......................... 84
Units Offering................................ F-19
Volume Weighted Prices........................ 72
Voting Agreement.............................. 58
WMC........................................... 105
</TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STONE CONTAINER CORPORATION
Audited Consolidated Financial Statements:
Report of Independent Accountants..................................................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............ F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996.......................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............ F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and
1995................................................................................................. F-6
Notes to Consolidated Financial Statements............................................................ F-7
Unaudited Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997 (Audited)........... F-33
Consolidated Statements of Operations and Accumulated Deficit for the Six Months Ended June 30, 1998
and 1997 (Unaudited)................................................................................. F-34
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (Unaudited)..... F-35
Notes to Consolidated Financial Statements (Unaudited)................................................ F-36
ABITIBI-CONSOLIDATED INC.
Audited Consolidated Financial Statements prepared in accordance with Canadian generally accepted
accounting principles:
Auditors' Report...................................................................................... F-42
Consolidated Earnings for the Years ended December 31, 1997, 1996 and 1995............................ F-43
Consolidated Retained Earnings for the Years ended December 31, 1997, 1996 and 1995................... F-44
Consolidated Balance Sheets as of December 31, 1997 and 1996.......................................... F-45
Changes in Consolidated Cash Position for the Years ended December 31, 1997, 1996 and 1995............ F-46
Consolidated Business Segments for the Years ended December 31, 1997, 1996 and 1995................... F-47
Notes to Consolidated Financial Statements............................................................ F-49
Financial Information prepared in accordance with United States generally accepted accounting principles:
Report of Independent Accountant...................................................................... F-63
Differences between Canadian and United States generally accepted accounting principles............... F-64
Consolidated Earnings for the Years ended December 31, 1997, 1996 and 1995............................ F-65
Consolidated Retained Earnings for the Years ended December 31, 1997, 1996 and 1995................... F-66
Changes in Consolidated Cash Position for the Years ended December 31, 1997, 1996 and 1995............ F-67
Consolidated Balance Sheets as of December 31, 1997 and 1996.......................................... F-68
STONE-CONSOLIDATED CORPORATION
Auditors' Report...................................................................................... F-69
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................................... F-70
Consolidated Statements of Operations for the Years ended December 31, 1996, 1995 and 1994............ F-71
Consolidated Statements of Changes in Financial Position for the Years ended December 31, 1996, 1995
and 1994............................................................................................. F-72
Consolidated Statements of Shareholders' Equity for the Years ended December 31, 1996, 1995 and
1994................................................................................................. F-73
Notes to Consolidated Financial Statements............................................................ F-74
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stone Container Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of Stone Container Corporation and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 26, 1998
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C>
Sales
Net sales................................................................. $4,849.1 $5,141.8 $7,351.2
-------- -------- --------
Costs and expenses
Cost of products sold..................................................... 4,069.6 4,085.4 5,168.9
Selling, general and administrative expenses.............................. 567.0 596.2 608.5
Depreciation and amortization............................................. 301.7 314.8 371.8
Equity (income) loss from affiliates...................................... 70.8 (63.2) (19.9)
Other (income) expense net................................................ (12.0) (15.8) (33.1)
-------- -------- --------
Income (loss) before interest expense, income taxes, minority interest and
extraordinary charges................................................... (148.0) 224.4 1,255.0
Interest expense.......................................................... (457.1) (413.5) (460.3)
-------- -------- --------
Income (loss) before income taxes, minority interest and extraordinary
charges................................................................. (605.1) (189.1) 794.7
(Provision) credit for income taxes....................................... 200.8 66.0 (320.9)
Minority interest......................................................... (0.1) 0.6 (29.3)
-------- -------- --------
Net income (loss)
Income (loss) before extraordinary charges................................ (404.4) (122.5) 444.5
Extraordinary charges from early extinguishments of debt (net of income
tax benefits)........................................................... (13.3) (3.7) (189.0)
-------- -------- --------
Net income (loss)......................................................... (417.7) (126.2) 255.5
Preferred stock dividends................................................. (8.1) (8.1) (8.1)
-------- -------- --------
Net income (loss) applicable to common shares............................. $ (425.8) $ (134.3) $ 247.4
-------- -------- --------
-------- -------- --------
Per share of common stock:
Basic:
Income (loss) before extraordinary charges................................ $ (4.16) $ (1.32) $ 4.64
Extraordinary charges from early extinguishments of debt.................. (0.13) (0.03) (2.01)
-------- -------- --------
Net income (loss)......................................................... $ (4.29) $ (1.35) $ 2.63
-------- -------- --------
-------- -------- --------
Diluted:
Income (loss) before extraordinary charges................................ $ (4.16) $ (1.32) $ 3.89
Extraordinary charges from early extinguishments of debt.................. (0.13) (0.03) (1.65)
-------- -------- --------
Net income (loss)......................................................... $ (4.29) $ (1.35) $ 2.24
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 112.6 $ 112.6
Accounts and notes receivable (less allowances of $27.8 and $24.3)............... 652.7 572.8
Inventories...................................................................... 716.0 741.6
Other............................................................................ 114.4 134.2
--------- ---------
Total current assets........................................................ 1,595.7 1,561.2
--------- ---------
Property, plant and equipment......................................................... 4,857.3 4,939.1
Accumulated depreciation and amortization............................................. (2,479.8) (2,305.4)
--------- ---------
Property, plant and equipment -- net........................................ 2,377.5 2,633.7
Timberlands........................................................................... 49.6 34.6
Goodwill.............................................................................. 444.0 485.4
Investment in equity of non-consolidated affiliates................................... 878.1 1,198.2
Other................................................................................. 479.2 440.7
--------- ---------
Total assets................................................................ $ 5,824.1 $ 6,353.8
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 327.9 $ 363.8
Current maturities of senior and subordinated long-term debt..................... 415.9 186.7
Notes payable and current maturities of non-recourse debt of consolidated
affiliates...................................................................... -- 21.9
Income taxes..................................................................... 26.6 15.1
Accrued and other current liabilities............................................ 318.6 301.7
--------- ---------
Total current liabilities................................................... 1,089.0 889.2
--------- ---------
Senior long-term debt................................................................. 3,238.0 3,269.6
Subordinated debt..................................................................... 697.5 422.3
Non-recourse debt of consolidated affiliates.......................................... -- 259.2
Other long-term liabilities........................................................... 306.7 308.1
Deferred taxes........................................................................ 216.0 410.2
Commitments and contingencies (Note 17)...............................................
Stockholders' equity:
Series E preferred stock......................................................... 115.0 115.0
Common stock (99.3 shares outstanding)........................................... 966.3 954.8
Accumulated deficit.............................................................. (510.8) (94.2)
Foreign currency translation adjustment.......................................... (293.3) (178.8)
Unamortized expense of restricted stock plan..................................... (0.3) (1.6)
--------- ---------
Total stockholders' equity.................................................. 276.9 795.2
--------- ---------
Total liabilities and stockholders' equity.................................. $ 5,824.1 $ 6,353.8
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)......................................................... $(417.7) $(126.2) $ 255.5
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................................ 301.7 314.8 371.8
Deferred taxes....................................................... (217.1) (88.1) 213.6
Foreign currency transaction (gains) losses.......................... 10.7 0.5 (8.1)
Equity (income) loss from affiliates................................. 70.8 (63.2) (19.9)
Extraordinary charges from early extinguishments of debt............. 13.3 3.7 189.0
Other -- net......................................................... 84.6 41.1 102.1
Changes in current assets and liabilities net of adjustments
for acquisitions and dispositions:
(Increase) decrease in accounts and notes receivable -- net.......... (130.6) 185.1 (80.8)
(Increase) decrease in inventories................................... 3.6 (51.4) (145.5)
Decrease in other current assets..................................... 3.6 15.0 21.7
Increase in accounts payable and other current liabilities........... 17.6 56.3 62.3
------- ------- -------
Net cash provided by (used in) operating activities....................... (259.5) 287.6 961.7
------- ------- -------
Cash flows from financing activities
Debt repayments........................................................... (475.6) (376.2) (826.3)
Payments by consolidated affiliates on non-recourse debt.................. (16.1) (18.9) (146.1)
Borrowings................................................................ 931.6 587.7 515.8
Non-recourse borrowings of consolidated affiliates........................ 0.1 2.6 4.2
Proceeds from issuance of common stock.................................... 0.1 0.4 1.7
Cash dividends............................................................ (2.0) (67.6) (41.5)
------- ------- -------
Net cash provided by (used in) financing activities....................... 438.1 128.0 (492.2)
------- ------- -------
Cash flows from investing activities
Capital expenditures...................................................... (136.6) (250.8) (386.5)
Investments in and advances to affiliates, net............................ (12.9) (107.2) (56.7)
Proceeds from sales of assets............................................. 6.8 53.1 20.3
Purchase of securities of a non-consolidated affiliate.................... -- (39.6) --
Effect on cash of de-consolidation of Stone-Consolidated.................. -- -- (113.1)
Other -- net.............................................................. (30.9) 2.9 (9.1)
------- ------- -------
Net cash used in investing activities..................................... (173.6) (341.6) (545.1)
------- ------- -------
Effect of exchange rate changes on cash................................... (5.0) (1.7) 7.3
------- ------- -------
Net cash flows
Net increase (decrease) in cash and cash equivalents...................... -- 72.3 (68.3)
Cash and cash equivalents, beginning of period............................ 112.6 40.3 108.6
------- ------- -------
Cash and cash equivalents, end of period.................................. $ 112.6 $ 112.6 $ 40.3
------- ------- -------
------- ------- -------
</TABLE>
- ------------
See Note 4 regarding non-cash financing and investing activities and
supplemental cash flow information.
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
---------------- ---------------- -----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Preferred stock
Balance at January 1 and December 31.............. $ 115.0 4.6 $ 115.0 4.6 $ 115.0 4.6
------- ------ ------- ------ -------- ------
Common stock
Balance at January 1.............................. 954.8 99.3 953.1 99.1 849.1 90.4
Issuance of common stock:
Debt conversions............................. -- -- 1.3 0.1 180.4 8.5
Exercise of stock options.................... 0.1 -- 0.4 0.1 1.7 0.1
Restricted stock plan........................ 0.5 -- -- -- 2.1 0.1
Subsidiary issuance of stock...................... 10.9 -- -- -- (80.2) --
------- ------ ------- ------ -------- ------
Balance at December 31............................ 966.3 99.3 954.8 99.3 953.1 99.1
------- ------ ------- ------ -------- ------
Retained earnings (accumulated deficit)
Balance at January 1.............................. (94.2) 97.8 (96.3)
Net income (loss)................................. (417.7) (126.2) 255.5
Cash dividends:
Preferred stock*............................. (2.1) (8.1) (12.1)
Common stock*................................ -- (59.5) (29.4)
Decrease (increase) in minimum pension liability
in excess of unrecognized prior service cost.... 3.2 1.8 (19.9)
------- ------- --------
Balance at December 31............................ (510.8) (94.2) 97.8
------- ------- --------
Foreign currency translation adjustment
Balance at January 1.............................. (178.8) (156.9) (215.2)
Adjustment from translation of
foreign currency statements..................... (114.5) (21.9) 58.3
------- ------- --------
Balance at December 31............................ (293.3) (178.8) (156.9)
------- ------- --------
Unamortized expense of restricted stock plan
Balance at January 1.............................. (1.6) (3.7) (4.5)
Issuance of shares................................ -- -- (2.0)
Amortization of expense........................... 1.3 2.1 2.8
------- ------- --------
Balance at December 31............................ (0.3) (1.6) (3.7)
------- ------- --------
Total stockholders' equity at December 31.... $ 276.9 $ 795.2 $1,005.3
------- ------- --------
------- ------- --------
</TABLE>
- ------------
* Cash dividends paid on common stock were $.60 per share in 1996 and $.30 in
1995. No cash dividends on common stock were paid in 1997. Cash dividends
paid on preferred stock were $.4375 per share in 1997, $1.75 per share in
1996 and $2.625 per share in 1995.
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of Stone
Container Corporation ('Stone') and all subsidiaries that are more than 50
percent owned except for S&G Packaging Company, L.L.C. which is accounted for
under the equity method. All significant intercompany accounts and transactions
have been eliminated. Investments in non-consolidated affiliated companies are
primarily accounted for by the equity method. The consolidated financial
statements are prepared in conformity with generally accepted accounting
principles which require the use of management estimates. Changes in such
estimates may affect amounts reported in future periods.
Per Share Data:
In February 1997, the Financial Accounting Standards Board (the 'FASB')
issued Statement of Financial Accounting Standards No. 128, 'Earnings Per Share'
('SFAS 128'). SFAS 128 simplifies the standards for computing earnings per share
and is effective for financial statements for both interim and annual periods
ending after December 15, 1997. Earlier application was not permitted. The
adoption of SFAS 128 did not have a material impact on Stone's previously
reported earnings per share. As required, all prior-period earnings per share
data presented have been restated to conform with the provisions of SFAS 128.
SFAS 128 replaces the presentation of primary earnings per share with basic
earnings per share and fully diluted earnings per share with diluted earnings
per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding. Diluted
earnings per share is computed to show, on a pro forma basis, per share earnings
available to common shareholders assuming the exercise or conversion of all
dilutive securities that are exercisable or convertible into common stock.
Reconciliation of Basic and Diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995
----------------- ----------------- ------------------
INCOME INCOME INCOME
(LOSS) SHARES (LOSS) SHARES (LOSS) SHARES
------- ------ ------- ------ ------- -------
IN MILLIONS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary charges.......... $(404.4) $(122.5) $ 444.5
Less: Preferred dividends........................... (8.1) (8.1) (8.1)
------- ------- -------
Basic EPS
Income available to common stockholders........ (412.5) 99.3 (130.6) 99.2 436.4 93.9
Effect of Dilutive Securities:
Options and warrants...................... (a) -- .2
Convertible debt.......................... (b) (b) (b) (b) 1.7 17.2
Exchangeable Preferred Stock.............. (c) (c) (c) (c) 8.1 3.4
------- ------ ------- ------ ------- -------
Diluted EPS......................................... $(412.5) $ 99.3 $(130.6) $ 99.2 $ 446.2 $ 114.7
------- ------ ------- ------ ------- -------
------- ------ ------- ------ ------- -------
Basic Earnings Per Share Amount..................... (4.16) (1.32) 4.64
------ ------ -------
------ ------ -------
Diluted Earnings Per Share Amount................... (4.16) (1.32) 3.89
------ ------ -------
------ ------ -------
</TABLE>
- ------------
(a) Options to purchase .2 million shares are excluded from the diluted EPS
computation because they are antidilutive.
(b) Convertible debt effects of $5.1 million and 6.4 million shares are
excluded from the diluted EPS computation in 1997 and 1996 because they are
antidilutive.
(c) Exchangeable preferred stock effect of $8.1 million and 3.4 million shares
is excluded from the dilutive EPS computation in 1997 and 1996 because they
are antidilutive.
Cash and Cash Equivalents:
Stone considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents and, therefore,
includes such investments as cash and cash equivalents in its financial
statements.
Inventories:
Inventories are stated at the lower of cost or market. The primary methods
used to determine inventory costs are the last-in-first-out ('LIFO') method and
the average cost method.
Property, Plant, Equipment and Depreciation:
Property, plant and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred. Additions,
improvements and major replacements are capitalized. The cost and accumulated
depreciation related to assets sold or retired are removed from the accounts and
any gain or loss is credited or charged to income.
For financial reporting purposes, depreciation and amortization is provided
on the straight-line method over the estimated useful lives of depreciable
assets, or over the duration of the lease for certain capitalized leases, based
on the following annual rates:
<TABLE>
<CAPTION>
TYPE OF ASSET RATES
- -------------------------------------------------------------------------- ---------
<S> <C>
Machinery and equipment................................................... 5% to 33%
Buildings and leasehold improvements...................................... 2% to 10%
Land improvements......................................................... 4% to 7%
</TABLE>
Timberlands:
Timberlands are stated at cost less accumulated cost of timber harvested.
Stone amortizes its private fee timber costs over the estimated total fiber that
will be available during the estimated growth cycle. Cost of non-fee timber
harvested is determined on the basis of timber removal rates and the estimated
volume of recoverable timber. Stone capitalizes interest costs related to
pre-merchantable timber.
Goodwill and Other Assets:
Goodwill is amortized on a straight-line basis over 40 years and is
recorded net of accumulated amortization of approximately $131 million and $122
million at December 31, 1997 and 1996, respectively. Stone assesses at each
balance sheet date whether there has been a permanent impairment in the value of
goodwill. This is accomplished by determining whether projected undiscounted
future cash flows from operations exceed the net book value of goodwill as of
the assessment date. Such projections reflect price, volume and cost
assumptions.
Deferred debt issuance costs are amortized over the expected life of the
related debt using the interest method. Start-up costs on major projects are
capitalized and amortized over a five-year period. Other long-term assets
include approximately $22 million and $35 million of unamortized deferred start-
up costs at December 31, 1997 and 1996, respectively.
Other long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This review is accomplished by determining whether projected
undiscounted future cash flows from operations exceed the net book value of the
asset as of the assessment date.
Subsidiary Issuance of Stock:
When a subsidiary issues stock, Stone records the difference relating to
the carrying amount per share and the issuance price per share as an adjustment
to common stock in those instances in which Stone has determined that the
difference does not represent a permanent impairment.
Foreign Currency Translation:
The functional currency for the majority of Stone's foreign operations is
the applicable local currency. Accordingly, assets and liabilities are
translated at the exchange rate in effect at the balance sheet date, and income
and expenses are translated at average exchange rates prevailing during the
year. Translation gains or losses are accumulated as a separate component of
stockholders' equity entitled Foreign Currency Translation Adjustment. Foreign
currency transaction gains or losses are credited or charged to income. The
functional currency for foreign operations operating in highly inflationary
economies is the U.S. dollar and any gains or losses are credited or charged to
income.
Foreign Currency and Financial Instruments:
Stone has utilized various financial instruments to reduce certain of its
foreign currency and/or interest rate exposures. Premiums received and fees paid
on the financial instruments are deferred and amortized over the period of the
agreements. Gains and losses or interest received and paid on the instruments
are recorded as foreign exchange transaction gains or losses or as interest in
the Consolidated Statements of Operations.
Foreign Currency Risk:
A portion of Stone's operations are located outside of the United States.
See Note 18 Segment and Geographic Information. Because of this, movements in
exchange rates can have an impact on Stone's financial condition and results of
operations. Stone's significant foreign exchange exposures are the Canadian
dollar and the German Mark. In general, a weakening of the German Mark and
Canadian dollar relative to the U.S. dollar has a negative translation effect on
Stone's financial condition and results of operations. Conversely, a
strengthening of these currencies relative to the U.S. dollar would have the
opposite effect.
In 1997, 1996 and 1995, the average exchange rates for the Canadian dollar
and the German Mark strengthened (weakened) against the U.S. dollar as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Canadian dollar................................................ (1.5)% Even Even
German Mark.................................................... (15.3)% (5.1)% 11.7%
</TABLE>
Stone also has experienced foreign currency transaction gains and losses on
the translation of U.S. dollar denominated obligations of certain of its
Canadian subsidiaries and non-consolidated affiliates. Stone incurred foreign
currency transaction (gains) losses of $10.7 million in 1997, $.5 million in
1996 and $(8.0) million in 1995, which have been recorded in Other (income)
expense, net. Additionally, Stone's share of foreign exchange transaction
(gains) losses, net of tax incurred by its non-consolidated affiliates was $23.0
million, $(1.0) million and nil in 1997, 1996 and 1995, respectively. Most of
the exchange gains and losses incurred by non-consolidated affiliates pertain to
Abitibi-Consolidated, Stone's 25.2 percent owned Canadian affiliate. Abitibi is
subject to foreign exchange exposures which arise from its foreign currency
sales, international operations and U.S. dollar denominated debt. Abitibi
partially manages its foreign exchange exposure with a program of foreign
exchange forward contracts with major banks as counterparties for periods up to
5 years. Included in Equity (income) loss from affiliates in 1997 is Stone's
share of Abitibi's foreign exchange transaction losses (approximately $16
million, net of tax) which resulted from adjusting outstanding foreign exchange
forward contracts to fair market value and recording exchange losses on U.S.
dollar denominated debt.
Recently Issued Accounting Pronouncements:
In June 1997, the FASB issued SFAS No. 130, 'Reporting Comprehensive
Income' ('SFAS 130'). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components in the financial statements.
Comprehensive income represents the change in stockholders' equity during a
period resulting from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. SFAS
130 is effective for interim and annual periods beginning after December 15,
1997. Reclassification of prior period financial statements for comparative
purposes is required. Stone will adopt SFAS 130 in the first quarter of 1998.
The adoption of SFAS 130 will have no impact on Stone's consolidated results of
operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, 'Disclosures about Segments of
an Enterprise and Related Information' ('SFAS 131'). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim and
annual financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Prior periods' disclosures are required to be
restated. Stone is in the process of evaluating the disclosure requirements and
will adopt the provisions of the statement in its year-end 1998 financial
statements. The adoption of SFAS 131 will have no impact on Stone's consolidated
results of operations, financial position or cash flows.
NOTE 2. SUBSIDIARY ISSUANCE OF STOCK/MERGER OF SIGNIFICANT SUBSIDIARY
On May 30, 1997, Stone-Consolidated Corporation ('Stone-Consolidated') and
Abitibi-Price Inc. amalgamated to form Abitibi-Consolidated Inc.
('Abitibi-Consolidated'), a Canada based manufacturer and marketer of
publication papers. For U.S. GAAP purposes, the combination of Stone-
Consolidated and Abitibi-Price Inc. was accounted for under the purchase method
of accounting, as the acquisition of Abitibi-Price Inc. by Stone-Consolidated.
Stone owns approximately 25.2 percent of the common stock of
Abitibi-Consolidated and accounts for its interest in this Canadian affiliate
under the equity method of accounting. Effective with the merger, Stone recorded
a credit of $10.9 million to common stock related to the excess of the market
value per common share over the carrying value of its investment per common
share. Additionally, Stone reported a non-cash extraordinary charge of $13.3
million, net of tax, representing its share of a loss from the early
extinguishment of debt incurred by Stone-Consolidated.
On November 1, 1995, Stone-Consolidated Corporation, then a Canadian
subsidiary of Stone, amalgamated its operations (the 'Amalgamation') with Rainy
River Forest Products Inc. ('Rainy River'), a Toronto-based Canadian pulp and
paper company. The combination of Stone-Consolidated Corporation and Rainy River
to form the amalgamated entity ('Amalco') was accounted for as the acquisition
of Rainy River by Stone-Consolidated Corporation. Therefore, the purchase method
of accounting was used by Stone-Consolidated to account for the business
combination. Amalco continued under the name of Stone-Consolidated Corporation
('Stone-Consolidated'). As a result of the issuance of common shares by
Stone-Consolidated associated with the Amalgamation, Stone's equity ownership in
Stone-Consolidated was reduced from 74.6 percent to 46.6 percent. Thus,
effective November 1, 1995, Stone began reporting Stone-Consolidated as a
non-consolidated affiliate in accordance with the equity method of accounting.
Stone recorded in 1995 a charge of approximately $80 million to common stock
related to the excess carrying value per common share over the issuance price
per common share associated with the shares issued.
NOTE 3. ACQUISITION/DISPOSITION
On April 4, 1997, Stone's then 90 percent owned subsidiary, Stone Venepal
(Celgar) Pulp, Inc. ('SVCPI') acquired the remaining 50 percent interest in the
Celgar pulp mill (the 'Celgar Mill') located in Castlegar, British Columbia from
CITIC B.C., Inc. ('CITIC'), an indirect subsidiary of China International Trust
Investment Corporation of Beijing, People's Republic of China, in exchange for
the portion of the Celgar Mill's indebtedness owed by CITIC. Such indebtedness
is non-recourse to Stone.
On June 26, 1997, Stone sold half of its ownership in SVCPI to Celgar
Investments, Inc., a 49 percent owned affiliate of Stone. Following the sale,
Stone retained a 45 percent direct voting interest in the stock of SVCPI and
began accounting for its interest in SVCPI under the equity method of
accounting.
The following unaudited pro forma information assumes that the April 4 and
June 26, 1997 transactions occurred at the beginning of each year presented.
<TABLE>
<CAPTION>
HISTORICAL YEAR
ENDED PRO FORMA YEAR ENDED
-------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Net sales............................................. $4,849.1 $5,141.8 $4,786.9 $5,072.0
Net loss before extraordinary charges................. 404.4 122.5 404.0 137.7
Net loss.............................................. 417.7 126.2 417.3 141.4
Net loss per share before extraordinary charges
-- basic........................................ 4.16 1.32 4.15 1.47
-- diluted...................................... 4.16 1.32 4.15 1.47
Net loss per share
-- basic........................................ 4.29 1.35 4.28 1.51
-- diluted...................................... 4.29 1.35 4.28 1.51
</TABLE>
NOTE 4. ADDITIONAL CASH FLOW STATEMENT INFORMATION
Stone's non-cash investing and financing activities and cash payments
(receipts) for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Decrease in debt due to de-consolidation of affiliate...................... $537.5 $ -- $397.4
Assumption of non-recourse debt of affiliates.............................. 273.2 -- 15.0
Assumption of debt of consolidated affiliates.............................. -- 5.0 --
Note receivable received as partial consideration for sale of assets....... -- 32.7 --
Capital lease obligations incurred......................................... 3.3 5.0 2.3
Issuance of common stock as partial consideration to extinguish debt....... -- 1.3 180.4
------ ------ ------
------ ------ ------
Cash paid (received) during the year for:
Interest (net of capitalization)...................................... $420.4 $383.1 $443.7
Income taxes (net of refunds)......................................... (33.6) 4.8 125.5
------ ------ ------
------ ------ ------
</TABLE>
NOTE 5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies........................................................ $263.5 $255.3
Paperstock........................................................................ 342.1 378.1
Work in process................................................................... 21.5 19.5
Finished products................................................................. 108.5 105.1
------ ------
735.6 758.0
Excess of current cost over LIFO inventory value.................................. (19.6) (16.4)
------ ------
Total inventories................................................................. $716.0 $741.6
------ ------
------ ------
</TABLE>
Inventories costed by the LIFO, FIFO and average cost methods represented
approximately 36 percent, 7 percent and 57 percent, respectively, of total
inventories at December 31, 1997 and approximately 39 percent, 7 percent and 54
percent, respectively, of total inventories at December 31, 1996.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Machinery and equipment...................................................... $ 3,973.6 $ 4,053.2
Buildings and leasehold improvements......................................... 656.5 656.5
Land and land improvements................................................... 128.7 122.4
Construction in progress..................................................... 98.5 107.0
--------- ---------
Total property, plant and equipment.......................................... 4,857.3 4,939.1
Accumulated depreciation and amortization.................................... (2,479.8) (2,305.4)
--------- ---------
Total property, plant and equipment -- net................................... $ 2,377.5 $ 2,633.7
--------- ---------
--------- ---------
</TABLE>
Property, plant and equipment includes capitalized leases of $17.5 million
and $21.0 million and related accumulated amortization of $3.7 million and $5.6
million at December 31, 1997 and 1996, respectively.
NOTE 7. SUMMARIZED FINANCIAL INFORMATION OF NON-CONSOLIDATED AFFILIATES
Combined summarized financial information for Stone's non-consolidated
affiliates that are accounted for under the equity method of accounting is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
Results of operations:(a)
Net sales................................................................. $4,072.8 $3,059.9
Income (loss) before income taxes, minority interest and extraordinary
charges................................................................. (165.4) 207.8
Net income (loss)......................................................... (175.8) 151.4
Financial position:
Current assets............................................................ $1,297.4 $1,084.8
Noncurrent assets......................................................... 5,315.7 3,515.6
Current liabilities....................................................... 1,010.4 668.0
Noncurrent liabilities.................................................... 2,618.0 1,302.9
Stockholders' equity...................................................... 2,984.7 2,629.5
</TABLE>
- ------------
(a) Includes results for each affiliate for the period it was accounted for
under the equity method.
NOTE 8. INCOME TAXES
Stone provides for income taxes in accordance with the liability method of
accounting for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The (provision) credit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Currently (payable) refundable:
Federal.............................................................. $ 4.4 $ (2.0) $ (59.6)
State................................................................ (0.1) (0.3) (10.5)
Foreign.............................................................. (20.6) (19.8) (37.2)
------ ------ -------
(16.3) (22.1) (107.3)
Deferred:
Federal.............................................................. 166.5 64.1 (80.9)
State................................................................ 29.8 13.0 (26.2)
Foreign.............................................................. 20.8 11.0 (106.5)
------ ------ -------
217.1 88.1 (213.6)
------ ------ -------
Total (provision) credit for income taxes................................. $200.8 $ 66.0 $(320.9)
------ ------ -------
------ ------ -------
Federal income tax (provision) credit at federal statutory rate........... $211.8 $ 66.2 $(278.1)
Additional (taxes) credits resulting from:
Non-deductible amortization of intangibles........................... (6.3) (6.8) (8.8)
Equity earnings (losses) of affiliates, net of tax................... (19.1) 18.7 1.4
State income taxes, net of federal income tax effect................. 19.3 8.3 (23.9)
Valuation allowance adjustment....................................... (8.5) (10.1) --
Minimum taxes -- foreign jurisdictions............................... (4.4) (4.9) (7.8)
Permanent differences on assets sold................................. -- (3.5) --
Other -- net......................................................... 8.0 (1.9) (3.7)
------ ------ -------
(Provision) credit for income taxes....................................... $200.8 $ 66.0 $(320.9)
------ ------ -------
------ ------ -------
</TABLE>
The components of the net deferred tax liability as of December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Carryforwards................................................................. $ 367.2 $ 225.3
Compensation-related accruals................................................. 38.1 43.4
Extraordinary charges from early extinguishments of debt...................... -- 2.4
Minimum pension liability..................................................... 19.7 19.1
Reserves...................................................................... 47.8 52.3
Deferred gain................................................................. 19.9 22.7
Other......................................................................... 0.1 10.6
------- -------
492.8 375.8
Valuation allowance................................................................ (37.0) (44.1)
------- -------
Total deferred tax asset........................................................... 455.8 331.7
Deferred tax liabilities:
Depreciation and amortization................................................. (588.2) (639.4)
Start-up costs................................................................ (2.9) (7.8)
LIFO reserve.................................................................. (13.2) (19.3)
Pension....................................................................... (2.9) (10.0)
Other......................................................................... (29.9) (48.6)
------- -------
Total deferred tax liability....................................................... (637.1) (725.1)
------- -------
Deferred tax liability -- net...................................................... $(181.3) $(393.4)
------- -------
------- -------
</TABLE>
The components of the income (loss) before income taxes, minority interest
and extraordinary charges are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
United States............................................................ $(521.1) $(207.8) $455.8
Foreign.................................................................. (84.0) 18.7 338.9
------- ------- ------
Income (loss) before income taxes, minority interest, and extraordinary
charges................................................................ $(605.1) $(189.1) $794.7
------- ------- ------
------- ------- ------
</TABLE>
At December 31, 1997, Stone had approximately $726 million of net operating
loss carryforwards for U.S. federal tax purposes. To the extent not utilized,
the U.S. federal net operating losses will expire in 2012. Further, Stone had
approximately $1,133 million of net operating loss carryforwards for U.S. state
tax purposes (which represents approximately $79 million of deferred tax
assets), which to the extent not utilized, expire in 1998 through 2012.
Realization is partially dependent on generating sufficient taxable income prior
to expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. Stone had
approximately $91 million of capital loss carryforwards for Canadian tax
purposes. A valuation allowance has been provided for the deferred tax assets
related to these capital loss carryforwards. Stone also had approximately $24
million of alternative minimum tax credit carryforwards for U.S. federal tax
purposes which are available indefinitely.
NOTE 9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Stone has contributory and noncontributory pension plans for the benefit of
most salaried and certain hourly employees. The funding policy for the plans,
with the exception of Stone's salaried supplemental unfunded plans and Stone's
German subsidiary's unfunded plan, is to annually contribute the statutory
required minimum. The salaried pension plans provide benefits based on a formula
that takes into account each participant's estimated final average earnings. The
hourly pension plans provide benefits under a flat benefit formula. The salaried
and hourly plans provide reduced benefits for early retirement. The salaried
plans take into account offsets for governmental benefits.
Net pension expense for the combined pension plans includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost benefits earned during the period............................ $ 18.8 $ 17.7 $ 17.0
Interest cost on projected benefit obligations............................ 46.7 42.9 63.5
Actual return on plan assets.............................................. (74.1) (47.6) (100.0)
Net amortization and deferral............................................. 41.1 20.4 51.7
------ ------ -------
Net pension expense....................................................... $ 32.5 $ 33.4 $ 32.2
------ ------ -------
------ ------ -------
</TABLE>
The following table sets forth the funded status of Stone's pension plans
and the amounts recorded in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits.................. $(144.9) $(451.4) $ (74.9) $(442.6)
Non-vested benefits.............. (10.7) (21.1) (9.5) (21.9)
------------- --------------- ------------- ---------------
Accumulated benefit obligation........ (155.6) (472.5) (84.4) (464.5)
Effect of increase in
compensation levels............ (12.8) (66.9) (6.2) (52.6)
------------- --------------- ------------- ---------------
Projected benefit obligation for
service rendered through December
31.................................. (168.4) (539.4) (90.6) (517.1)
Plan assets at fair value, primarily
stocks, bonds, fixed investment
contracts, real estate and mutual
funds which invest in listed stocks
and bonds........................... 171.0 297.2 93.2 300.1
------------- --------------- ------------- ---------------
Plan assets in excess of (less than)
projected benefits obligation....... 2.6 (242.2) 2.6 (217.0)
Unrecognized prior service cost....... 7.7 15.6 5.1 17.6
Unrecognized net actuarial loss....... 25.3 111.1 6.2 90.4
Adjustment required to recognize
minimum liability................... -- (66.6) -- (69.7)
------------- --------------- ------------- ---------------
Net prepaid (accrual)................. $ 35.6 $(182.1) $ 13.9 $(178.7)
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
</TABLE>
Stone has recorded an additional minimum liability for underfunded plans
representing the excess of the unfunded accumulated benefit obligation over
previously recorded liabilities. At December 31, 1997, the additional minimum
liability of $66.6 million was recorded as a long-term liability with an
offsetting intangible asset of $15.6 million and a charge to stockholders'
equity of $31.3 million, net of a tax benefit of $19.7 million. The additional
minimum liability at December 31, 1996 of $69.7 million was recorded as a
long-term liability with an offsetting intangible asset of $19.1 million and a
charge to stockholders' equity of $31.5 million, net of a tax benefit of $19.1
million. In addition at December 31, 1996, Stone had a cumulative net charge to
retained earnings of $11.1 million representing its share of the net charges to
retained earnings recorded by certain non-consolidated affiliates associated
with their additional minimum liabilities.
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligations at December 31, 1997 were
7.0 percent and 7.25 percent for its U.S. and foreign plans, respectively, and
7.75 percent in 1996. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligations was
4.0 percent for both 1997 and 1996. The expected long-term rate of return on
assets was 11 percent for both 1997 and 1996. The change in the weighted average
discount rates had the net effect of increasing the total projected benefit
obligation at December 31, 1997 by $64.6 million.
Certain domestic operations of Stone participate in various multi-employer
union-administered defined benefit pension plans that principally cover
production workers. Pension expense under these plans was $5.4 million, $5.2
million and $5.5 million for 1997, 1996 and 1995, respectively.
In addition to providing pension benefits, Stone provides certain retiree
health care and life insurance benefits covering substantially all U.S. salaried
and hourly employees and certain Canadian employees. Net periodic postretirement
benefit costs for 1997, 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost benefits attributed to service during the period..................... $1.1 $1.0 $0.8
Interest cost on accumulated postretirement benefit obligation.................... 4.9 4.6 6.6
Net amortization and deferral..................................................... 0.6 0.4 0.7
---- ---- ----
Net periodic postretirement benefit cost.......................................... $6.6 $6.0 $8.1
---- ---- ----
---- ---- ----
</TABLE>
The following table sets forth the components of Stone's accumulated
postretirement benefit obligation and the amount recorded in the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
U.S. FOREIGN TOTAL U.S. FOREIGN TOTAL
----- ------- ----- ----- ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................... $21.7 $11.6 $33.3 $17.7 $11.7 $29.4
Active employees -- fully eligible........... 19.7 1.4 21.1 18.4 0.9 19.3
Other active employees....................... 16.2 1.7 17.9 15.0 1.3 16.3
----- ------- ----- ----- ------- -----
Total accumulated postretirement benefit
obligation...................................... 57.6 14.7 72.3 51.1 13.9 65.0
Unrecognized net loss............................. (15.3) (3.4) (18.7) (9.6) (2.4) (12.0)
----- ------- ----- ----- ------- -----
Postretirement benefit obligation................. $42.3 $11.3 $53.6 $41.5 $11.5 $53.0
----- ------- ----- ----- ------- -----
----- ------- ----- ----- ------- -----
</TABLE>
Stone has not currently funded any of its accumulated postretirement
benefit obligation.
The discount rates used in determining the accumulated postretirement
benefit obligation were 7.0 percent and 7.25 percent at December 31, 1997 for
its U.S. and foreign plans, respectively, and 7.75 percent at December 31, 1996.
The change in the discount rate had the net effect of increasing the total
accumulated postretirement benefit obligation at December 31, 1997 by $5.8
million. The assumed health care cost trend rates for substantially all
employees used in measuring the accumulated postretirement benefit obligation
ranged from 5.0 percent to 10.0 percent at December 31, 1997 and 6.0 percent to
11.0 percent at December 31, 1996, decreasing to ultimate rates of 5.0 percent
to 8.0 percent. If the health care cost trend rate assumptions were increased by
1 percent, the total accumulated postretirement benefit obligation at December
31, 1997 and 1996 would have increased by $6.2 million and $5.7 million,
respectively. The effect of a 1 percent increase in the health care cost trend
rate assumptions on the net periodic postretirement benefit costs for 1997 and
1996 would be insignificant.
At December 31, 1997, Stone had approximately 6,900 retirees and 24,600
active employees of which approximately 3,900 and 19,900, respectively, were
employees of U.S. operations.
NOTE 10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
Senior debt:
9.875% senior notes due February 1, 2001.................................... $ 573.7 $ 573.7
10.75% first mortgage notes due October 1, 2002 (less unamortized debt
discount of $2.3 and $2.6)................................................ 497.7 497.4
Term loan (8.8% and 8.6% weighted average rates) payable
in three semiannual installments of $2.0 on April 1
and October 1 of each year through April 1, 1999, $190.0
on October 1, 1999 and $176.0 on April 1, 2000............................ 372.0 376.0
Additional term loans (9.0% and 8.9% weighted average rates) payable in ten
semiannual payments of $3.45 on April 1 and October 1 of each year through
2002, $323.1 on April 1, 2003 and $324.1 on October 1, 2003............... 681.7 387.0
Revolving credit facility (8.5% and 8.9% weighted average rates) due May 15,
1999...................................................................... 20.0 50.0
11.875% senior notes due December 1, 1998 (less unamortized debt discount of
$.3 and $.5).............................................................. 239.7 239.5
11.5% senior notes due August 15, 2006...................................... 200.0 200.0
11.5% senior notes due October 1, 2004 (less unamortized debt discount of
$1.1 and $1.2)............................................................ 198.9 198.8
12.625% senior notes due July 15, 1998...................................... 150.0 150.0
12.58% rating adjustable senior notes due August 1, 2016.................... 125.0 125.0
5.8% to 9.0% fixed rate utility systems and pollution control revenue bonds,
payable in varying annual sinking fund payments through the year 2010 and
varying principal payments through the year 2027 (less unamortized debt
discount of $4.9 and $5.7)................................................ 236.4 229.6
Floating rate receivables-backed notes (6.1% and 5.9%
weighted average rates) due December 15, 2000............................. 210.0 210.0
8.45% mortgage notes payable in monthly installments through August 1, 2007
and $68.7 million on September 1, 2007.................................... 83.0 --
4.98% to 7.96% term loans payable in varying amounts through 2004........... 31.3 23.8
Other (including obligations under capitalized leases of $9.0 and $10.5).... 34.5 45.5
-------- --------
3,653.9 3,306.3
Less: current maturities......................................................... (415.9) (36.7)
-------- --------
Total senior long-term debt................................................. 3,238.0 3,269.6
-------- --------
Subordinated debt:
10.75% senior subordinated debentures and 1.5% supplemental interest
certificates maturing on April 1, 2002.................................... 275.0 --
10.75% senior subordinated debentures maturing on April 1, 2002 (less
unamortized debt discount of $.6 and $.7)................................. 199.4 199.3
10.75% senior subordinated notes maturing on June 15, 1997.................. -- 150.0
11.0% senior subordinated notes maturing on August 15, 1999................. 119.4 119.4
8.875% convertible senior subordinated notes (convertible at $11.55 per
share) maturing on July 15, 2000 (less unamortized debt discount of $.1
and $.2).................................................................. 58.5 58.4
6.75% convertible subordinated debentures (convertible at $33.94 per share)
maturing on February 15, 2007............................................. 45.2 45.2
-------- --------
697.5 572.3
Less: current maturities......................................................... -- (150.0)
-------- --------
Total subordinated debt..................................................... 697.5 422.3
-------- --------
Non-recourse debt of consolidated affiliates:
SVCPI credit facilities (6.4% weighted average rate) payable in semiannual
installments beginning July 31, 1997 of $8.5 through July 31, 1998 and
$14.1 thereafter through January 31, 2002 with a final payment of $138.3
on December 31, 2002...................................................... -- 262.8
Other....................................................................... -- 7.4
-------- --------
-- 270.2
Less: current maturities......................................................... -- (11.0)
-------- --------
Total non-recourse debt of consolidated affiliates.......................... -- 259.2
-------- --------
Total long-term debt........................................................ $3,935.5 $3,951.1
-------- --------
-------- --------
</TABLE>
On June 19, 1997, Stone and its bank group amended and restated its credit
agreement to, among other things, provide for an additional senior secured loan
facility of $300 million (the 'E Tranche Facility'), and modify certain
financial and other covenant requirements (including the interest coverage and
indebtedness ratio requirements). The net proceeds of $295 million from the E
Tranche Facility were used to fully repay amounts outstanding under Stone's
revolving credit facilities (without a corresponding reduction in commitments)
with the remaining proceeds used for general corporate purposes. Subsequently,
on December 23, 1997 and on March 26, 1998, Stone and its bank group further
amended the credit agreement to, among other things, modify certain financial
covenant requirements. At December 31, 1997, Stone's bank credit agreement, as
amended, provides for four senior secured term loans aggregating $1,054 million
which mature through October 1, 2003 and $560 million of senior secured
revolving credit facility commitments maturing May 15, 1999 (collectively the
'Credit Agreement').
On May 28, 1997, Stone sold $275 million aggregate principal amount of
units consisting of 10 3/4 percent Senior Subordinated Debentures due 2002 and
1 1/2 percent Supplemental Interest Certificates (the 'Units Offering'). The net
proceeds from the Units Offering were approximately $269 million. Of such
proceeds, $150 million was used to repay Stone's $150 million outstanding
principal amount of 10 3/4 percent Senior Subordinated Notes due June 15, 1997
at maturity. The remaining proceeds are being used to fund capital expenditures
as incurred.
On June 12, 1997, Stone sold $14.7 million principal amount of 7.2 percent
Industrial Development Revenue Bonds due 2027. The proceeds of the bonds were
used in connection with a wastepaper project for Stone's Snowflake, Arizona
mill.
On August 29, 1997, Stone completed an $83.3 million box plant mortgage
financing having a final maturity date of September 1, 2007 and an interest rate
of 8.45 percent. The net proceeds are being used to fund capital expenditures as
incurred.
Stone's results reflect extraordinary charges from the early
extinguishments of debt of $13.3 million (net of income tax benefit of $6.5
million), $3.7 million (net of income tax benefit of $2.4 million) and $189.0
million (net of income tax benefit of $4.9 million) for 1997, 1996, and 1995,
respectively.
At December 31, 1997, the $1.08 billion of borrowings and accrued interest
outstanding under the Credit Agreement were secured by property, plant and
equipment with a net book value of $1.3 billion, by 51 percent of the stock of
its Canadian subsidiary and by a lien on certain of Stone's inventories.
Additionally, other loan agreements with a balance of $826.8 million were
collateralized by approximately $236.8 million of property, plant and
equipment -- net and by $268.9 million of cash and accounts receivable.
Stone pays a .50 percent commitment fee on the unused portions of its
revolving credit facility. The Credit Agreement contains covenants that include,
among other things, the maintenance of certain financial tests and ratios.
Unless operating results improve, Stone may be required to seek further covenant
relief from its bank group during 1998. Although no assurance can be given,
Stone believes such relief, if sought, would be granted. Additionally, the term
loan portions of the Credit Agreement provide for mandatory prepayments (absent
waiver by the lenders) from sales of certain assets, certain debt financings and
a percentage of excess cash flow (as defined). Any mandatory and voluntary
prepayments are allocated against the term loan amortizations in inverse order
of maturity. Mandatory prepayments from sales of collateral, unless replacement
collateral is provided, will be applied ratably to the term loans and revolving
credit facility, permanently reducing the loan commitments under the Credit
Agreement. The Credit Agreement also contains cross-default provisions to the
indebtedness of $10 million or more of Stone and certain subsidiaries.
Stone's various senior note indentures (the 'Senior Note Indentures')
(under which approximately $2.0 billion of debt is outstanding) state that if
Stone does not maintain a minimum Subordinated Capital Base (as defined) of $1
billion for any two successive quarters, then Stone will be required to
semi-annually offer to purchase 10 percent of such outstanding indebtedness at
par until the minimum Subordinated Capital Base is again attained. In the event
that Stone's Credit Agreement does not permit the offer to repurchase, then
Stone will be required to increase the interest rates on the notes outstanding
under the Senior Note Indentures by 50 basis points per quarter up to a maximum
of 200 basis points until the minimum Subordinated Capital Base is attained.
Stone's Subordinated Capital Base was $898.6 million at December 31, 1997, and
will remain below the required level at March 31, 1998. Stone's senior
subordinated indenture dated March 15, 1992 (the 'Senior Subordinated
Indenture') (under which approximately $594 million of debt was outstanding at
December 31, 1997) states that if Stone does not maintain $500 million of Net
Worth (as defined) for any two successive quarters, Stone will be required to
increase the interest rate on indebtedness outstanding under the Senior
Subordinated Indentures by 50 basis points per quarter up to a maximum amount
of 200 basis points. Stone's Net Worth was $378.4 million at December 31, 1997
and will remain below the required level at March 31, 1998. There can be no
assurance that Stone can achieve or maintain the minimum Subordinated Capital
Base or required Net Worth in the future.
Stone has an accounts receivable securitization program whereby Stone
Receivables Corporation purchases, on an ongoing basis, certain of the accounts
receivable of Stone. The purchased accounts receivable are solely the assets of
Stone Receivables Corporation, which is a wholly owned but separate corporate
entity of Stone with its own separate creditors. In the event of a liquidation
of Stone Receivables Corporation, such creditors would be entitled to satisfy
their claims from Stone Receivables Corporation prior to any distribution to
Stone. At December 31, 1997, Stone's Consolidated Balance Sheet included $228
million of Stone Receivables Corporation accounts receivable under the program
and $210 million of borrowings under the program. At December 31, 1996, Stone's
Consolidated Balance Sheet included $213 million of Stone Receivables
Corporation accounts receivable under the program and $210 million of borrowings
under the program.
The amounts of long-term debt outstanding at December 31, 1997 maturing
during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1998............................................................................ $ 412.2
1999............................................................................ 354.3
2000............................................................................ 464.8
2001............................................................................ 604.1
2002............................................................................ 1,002.8
Thereafter...................................................................... 1,504.2
</TABLE>
Amounts payable under capitalized lease agreements are excluded from the
above tabulation. See Note 12 -- 'Long-term Leases' for capitalized lease
maturities.
Stone's liquidity and financial flexibility has been adversely impacted by
the net losses and insufficient operating cash flows generated during the past
two years. On October 27, 1997, Stone announced its intent to, among other
things, sell its ownership interest in Stone-Canada which at the time of sale
would include its 25.2% ownership interest in Abitibi-Consolidated, its 50%
interest in MacMillan-Bathurst and its wholly-owned pulp mill located at
Portage-du-Fort, Quebec. If completed, this transaction would provide a
significant amount of cash to Stone which would be used to repay debt.
Additionally, Stone announced its intent to also sell or monetize certain other
of its assets (including its remaining pulp operations) with any proceeds
received therefrom to also be applied towards debt reduction. While Stone
currently believes that these sales and/or monetizations will be consummated, no
assurance can be given that such asset sales or monetizations will be completed.
Stone's debt agreements require that proceeds from asset sales be used only for
debt reduction.
Stone's ability to incur additional indebtedness and refinance its 1998
debt maturities is significantly limited under Stone's debt agreements. Stone
has debt amortizations of $412 million of principal plus interest of
approximately $450 million (at current debt and interest-rate levels) due in
1998 and has significant annual debt service requirements beyond 1998. These
1998 debt amortizations include $150 million of 12 5/8% Senior Notes due July
15, 1998 and $240 million of 11 7/8% Senior Notes due December 1, 1998.
It is expected that Stone will continue to incur losses unless prices for
Stone's products substantially improve. Without achieving price increases and
sustaining such levels in the future, Stone's cash resources and borrowing
availability under the existing revolving credit facilities could be utilized,
thereby reducing such sources of liquidity. While pricing for certain of Stone's
products has improved slightly over 1997 year end levels, Stone will report a
first quarter 1998 net loss. Stone's primary capital requirements consist of
debt service and capital expenditures, including capital investment for
compliance with certain environmental legislation requirements and ongoing
maintenance expenditures and improvements. Stone is highly leveraged and as a
result incurs substantial ongoing interest expense.
Besides the 1998 debt service requirements previously mentioned, Stone, based
upon indebtedness outstanding at December 31, 1997, will be required to make
debt principal repayments of approximately $354 million in 1999, $465 million in
2000 and $604 million in 2001. In the event that operating cash flows, proceeds
from any asset sales, borrowing availability under its revolving credit
facilities or from other financing sources do not provide sufficient liquidity
for Stone to meet its obligations including its debt service requirements, Stone
will be required to pursue other alternatives to repay indebtedness and improve
liquidity, including cost reductions, deferral of certain discretionary capital
expenditures and seeking amendments to its debt agreements. No assurances can be
given that such measures, if required, would generate the liquidity required by
Stone to operate its business and service its obligations.
NOTE 11. FINANCIAL INSTRUMENTS
The carrying values and fair values of Stone's financial instruments at
December 31, 1997 and 1996 are listed below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1996
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Notes receivable and long-term investments.............. $ 117.3 $ 108.7 $ 147.8 $ 136.7
Indebtedness............................................ 4,342.4 4,415.5 4,138.3 4,246.1
Interest rate swaps in payable position................. (0.2) (4.1) (0.1) (9.8)
</TABLE>
The fair values of notes receivable and certain investments are based on
discounted future cash flows or the applicable quoted market price. The fair
value of Stone's debt is estimated based on the quoted market price for the same
or similar issues. The fair value of interest-rate swap agreements are obtained
from dealer quotes. These values represent the estimated amount Stone would pay
to terminate agreements, taking into consideration the current interest rate and
market conditions. These financial instruments are not held for trading
purposes.
Stone is party to two interest-rate swap contracts with a duration of five
and ten years to manage interest rate exposures on $250 million of certain fixed
rate indebtedness. The separate contracts have the effect of converting the
fixed rate of interest into a floating interest rate on $100 million of the
9 7/8 percent Senior Notes and on $150 million of the 11 1/2 percent Senior
Notes. These interest-rate swap contracts were entered into in order to balance
Stone's fixed-rate and floating-rate debt portfolios. Under the interest-rate
swaps, Stone agrees with the other party to exchange, at specified intervals,
the difference between fixed-rate and floating-rate interest amounts calculated
by reference to an agreed notional principal amount. The interest rate swaps
decreased Stone's 1996 interest expense by $.3 million and increased Stone's
interest expense by $.2 million and $.9 million in 1997 and 1995, respectively.
While Stone is exposed to credit loss on its interest-rate swaps in the event of
nonperformance by the counterparties to such swaps, management believes that
such nonperformance is unlikely to occur given the financial resources of the
counterparties.
The following table indicates the weighted average receive rate and pay
rate during 1997 relating to the interest-rate swaps outstanding at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Interest-rate swap-notional amount (in millions).................................. $150.0 $150.0
Average receive rate (fixed by contract terms)............................... 5.7% 5.7%
Average pay rate............................................................. 5.7% 5.5%
Interest-rate swap-notional amount (in millions).................................. $100.0 $100.0
Average receive rate (fixed by contract terms)............................... 5.6% 5.6%
Average pay rate............................................................. 5.8% 5.6%
</TABLE>
The average pay rate for both interest-rate swaps is the six-month LIBOR.
NOTE 12. LONG-TERM LEASES
Stone leases certain of its facilities and equipment under leases expiring
through the year 2023.
Future minimum lease payments under capitalized leases and their present
value at December 31, 1997 and future minimum rental commitments (exclusive of
real estate taxes and other expenses) under operating leases having initial or
remaining non-cancellable terms in excess of one year are reflected below:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
(IN MILLIONS)
<S> <C> <C>
1998............................................................................ $ 4.0 $ 87.6
1999............................................................................ 2.5 75.4
2000............................................................................ 1.1 61.0
2001............................................................................ 0.9 51.6
2002............................................................................ 0.4 43.4
Thereafter...................................................................... 1.6 163.3
----------- ---------
Total minimum lease payments............................................... 10.5 $ 482.3
---------
---------
Less: Imputed interest.......................................................... 1.5
-----------
Present value of future minimum lease payments.................................. $ 9.0
-----------
-----------
</TABLE>
Rent expense for operating leases, including leases having a duration of
less than one year, was approximately $114 million in 1997, $108 million in 1996
and $103 million in 1995.
NOTE 13. PREFERRED STOCK
Stone has authorized 10 million shares of Preferred Stock. At December 31,
1997, Stone has issued and outstanding 4.6 million shares of $1.75 Series E
Cumulative Convertible Exchangeable Preferred Stock (the 'Series E Cumulative
Preferred Stock'), $.01 par value. Shares of preferred stock can be issued in
series with varying terms as determined by the Stone Board. Dividends on the
Series E Cumulative Preferred Stock are payable quarterly when declared by the
Stone Board. The Series E Cumulative Preferred Stock is convertible, at the
option of the holder at any time, into shares of Stone's common stock at a
conversion price of $33.94 per share of common stock, subject to adjustment
under certain conditions. The Series E Cumulative Preferred Stock may
alternatively be exchanged, at the option of Stone, for Stone's 7 percent
Convertible Subordinated Exchange Debentures due February 15, 2007 in a
principal amount equal to $25.00 per share of Series E Cumulative Preferred
Stock so exchanged. Additionally, the Series E Cumulative Preferred Stock is
redeemable at the option of Stone, in whole or from time to time in part,
commencing February 16, 1996.
Stone paid cash dividends of $.4375 per share on the Series E Cumulative
Preferred Stock in 1997, $1.75 per share in 1996 and $2.625 per share in 1995.
The declaration of dividends by the Board of Directors is subject to, among
other things, certain restrictive provisions contained in Stone's Credit
Agreement, Senior Note Indentures and Senior Subordinated Indenture. Due to
these restrictive provisions, Stone cannot declare or pay dividends on its
Series E Cumulative Preferred Stock or common stock until Stone generates
income or issues capital stock to replenish the dividend pool under various of
its debt instruments and Net Worth (as defined) equals or exceeds $750 million.
At December 31, 1997, the dividend pool under the Senior Subordinated Indenture
(which contains the most restrictive dividend pool provision) had a deficit of
approximately $338 million and Net Worth (as defined) was $378.4 million. In
the event six quarterly dividends remain unpaid on the Series E Cumulative
Preferred Stock, the holders of the Series E Cumulative Preferred Stock would
have the right to elect two members to Stone's Board of Directors until the
accumulated dividends on such Series E Cumulative Preferred Stock have been
declared and paid or set apart for payment. At December 31, 1997 Stone had
accumulated dividend arrearages on the Series E Cumulative Preferred Stock of
$6 million, which represents three consecutive quarters for which dividends
have not been paid.
NOTE 14. COMMON STOCK
Stone has authorized 200,000,000 shares of common stock, $.01 par value, of
which 99,324,328 shares were outstanding at December 31, 1997.
In 1995, Stone issued approximately 8.5 million shares of common stock
related to the extinguishment of debt.
Stone has restrictions on the payment of cash dividends on its common stock
under certain of Stone's Indentures and under its Credit Agreement. Due to these
restrictions Stone cannot pay common stock cash dividends until Stone generates
income or issues capital stock to replenish the dividend pool under various of
its debt instruments and Net Worth (as defined) equals or exceeds $750 million.
Additionally, common stock cash dividends cannot be declared and paid in the
event accumulated preferred stock dividend arrearages exist. See also Note 13.
Stone paid cash dividends of $0.60 and $0.30 per share on its common stock in
1996 and 1995, respectively.
Stock Rights:
Each outstanding share of Stone's common stock carries a stock purchase
right ('Right'). Each Right entitles the holder to purchase from Stone one
one-hundredth of a share of Series D Junior Participating Preferred Stock, par
value $.01 per share, at a purchase price of $130 subject to adjustment under
certain circumstances. The Rights expire August 8, 1998 unless extended or
earlier redeemed by Stone.
The Rights will be exercisable only if a person or group, subject to
certain exceptions, acquires 15 percent or more of Stone's common stock or
announces a tender offer, the consummation of which would result in ownership by
such person or group of 15 percent or more of Stone's common stock. Stone can
redeem the Rights at the rate of $.01 per Right at any time before the tenth
business day (subject to extension) after a 15 percent position is acquired.
If Stone is acquired in a merger or other business combination transaction,
each Right will entitle its holder (other than the acquiring person or group) to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's shares of common stock having a market value at that time of twice the
Right's then-current exercise price.
In addition, in the event that a 15 percent or greater stockholder acquires
Stone by means of a reverse merger in which Stone and its common stock survive,
or engages in self-dealing transactions with Stone, each holder of a Right
(other than the acquiring person or group) will be entitled to purchase the
number of shares of Stone's common stock having a market value of twice the
then-current exercise price of the Right.
Stock Ownership and Option Plans:
Stone's stockholders approved a Stock Option Plan, effective January 1,
1993 (the '1993 Plan'), which authorized 1,530,000 shares of common stock and
provided for the issuance of either incentive stock options or non-qualified
stock options for the purchase of common shares at prices not less than 100
percent of the market value of such shares on the date of grant. Options
granted under the 1993 Plan are exercisable, in whole or in part, after one
year but no later than ten years from the date of the respective grant. On May
9, 1995, the stockholders approved the 1995 Long-term Incentive Plan (the '1995
Plan') which permits Stone to issue incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock, bonus stock and
performance shares. Under the 1995 Plan, the annual amount of common stock
available for grant, other than for incentive stock options, will be limited to
1 1/2 percent of the outstanding shares of common stock as of the beginning of
each year plus a carryover from prior years if such 1 1/2 percent is not
granted. In no event shall any stock options be exercised later than ten years
from the respective grant date.
Transactions under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE
OPTION SHARES PER SHARE
------------- ----------------
<S> <C> <C>
Outstanding January 1, 1995............................................. 1,043,812 $ 8.74 - 29.29
Granted............................................................ 1,037,900 18.00 - 22.13
Exercised.......................................................... (134,860) 8.74 - 21.20
Canceled........................................................... (49,890) 13.38 - 29.29
------------- ----------------
Outstanding December 31, 1995........................................... 1,896,962 13.38 - 29.29
Granted............................................................ 1,980,721 13.38
Exercised.......................................................... (30,000) 13.38
Canceled........................................................... (97,147) 13.38 - 29.29
------------- ----------------
Outstanding December 31, 1996........................................... 3,750,536 13.38 - 29.29
Granted............................................................ 1,296,706 14.00
Exercised.......................................................... (12,500) 13.38
Canceled........................................................... (247,644) 13.38 - 29.29
------------- ----------------
Outstanding December 31, 1997........................................... 4,787,098 13.38 - 29.29
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
OPTION PRICE
OPTION SHARES PER SHARE
------------- ----------------
<S> <C> <C>
Options exercisable at December 31,
1997............................................................... 1,599,482 13.38 - 29.29
1996............................................................... 1,003,890 13.38 - 29.29
1995............................................................... 881,262 13.38 - 29.29
Options available for grant at December 31,
1997............................................................... 1,085,288
1996............................................................... 805,932
1995............................................................... 1,227,066
</TABLE>
Stone's previous Long-term Incentive Plan, which had been adopted in 1992
(the '1992 Plan') and provided for contingent awards of restricted shares of
common stock and cash to certain key employees, was replaced by the 1995 Plan.
The payment of the cash portion of awards granted under the 1992 Plan will
depend on the extent to which Stone has met certain long-term performance goals
as established by a committee of outside directors. The compensation related to
this program is amortized over the related five-year restricted periods. Under
the 1992 Plan, 1,800,000 shares had been reserved for issuance, of which 133,176
shares were granted in 1995.
Stone applies APB Opinion No. 25, 'Accounting for Stock Issued to
Employees,' and related Interpretations in accounting for its plans.
Accordingly, no recognition is given to stock options until they are exercised,
at which time the option price received is credited to common stock. The charge
to compensation cost related to the restricted shares was $1.2 million, $1.5
million, and $3.8 million for 1997, 1996 and 1995, respectively. In 1996, prior
cash awards that were accrued have been deemed to be not payable because of the
financial results of Stone.
Effective January 1, 1996, Stone adopted Statement of Financial Accounting
Standards No. 123, 'Accounting for Stock-Based Compensation' ('SFAS 123'), by
electing to continue to apply the intrinsic value-based method of accounting
for stock-based compensation. Had compensation cost been determined on the
basis of fair value pursuant to SFAS 123, net income and earnings per share
would have been reduced as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net income (loss) -- as reported......................................... $(417.7) $(126.2) $255.5
Net income (loss) -- pro forma........................................... (422.7) (130.0) 254.2
Basic earnings (loss) per share -- as reported........................... (4.29) (1.35) 2.63
Basic earnings (loss) per share -- pro forma............................. (4.34) (1.39) 2.61
Diluted earnings (loss) per share -- as reported......................... (4.29) (1.35) 2.24
Diluted earnings (loss) per share -- pro forma........................... (4.34) (1.39) 2.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected life (years)......................................................... 7 6 6
Expected volatility........................................................... 51.0% 47.0% 47.0%
Risk-free interest rate....................................................... 6.6% 5.5% 7.2%
Expected dividend yield....................................................... 4.2% 4.2% 4.2%
</TABLE>
The weighted average estimated fair value of each employee stock option
granted during fiscal 1997, 1996 and 1995 was $5.59, $4.81 and $7.36,
respectively.
NOTE 15. RELATED PARTY TRANSACTIONS
Stone sold paperboard, market pulp and fiber to and purchased
containerboard and kraft paper from various non-consolidated affiliates. Such
transactions were primarily at market prices. Stone paid a commission fee to
Abitibi-Consolidated pursuant to a sales agency agreement expiring December 31,
2004 and paid fees for services rendered by Abitibi-Consolidated. Stone also
received commissions and management fees from SVCPI for services rendered. The
amounts included in the table below include transactions with
Abitibi-Consolidated since November 1, 1995, with Florida Coast since June 1,
1996, with S&G since July 12, 1996 and with SVCPI since July 1, 1997.
The following table summarizes Stone's related party transactions with its
non-consolidated affiliates for each year presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales to/(purchases from).................................... $103.1 $183.0 $211.2
Net receivable from/(payable to)................................. 54.7 45.9 40.5
Net commissions and fees payable for services
received/rendered.............................................. 8.6 10.4 2.3
</TABLE>
Stone had outstanding loans and interest receivable from non-consolidated
affiliates of approximately $108.4 million and $48.6 million at December 31,
1997 and 1996, respectively. Additionally at December 31, 1997 and 1996, Stone
held $40 million Convertible Debt securities of Financiere Carton Papier ('FCP')
a non-consolidated affiliate of Stone. The securities are not convertible into
FCP common stock until March 1999. If Stone converted the securities into FCP
common stock, Stone would own approximately 80 percent of the outstanding shares
of FCP.
NOTE 16. ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Other (Income) Expense, Net:
The major components of other (income) expense-net are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Interest income................................................... $(16.0) $(16.1) $(15.5)
Foreign currency transaction (gains) losses....................... 10.7 0.5 (8.1)
(Gains) losses on sales of investments or assets.................. (1.2) 5.4 --
Other............................................................. (5.5) (5.6) (9.5)
------ ------ ------
Total other (income) expense-net.................................. $(12.0) $(15.8) $(33.1)
------ ------ ------
------ ------ ------
</TABLE>
Interest Expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Total interest cost incurred................................................ $460.3 $425.2 $473.5
Interest capitalized........................................................ (3.2) (11.7) (13.2)
------ ------ ------
Interest expense............................................................ $457.1 $413.5 $460.3
------ ------ ------
------ ------ ------
</TABLE>
Provision for Doubtful Accounts and Notes Receivable:
Selling, general and administrative expenses include provisions for
doubtful accounts and notes receivable of $3.3 million for 1997, $5.5 million
for 1996 and $6.7 million for 1995.
Assets Held for Sale:
Stone has ceased operations of certain non-core wood products facilities
and is liquidating such assets as appropriate opportunities are presented. These
net assets, which are included in other current assets in the Consolidated
Balance Sheets, aggregated approximately $12 million and $20 million at
December 31, 1997 and 1996, respectively.
Insurance Receivable:
As a result of the 1994 Panama City, Florida digester accident, Stone is
seeking recovery from its insurance carriers for both the losses to property and
the losses as result of business interruption. A partial recovery of
approximately $31 million has been received by Stone from certain carriers,
claims of approximately $9 million have been committed to be paid and claims of
approximately $43 million covering the remaining portion of such losses are
still pending.
Long-term Note Receivable:
Stone had a net receivable from a domestic customer of approximately $52
million and $58 million at December 31, 1997 and 1996, respectively. Of these
amounts, approximately $38 million and $44 million, respectively, are included
in other long-term assets with the remaining amounts reflected in accounts and
notes receivable in Stone's Consolidated Balance Sheets.
Accrued and Other Current Liabilities:
The major components of accrued and other current liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Accrued interest.................................................................. $103.7 $ 93.4
Accrued payroll, related taxes and employee benefits.............................. 75.2 70.8
Other............................................................................. 139.7 137.5
------ ------
Total accrued and other current liabilities....................................... $318.6 $301.7
------ ------
------ ------
</TABLE>
Other Long-term Liabilities:
Included in other long-term liabilities at December 31, 1997 and 1996 is
approximately $31 million and $36 million, respectively, of deferred income
relating to the October 1992 sale of an energy contract at Stone's Hopewell
mill. This amount is being amortized over a 12-year period.
NOTE 17. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, Stone had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $26 million.
Stone's operations are subject to extensive environmental regulation by
federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. Stone has in the past
made significant capital expenditures to comply with water, air and solid and
hazardous waste regulations and expects to make significant expenditures in the
future. Capital expenditures for environmental control equipment and facilities
were approximately $24 million in 1997, and Stone anticipates that 1998 and 1999
environmental capital expenditures will approximate $18 million and $50 million,
respectively. The majority of the 1999 expenditures relate to the amounts that
Stone currently anticipates will be required to comply with the 'cluster rules'
described in 'Environmental Issues' of the MD&A. Although capital expenditures
for environmental control equipment and facilities and compliance costs in
future years will depend on legislative and technological developments that
cannot be predicted at this time, Stone anticipates that these costs will
increase due to the 'cluster rules' and as other environmental regulations
become more stringent. See also 'Environmental Issues' of the MD&A for further
environmental matters.
Refer to Notes 10, 11 and 12 for further discussion of Stone's debt,
hedging and lease commitments.
Additionally, Stone is involved in certain litigation primarily arising in
the normal course of business. In the opinion of management, Stone's liability
under any pending litigation would not materially affect its financial
condition, results of operations or liquidity.
NOTE 18. SEGMENT AND GEOGRAPHIC INFORMATION
Business Segments:
As a result of the November 1995 de-consolidation of Stone-Consolidated
(see Note 2) and the integrated nature of Stone's principal consolidated
operations, Stone now operates in a single business -- the production and sale
of commodity pulp, paper and packaging products. Accordingly, business segment
reporting is no longer presented.
Financial information by business segment for 1995 is summarized as
follows:
<TABLE>
<CAPTION>
DEPRECIATION
AND CAPITAL
SALES INCOME (LOSS)(1) AMORTIZATION ASSETS EXPENDITURES
-------- ---------------- ------------ -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1995
Paperboard and paper
packaging........... $5,405.8 $ 943.6 $203.5 $3,536.2 $198.3
White paper and
other............... 2,010.6 367.7 158.4 1,347.2 183.2
Intersegment
sales(4)............ (65.2)
-------- ---------------- ------------ -------- ------------
7,351.2 1,311.3 361.9 4,883.4 381.5
Interest expense...... (460.3)
Foreign currency
gains............... 8.1
General corporate..... (64.4)(2) 9.9 1,515.5(3) 5.0
-------- ---------------- ------------ -------- ------------
Total................. $7,351.2 $ 794.7 $371.8 $6,398.9 $386.5
-------- ---------------- ------------ -------- ------------
-------- ---------------- ------------ -------- ------------
</TABLE>
- ------------
(1) Income (loss) before taxes, minority interest and extraordinary charges.
(2) Included equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: Paperboard and paper packaging segment
$4.2 and White paper and other segment $15.7.
(3) Included investments in non-consolidated vertically integrated affiliates as
follows: Paperboard and paper packaging segment $85.8 and White paper and
other segment $1,010.4.
(4) Intersegment sales were accounted for at transfer prices which approximate
market prices.
Geographic Segments:
The table below provides financial information for Stone's operations based
on the region in which the operations are located.
<TABLE>
<CAPTION>
TRADE SALES INTER-AREA SALES TOTAL SALES INCOME (LOSS)(3) ASSETS
----------- ---------------- ----------- ---------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1997
United States...................... $ 3,969.5 $ 51.1 $ 4,020.6 $ (0.7) $2,951.7
Canada............................. 291.8 54.6 346.4 7.2 781.4
Europe and other................... 587.8 -- 587.8 21.1 628.7
----------- -------- ----------- ---------------- --------
4,849.1 105.7 4,954.8 27.6 4,361.8
Interest expense................... (457.1)
Foreign currency transaction
losses........................... (10.7)
General corporate.................. (164.9)(1) 1,462.3(2)
Inter-area eliminations............ (105.7) (105.7)
----------- -------- ----------- ---------------- --------
Total.............................. $ 4,849.1 -- $ 4,849.1 $ (605.1) $5,824.1
----------- -------- ----------- ---------------- --------
----------- -------- ----------- ---------------- --------
1996
United States...................... $ 4,223.5 $ 33.0 $ 4,256.5 $ 243.7 $2,961.2
Canada............................. 309.6 54.5 364.1 (15.1) 916.4
Europe and other................... 608.7 -- 608.7 15.9 669.8
----------- -------- ----------- ---------------- --------
5,141.8 87.5 5,229.3 244.5 4,547.4
Interest expense................... (413.5)
Foreign currency transaction
losses........................... (0.5)
General corporate.................. (19.6)(1) 1,806.4(2)
Inter-area eliminations............ (87.5) (87.5) --
----------- -------- ----------- ---------------- --------
Total.............................. $ 5,141.8 $ -- $ 5,141.8 $ (189.1) $6,353.8
----------- -------- ----------- ---------------- --------
----------- -------- ----------- ---------------- --------
1995
United States...................... $ 5,238.7 $ 46.1 $ 5,284.8 $ 941.9 $3,313.4
Canada............................. 1,276.8 60.2 1,337.0 334.3 942.5
Europe and other................... 835.7 -- 835.7 35.1 627.5
----------- -------- ----------- ---------------- --------
7,351.2 106.3 7,457.5 1,311.3 4,883.4
Interest expense................... (460.3)
Foreign currency transaction
gains............................ 8.1
General corporate.................. (64.4)(1) 1,515.5(2)
Inter-area eliminations............ (106.3) (106.3) --
----------- -------- ----------- ---------------- --------
Total.............................. $ 7,351.2 $ -- $ 7,351.2 $ 794.7 $6,398.9
----------- -------- ----------- ---------------- --------
----------- -------- ----------- ---------------- --------
</TABLE>
- ------------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: United States $(25.0) in 1997, $(2.0) in
1996 and $3.5 in 1995; Canada $(34.3) in 1997, $74.5 in 1996 and $28.6 in
1995; and other $(11.5) 1997, $(9.3) in 1996 and $(12.2) in 1995.
(2) Includes investments in non-consolidated vertically integrated affiliates as
follows: United States $33.1 in 1997, $37.4 in 1996 and $9.8 in 1995; Canada
$777.6 in 1997, $1,077.9 in 1996 and $1,022.3 in 1995; and other $67.4 in
1997, $69.8 in 1996 and $64.1 in 1995.
(3) Income (loss) before taxes, minority interest and extraordinary charges.
Stone's export sales from the United States were approximately $548
million, $470 million and $839 million for 1997, 1996 and 1995, respectively. Of
the 1997 export sales, approximately 42% and 34% were made to Europe and Asia,
respectively.
NOTE 19. SUMMARY OF QUARTERLY DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH(1) YEAR
-------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
1997
Net sales............................................... $1,180.8 $1,200.2 $1,182.8 $1,285.3 $4,849.1
Cost of products sold................................... 986.8 1,016.7 998.3 1,067.7 4,069.6
Depreciation and amortization........................... 78.5 81.0 73.9 68.3 301.7
Loss before extraordinary charges....................... (96.7) (107.4) (98.7) (101.6) (404.4)
Extraordinary charges from early extinguishments of
debt.................................................. -- (13.3) -- -- (13.3)
-------- -------- -------- -------- --------
Net loss................................................ (96.7) (120.7) (98.7) (101.6) (417.7)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share of common stock -- basic and diluted:
Loss before extraordinary charges.................. (0.99) (1.10) (1.01) (1.04) (4.16)
Extraordinary charges from early extinguishments of
debt............................................. -- (0.13) -- -- (0.13)
-------- -------- -------- -------- --------
Net loss -- basic and diluted...................... (0.99) (1.23) (1.01) (1.04) (4.29)
-------- -------- -------- -------- --------
Cash dividends per common share.................... $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1996
Net sales.......................................... $1,321.5 $1,282.3 $1,295.1 $1,242.9 $5,141.8
Cost of products sold.............................. 972.2 1,013.0 1,037.1 1,063.1 4,085.4
Depreciation and amortization...................... 79.0 79.0 78.2 78.6 314.8
Income (loss) before extraordinary charges......... 32.4 (21.1) (47.7) (86.1) (122.5)
Extraordinary charges from early extinguishments of
debt............................................. -- -- (3.3) (0.3) (3.7)
-------- -------- -------- -------- --------
Net income (loss).................................. 32.4 (21.1) (51.0) (86.4) (126.2)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share of common stock -- basically
Income (loss) before extraordinary charges......... 0.31 (0.23) (0.50) (0.89) (1.32)
Extraordinary charges from early extinguishments of
debt............................................. -- -- (0.03) -- (0.03)
-------- -------- -------- -------- --------
Net income (loss) -- basic......................... 0.31 (0.23) (0.53) (0.89) (1.35)
-------- -------- -------- -------- --------
Net income (loss) -- diluted....................... 0.30 (0.23) (0.53) (0.89) (1.35)
-------- -------- -------- -------- --------
Cash dividends per common share.................... $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.60
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------
(1) Stone's fourth quarter 1997 results were adversely impacted by foreign
currency transaction losses of $26 million, net of tax, or $.26 per common
share. Approximately $22 million of this charge represents Stone's share of
foreign currency transaction losses incurred by certain of Stone's non-
consolidated Canadian affiliates which are accounted for under the equity
method of accounting.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Stone Container Corporation
Our audits of the consolidated financial statements referred to in our
report dated March 26, 1998, appearing in this Registration Statement on Form
S-4 also included an audit of the Financial Statement Schedule immediately
following this report. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 26, 1998
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------------------- ------------ ---------------- ---------- --------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------- ------------ ---------------- ---------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and notes and sales
returns and allowances:
Year ended December 31, 1997.................. $ 24.3 $ 12.0 $ 8.5 $ 27.8
Year ended December 31, 1996.................. $ 22.1 $ 14.9 $ 12.7 $ 24.3
Year ended December 31, 1995.................. $ 20.2 $ 14.6 $ 12.7 $ 22.1
</TABLE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998* DECEMBER 31, 1997
-------------- -----------------
UNAUDITED
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 109.5 $ 112.6
Accounts and notes receivable (less allowances of $28.2 and $27.8)....... 684.8 652.7
Inventories.............................................................. 734.0 716.0
Other.................................................................... 137.8 114.4
-------------- -----------------
Total current assets................................................ 1,666.1 1,595.7
-------------- -----------------
Property, plant and equipment................................................. 4,891.9 4,857.3
Accumulated depreciation and amortization..................................... (2,577.7) (2,479.8)
-------------- -----------------
Property, plant and equipment -- net.......................................... 2,314.2 2,377.5
Timberlands................................................................... 47.6 49.6
Goodwill...................................................................... 451.0 444.0
Investment in non-consolidated affiliates..................................... 844.0 878.1
Other......................................................................... 383.0 479.2
-------------- -----------------
Total assets........................................................ $ 5,705.9 $ 5,824.1
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 323.5 $ 327.9
Current maturities of long-term debt..................................... 638.5 415.9
Income taxes............................................................. 22.7 26.6
Accrued and other current liabilities.................................... 326.0 318.6
-------------- -----------------
Total current liabilities........................................... 1,310.7 1,089.0
-------------- -----------------
Senior long-term debt......................................................... 3,201.6 3,238.0
Subordinated debt............................................................. 697.4 697.5
Non-recourse debt of consolidated affiliates.................................. 9.9 --
Other long-term liabilities................................................... 339.1 306.7
Deferred taxes................................................................ 129.5 216.0
Commitments and contingencies (Note 12).......................................
Stockholders' equity:
Series E preferred stock................................................. 115.0 115.0
Common stock (99.9 and 99.3 shares outstanding).......................... 974.0 966.3
Accumulated deficit...................................................... (705.2) (479.5)
Accumulated other comprehensive income................................... (365.9) (324.6)
Unamortized expense of restricted stock plan............................. (0.2) (0.3)
-------------- -----------------
Total stockholders' equity.......................................... 17.7 276.9
-------------- -----------------
Total liabilities and stockholders' equity.......................... $ 5,705.9 $ 5,824.1
-------------- -----------------
-------------- -----------------
</TABLE>
- ------------
* Unaudited; subject to year-end audit.
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales............................................................................. $2,539.2 $2,381.1
Cost of products sold................................................................. 2,086.5 2,003.6
Selling, general and administrative expenses.......................................... 293.1 287.5
Depreciation and amortization......................................................... 135.9 159.6
Equity loss from affiliates........................................................... 35.7 23.2
Other(income)expense-net.............................................................. 47.0 (3.8)
-------- --------
Loss before interest expense, income taxes, minority interest and extraordinary
charges............................................................................. (59.0) (89.0)
Interest expense...................................................................... (237.3) (226.1)
-------- --------
Loss before income taxes, minority interest and extraordinary charges................. (296.3) (315.1)
Credit for income taxes............................................................... 71.1 111.0
Minority interest..................................................................... (0.1) --
-------- --------
Loss before extraordinary charges..................................................... (225.3) (204.1)
Extraordinary charges from early extinguishment of debt (net of income tax benefit)... (0.4) (13.3)
-------- --------
Net loss.............................................................................. (225.7) (217.4)
Preferred stock dividends............................................................. (4.0) (4.0)
-------- --------
Net loss applicable to common shares.................................................. $ (229.7) $ (221.4)
-------- --------
-------- --------
Accumulated deficit, beginning of period.............................................. $ (479.5) $ (51.5)
Net loss.............................................................................. (225.7) (217.4)
Cash dividends on common and preferred stock.......................................... (2.0)
-------- --------
Accumulated deficit, end of period.................................................... $ (705.2) $ (270.9)
-------- --------
-------- --------
Per share of common stock:
Loss before extraordinary charges -- Basic/Diluted............................... $ (2.30) $ (2.10)
Extraordinary charges from early extinguishment of debt.......................... -- $ (0.13)
-------- --------
Net loss -- Basic/Diluted........................................................ $ (2.30) $ (2.23)
-------- --------
Cash dividends................................................................... -- --
-------- --------
-------- --------
Common shares outstanding(weighted average, in millions)......................... 99.7 99.3
-------- --------
-------- --------
</TABLE>
- ------------
* Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................................. $(225.7) $(217.4)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................ 135.9 159.6
Deferred taxes....................................................................... (83.0) (120.8)
Foreign currency transaction losses (gains).......................................... 8.5 3.6
Equity loss from affiliates.......................................................... 35.7 23.2
Write-off investments in SVCPI....................................................... 53.5 --
Extraordinary charges from early extinguishment of debt.............................. 0.4 13.3
Other -- net......................................................................... 32.1 41.8
CHANGES IN CURRENT ASSETS AND LIABILITIES NET OF ADJUSTMENTS FOR AN ACQUISITION AND A
DISPOSITION:
(Increase) decrease in accounts and notes receivable net............................. 2.3 (52.6)
(Increase) decrease in inventories................................................... (17.0) 31.5
(Increase) decrease in other current assets.......................................... (15.7) 0.2
Increase (decrease) in accounts payable and other current liabilities................ (4.4) (81.2)
------- -------
Net cash used in operating activities................................................ (77.4) (198.8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on debt..................................................................... (65.0) (431.1)
Payments by consolidated affiliates on non-recourse debt.................................. -- (12.9)
Borrowings................................................................................ 244.0 804.2
Proceeds from issuance of common stock.................................................... 2.4 --
Cash dividends............................................................................ -- (2.0)
------- -------
Net cash provided by financing activities................................................. 181.4 358.2
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (67.6) (58.0)
Proceeds from sales of assets............................................................. 1.4 3.1
Investments in and advances to affiliates, net............................................ (48.3) (8.9)
Other -- net.............................................................................. 8.0 (27.1)
------- -------
Net cash used in investing activities..................................................... (106.5) (90.9)
------- -------
Effect of exchange rate changes on cash................................................... (0.6) (2.4)
------- -------
Net increase (decrease) in cash and cash equivalents...................................... (3.1) 66.1
Cash and cash equivalents, beginning of period............................................ 112.6 112.6
------- -------
Cash and cash equivalents, end of period.................................................. $ 109.5 $ 178.7
------- -------
------- -------
</TABLE>
- ------------
* See Note 11 regarding supplemental cash flow information.
* Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission ('SEC') for Form 10-Q, the financial statements, footnote disclosures
and other information normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed.
These financial statements, footnote disclosures and other information should be
read in conjunction with the financial statements and the notes thereto included
in Stone Container Corporation's ('Stone's') latest Annual Report on Form 10-K,
as amended by a Form 10-K/A. In the opinion of Stone, the accompanying unaudited
consolidated financial statements contain all normal recurring adjustments
necessary to fairly present Stone's financial position as of June 30, 1998 and
the results of operations and cash flows for the six month period ended June 30,
1998 and 1997.
NOTE 2. RECLASSIFICATIONS
Certain prior year amounts have been restated to conform with the current
year presentation in the Consolidated Balance Sheets and in the Statements of
Operations and Accumulated Deficit.
NOTE 3. PENDING MERGER
On May 10, 1998, Stone agreed to merge (the 'Merger') with a subsidiary of
Jefferson Smurfit Corporation ('JSC'), a U.S. integrated manufacturer of
paperboard, paper and packaging products. The terms of the Merger are set forth
in an Agreement and Plan of Merger (the 'Merger Agreement'), dated as of May 10,
1998, among JSC, JSC Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of JSC, and Stone. In the Merger, each share of Stone's
common stock will be converted into 0.99 of a share of JSC's common stock, par
value $0.01 per share (the 'JSC Common Stock'), and JSC will be renamed
Smurfit-Stone Container Corporation. The Merger is intended to constitute a
tax-free reorganization under the Internal Revenue Code of 1986, as amended, and
will be accounted for as a purchase.
Consummation of the Merger, which is expected to close in the fall of 1998,
is subject to various conditions, including (i) receipt of approval by the
stockholders of each of Stone and JSC of appropriate matters relating to the
Merger Agreement and the Merger; (ii) registration of the shares of JSC Common
Stock to be issued in the Merger under the Securities Act of 1933, as amended;
and (iii) satisfaction of certain other conditions including regulatory matters.
Stone received the requisite regulatory approvals of the Federal Trade
Commission, the European Commission and the Canadian Competition Bureau in July.
The foregoing summary of the Merger Agreement is qualified in its entirety
by reference to the text of the Merger Agreement, a copy of which is filed as
Exhibit 2.1 to Stone's Current Report on Form 8-K dated May 12, 1998 and which
is incorporated herein by reference.
The combined company is expected to have approximately $7 billion of debt
outstanding after the Merger (without giving affect to any divestitures prior to
or upon the Merger or thereafter). In connection with the Merger, Stone is
considering various refinancing alternatives which would be intended to reduce
interest expense and address the expected liquidity requirements of the combined
company following the Merger. Effectuation of the Merger is not conditioned on
consummation of any such refinancing. There are material uncertainties relating
to the consummation of any of the refinancing alternatives under consideration
and, as a result, the particular capital structure that would result from any
such alternative is subject to significant variables. In addition, no assurance
can be given that any of the refinancing alternatives and planned divestitures
will generate sufficient funds to meet all of the combined company's needs or
that refinancing or divestitures can be implemented on terms acceptable to the
combined company. Even if a refinancing and all of the planned divestitures are
implemented, the combined company will continue to have a highly leveraged
capital structure.
NOTE 4. SUBSEQUENT EVENT
On July 24, 1998 MacMillan Bloedel Inc. ('MacBlo') informed Stone that it
was exercising its compulsory buy-sell option to purchase the 50 percent
partnership interest owned by Stone in MacMillan Bathurst Inc., a Canadian
corrugated box company in which MacBlo owns the other 50 percent. The purchase
price offer was $185 million (Cdn). On or before August 23, 1998, Stone will
either be required to accept such offer or purchase MacBlo's interest in the
partnership for the same price. The closing of the transaction is required to be
completed by September 4, 1998. Stone has not yet determined its course of
action on this offer.
NOTE 5. WRITE-OFF INVESTMENTS IN NON-CONSOLIDATED AFFILIATE
On July 23, 1998 Stone Venepal (Celgar) Pulp, Inc. ('SVCPI'), a
non-consolidated Canadian affiliate of Stone, filed for bankruptcy protection.
Stone and its partners, after evaluating SVCPI's losses and cash flow under
current market conditions, decided to end their relationship with SVCPI. As a
result, Stone recorded a one-time write-off of $54 million in the 1998 second
quarter related to its interest in SVCPI. The lenders to SVCPI and any other
SVCPI creditors do not have recourse against Stone.
NOTE 6. ADOPTION OF NEW ACCOUNTING STANDARDS
COMPREHENSIVE INCOME
Effective January 1, 1998, Stone adopted Statement of Financial Accounting
Standards No. 130, 'Reporting Comprehensive Income' ('SFAS 130') which
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income represents the
change in stockholders' equity during a period resulting from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. Stone has restated its prior period financial
statements for comparative purposes as required. The adoption of SFAS 130 had no
impact on Stone's consolidated results of operations, financial position or cash
flows.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------------------------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C>
Net loss......................................................................... $ (225.7) $ (217.4)
Other comprehensive income, net of tax:
Foreign currency translation................................................ (41.3) (54.7)
-------- --------
Comprehensive income (loss)...................................................... $ (267.0) $ (272.1)
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED THROUGH JUNE 30, 1998 ACCUMULATED THROUGH JUNE 30, 1997
----------------------------------- -----------------------------------
BEGINNING CURRENT ENDING BEGINNING CURRENT ENDING
BALANCE PERIOD CHANGE BALANCE BALANCE PERIOD CHANGE BALANCE
--------- ------------- ------- --------- ------------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Minimum pension liability adjustment......... $ (31.3) -- $ (31.3) $ (42.7) -- $ (42.7)
Foreign currency translation adjustment...... (293.3) $ (41.3) (334.6) (178.8) $ (54.7) (233.5)
--------- ------------- ------- --------- ------------- -------
Accumulated other Comprehensive income....... $(324.6) $ (41.3) $(365.9) $(221.5) $ (54.7) $(276.2)
--------- ------------- ------- --------- ------------- -------
--------- ------------- ------- --------- ------------- -------
</TABLE>
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February 1998, the Financial Accounting Standards Board ('FASB') issued
Statement No. 132, 'Employers' Disclosures about Pensions and Other
Postretirement Benefits,' which is effective for fiscal years beginning after
December 15, 1997, and requires restatement of prior year periods presented.
The Statement does not change the measurement or recognition of pension and
other postretirement plans. It standardizes the disclosure requirements,
requires additional information on changes in benefit obligations and fair
values of plan assets, and eliminates certain disclosures. Stone will adopt the
new disclosure rules in its year-end 1998 financial statements.
START-UP COSTS
On April 3, 1998 Statement of Position 98-5 'Reporting on the Costs of
Start-Up Activities' ('SOP 98-5') was issued which requires that the costs of
start-up activities be expensed as incurred. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998. Stone will adopt
SOP 98-5 effective January 1, 1999 by recognizing a charge of approximately $8
million, net of tax, as a cumulative effect of an accounting change.
DERIVATIVE INSTRUMENTS
In June 1998, the FASB issued Statement No. 133, 'Accounting for Derivative
Instruments and Hedging Activities,' which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This Statement requires that all
derivatives be recorded in the balance sheet as either assets or liabilities and
be measured at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. Stone is in the process of evaluating this standard and does not
anticipate that it will have a material effect on Stone's financial statements.
NOTE 7. RECONCILIATION OF BASIC AND DILUTED EPS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1998 1997
----------------- -----------------
INCOME INCOME
(LOSS) SHARES (LOSS) SHARES
------- ------ ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Loss before extraordinary charges......................................... $(225.3) $(204.1)
Less: Preferred dividends................................................. (4.0) (4.0)
------- -------
Basic EPS.................................................................
Income available to common stockholders................................... (229.3) 99.7 (208.1) 99.3
Effect of Dilutive Securities:
Convertible Debt..................................................... (a) (a) (a) (a)
Exchangeable Preferred Stock......................................... (b) (b) (b) (b)
Options and warrants................................................. (c)
------
DILUTED EPS............................................................... $(229.3) 99.7 $(208.1) 99.3
BASIC EARNINGS PER SHARE AMOUNT........................................... $(2.30) $(2.10)
------ ------
------ ------
DILUTED EARNINGS PER SHARE AMOUNT......................................... $(2.30) $(2.10)
------ ------
------ ------
</TABLE>
- ------------
(a) Convertible debt effects of $2.5 million and 6.4 million shares are
excluded from the diluted EPS computation because they are antidilutive.
(b) Exchangeable preferred stock effects of $4.0 million and 3.4 million shares
are excluded from the dilutive EPS computation because they are
antidilutive.
(c) Options and warrants effects of .4 million shares for the six months ended
June 30, 1998 are excluded from the dilutive EPS computation because they
are antidilutive.
NOTE 8. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Raw materials and supplies................................................ $ 251.3 $263.5
Paperstock................................................................ 354.9 342.1
Work in process........................................................... 20.6 21.5
Finished products......................................................... 126.8 108.5
------------- ------------
753.6 735.6
Excess of current cost over LIFO
Inventory value...................................................... (19.6) (19.6)
------------- ------------
Total inventories............................................... $ 734.0 $716.0
------------- ------------
------------- ------------
</TABLE>
NOTE 9. SUMMARIZED FINANCIAL INFORMATION OF NON-CONSOLIDATED AFFILIATES
Combined summarized financial information for Stone's non-consolidated
affiliates that are accounted for under the equity method of accounting is
presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
-------- --------
(IN MILLIONS EXCEPT
PER SHARE)
<S> <C> <C>
Results of operations:
Net sales................................................................... $2,112.2 $1,633.8
Cost of products sold....................................................... 1,640.9 1,213.6
Loss before income taxes, minority interest and extraordinary charges....... (57.1) (55.3)
Net loss.................................................................... (57.5) (45.6)
</TABLE>
NOTE 10. DEBT
Current maturities of long-term debt at June 30, 1998 and December 31, 1997
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(IN MILLIONS)
<S> <C> <C>
11 7/8% Senior Notes due December 1, 1998................................. $ 239.5 $239.7
Revolving Credit Facility due May 15, 1999................................ 216.0 --
12 5/8% Senior Notes due July 15, 1998.................................... 150.0 150.0
Other..................................................................... 33.0 26.2
------------- ------------
Total current maturities of long-term debt........................... $ 638.5 $415.9
------------- ------------
------------- ------------
</TABLE>
On April 3, 1998, Stone Container GmbH, a German subsidiary of Stone,
entered into a loan facility agreement with Dresdner Bank AG for 90 million
Deutsche Marks at an interest rate equal to LIBOR plus 2 percent. The loan
facility expires April 30, 2005. The proceeds from the facility were loaned to
Stone and were applied against amounts outstanding on Stone's term loans under
its credit agreement.
On June 16, 1998, Stone issued a notice to redeem all of its outstanding 8
7/8 percent Convertible Senior Subordinated Notes due 2000 (the 'Notes') on
July 15, 1998 at a redemption price equal to 101 percent of the principal
amount of each Note, plus accrued interest. The $58.4 million of Notes were
convertible into shares of common stock at a conversion price of $11.55 per
share. All of the Notes were converted in July (prior to the redemption date),
resulting in the issuance of 5,060,516 shares of common stock.
On July 15, 1998, Stone repaid its 12 5/8 percent Senior Notes at maturity
with borrowings under its revolving credit facility.
NOTE 11. ADDITIONAL CASH FLOW STATEMENT INFORMATION
Stone's non-cash investing and financing activities and cash payments
(receipts) for interest and income taxes were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Decrease in debt due to deconsolidation of affiliate(1).............................. -- $538.0
Increase in debt due to consolidation of affiliate(2)................................ $ 11.2 264.9
Capital lease obligation incurred.................................................... -- 0.9
Issuance of common stock for extinguishment of debt.................................. 0.2 --
------ ------
------ ------
Cash paid during the periods for:
Interest (net of capitalization)................................................ 218.5 210.9
Income taxes (net of refunds)................................................... $ 14.9 $ (1.6)
------ ------
------ ------
</TABLE>
- ------------
(1) Decrease due to the sale of a portion of Stone's interest in SVCPI on June
26, 1997. Such amount includes the $264.9 million of debt assumed from CITIC
as discussed below.
(2) Increase in 1997 due to the acquisition of CITIC's interest in the Celgar
Mill on April 4, 1997.
NOTE 12. COMMITMENTS AND CONTINGENCIES
On April 6, 1998, a suit was filed against Stone in Los Angeles Superior
Court by Chesterfield Investments and DP Investments L.P. (the 'Plaintiffs')
alleging that Stone owes them approximately $120 million relating to Stone's
purchase of the Plaintiffs' interest in Stone Savannah River Pulp & Paper
Corporation ('SSR'). In 1991, Stone purchased from Chesterfield Investment its
shares of common stock of SSR for approximately $6 million plus a contingent
payment payable in March 1998 based upon the performance of the operations which
were contained in SSR. Stone is vigorously disputing the Plaintiffs' calculation
of the contingent payment amount.
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
Action alleges, among other things, that the directors of Stone violated the
fiduciary duties of due care and loyalty that they owed to the public
stockholders of Stone because, the Action contends, the 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 Action further alleges that Stone's
directors failed to make an informed decision and that the stockholders will
not receive fair value for their shares of 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 common stock. The Action 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 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 Proxy Statement/Prospectus, (b) Stone agreed to obtain the Salomon Smith
Barney Update Opinion 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.
Three class action complaints, General Refractories Company v. Stone
Container Corporation, Crest Meat Co, Inc. v. Stone Container Corporation, and
Albert I. Halper Corrugated Box Co., Inc. v. Stone Container Corporation, have
been filed in the United States District Court for the Northern District of
Illinois. The suits allege that Stone reached agreements in restraint of trade
with other producers of corrugated sheets in violation of Section 1 of the
Sherman Antitrust Act, 15 U.S.C. 'SS'1. Stone is the only named defendant,
though the suits allege that other unnamed firms participated in the purported
restraints of trade, and specifically allege, on information and belief, that
Jefferson Smurfit Corporation also participated. The suits seek an unspecified
amount of damages arising out of the sale of corrugated sheets for the period
October 1, 1993 through March 31, 1995. Under the provisions of the antitrust
laws, any award of actual damages would be trebled. Stone moved to dismiss the
General Refractories and Crest Meat Co. complaints on August 7, and intends to
move to dismiss the Halper complaint as well. Discovery has not yet commenced,
and a trial date has not been set. Stone believes it has meritorious defenses to
these actions, and intends to vigorously defend itself.
ABITIBI-CONSOLIDATED INC.
AUDITORS' REPORT
To the Directors of
Abitibi-Consolidated Inc.
We have audited the consolidated balance sheets of Abitibi-Consolidated
Inc. as at December 31, 1997 and 1996 and the consolidated statements of
earnings, retained earnings and changes in cash position for each of the three
years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for each of the three years in the period ended December 31, 1997 in
accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
January 30, 1998
Montreal, Quebec, Canada
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------ ------
(MILLIONS OF CANADIAN
DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Gross sales....................................................................... $4,166 $4,456 $4,259
Freight expenses.................................................................. 419 374 351
------ ------ ------
Net sales......................................................................... 3,747 4,082 3,908
Cost of sales..................................................................... 3,127 3,072 2,693
Depreciation and amortization..................................................... 325 301 219
Selling, general and administrative expenses...................................... 176 185 145
Non-recurring expenses relating to the amalgamation (note 4)...................... 77 -- --
Restructuring expenses (note 5)................................................... 10 28 6
------ ------ ------
Operating profit from continuing operations....................................... 32 496 845
Interest expense on long-term debt................................................ 115 113 99
Debt extinguishment costs and write-off of redundant fixed assets relating to the
amalgamation (note 4)........................................................... 98 -- --
Unusual items (note 6)............................................................ -- (27) 37
Other expense (income), net (note 7).............................................. -- (6) --
------ ------ ------
Earnings (loss) from continuing operations before income taxes.................... (181) 416 709
Recovery of (provision for) income taxes (note 8)................................. 49 (154) (251)
------ ------ ------
Earnings (loss) from continuing operations........................................ (132) 262 458
Earnings from discontinued operations,
net of income tax expense of $7 (1996 $4; 1995 $3) (note 13).................... 11 6 5
------ ------ ------
Net earnings (loss) for the year.................................................. $ (121) $ 268 $ 463
------ ------ ------
------ ------ ------
PER COMMON SHARE
Earnings (loss) from continuing operations........................................ $(0.68) $ 1.35 $ 2.89
Net earnings (loss) for the year
Basic........................................................................ (0.62) 1.39 2.92
Fully diluted................................................................ (0.62) 1.37 2.62
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (MILLIONS)
Basic........................................................................ 194.0 193.4 156.0
Fully diluted................................................................ 197.5 197.2 179.8
Fully diluted number of common shares outstanding
at year-end (millions).......................................................... 197.5 197.3 195.1
</TABLE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
----- ----- -----
(MILLIONS OF CANADIAN
DOLLARS)
<S> <C> <C> <C>
Retained earnings, beginning of year................................................. $ 804 $ 572 $ 285
Net earnings (loss) for the year..................................................... (121) 268 463
Dividends declared................................................................... (67) (36) (25)
Transaction costs of amalgamation,
net of deferred income tax recoveries of $8........................................ (27) -- --
Purchase of common shares in excess of average stated capital (note 15(b))........... -- -- (140)
Unamortized convertible subordinated debenture issue costs,
net of deferred income tax recoveries of $1........................................ -- -- (3)
Interest on equity element of convertible debentures,
net of deferred income tax recoveries of $3........................................ -- -- (8)
----- ----- -----
Retained earnings, end of year....................................................... $ 589 $ 804 $ 572
----- ----- -----
----- ----- -----
</TABLE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
------ ------
(MILLIONS OF CANADIAN
DOLLARS)
<S> <C> <C>
ASSETS
Current assets
Cash and deposits.................................................................. $ 46 $ 76
Accounts receivable (note 9)....................................................... 481 529
Inventories (note 10).............................................................. 417 497
Prepaid expenses................................................................... 28 30
Current assets of discontinued operations (note 13)................................ 232 156
------ ------
1,204 1,288
Fixed assets (note 11)............................................................. 4,104 4,016
Investments and other assets (note 12)............................................. 43 84
Deferred pension cost.............................................................. 170 181
Goodwill........................................................................... 733 755
Non-current assets of discontinued operations (note 13)............................ 41 44
------ ------
$6,295 $6,368
------ ------
------ ------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness.................................................................. $ -- $ 15
Accounts payable and accrued liabilities
Continuing operations......................................................... 663 668
Discontinued operations....................................................... 92 72
Dividends payable.................................................................. 19 9
Current portion of long-term debt
Recourse (note 14(a))......................................................... 90 130
Non-recourse (note 14(b))..................................................... 17 22
Preferred shares (note 15(c))...................................................... -- 10
------ ------
881 926
LONG-TERM DEBT
Recourse (note 14(a))......................................................... 1,338 1,147
Non-recourse (note 14(b))..................................................... 294 249
Deferred income taxes.............................................................. 594 647
------ ------
3,107 2,969
SHAREHOLDERS' EQUITY
Common shares (note 15(b))......................................................... 2,599 2,595
Retained earnings.................................................................. 589 804
------ ------
3,188 3,399
------ ------
$6,295 $6,368
------ ------
------ ------
</TABLE>
- ------------
<TABLE>
<CAPTION>
Approved by the Board
<S> <C> <C>
James Doughan Ronald Y. Oberlander John Tory
Director Director Director
</TABLE>
ABITIBI-CONSOLIDATED INC.
CHANGES IN CONSOLIDATED CASH POSITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(MILLIONS OF CANADIAN
DOLLARS)
<S> <C> <C> <C>
CONTINUING OPERATING ACTIVITIES
Earnings (loss) from continuing operations........................................... $ (132) $ 262 $ 458
Depreciation......................................................................... 304 279 203
Goodwill amortization................................................................ 21 22 16
Provision for (recovery of) deferred income taxes.................................... (55) 124 245
Non-recurring expenses relating to the amalgamation.................................. 115 -- --
Restructuring expenses............................................................... 10 28 --
Other non-cash items................................................................. 5 (6) 17
------ ------ ------
268 709 939
Changes in non-cash operating working capital components of continuing operations.... 123 (93) (96)
------ ------ ------
Cash generated by continuing operating activities.................................... 391 616 843
------ ------ ------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Increase in long-term debt and bank indebtedness..................................... 1,502 483 392
Repayment of long-term debt and bank indebtedness.................................... (1,373) (393) (152)
Transaction costs of amalgamation.................................................... (35) -- --
Issuance of common shares on conversion of convertible debentures and on
acquisition........................................................................ -- 25 802
Purchase of common shares for cancellation........................................... -- -- (194)
Issuance of redeemable preferred shares on acquisition............................... -- -- 500
Preferred shares redeemed and canceled............................................... (10) (100) (401)
Retirement of convertible debentures................................................. -- (24) (626)
Other................................................................................ 7 (1) (12)
------ ------ ------
Cash generated by (used in) financing activities of continuing operations............ 91 (10) 309
------ ------ ------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Additions to fixed assets............................................................ (437) (670) (597)
Acquisition (note 3)................................................................. -- -- (731)
Decrease in investments and other assets............................................. 24 12 5
------ ------ ------
Cash used in investing activities of continuing operations........................... (413) (658) (1,323)
------ ------ ------
DIVIDENDS PAID TO COMMON SHAREHOLDERS................................................ (57) (36) (16)
------ ------ ------
CASH GENERATED BY (USED IN) CONTINUING OPERATIONS.................................... 12 (88) (187)
Cash used in discontinued operations................................................. (42) (24) --
------ ------ ------
DECREASE IN CASH DURING THE YEAR..................................................... (30) (112) (187)
CASH AND DEPOSITS, BEGINNING OF YEAR................................................. 76 188 375
------ ------ ------
CASH AND DEPOSITS, END OF YEAR....................................................... $ 46 $ 76 $ 188
------ ------ ------
------ ------ ------
</TABLE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BUSINESS SEGMENTS(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
NON-
SELLING, RECURRING
GENERAL AND DEPRECIATION AND
GROSS ADMINISTRATIVE AND RESTRUCTURING OPERATING
NET SALES COST OF SALES PROFIT EXPENSES AMORTIZATION EXPENSES PROFIT
--------- ------------- ------ -------------- ------------ ------------- ---------
(MILLIONS OF CANADIAN DOLLARS)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Newsprint............ $ 1,830 $ 1,511 $ 319 $119 $195 $-- $ 5
Value-added
groundwood paper.... 1,139 904 235 54 118 10 53
Non-recurring
expenses relating to
the amalgamation.... -- -- -- -- -- 77 (77)
--
--------- ----- ------ --- --- ---
Total Paper(1)&(2)... 2,969 2,415 554 173 313 87 (19)
Kraft pulp(1)........ 73 65 8 3 3 -- 2
Lumber(5)............ 170 127 43 7 9 -- 27
Newsprint purchased
and resold and
commissions(3)&(4)... 535 520 15 (7)(6) -- -- 22
--
--------- ----- ------ --- --- ---
$ 3,747 $ 3,127 $ 620 $176 $325 $87 $ 32
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
1996
Newsprint............ $ 1,950 $ 1,394 $ 556 $117 $182 $15 $ 242
Value-added
groundwood paper.... 1,237 841 396 65 108 13 210
--
--------- ----- ------ --- --- ---
Total Paper(1)&(2)... 3,187 2,235 952 182 290 28 452
Kraft pulp(1)........ 61 58 3 4 3 -- (4)
Lumber(5)............ 131 95 36 2 8 -- 26
Newsprint purchased
and resold and
commissions(3)&(4)... 703 684 19 (3)(6) -- -- 22
--
--------- ----- ------ --- --- ---
$ 4,082 $ 3,072 $1,010 $185 $301 $28 $ 496
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
1995
Newsprint............ $ 2,079 $ 1,321 $ 758 $ 93 $133 $ 4 $ 528
Value-added
groundwood paper.... 1,175 761 414 56 82 2 274
--
--------- ----- ------ --- --- ---
Total Paper(1)&(2)... 3,254 2,082 1,172 149 215 6 802
Kraft pulp(1)........ 16 7 9 1 -- -- 8
Lumber(5)............ 67 50 17 2 4 -- 11
Newsprint purchased
and resold and
commissions(3)&(4)... 571 554 17 (7)(6) -- -- 24
--
--------- ----- ------ --- --- ---
$ 3,908 $ 2,693 $1,215 $145 $219 $ 6 $ 845
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
PAPER FIXED ASSET
PRODUCTION PAPER SALES ADDITIONS(7) TOTAL ASSETS
---------- ----------- ------------ ------------
(MILLIONS OF
(000S OF TONNES) CANADIAN DOLLARS)
----------------------- ---------------------------
<S> <C> <C> <C> <C>
1997
Newsprint............ 2,756 2,825 $243 $3,583
Value-added
groundwood paper.... 1,306 1,340 168 2,127
Non-recurring
expenses relating to
the amalgamation....
--- --- --- -----
Total Paper(1)&(2)... 4,062 4,165 411 5,710
Kraft pulp(1)........ 120 115 7 86
Lumber(5)............ 19 201
Newsprint purchased
and resold and
commissions(3)&(4)... 726 728 -- 25
--- --- --- -----
4,908 5,008 $437 $6,022
--- --- --- -----
--- --- --- -----
1996
Newsprint............ 2,450 2,444 $342 $3,616
Value-added
groundwood paper.... 1,334 1,211 286 2,314
--- --- --- -----
Total Paper(1)&(2)... 3,784 3,655 628 5,930
Kraft pulp(1)........ 89 110 5 85
Lumber(5)............ 37 134
Newsprint purchased
and resold and
commissions(3)&(4)... 688 690 -- 19
--- --- --- -----
4,561 4,455 $670 $6,168
--- --- --- -----
--- --- --- -----
1995
Newsprint............ 2,418 2,443
Value-added
groundwood paper.... 1,197 1,129
--- ---
Total Paper(1)&(2)... 3,615 3,572
Kraft pulp(1)........ 20 14
Lumber(5)............
Newsprint purchased
and resold and
commissions(3)&(4)... 370 365
--- ---
4,005 3,951
--- ---
--- ---
</TABLE>
- ------------
(1) On November 1, 1995, the Company acquired Rainy River Forest Products Inc.
(see note 3) increasing annual newsprint, value-added paper and kraft pulp
capacity by 870,000 tonnes.
(2) The Paper Business consists of the Company's 16 wholly-owned paper mills and
50% of the Company's two newsprint joint venture mills.
(3) The Newsprint purchased and resold and commissions business segment consists
of sales of the Company's joint venture partners' share of production of the
newsprint joint venture mills and as of November 1, 1995 the 387,000 tonnes
of newsprint from Boise Cascade's DeRidder, Louisiana mill. Also included
are commissions received on sales of 160,000 (1996 -- 154,000;
1995 -- 171,000) tonnes of newsprint for the Pine Falls Paper Company and
245,000 (1996 -- 260,000; 1995 -- 282,000) tonnes of newsprint sold for
Stone Container Corporation's Snowflake, Arizona mill.
(4) In 1995 and 1996, this business segment also included the Company's lumber
and panelboard brokerage operations which was discontinued in the third
quarter of 1996. Sales for lumber and panelboard were $373 million and $504
million in 1996 and 1995, respectively. Operating profit related to lumber
and panelboard brokerage was $2 million and $9 million in 1996 and 1995,
respectively.
(5) In 1997, Lumber production was 439 million board feet (1996 -- 332 million;
1995 -- 237 million). In 1997, Lumber sales were 410 million board feet
(1996 -- 327 million; 1995 -- 213 million).
(6) Selling, general and administrative expenses include commission income of
$12 million (1996 -- $14 million; 1995 -- $15 million).
(7) Fixed asset additions include adjustments for amounts in accounts payable
and accrued liabilities related to capital expenditures.
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BUSINESS SEGMENTS(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
NON-
SELLING, RECURRING
GENERAL AND DEPRECIATION AND
GROSS ADMINISTRATIVE AND RESTRUCTURING OPERATING
NET SALES COST OF SALES PROFIT EXPENSES AMORTIZATION EXPENSES PROFIT
--------- ------------- ------ -------------- ------------ ------------- ---------
(MILLIONS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Canada............. $ 325 $ 256 $ 69 $ 17 $ 29 $ 1 $ 22
U.S.A.............. 2,577 2,164 413 113 215 8 77
International(2)... 845 707 138 46 81 1 10
Non-recurring
expenses relating
to the
amalgamation...... -- -- -- -- -- 77 (77)
--
--------- ----- ------ --- --- ---
$ 3,747 $ 3,127 $ 620 $176 $325 $87 $ 32
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
1996
Canada............. $ 361 $ 251 $ 110 $ 18 $ 31 $ 3 $ 58
U.S.A.............. 3,043 2,310 733 133 216 20 364
International(2)... 678 511 167 34 54 5 74
--
--------- ----- ------ --- --- ---
$ 4,082 $ 3,072 $1,010 $185 $301 $28 $ 496
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
1995
Canada............. $ 462 $ 299 $ 163 $ 20 $ 30 $ 1 $ 112
U.S.A.............. 2,779 1,944 835 99 150 4 582
International(2)... 667 450 217 26 39 1 151
--
--------- ----- ------ --- --- ---
$ 3,908 $ 2,693 $1,215 $145 $219 $ 6 $ 845
--
--
--------- ----- ------ --- --- ---
--------- ----- ------ --- --- ---
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
PAPER FIXED ASSET
PRODUCTION(3) PAPER SALES ADDITIONS(4) TOTAL ASSETS
------------- ----------- ------------ ------------
(000S OF TONNES) CANADIAN DOLLARS)
<S> <C> <C> <C> <C>
1997
Canada............. 3,438 302 $ 43 $ 549
U.S.A.............. 1,222 3,454 291 3,988
International(2)... 248 1,252 103 1,485
Non-recurring
expenses relating
to the
amalgamation......
--- --- --- -----
4,908 5,008 $437 $6,022
--- --- --- -----
--- --- --- -----
1996
Canada............. 3,188 249 $ 78 $ 642
U.S.A.............. 1,133 2,950 483 4,450
International(2)... 240 1,256 109 1,094
--- --- --- -----
4,561 4,455 $670 $6,168
--- --- --- -----
--- --- --- -----
1995
Canada............. 3,051 354
U.S.A.............. 707 2,514
International(2)... 247 1,083
--- ---
4,005 3,951
--- ---
--- ---
</TABLE>
- ------------
(1) Geographic segments reflect the ultimate sales destination for the products.
Sales and cost of sales by manufacturing location are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
NET SALES COST OF SALES NET SALES COST OF SALES NET SALES COST OF SALES
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Canada........................... $ 2,656 $ 2,115 $ 2,909 $ 2,074 $ 3,054 $ 1,922
U.S.A............................ 875 837 927 821 620 562
International.................... 216 175 246 177 234 209
--------- ------------- --------- ------------- --------- -------------
$ 3,747 $ 3,127 $ 4,082 $ 3,072 $ 3,908 $ 2,693
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
</TABLE>
(2) International markets consist of all markets outside Canada and the United
States.
(3) All of the Company's production of lumber occurs in Canada. In 1997, 43%
(1996 -- 55%; 1995 -- 48%) of lumber was sold in the United States and 57%
(1996 -- 45%; 1995 -- 52%) was sold in Canada.
(4) Fixed asset additions include adjustments for amounts in accounts payable
and accrued liabilities related to capital expenditures.
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(Tabular amounts in millions of Canadian dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are expressed in Canadian dollars and are
prepared in accordance with Canadian generally accepted accounting principles
(Canadian GAAP). These financial statements are not intended to provide
disclosures which would typically be found in financial statements prepared in
accordance with United States generally accepted accounting principles (U.S.
GAAP). Form 40-F, filed with the United States Securities and Exchange
Commission, includes a description of the differences between Canadian GAAP and
U.S. GAAP as they apply to Abitibi-Consolidated Inc.
(a) Basis of presentation
The amalgamation of Abitibi-Price Inc. (Abitibi-Price) and
Stone-Consolidated Corporation (Stone-Consolidated) was approved by the
shareholders of the companies effective May 30, 1997. On amalgamation each
common share of Abitibi-Price was exchanged for one common share of Abitibi-
Consolidated Inc. and each common share of Stone-Consolidated was exchanged for
1.0062 common shares of Abitibi-Consolidated Inc. All common share numbers have
been restated to reflect this share exchange ratio. In these financial
statements the amalgamation has been accounted for as a pooling of interests
and, as a result, the consolidated balance sheets, statements of earnings,
retained earnings and changes in cash position have been prepared as though
Abitibi-Price and Stone-Consolidated had been combined since their inception.
Under this method, the assets and liabilities have been recorded at historical
carrying values and the earnings of Abitibi-Consolidated Inc. are comprised of
the earnings of Abitibi-Price and Stone-Consolidated.
The net assets of each combining company as at May 30, 1997 were as
follows:
<TABLE>
<CAPTION>
STONE-
ABITIBI-PRICE CONSOLIDATED
------------- ------------
<S> <C> <C>
Total assets............................................................... $ 2,610 $3,924
Total liabilities.......................................................... 1,552 1,685
------------- ------------
Net assets................................................................. $ 1,058 $2,239
------------- ------------
------------- ------------
</TABLE>
The net sales and losses of each combining company for the period January
1, 1997 to May 30, 1997 were as follows:
<TABLE>
<CAPTION>
STONE-
ABITIBI-PRICE CONSOLIDATED
------------- ------------
<S> <C> <C>
Total sales................................................................ $ 973 $781
Net loss................................................................... 30 70
</TABLE>
Upon amalgamation, the issued, and then outstanding, common shares of
Abitibi-Consolidated Inc. totaled 193.9 million of which approximately 46% were
held by the former shareholders of Abitibi-Price and approximately 54% were held
by the former shareholders of Stone-Consolidated. The quoted market value of
these shares, on the first trading day after amalgamation, was $4.8 billion.
These financial statements consolidate the accounts of Abitibi-Consolidated
Inc., its subsidiary companies, Abitibi-Consolidated Inc.'s proportionate
interest in its U.S. joint venture partnerships comprising Augusta Newsprint
Company (Augusta) -- 50%, Alabama River Newsprint Company (Alabama) -- 50% and
Alabama River Recycling Company (Alabama Recycling) -- 50%, Voyageur Panel
Limited -- 21%, Star Lake Hydro Partnership -- 51% and Abitibi-Consolidated
Inc.'s investments in joint venture sawmills in Quebec.
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(Tabular amounts in millions of Canadian dollars)
(b) Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses for the reported period.
Actual results could differ from those estimates.
(c) Translation of foreign currencies
Assets and liabilities denominated in foreign currencies are translated at
year end exchange rates. Revenues and expenses are translated at prevailing
market rates.
The net U.S. dollar assets of self-sustaining joint ventures and
subsidiaries hedge a portion of Abitibi-Consolidated Inc.'s U.S. dollar debt.
Any remaining U.S. dollar debt, is generally hedged by future U.S. dollar
revenue. Exchange gains or losses on U.S. dollar debt, hedged by future revenue,
are deferred and included in earnings in the period that the revenue is earned.
Realized gains and losses on option and forward exchange rate contracts
that hedge anticipated revenues are included in earnings when the revenue is
earned. Option and forward exchange rate contracts that do not provide an
effective hedge are recorded at market value and any gains or losses (realized
or unrealized) are included in earnings.
(d) Inventories
Inventories are valued at the lower of average cost and net recoverable
amount. Cost is calculated using the absorption cost method including
depreciation.
(e) Fixed assets and depreciation
Fixed assets are recorded at cost, including capitalized interest and
preproduction costs. Investment tax credits and government capital grants
received reduce the cost of the related fixed assets.
Depreciation is provided at rates which amortize the fixed asset cost over
the productive life of the asset. The principal fixed asset category is
production equipment which is generally depreciated over 20 years on a
straight-line basis.
(f) Environmental costs
Environmental expenditures that continue to benefit Abitibi-Consolidated
Inc. are recorded at cost and capitalized as part of fixed assets. Depreciation
is charged to income over the estimated future benefit period of the asset.
Environmental expenditures that do not provide a benefit to Abitibi-Consolidated
Inc. in future periods are expensed as incurred.
(g) Investments
Long-term investments are recorded at the lower of cost and net recoverable
amount.
(h) Pension costs
Earnings are charged with the cost of pension benefits earned by employees
as services are rendered. Pension expense is determined using management's best
estimates of expected investment yields, wage and salary escalation, mortality
rates, terminations and retirement ages. Adjustments arising from pension plan
amendments, experience gains and losses, and assumption changes are amortized
to earnings over the average remaining service lives of the members.
Any difference between pension expense (determined on an accounting basis)
and funding (as required by regulatory authorities) gives rise to deferred
pension costs.
Employee post-retirement costs are expensed on a 'pay-as-you-go' basis.
(i) Goodwill
Goodwill is recorded at the lower of book value and net recoverable amount
and is amortized over its estimated period of future benefit -- generally 40
years. Any impairment in value is recorded in earnings when it is identified
based on management's projected undiscounted future cash flows from the related
operations.
(j) Income taxes
Income taxes are recorded by the deferral method of accounting using
historical income tax rates. Deferred income taxes result from differences in
the timing of income and expense recognition for accounting and tax purposes.
(k) Research and development costs
Research costs are expensed as incurred. Development costs for technically
and commercially feasible products or processes which management intends to
produce and market and/or use are deferred until commercial use begins. At that
time, these costs are charged to earnings over the estimated commercial life of
the product or process. In 1997, the Company expensed $11 million (1996 $12
million; 1995 $8 million) of these costs.
2. NEWSPRINT JOINT VENTURES
Abitibi-Consolidated Inc.'s investments in newsprint joint ventures are
accounted for using the proportionate consolidation method.
Abitibi-Consolidated Inc.'s results of operations, changes in cash position
and financial position include the impact of the joint ventures as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- ---------------------------------------
PROPORTIONATE PROPORTIONATE
EQUITY ACCOUNTING EQUITY ACCOUNTING
ACCOUNTING FOR JOINT ACCOUNTING FOR JOINT
FOR JOINT INCREASE VENTURES AS FOR JOINT INCREASE VENTURES AS
VENTURES (DECREASE) REPORTED VENTURES (DECREASE) REPORTED
---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED EARNINGS
STATEMENTS FROM CONTINUING
OPERATIONS
Net sales.................... $3,747 $ -- $ 3,747 $4,082 $ -- $ 4,082
Operating profit............. (3) 35 32 433 63 496
Income from joint ventures... 9 (9) -- 38 (38) --
Interest expense............. (89) (26) (115) (88) (25) (113)
Amalgamation costs........... (98) -- (98) -- -- --
Unusual items and other
income and expense, net.... -- -- -- 33 -- 33
Earnings (loss) before income
taxes...................... (181) -- (181) 416 -- 416
Net earnings (loss) from
continuing operations...... (132) -- (132) 262 -- 262
CHANGES IN CONSOLIDATED CASH
POSITION FROM CONTINUING
OPERATIONS
Operating activities......... $ 362 $ 29 $ 391 $ 542 $ 74 $ 616
Financing activities......... 113 (22) 91 87 (97) (10)
Investing activities......... (406) (7) (413) (651) (7) (658)
Dividends paid............... (57) -- (57) (36) -- (36)
---------- ----- ------ ---------- ----- ------
Cash generated by (used in)
continuing operations...... $ 12 $ -- $ 12 $ (58) $ (30) $ (88)
---------- ----- ------ ---------- ----- ------
---------- ----- ------ ---------- ----- ------
CONSOLIDATED BALANCE SHEETS
Current assets............... $1,184 $ 20 $ 1,204 $1,268 $ 20 $ 1,288
Fixed assets................. 3,734 370 4,104 3,645 371 4,016
Investments in joint
ventures................... 103 (103) -- 131 (131) --
Deferred pension cost........ 176 (6) 170 187 (6) 181
Other assets................. 807 10 817 872 11 883
---------- ----- ------ ---------- ----- ------
Total assets............. $6,004 $ 291 $ 6,295 $6,103 $ 265 $ 6,368
---------- ----- ------ ---------- ----- ------
---------- ----- ------ ---------- ----- ------
Current liabilities.......... $ 863 $ 18 $ 881 $ 903 $ 23 $ 926
Long-term debt:
Recourse................. 1,338 -- 1,338 1,147 -- 1,147
Non-recourse............. 21 273 294 7 242 249
Deferred income taxes........ 594 -- 594 647 -- 647
Shareholders' equity......... 3,188 -- 3,188 3,399 -- 3,399
---------- ----- ------ ---------- ----- ------
TOTAL LIABILITIES AND
EQUITY..................... $6,004 $ 291 $ 6,295 $6,103 $ 265 $ 6,368
---------- ----- ------ ---------- ----- ------
---------- ----- ------ ---------- ----- ------
<CAPTION>
1995
--------------------------------------
PROPORTIONATE
EQUITY ACCOUNTING
ACCOUNTING FOR JOINT
FOR JOINT INCREASE VENTURES AS
VENTURES (DECREASE) REPORTED
---------- ---------- -------------
<S> <C> <C> <C>
CONSOLIDATED EARNINGS
STATEMENTS FROM CONTINUING
OPERATIONS
Net sales.................... $ 3,908 $ -- $ 3,908
Operating profit............. 769 76 845
Income from joint ventures... 45 (45) --
Interest expense............. (67 ) (32) (99)
Amalgamation costs........... -- -- --
Unusual items and other
income and expense, net.... (38 ) 1 (37)
Earnings (loss) before income
taxes...................... 709 -- 709
Net earnings (loss) from
continuing operations...... 458 -- 458
CHANGES IN CONSOLIDATED CASH
POSITION FROM CONTINUING
OPERATIONS
Operating activities......... $ 778 $ 65 $ 843
Financing activities......... 348 (39) 309
Investing activities......... (1,313 ) (10) (1,323)
Dividends paid............... (16 ) -- (16)
---------- --- -------------
Cash generated by (used in)
continuing operations...... $ (203 ) $ 16 $ (187)
---------- --- -------------
---------- --- -------------
</TABLE>
3. ACQUISITION
Rainy River Forest Products Inc.
On November 1, 1995, Abitibi-Consolidated Inc. acquired and subsequently
amalgamated with Rainy River Forest Products Inc. (Rainy River). Rainy River was
a manufacturer and marketer of newsprint, value-added groundwood papers and
kraft pulp. It owned and operated three integrated pulp and paper mills located
in Kenora and Fort Frances, Ontario and West Tacoma, Washington (U.S.A.).
The purchase method was used to account for the business combination and
the results of operations of Rainy River are included from the date of
acquisition. The allocation of the purchase price was as follows:
<TABLE>
<CAPTION>
<S> <C>
ASSETS ACQUIRED
Working capital................................................................................ $ 94
Fixed assets................................................................................... 844
Goodwill....................................................................................... 292
Other.......................................................................................... 17
------
$1,247
------
------
LIABILITIES ASSUMED
Long-term debt................................................................................. $ 148
Deferred income taxes.......................................................................... 99
Convertible subordinated debentures............................................................ 269
------
516
------
Net assets acquired at fair value............................................... $ 731
------
------
CONSIDERATION
Issuance of 11.9 million common shares......................................................... $ 216
Issuance of 23.2 million cumulative preferred shares with an 8% dividend rate per annum........ 500
Cash........................................................................................... 15
------
$ 731
------
------
</TABLE>
4. AMALGAMATION COSTS
Charges of $175 million relating to the amalgamation were expensed in 1997 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Employee severance and related expenses....................................................... $ 35
Moving expenses............................................................................... 14
Pension plan settlement expense............................................................... 15
Other......................................................................................... 13
----
77
----
Debt extinguishment costs..................................................................... 59
Write-off of redundant fixed assets........................................................... 39
----
98
----
$175
----
----
</TABLE>
5. RESTRUCTURING EXPENSES
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Machine closure at the Kenogami mill............................................ $ 10 $ -- $ --
Thermo-mechanical pulping conversions........................................... -- 28 --
Relocation of inside sales and customer service offices......................... -- -- 6
----- ------ ------
$ 10 $ 28 $ 6
----- ------ ------
----- ------ ------
</TABLE>
In 1997, Abitibi-Consolidated Inc. incurred one-time restructuring charges
on the closure of a paper machine at the Kenogami mill, which consisted of $2
million for the write-off of a paper machine and $8 million for employee
severance and retraining.
In 1996, Abitibi-Consolidated Inc. incurred one-time restructuring charges
on the start-up of two thermo-mechanical pulping plants, which consisted of $19
million for the write-off of redundant fixed assets and $9 million for employee
severance.
6. UNUSUAL ITEMS
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------- ------------
<S> <C> <C> <C>
Net proceeds from insurance claims relating to assets destroyed by flooding at
the Kenogami mill and hydro plant and Port Alfred mill........................ $ -- $ (27) $ --
Gain on sale of Thunder Bay, Ontario newsprint mill............................. -- -- (4)
Redemption expenses............................................................. -- -- 41
------ ------- ------
$ -- $ (27) $ 37
------ ------- ------
------ ------- ------
</TABLE>
The redemption expenses of $41 million, in 1995, consist primarily of $37
million for early debt repayment.
7. OTHER EXPENSE (INCOME), NET
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------- ------------
<S> <C> <C> <C>
Interest income........................................................... $ (13) $ (14) $ (24)
Discounts on sales of accounts receivable (note 9)........................ 6 11 13
Other..................................................................... 7 (3) 11
------ ------- ------
$ -- $ (6) $ --
------ ------- ------
------ ------- ------
</TABLE>
8. INCOME TAXES
Abitibi-Consolidated Inc.'s recovery of (provision for) income taxes and
effective income tax rates are:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Earnings (loss) from continuing operations before income taxes.......... $(181) $ 416 $ 709
Recovery of (provision for) income taxes................................ 49 (154) (251)
Effective income tax rate............................................... 27% 37% 35%
</TABLE>
RECONCILIATION TO STATUTORY TAX RATE:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average combined Canadian federal/provincial income tax rate....... 39% 39% 38%
Manufacturing and processing allowances............................ (7) (4) (6)
Non-deductible goodwill amortization............................... (5) 2 1
Canadian large corporations tax.................................... (5) 2 1
Difference in tax rates for foreign subsidiaries................... 2 -- 1
Other.............................................................. 3 (2) --
---- ---- ----
Effective income tax rate.......................................... 27% 37% 35%
---- ---- ----
---- ---- ----
</TABLE>
At December 31, 1997, Abitibi-Consolidated Inc.'s U.S. and Canadian
operations had $404 million in tax loss carry-forwards which are available to
reduce taxable income in future years and expire between 2004 and 2009. Also, at
December 31, 1997, Abitibi-Consolidated Inc.'s U.K. subsidiaries had $65 million
in tax loss carry-forwards which are available to reduce taxable income
indefinitely. The benefits of these non-capital tax loss carry-forwards were
recorded in earnings in the years incurred.
9. ACCOUNTS RECEIVABLE
Abitibi-Consolidated Inc. had an ongoing program to sell accounts
receivable, with minimal recourse, to major banks pursuant to sale agreements.
Abitibi-Consolidated Inc. acted as a service agent and administered the
collection of the accounts receivable sold pursuant to these agreements. These
agreements were terminated when Abitibi-Consolidated Inc. refinanced its debt on
amalgamation in May 1997. In December 1997, Abitibi-Consolidated Inc. resumed
the practice of selling trade accounts receivable to a major bank and these
proceeds were used to repay long-term debt. At December 31, 1997,
Abitibi-Consolidated Inc. had sold $287 million (1996 -- $174 million) of
accounts receivable to major banks. The maximum credit risk exposure to
Abitibi-Consolidated Inc. at December 31, 1997 was $17 million (1996 -- $13
million).
10. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished goods................................................................ $134 $211
Materials and supplies........................................................ 200 194
Pulpwood...................................................................... 83 92
---- ----
$417 $497
---- ----
---- ----
</TABLE>
11. FIXED ASSETS
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
------ ------------ -------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment.......... $6,281 $2,226 $4,055 $5,900 $1,931 $3,969
Timberlands............................ 74 25 49 77 30 47
------ ------------ -------- ------ ------------ --------
$6,355 $2,251 $4,104 $5,977 $1,961 $4,016
------ ------------ -------- ------ ------------ --------
------ ------------ -------- ------ ------------ --------
</TABLE>
During the year, $7 million (1996 -- $17 million; 1995 -- $18 million) of
interest was capitalized to fixed assets. In addition, Abitibi-Consolidated Inc.
recorded $1 million (1996 -- $6 million) of investment tax credits that reduced
the cost of the related fixed assets.
12. INVESTMENTS AND OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pine Falls Paper Company Limited
Subordinated $37 million debenture maturing in 2004, accruing 10% simple interest to
2000, and 17% semi-annual compound interest payable thereafter; repaid in 1997..... $-- $27
Unamortization portion of debt financing costs........................................... 14 29
Exchange loss on long-term debt hedged by future revenue and other....................... 29 28
--- ---
$43 $84
--- ---
--- ---
</TABLE>
13. DISCONTINUED OPERATIONS
In December 1997, Abitibi-Consolidated Inc. decided to sell its Office
Products Division. Abitibi-Consolidated Inc. subsequently signed a letter of
intent to sell its U.S. and Mexican operations for U.S.$110 million. This
transaction is expected to be completed in the first half of 1998. Net proceeds
on the disposition of this Division are expected to exceed net book value and
any gain will be recorded when realized.
Accordingly, Abitibi-Consolidated Inc.'s Office Products Division has been
classified as discontinued operations. The following amounts related to the
Office Products Division have been included in these financial statements:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash.................................................................................... $ 15 $ 11
Accounts receivable..................................................................... 111 51
Inventories............................................................................. 104 93
Prepaid expenses........................................................................ 2 1
---- ----
Current assets of discontinued operations............................................... $232 $156
---- ----
---- ----
Fixed and other assets.................................................................. $ 11 $ 13
Goodwill................................................................................ 30 31
---- ----
Non-current assets of discontinued operations........................................... $ 41 $ 44
---- ----
Sales................................................................................... $817 $647
---- ----
---- ----
</TABLE>
Effective July 1, 1996, Abitibi-Consolidated Inc. acquired all of the
outstanding shares of Tenex Data Corporation (Tenex), of Toronto, Ontario, a
distributor of computer supplies and data storage products and a paper
converter, for cash consideration of $22 million. The purchase method was used
to account for the business combination and the results of operations of Tenex
are included in discontinued operations from the date of acquisition.
14. LONG-TERM DEBT
(a) Recourse
The debt described below has recourse to specific assets or the general
credit of Abitibi-Consolidated Inc. and consists of:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Term credit facilities:
5-year $800 million revolving facility bearing interest at prime or
LIBOR............................................................. $ 107 $ --
7-year $1.3 billion term loan bearing interest at prime or LIBOR, 5%
annually to be repaid during the first five years, plus 25% in
years six and seven, with the remainder being repaid at maturity
(U.S. portion -- U.S. $474 million)............................... 1,042 --
Facilities due 2000 bearing interest approximating prime plus 1%)... -- 368
Floating rate revolving facility bearing interest at LIBOR plus
0.875% (U.S. portion -- U.S. $67 million)......................... -- 124
U.S.$178 million (1996 -- U.S.$200 million) maturing in 2005 bearing
interest at 7.92%...................................................... 255 274
U.S.$225 million due 2000 bearing interest at 10.25%..................... -- 308
U.S.$110 million due 2001 bearing interest at 10.75%..................... -- 151
Other.................................................................... 24 52
------ ------
1428 1277
Less: Current portion of long-term debt.................................. (90) (130)
------ ------
$1,338 $1,147
------ ------
------ ------
</TABLE>
In connection with the amalgamation, Abitibi-Consolidated Inc. secured from
a syndicate of lenders the two new term credit facilities noted above. Of the
total facility, $1.4 billion is available in the form of prime rate Canadian
dollar loans and $700 million is available by way of LIBOR U.S. dollar loans.
The proceeds were used to repay $996 million of long-term debt facilities and
$15 million of bank indebtedness.
Abitibi-Consolidated Inc.'s debt agreements contain certain restrictive
financial and other covenants.
(b) Non-recourse
Abitibi-Consolidated Inc.'s interest in the long-term debt of its U.S.
newsprint and other joint ventures is without recourse to the assets of
Abitibi-Consolidated Inc. These non-recourse loans are secured by $370 million
(1996 -- $371 million) of joint venture fixed assets and consist of the
following debt:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ALABAMA
LIBOR plus 1.875% term loans, rising to LIBOR plus 2% in 1999, maturing
in 2002, with quarterly principal repayments of U.S.$2.5 million
(U.S.$139 million; 1996 -- U.S.$149 million).......................... $199 $205
ALABAMA RECYCLING
10.50% senior notes, maturing in 2008 (U.S.$12 million;
1996 -- U.S.$13 million).............................................. 17 18
AUGUSTA
10.01% senior secured notes, maturing from 2001 to 2007 (U.S.$25
million).............................................................. 36 34
7.7% senior secured notes, maturing 2004 to 2007 (U.S.$25 million)...... 36 --
OTHER........................................................................ 23 14
---- ----
311 271
Less: Current portion of long-term debt...................................... (17) (22)
---- ----
$294 $249
---- ----
---- ----
</TABLE>
At December 31, 1997, Alabama had interest rate agreements with major
banks, which expire between 1998 and 2000, that provide an effective interest
rate of 9.6% (1996 -- 9.6%; 1995 -- 8.5%) on $71 million of the $199 million
non-recourse debt outstanding (1996 -- $68 million of $205 million). In 1997,
the effective interest rate on the Alabama debt was 9.1% (1996 -- 8.8%;
1995 -- 8.6%).
Augusta has a line of credit of U.S.$13 million bearing prevailing market
interest rates. This line of credit was undrawn as at December 31, 1997 and
1996.
Partnership distributions are subject to certain restrictions until these
loans are repaid in accordance with the loan agreements.
In 1998, Alabama may not be in compliance with certain debt covenants under
certain circumstances. The outcome of these matters is not determinable. The
assets less the liabilities of Alabama included in the consolidated financial
statements were $24 million at December 31, 1997.
(c) Scheduled long-term debt repayments are as follows:
<TABLE>
<CAPTION>
NON-
RECOURSE RECOURSE
DEBT DEBT
-------- --------
<S> <C> <C>
1998.................................................................... $ 90 $ 17
1999.................................................................... 90 17
2000.................................................................... 94 17
2001.................................................................... 89 27
2002.................................................................... 305 154
Thereafter.............................................................. 760 79
-------- --------
$1,428 $311
-------- --------
-------- --------
</TABLE>
(d) The estimated fair value of the long-term debt at the period end dates
is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Recourse................................................................... $1,433 $1,345
Non-recourse............................................................... 324 279
------ ------
$1,757 $1,624
------ ------
------ ------
</TABLE>
15. CAPITAL STOCK
(a) Abitibi-Consolidated Inc. continued under the Canada Business
Corporations Act pursuant to the amalgamation referred to in note 1, and is
authorized to issue an unlimited number of preferred shares and common shares.
(b) Common shares
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
MILLIONS OF MILLIONS OF MILLIONS OF
SHARES $ SHARES $ SHARES $
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Common shares, beginning of year..................... 193.6 $2,595 191.8 $2,570 152.9 $1,822
Shares issued for:
Conversion of convertible subordinated
debentures.................................... 1.6 24 35.6 585 -- --
Acquisition of Rainy River...................... -- -- -- -- 11.9 216
Exercise of stock options....................... 0.6 4 0.2 1 0.1 1
Shares purchased and canceled for
$194 million....................................... -- -- -- -- (8.7) (54)
----------- ------ ----------- ------ ----------- ------
Common shares, end of year........................... 194.2 $2,599 193.6 $2,595 191.8 $2,570
----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------
</TABLE>
The $140 million excess of purchase price over the average stated capital
of shares purchased and canceled in 1995 was charged to retained earnings.
At December 31, 1997, Abitibi-Consolidated Inc. had 3.3 million
(1996 -- 3.7 million; 1995 -- 3.3 million) management stock options outstanding.
These options are exercisable at prices between $12.25 and $22.69 and expire
between 1998 and 2005.
The payment of a cash dividend on Abitibi-Consolidated Inc.'s common stock
is restricted under certain debt agreements. Abitibi-Consolidated Inc. satisfied
all the conditions of the debt agreements prior to declaring dividends.
(c) Preferred shares
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------- -------------------
MILLIONS OF MILLIONS OF MILLIONS OF
SHARES $ SHARES $ SHARES $
----------- ---- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Preferred shares, beginning of year...................... 0.9 $ 10 5.5 $ 110 1.0 $ 11
Acquisition of Rainy River............................... -- -- -- -- 23.2 500
Shares redeemed and canceled............................. (0.9) (10) (4.6) (100) (18.6) (400)
Shares retracted by holders.............................. -- -- -- -- (0.1) (1)
----- ---- ----- ----- ----------- -----
Preferred shares, end of year............................ -- $ -- 0.9 $ 10 5.5 $ 110
----- ---- ----- ----- ----------- -----
----- ---- ----- ----- ----------- -----
</TABLE>
16. PENSION PLANS
Abitibi-Consolidated Inc. primarily has contributory, defined benefit
pension plans that provide benefits based on length of service and final average
earnings. Abitibi-Consolidated Inc. has an obligation to ensure these plans have
sufficient funds to pay the benefits earned. Abitibi-Consolidated Inc.'s
contributions are made in accordance with the annual regulatory contribution
requirements.
At December 31, the funded status, on an accounting basis, of
Abitibi-Consolidated Inc.'s pension plans is:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Market value of assets............................................................... $1,918 $1,711
Actuarial present value of accumulated plan benefits based on current service and
compensation levels:
Vested.......................................................................... 1,498 1,459
Non-vested...................................................................... 56 77
------ ------
1,554 1,536
------ ------
Excess of market value of assets over accumulated benefit obligations................ $ 364 $ 175
------ ------
------ ------
</TABLE>
In 1997, pension plan assets were increased by Abitibi-Consolidated Inc.
and employee contributions of $47 million (1996 -- $52 million) and pension plan
investment gains of $284 million (1996 -- $232 million). The plan assets were
reduced by benefit payments of $116 million (1996 -- $115 million) and $8
million (1996 -- $8 million) paid for pension fund expenses. Effective January
1, 1996 plan assets were also reduced by $11 million, the value of past service
benefits for non-union employees who elected to transfer to a new defined
contribution plan offered by Abitibi-Consolidated Inc.
On a going concern basis, using assumptions required by regulatory
authorities, the pension plans had an aggregate unfunded liability of $28
million (1996 -- $111 million) at the time of the latest actuarial valuation
reports.
17. FINANCIAL INSTRUMENTS
Abitibi-Consolidated Inc. is subject to foreign exchange exposures which
arise from its foreign currency sales and international operations. Of
Abitibi-Consolidated Inc.'s net sales, 82% is U.S. dollar denominated; and 65%
of its non-North American sales are U.S. dollar denominated with the remainder
in local currencies.
Abitibi-Consolidated Inc. partially manages its foreign exchange exposure
with a program of foreign exchange forward contracts with major banks as
counterparties for periods up to 5 years. Abitibi-Consolidated Inc. has a
maximum of 40% of its foreign exchange forward contracts which may be
outstanding with any one bank.
Abitibi-Consolidated Inc. had the following U.S. dollar foreign exchange
forward contracts outstanding at December 31 for the purchase of foreign
currencies:
<TABLE>
<CAPTION>
AVERAGE U.S.
DOLLAR CONTRACT AMOUNT OF
RATE TO BUY CONTRACT
$1 CDN. U.S. DOLLARS
---------------- ------------
1997 1996 1997 1996
------ ------ ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
1997................................................................. -- 75.13[c] -- $725
1998................................................................. 75.36[c] 76.59[c] $844 $420
1999................................................................. 75.68[c] 76.61[c] $476 $239
2000................................................................. 76.03[c] 76.92[c] $338 $172
2001................................................................. 76.19[c] 76.60[c] $219 $138
2002................................................................. 74.48[c] -- $142 --
</TABLE>
At December 31, 1997, Abitibi-Consolidated Inc. would have had to pay $205
million to settle its then outstanding U.S. foreign exchange contracts and other
financial instruments.
18. LEASE COMMITMENTS
As at December 31, 1997, Abitibi-Consolidated Inc. has operating lease
agreements for the rental of property, equipment and the charter of cargo
vessels. The minimum annual rental payments under these leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998.......................................................................... $19
1999.......................................................................... 11
2000.......................................................................... 10
2001.......................................................................... 9
2002.......................................................................... 8
Thereafter.................................................................... 17
---
$74
---
---
</TABLE>
19. CONTINGENT LIABILITIES
Abitibi-Consolidated Inc. and its U.S. subsidiary, Abitibi-Price
Corporation, have been named as defendants in several lawsuits, including
purported class actions, filed on behalf of homeowners in the United States
relating to certain hardboard siding products which were manufactured by
Abitibi-Price Corporation prior to October 1992. In each of the lawsuits, the
plaintiffs generally allege that Abitibi-Price Corporation's hardboard siding
was defective for the purposes for which it was sold. Abitibi-Consolidated Inc.
denies this allegation and is vigorously defending the claims made in these
actions.
Abitibi-Consolidated Inc. and its indirect U.S. subsidiaries, Abitibi
Consolidated Sales Corporation and Abitibi-Price Alabama Corporation, have been
named as defendants in two lawsuits filed in the State of Alabama. The lawsuits
have been filed allegedly on behalf of Abitibi-Consolidated Inc.'s joint venture
partnership, Alabama River Newsprint Company, and the partnership's two
corporate partners, including Parsons & Whittemore Alabama Newsprint Corp. In
the lawsuits, the plaintiffs allege a breach of the sales agreement with respect
to the promotion and volume of sales of the joint venture partnership mill, and
that the Abitibi-Consolidated partner breached its fiduciary duty to its joint
venture partner. Abitibi-Consolidated Inc. denies these allegations and is
vigorously defending the claims made in these actions.
Each of the lawsuits appears to seek substantial damages in a trial by
jury. It is not possible at this time to quantify meaningfully the amount of, or
the range of, damages implicated by plaintiffs' claims.
Management cannot at this time assess the likelihood that Abitibi-Consolidated
Inc. will incur a loss or obtain an unfavorable result in connection with any
one of these actions.
On September 20, 1996, a motion of permission to lodge a class action suit
against Abitibi-Consolidated Inc. was filed with the Superior Court of the
Chicoutimi District ('Superior Court') with respect to the Saguenay floods of
July, 1996. On October 20, 1997, the Superior Court granted the motion
permitting a class action suit to be filed against Abitibi-Consolidated Inc.. To
date no such class action suit has been filed. Abitibi-Consolidated Inc. is
insured against such potential claims up to a maximum of $100 million which
Abitibi-Consolidated Inc. believes to be sufficient.
Abitibi-Consolidated Inc. is subject to a number of other unrelated claims
in respect of which either an adequate provision has been made or for which no
material liability is expected.
20. RELATED PARTY TRANSACTIONS
Abitibi-Consolidated Inc. undertakes a number of transactions with its
major shareholder, Stone Container (Canada) Inc. (Stone Container), and its
affiliated companies.
The following table summarizes the transactions between
Abitibi-Consolidated Inc. and related parties which are in the normal course of
business at normal trade terms:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Newsprint sales to a Stone Container affiliate..................................... $ -- $32 $32
Pulp purchases from Stone Container and affiliates................................. 15 15 20
Newsprint brokerage commissions from a Stone Container affiliate................... 10 11 12
Expenses charged to Stone Container for services................................... 6 4 5
Expenses charged by a Stone Container affiliate for services....................... -- 2 4
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our audit of the consolidated financial statements referred to in our
report dated January 30, 1998, appearing on page F-42 of this Registration
Statement also included an audit of the presentation of financial information
appearing on pages F-64 to F-68 of this Registration Statement. In our opinion,
the presentation of financial information appearing on pages F-64 to F-68 of
this Registration Statement presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
Chartered Accountants
January 30, 1998
Montreal, Quebec, Canada
ABITIBI-CONSOLIDATED INC.
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Abitibi-Consolidated Inc.'s financial statements included in its Form 40-F
have been prepared in accordance with generally accepted accounting principles
('GAAP') in Canada which, in the case of Abitibi-Consolidated Inc., conform in
all material respects with U.S. GAAP, with the following material exceptions:
(a) Abitibi-Consolidated Inc. defers exchange gains and losses on U.S.
dollar debt hedged by anticipated future revenue. Under U.S. GAAP, any
unrealized exchange gains or losses on U.S. dollar debt hedged by
anticipated future revenue would be recognized in income immediately.
(b) Abitibi-Consolidated Inc. has outstanding foreign exchange forward
contracts which it designates as a hedge of anticipated future revenue.
Under U.S. GAAP, any unrealized gains or losses on such foreign exchange
forward contracts would be recognized in income immediately.
(c) Abitibi-Consolidated Inc. follows the deferral method of
accounting for income taxes. Under U.S. GAAP, the asset and liability
method of accounting for income taxes would be used.
(d) Abitibi-Consolidated Inc. accounts for its joint venture
investments using the proportionate consolidation method. Under U.S. GAAP,
these joint ventures would be accounted for using the equity method.
(e) The amalgamation of Abitibi-Price Inc. and Stone-Consolidated
Corporation was accounted for as a pooling of interests. Under U.S. GAAP,
the amalgamation would be accounted for by Stone-Consolidated Corporation
using the purchase method and the results of Abitibi-Price Inc.'s
operations would be included only from the date of amalgamation. In
addition, certain amalgamation related costs were expensed or charged to
retained earnings under Canadian GAAP. Under the purchase method, certain
of these costs amounting to $83 million (of which $61 million was expensed
and $22 million was charged to retained earnings under Canadian GAAP) would
be capitalized and increase the amount of recorded goodwill.
The allocation of the purchase price of Abitibi-Price Inc. would be as
follows (in millions of Canadian dollars):
<TABLE>
<S> <C>
ASSETS ACQUIRED
Current assets............................................................................ $ 712
Fixed assets.............................................................................. 1,354
Goodwill.................................................................................. 1,003
Investments and other assets.............................................................. 223
------
3,292
LIABILITIES ASSUMED
Current liabilities....................................................................... (434)
Long-term debt............................................................................ (633)
Deferred income taxes..................................................................... (180)
Other..................................................................................... (82)
------
NET ASSETS ACQUIRED FOR FAIR VALUE CONSIDERATION OF 89.2 MILLION COMMON SHARES OF
ABITIBI-CONSOLIDATED INC..................................................................... $1,963
------
------
</TABLE>
Goodwill is being amortized over 40 years.
The following financial information is presented in accordance with U.S.
GAAP, reflecting the adjustments disclosed above.
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED EARNINGS
(U.S. GAAP)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS OF CANADIAN
DOLLARS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Gross sales.......................................................................... $3,466 $2,286 $1,728
Freight sales........................................................................ 320 149 129
------ ------ ------
NET SALES............................................................................ 3,146 2,137 1,599
Cost of sales........................................................................ 2,617 1,606 1,091
Depreciation and amortization........................................................ 270 176 105
Selling, general and administrative expenses......................................... 122 52 27
Non-recurring expenses relating to the amalgamation.................................. 42 -- --
Restructuring expenses............................................................... 10 -- --
------ ------ ------
OPERATING PROFIT FROM CONTINUING OPERATIONS.......................................... 85 303 376
Interest expense on long-term debt................................................... 77 72 41
Debt extinguishment costs and write-off of redundant fixed assets relating to the
amalgamation....................................................................... 72 -- --
Unusual items........................................................................ -- (22) 41
Other expense (income), net.......................................................... 17 (12) (7)
Mark-to-market of foreign exchange forward contracts................................. 117 -- --
------ ------ ------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....................... (198) 265 301
Recovery of (provision for) income taxes............................................. 49 (89) (109)
------ ------ ------
Earnings (loss) from continuing operations........................................... (149) 176 192
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE OF $4............... 7 -- --
------ ------ ------
Net earnings (loss) for the year..................................................... $ (142) $ 176 $ 192
------ ------ ------
------ ------ ------
PER COMMON SHARE:
Earnings (loss) from continuing operations........................................... $(0.95) $ 1.68 $ 2.67
Net earnings (loss) for the year
Basic........................................................................... (0.91) 1.68 2.67
Fully diluted................................................................... (0.91) 1.68 2.67
Weighted average number of common shares outstanding (millions)
Basic........................................................................... 156.8 104.7 72.0
Fully diluted................................................................... 159.4 105.8 84.4
Fully diluted number of common shares outstanding at year-end (millions)............. 197.5 105.8 105.3
</TABLE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED RETAINED EARNINGS
(U.S. GAAP)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996 1995
----- ---- ----
(IN MILLIONS OF
CANADIAN DOLLARS)
<S> <C> <C> <C>
Retained earnings (deficit), beginning of year............................................ $ 319 $143 $(49)
Net earnings (loss) for the year.......................................................... (142) 176 192
Dividends declared........................................................................ (58) -- --
----- ---- ----
Retained earnings, end of year............................................................ $ 119 $319 $143
----- ---- ----
----- ---- ----
</TABLE>
ABITIBI-CONSOLIDATED INC.
CHANGES IN CONSOLIDATED CASH POSITION
(U.S. GAAP)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ---- ----
(IN MILLIONS OF
CANADIAN DOLLARS)
<S> <C> <C> <C>
CONTINUING OPERATING ACTIVITIES
Earnings (loss) from continuing operations.............................................. $ (149) $176 $192
Depreciation............................................................................ 234 155 90
Goodwill amortization................................................................... 36 21 15
Provision for (recovery of) deferred income taxes....................................... (57) 63 96
Non-recurring expenses relating to the amalgamation..................................... 54 -- --
Restructuring expenses.................................................................. 10 -- --
Other non-cash items.................................................................... 110 -- (12)
Changes in non-cash operating working capital components of continuing operations:
Decrease (increase) in current assets of continuing operations
Accounts receivable........................................................... 152 71 (48)
Inventories................................................................... 79 (93) (44)
Prepaid expenses.............................................................. 10 (4) (2)
(Decrease) increase in accounts payable and accrued liabilities of continuing
operations........................................................................ 32 (29) 29
------- ---- ----
Cash generated by continuing operating activities....................................... 511 360 316
------- ---- ----
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Increase in long-term debt and bank indebtedness................................... -- 377 392
Repayment of long-term debt and bank indebtedness.................................. (127) (309) (85)
Issuance of common shares on acquisition........................................... 1,963 -- --
Preferred shares redeemed and canceled............................................. -- (100) (400)
Other.............................................................................. 8 -- --
------- ---- ----
Cash generated by (used in) financing activities of continuing operations............... 1,844 (32) (93)
------- ---- ----
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Additions to fixed assets.......................................................... (354) (327) (257)
Acquisitions....................................................................... (1,963) -- (73)
Decrease (increase) in investments and other assets................................ (7) 10 18
------- ---- ----
Cash used in investing activities of continuing operations.............................. (2,324) (317) (312)
------- ---- ----
Dividends paid to common shareholders................................................... (39) -- --
------- ---- ----
Cash generated by (used in) continuing operations....................................... (8) 11 (89)
Cash generated by discontinued operations............................................... 19 -- --
------- ---- ----
Increase (decrease) in cash during the year............................................. 11 11 (89)
Cash and deposits, during the year...................................................... 27 16 105
------- ---- ----
Cash and deposits, end of year.......................................................... $ 38 $ 27 $ 16
------- ---- ----
------- ---- ----
</TABLE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED BALANCE SHEETS
(U.S. GAAP)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------ ------
(IN MILLIONS OF
CANADIAN DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and deposits...................................................................... $ 38 $ 27
Accounts receivable.................................................................... 484 359
Inventories............................................................................ 402 318
Prepaid expenses....................................................................... 28 13
Current assets of discontinued operations.............................................. 232 --
------ ------
1,184 717
FIXED ASSETS................................................................................ 3,734 2,273
INVESTMENTS AND OTHER ASSETS................................................................ 131 26
DEFERRED PENSION COST....................................................................... 160 64
GOODWILL.................................................................................... 1,632 745
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS............................................... 91 --
------ ------
$6,932 $3,825
------ ------
------ ------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Continuing operations............................................................. $ 661 $ 357
Discontinued operations........................................................... 92 --
Dividends payable...................................................................... 19 --
Current portion of long-term debt
Recourse.......................................................................... 90 85
Non-recourse...................................................................... 1 --
------ ------
863 442
LONG-TERM DEBT
Recourse............................................................................... 1,338 770
Non-recourse........................................................................... 22 --
DEFERRED INCOME TAXES....................................................................... 441 309
OTHER....................................................................................... 226 28
------ ------
2,890 1,549
------ ------
SHAREHOLDERS' EQUITY
Common shares............................................................................... 3,923 1,957
Retained earnings........................................................................... 119 319
------ ------
4,042 2,276
------ ------
$6,932 $3,825
------ ------
------ ------
</TABLE>
STONE-CONSOLIDATED CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AUDITORS' REPORT
To the Directors of
Stone-Consolidated Corporation
We have audited the consolidated balance sheets of Stone-Consolidated
Corporation as at December 31, 1996 and 1995 and the consolidated statements of
operations, changes in financial position and shareholders' equity for each of
the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Stone-Consolidated Corporation
as at December 31, 1996 and 1995 and the results of its operations and the
changes in its financial position for each of the years in the three-year period
ended December 31, 1996 in accordance with generally accepted accounting
principles in Canada.
PRICE WATERHOUSE
Chartered Accountants
January 24, 1997 (except for Note 20 which is as of February 14, 1997)
Montreal, Quebec, Canada
STONE-CONSOLIDATED CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
---------- ----------
(IN THOUSANDS OF CANADIAN
DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term deposits.................................................. $ 27,083 $ 16,251
Accounts receivable
Trade...................................................................... 291,606 380,024
Other...................................................................... 67,246 34,030
Inventories (Note 4).......................................................... 317,638 207,753
Other......................................................................... 13,076 7,394
---------- ----------
Total current assets............................................................ 716,649 645,452
Property, plant and equipment (Note 5).......................................... 2,237,325 2,054,283
Timberlands..................................................................... 24,555 25,039
Goodwill less amortization (Note 2)............................................. 755,587 752,418
Other assets (Note 6)........................................................... 156,342 142,663
---------- ----------
Total assets.................................................................... $3,890,458 $3,619,855
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES.............................................................
Accounts payable.............................................................. $ 249,309 $ 254,639
Income taxes.................................................................. 14,580 4,955
Accrued and other current liabilities......................................... 93,489 90,032
Current maturities of long-term debt.......................................... 84,664 60,000
Redeemable Class A preferred shares (Note 7).................................. -- 100,000
---------- ----------
Total current liabilities....................................................... 442,042 509,626
Long-term debt (Note 8)......................................................... 770,424 712,342
Deferred taxes (Note 9)......................................................... 351,220 263,442
---------- ----------
Total liabilities............................................................... 1,563,686 1,485,410
Commitments and contingencies (Note 14)
SHAREHOLDERS' EQUITY
Stated capital (Note 10)...................................................... 1,956,591 1,956,424
Retained earnings............................................................. 334,272 169,965
Foreign currency translation adjustment....................................... 35,909 8,056
---------- ----------
Total shareholders' equity...................................................... 2,326,772 2,134,445
---------- ----------
Total liabilities and shareholders' equity...................................... $3,890,458 $3,619,855
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<S> <C>
Approved by the Board
(Signed) James Doughan (Signed) Jean Van Neste
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994
---------- --------------------- ---------------------
(RESTATED -- NOTE 2) (RESTATED -- NOTE 2)
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES
Manufactured products.................................... $1,956,043 $ 1,661,395 $ 1,091,316
Brokered products........................................ 330,395 66,802 --
---------- ------------ -----------
2,286,438 1,728,197 1,091,316
COST OF PRODUCTS SOLD
Manufactured products.................................... 1,438,715 1,156,426 939,507
Brokered products........................................ 316,763 63,799 --
---------- ------------ -----------
1,755,478 1,220,225 939,507
Selling, general and administrative expenses............... 65,758 43,318 31,934
Depreciation and amortization.............................. 175,564 105,321 93,546
Other operating income (Note 11)........................... (33,546) (13,651) (11,426)
---------- ------------ -----------
1,963,254 1,355,213 1,053,561
---------- ------------ -----------
Income from operations..................................... 323,184 372,984 37,755
Redemption expenses (Note 3)............................... -- (40,644) --
Other income (expense)..................................... 5,194 (1,019) 5,882
Interest expense on long-term debt......................... (71,565) (40,776) (42,449)
Interest income............................................ 6,896 8,605 6,852
---------- ------------ -----------
Income before income taxes................................. 263,709 299,150 8,040
Provision for income taxes (Note 9)........................ 99,402 108,380 7,682
---------- ------------ -----------
Net income................................................. $ 164,307 $ 190,770 $ 358
---------- ------------ -----------
---------- ------------ -----------
Net income (loss) per common share (Note 12)............... $ 1.58 $ 2.59 $ (0.12)
---------- ------------ -----------
---------- ------------ -----------
OPERATING ACTIVITIES
Net income............................................. $ 164,307 $ 190,770 $ 358
Items not requiring (providing) cash
Depreciation and amortization..................... 175,564 105,321 93,546
Deferred income taxes............................. 74,620 96,305 2,780
Other............................................. -- (1,432) (3,692)
Changes in non-cash working capital.................... (54,935) (63,724) (72,523)
Interest on equity element of convertible debentures... -- (10,700) (12,000)
---------- ---------- ----------
---------- ---------- ----------
Net cash provided by operations........................ 359,556 316,540 8,469
---------- ---------- ----------
INVESTING ACTIVITIES
Acquisitions of businesses............................. (33,409) (746,889) --
Capital expenditures................................... (293,177) (257,243) (95,317)
Other.................................................. 10,160 17,919 (1,991)
---------- ---------- ----------
Net cash used in investing activities.................. (316,426) (986,213) (97,308)
---------- ---------- ----------
FINANCING ACTIVITIES
Issuance of common shares.............................. 167 674,647 --
Issuance of redeemable preferred shares................ -- 500,000 --
Redemption of redeemable preferred shares.............. (100,000) (400,000) --
Redemption of convertible debentures................... -- (500,288) --
Issuance of debt....................................... 376,784 391,749 --
Payment of debt........................................ (309,249) (85,000) (3,875)
---------- ---------- ----------
Net cash (used in) provided by financing activities.... (32,298) 581,108 (3,875)
---------- ---------- ----------
Net increase (decrease) in cash............................. 10,832 (88,565) (92,714)
Cash balance, beginning of year............................. 16,251 104,816 197,530
---------- ---------- ----------
Cash balance, end of year................................... $ 27,083 $ 16,251 $ 104,816
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
Cash includes cash and short-term deposits.
See accompanying notes to the consolidated financial statements.
STONE-CONSOLIDATED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994
---------- --------------------- ---------------------
(RESTATED -- NOTE 2) (RESTATED -- NOTE 2)
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
COMMON SHARES
Balance at beginning of year.......................... $1,956,424 $ 1,281,777 $ 1,281,777
Issuance of common shares (Note 10)................... 167 674,647 --
---------- ----------- -----------
Balance at end of year................................ 1,956,591 1,956,424 1,281,777
---------- ----------- -----------
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year.......................... 169,965 (13,505) (5,663)
Net income for the year............................... 164,307 190,770 358
Interest on equity element of convertible debentures,
net of deferred income taxes of $3,400 in 1995 and
$3,800 in 1994...................................... -- (7,300) (8,200)
---------- ----------- -----------
Balance at end of year................................ 334,272 169,965 (13,505)
---------- ----------- -----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year.......................... 8,056 15,274 (12,907)
Net effect of changes in exchange rates............... 27,853 (7,218) 28,181
---------- ----------- -----------
Balance at end of year................................ 35,909 8,056 15,274
---------- ----------- -----------
Shareholders' equity....................................... $2,326,772 $ 2,134,445 $ 1,283,546
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
STONE-CONSOLIDATED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(In thousands of Canadian dollars, unless otherwise noted)
1. NATURE OF OPERATIONS
Stone-Consolidated Corporation and its subsidiaries ('Stone-Consolidated')
manufacture and market newsprint, uncoated groundwood papers, market pulp and
lumber. Stone-Consolidated has seven fully integrated production facilities in
Quebec, Ontario and Washington (U.S.A.) and one newsprint mill in the United
Kingdom. Stone-Consolidated's principal markets are the United States, Western
Europe, Canada and Asia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Formation
Stone-Consolidated Corporation was incorporated under the Canada Business
Corporations Act ('CBCA') on June 22, 1993. On December 17, 1993,
Stone-Consolidated acquired the assets, principally comprised of the newsprint
and uncoated groundwood papers business, of Stone Container (Canada) Inc.
('Stone Canada'). These assets are carried in the accounts of Stone-Consolidated
at the historical book value in the financial records of Stone Canada. On
November 1, 1995, Stone-Consolidated acquired Rainy River Forest Products Inc.
('Rainy River'). Rainy River and Stone-Consolidated were amalgamated and
continued as one corporation under the CBCA. For further details of the
amalgamation, refer to Note 3.
Principles of consolidation
The consolidated financial statements include the accounts of
Stone-Consolidated Corporation and all of its subsidiaries. All significant
inter-company items are eliminated.
Foreign currency translation
For Canadian operations and integrated foreign subsidiaries, assets and
liabilities denominated in foreign currencies are translated into Canadian
dollars at exchange rates prevailing at the balance sheet date for monetary
items and at exchange rates prevailing at the transaction dates for non-monetary
items. Income and expenses are translated at average rates prevailing during the
year. Exchange gains or losses are included in income except for unrealized
gains or losses on translation of foreign long-term debt which are deferred and
amortized over the remaining term of the related obligation.
For self-sustaining foreign subsidiaries, all assets and liabilities are
translated into Canadian dollars at the exchange rates prevailing at the balance
sheet date and all income and expenses are translated at average exchange rates
prevailing during the year. Foreign currency translation adjustments are
deferred in the shareholders' equity section of the balance sheet.
The US$110,000 senior secured notes are considered to be an effective hedge
of the Stone-Consolidated's net investment in a U.S. subsidiary. Accordingly,
the gains or losses arising from the translation of this foreign currency
denominated long-term debt are deferred in the shareholders' equity section of
the balance sheet.
Stone-Consolidated seeks to manage the foreign exchange risks arising from
movements in exchange rates between the Canadian and U.S. dollar principally on
its U.S. dollar denominated revenues. When appropriate, Stone-Consolidated
purchases U.S. dollar put options, at a cost, to fix specific minimum exchange
rates on conversion of U.S. dollars. Stone-Consolidated records these options
at market value and any gains or losses are included in income.
Inventories
Inventories are stated at the lower of cost and net realizable value. The
average cost method is used for all inventories. Cost of wood and finished
products includes raw materials and supplies, direct labor and an allocation of
overhead. Provision is made for slow-moving and obsolete inventories.
Property, plant and equipment, timberlands and depreciation
Property, plant and equipment is stated at cost, which includes capitalized
interest. Timberlands are stated at cost less accumulated cost of timber
harvested. Expenditures for maintenance and repairs are charged to income as
incurred. Additions, improvements and major replacements are capitalized. The
cost and accumulated depreciation related to assets sold or retired are removed
from the accounts and any gain or loss is credited or charged to income.
Depreciation on plant and equipment is provided for on a straight-line
basis over the expected lives of the assets using the following annual rates:
<TABLE>
<S> <C>
Machinery and equipment....................................................... 5% - 6 1/4%
Buildings..................................................................... 2 1/2%
</TABLE>
Goodwill and other assets
Goodwill is amortized on a straight-line basis over 40 years. Goodwill is
recorded net of accumulated amortization of $115,469 and $92,544 at December 31,
1996 and 1995, respectively. Annually, Stone-Consolidated assesses whether there
has been a permanent impairment in the value of goodwill. This is accomplished
by determining whether projected undiscounted future cash flows from operations
exceed the net book value of assets acquired and goodwill as of the assessment
date. Such projections reflect price, volume and cost assumptions. Additional
factors considered by management in the preparation of the projections and in
assessing the value of goodwill include the effects of obsolescence, demand,
competition and other pertinent economic factors, and trends and prospects that
may have an impact on the value or remaining useful life of goodwill.
Deferred financing costs are amortized over the expected life of the
related debt using the straight-line method.
Pre-production costs on major projects are deferred and amortized over a
period of five years.
Pensions and other post-retirement and post-employment benefits
The cost of the pension benefits earned by the employees is determined
using for the most part the projected benefit method prorated on services. The
net pension expense reflects the current service cost, the interest on the
actuarial surplus or unfunded liability and the amortization over the estimated
average remaining service life of the employees of (i) the actuarial surplus or
unfunded liability and (ii) experience gains or losses. Other post-retirement
(health care, dental care and life insurance) and post-employment (short- and
long-term disability) benefits are accounted for on a 'pay-as-you-go' basis.
Coverage is provided to salaried employees for post-retirement benefits and to
all employees for post-employment benefits.
Income taxes
Income taxes are recorded using the deferral method of accounting. Deferred
income taxes shown in the financial statements result principally from
differences between depreciation and capital cost allowance claimed for tax
purposes.
Environmental remediation and compliance
Environmental expenditures resulting in additions to property, plant and
equipment that increase useful lives are capitalized, while other environmental
expenditures are charged to expense. Liabilities are recorded when assessments
and/or remedial efforts are probable and the cost can be reasonably estimated.
Change in accounting policy
Effective in 1996, Stone-Consolidated retroactively adopted new accounting
recommendations of the Canadian Institute of Chartered Accountants on the
presentation and disclosure of financial instruments.
The new accounting recommendations require the convertible debentures
issued by Stone-Consolidated in 1993 to be split between a debt element and an
equity element. The debt element was determined using the present value of the
interest payments up to January 1, 1999 (date at which the convertible
debentures are redeemable at the option of Stone-Consolidated without any
restrictions), while the remaining portion of the principal amount of
convertible debentures was presented in shareholders' equity. The interest
expense related to the debt element was charged to income and the interest
expense related to the equity element was charged to retained earnings, net of
income taxes. This change results in an increase in net income for the years
ended December 31, 1995 and 1994 of $7.3 million and $8.2 million, respectively,
with no effect on retained earnings. There is no effect on net income for the
year ended December 31, 1996 or on the balance sheets as at December 31, 1996
and 1995 as on November 1, 1995, the convertible debentures were converted into
common shares.
3. ACQUISITIONS OF BUSINESSES
Acquisitions (1996)
During 1996, Stone-Consolidated acquired, for approximately $22 million, an
82% interest in a sawmill near La Tuque, Quebec and a 20% interest in a sawmill
located near Quebec City. Stone-Consolidated has also invested approximately $11
million as its 21% share of the investment in a joint venture to construct and
operate an oriented strand board mill located near Fort Frances, Ontario.
Acquisition of Rainy River (1995)
On November 1, 1995, Stone-Consolidated and Rainy River amalgamated and
continued as one corporation under the name 'Stone-Consolidated Corporation'.
Rainy River was a manufacturer and seller of newsprint, uncoated groundwood
papers and market pulp. It owned and operated three integrated pulp and paper
mills located in Kenora and Fort Frances, Ontario and Tacoma, Washington
(U.S.A.).
The amalgamation was accounted for as the acquisition of Rainy River by
Stone-Consolidated. The purchase method of accounting was used to account for
the business combination and the results of operations of Rainy River are
included from the date of acquisition.
The non-recurring redemption expenses of $40,644 consist primarily of
$36,960 relating to the payment of $160 per $1,000 principal amount of
debentures of Stone-Consolidated. The impact of these expenses on net income per
common share is $0.37.
<TABLE>
<S> <C>
ALLOCATION OF PURCHASE PRICE
ASSETS ACQUIRED AT ASSIGNED VALUE
Working capital...................................................................... $ 93,939
Fixed assets......................................................................... 843,553
Goodwill............................................................................. 292,338
Other................................................................................ 16,811
----------
1,246,641
LIABILITIES ASSUMED
Long-term debt....................................................................... 148,225
Deferred income taxes................................................................ 98,413
Convertible debentures............................................................... 269,288
----------
515,926
----------
NET ASSETS ACQUIRED AT FAIR VALUE......................................................... $ 730,715
----------
----------
CONSIDERATION
Issuance of 11,938,165 common shares................................................. $ 216,295
Issuance of 23,255,814 redeemable preferred shares................................... 500,000
Cash................................................................................. 14,420
----------
$ 730,715
----------
----------
</TABLE>
The following pro forma selected financial information shows the results of
Stone-Consolidated as though the acquisition of Rainy River had been made as of
January 1, 1995 and 1994 respectively.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1995 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................................... $2,690,460 $1,900,520
Income from operations...................................................... 520,784 1,033
Net income (loss)*.......................................................... 258,126 (86,961)
Net income (loss) per common share (in dollars)............................. 2.41 (0.92)
</TABLE>
- ------------
* Includes non-recurring redemption expenses of $40,644 before provision for
income taxes.
------------------------
The above pro forma financial information is not necessarily indicative of
the actual results of operations that would have occurred had the purchase
actually been made at the beginning of 1995 and 1994.
Acquisition of Stirling Fibre (Holdings) Limited (1995)
In July 1995, the U.K. subsidiary purchased all of the shares of Stirling
Fibre (Holdings) Limited for approximately $16 million. Located in central
Scotland, Stirling Fibre is one of the largest independent waste paper merchants
and processors in the U.K.
4. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Wood.................................................................. $ 43,257 $ 45,761
Raw materials and supplies............................................ 115,235 111,264
Finished products..................................................... 159,146 50,728
-------- --------
$317,638 $207,753
-------- --------
-------- --------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
---------------------------------------- ----------------------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION NET COST DEPRECIATION NET
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Land and land
improvements............ $ 21,427 $ -- $ 21,427 $ 16,526 $ -- $ 16,526
Building and leasehold
improvements............ 407,472 57,495 349,977 371,895 38,662 333,233
Machinery and equipment... 2,308,533 580,121 1,728,412 1,862,956 431,140 1,431,816
Construction in
progress................ 137,509 -- 137,509 272,708 -- 272,708
---------- ------------ ---------- ---------- ------------ ----------
$2,874,941 $637,616 $2,237,325 $2,524,085 $469,802 $2,054,283
---------- ------------ ---------- ---------- ------------ ----------
---------- ------------ ---------- ---------- ------------ ----------
</TABLE>
Environmental capital expenditures for the years ended December 31, 1996
and 1995 were $16 million and $85 million respectively.
Interest capitalized on major additions for the years ended December 31,
1996, 1995 and 1994 was $5,828, $9,435 and $700 respectively.
6. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred pension costs................................................ $ 90,558 $ 73,938
Pre-production costs.................................................. 10,916 8,972
Non-current receivables............................................... 15,509 15,450
Deferred financing costs.............................................. 16,167 20,342
Deferred exchange losses.............................................. 4,299 4,130
Other................................................................. 18,893 19,831
-------- --------
$156,342 $142,663
-------- --------
-------- --------
</TABLE>
7. REDEEMABLE CLASS A PREFERRED SHARES
The redeemable Class A preferred shares were issuable in series. On
November 1, 1995, 23,255,814 Series 1 redeemable Class A preferred shares were
issued. These shares were entitled to cumulative cash dividends accruing from
day to day at a rate of 8% per annum, calculated daily at $21.50 per share.
Dividends are recorded as interest expense. The market value of these shares as
at December 31, 1995 was not materially different from book value.
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
NUMBER OF SHARES STATED VALUE NUMBER OF SHARES STATED VALUE
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year................. 4,651,178 $100,000 -- $ --
Issuance of shares to acquire Rainy River..... -- -- 23,255,814 500,000
Redeemed and canceled......................... 4,651,178 100,000 18,604,636 400,000
--------- -------- ---------- --------
Outstanding-end of year....................... -- $ -- 4,651,178 $100,000
--------- -------- ---------- --------
--------- -------- ---------- --------
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Senior secured notes
US$225 million due 2000.................................................... $308,160 $307,170
US$110 million due 2001.................................................... 150,656 150,172
Term facility due 2000.......................................................... 239,979 300,000
Revolving credit facility due 2000.............................................. 98,000 15,000
Reducing credit facility due 2000............................................... 29,750 --
Others.......................................................................... 28,543 --
-------- --------
855,088 772,342
Less: Current maturities........................................................ 84,664 60,000
-------- --------
$770,424 $712,342
-------- --------
-------- --------
</TABLE>
Senior secured notes
The senior secured notes due 2000 are secured by a first ranking lien on
Stone-Consolidated's mills located in Shawinigan, Grand-Mere and La Baie,
Quebec. These notes bear interest at 10.25% per annum and are not redeemable at
the option of the Company prior to December 15, 1998.
The senior secured notes due 2001 are secured by a first ranking lien on
Stone-Consolidated's mill at Fort Frances, Ontario. These notes bear interest at
10.75% per annum and are not redeemable at the option of the Company prior to
October 15, 1999.
Both senior notes may be redeemed in whole or in part during specific
periods and under specific circumstances. Stone-Consolidated may be obligated to
repurchase the senior notes if certain specific events occur under the
indentures. The indentures governing the notes contain certain covenants that,
among other things, limit the type and amount of additional indebtedness that
may be incurred by Stone-Consolidated and certain of its subsidiaries and impose
limitations on investments, sales or transfers of assets, dividends and other
payments, the creation of liens, sale-leaseback transactions, transactions with
affiliates, and mergers.
Term facility
The term facility of $300 million is unsecured and is repayable in
quarterly payments of $15 million. In addition, the term facility has mandatory
and voluntary prepayment provisions, including the mandatory prepayment of 50%
of 'excess cash flow' up to a maximum of $50 million per year. Interest rates or
stamping fees, as the case may be, on the term facility are as follows: (i)
during the first year, at the prime or base rate, plus 1.125% per year and, in
respect of London Interbank Offer Rate (LIBOR) loans or bankers' acceptances,
plus 1.75% per year; and (ii) from the second to the fifth years, subject to
credit ratings, at the prime or base rate, plus 0.125% to 1.375% per year and,
in respect of LIBOR loans or bankers' acceptances, plus 0.625% to 2.125% per
year.
Revolving credit facility
The revolving credit facility is a $300-million five-year credit facility
secured by eligible accounts receivable and eligible inventories. Interest rates
or stamping fees, as the case may be, on the revolving facility are as follows:
(i) during the first year, subject to credit ratings, at the prime or base rate,
as the case may be, plus 0.875% per year and, in respect of LIBOR loans or
bankers' acceptances, plus 1.50% per year; and (ii) from the second to the fifth
years, subject to credit ratings, at the prime or base rate, plus 0% to 1.125%
per year and, in respect of LIBOR loans or bankers' acceptances, plus 0.50% to
1.875% per year.
Reducing credit facility
The reducing credit facility is a $35 million five-year credit facility
secured by a first ranking lien on property, plant and equipment of
Stone-Consolidated's sawmills. The credit facility is payable in quarterly
instalments and bears interest at either prime rate, LIBOR advance rate or
bankers' acceptance rate.
Minimum payments
Minimum payments on long-term debt for each of the next five years are as
follows:
<TABLE>
<S> <C>
1997.................................................................... $ 84,914
1998.................................................................... $ 69,213
1999.................................................................... $ 69,334
2000.................................................................... $478,324
2001.................................................................... $151,276
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
CURRENT
-- Canada................................................................. $19,191 $ 4,491 $ 3,436
-- U.S.A. ................................................................ 5,556 7,351 1,416
-- U.K. .................................................................. 35 233 50
------- -------- -------
24,782 12,075 4,902
DEFERRED
-- Canada................................................................. 58,769 93,125 3,178
-- U.S.A. ................................................................ (670) -- --
-- U.K. .................................................................. 16,521 3,180 (398)
------- -------- -------
74,620 96,305 2,780
------- -------- -------
Total provision for income taxes................................................ $99,402 $108,380 $ 7,682
------- -------- -------
------- -------- -------
</TABLE>
The income tax at the combined Canadian federal and provincial income tax
rate is reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Income tax at combined Canadian federal and provincial income tax
rate................................................................ $102,055 $115,053 $3,055
Manufacturing and processing profits deduction........................ (12,138) (16,127) (482)
Non-deductible amortization of goodwill............................... 7,545 4,363 4,292
Large corporations tax................................................ 6,705 4,489 3,436
Difference in tax rates for foreign subsidiaries...................... (2,108) (371) 129
Non-taxable income.................................................... (3,809) (557) (2,465)
Other -- net.......................................................... 1,152 1,530 (283)
-------- -------- ------
Provision for income taxes............................................ $ 99,402 $108,380 $7,682
-------- -------- ------
-------- -------- ------
</TABLE>
The components of the deferred taxes are:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets
Loss carryforwards......................................................... $ 22,621 $ 38,160
Deferred tax liabilities
Depreciation and amortization.............................................. 343,958 272,496
Pre-production costs....................................................... 2,513 2,872
Pension.................................................................... 31,028 25,273
Other...................................................................... (3,658) 961
-------- --------
Total deferred tax liability.................................................... 373,841 301,602
-------- --------
Deferred tax liability--net..................................................... $351,220 $263,442
-------- --------
-------- --------
</TABLE>
The loss carryforwards relate to approximately $68.5 million of net
operating losses of the U.K. subsidiary and are available indefinitely for U.K.
income tax purposes.
The income before income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Canada............................................................... $202,878 $271,041 $ 6,520
U.S.A. .............................................................. 12,594 18,534 3,987
U.K. ................................................................ 48,237 9,575 (2,467)
-------- -------- -------
Income before income taxes........................................... $263,709 $299,150 $ 8,040
-------- -------- -------
-------- -------- -------
</TABLE>
10. STATED CAPITAL
The amalgamated company created on November 1, 1995 under the plan of
arrangement as described in Note 3 has the same authorized share capital as
Stone-Consolidated Corporation prior to the amalgamation.
Authorized
The authorized share capital of Stone-Consolidated consists of an unlimited
number of common shares and an unlimited number of preferred shares issuable in
series, in each case without nominal or par value. For preferred shares issued
and outstanding, refer to Note 7.
Issued
Common shares
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
NUMBER OF SHARES STATED VALUE NUMBER OF SHARES STATED VALUE
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year............. 103,996,769 $1,956,424 65,000,100 $1,281,777
Conversion of debentures...................... -- -- 27,044,693 458,142
Issuance of shares to acquire Rainy River..... -- -- 11,938,165 216,295
Exercise of options........................... 11,151 167 13,811 210
---------------- ------------ ---------------- ------------
Outstanding - end of year................... 104,007,920 $1,956,591 103,996,769 $1,956,424
---------------- ------------ ---------------- ------------
---------------- ------------ ---------------- ------------
</TABLE>
Stone-Consolidated has an employee share option plan for its key employees.
Options may be granted for the purchase of up to 10% of the issued and
outstanding common shares. A total of 6,500,100 common shares have initially
been reserved for issuance under the option plan. The options granted in 1994
vested on the first anniversary date of the date of grant. One-quarter of the
options granted in 1995 and 1996 vest on each of the first, second, third and
fourth anniversary dates of the date of grant. At December 31, 1996, 271,761
options are exercisable (1995 -- 128,791; 1994 -- nil). These options expire at
various dates during the next 10 years. The weighted average remaining
contractual life of all options outstanding at December 31, 1996 is
approximately 8.5 years. Options are exercisable at prices ranging from $14.42
to $17.94 per common share. Changes in the number of common shares under option
are summarized below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
1996 EXERCISE PRICE 1995 EXERCISE PRICE 1994 EXERCISE PRICE
--------- -------------- -------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year..... 741,718 $16.47 85,000 $16.18 -- $ --
Granted............................... 528,000 17.78 390,250 17.38 85,000 16.18
Exercised............................. (11,151) 15.15 (13,811) 15.20 -- --
Canceled.............................. (69,961) 15.30 (105,781) 15.15 -- --
Conversion............................ -- -- 386,060 15.20 -- --
--------- ------- -------- ------- ------ -------
Outstanding - end of year........... 1,188,606 $17.13 741,718 $16.47 85,000 $16.18
--------- ------- -------- ------- ------ -------
--------- ------- -------- ------- ------ -------
</TABLE>
- ------------
* Under the amalgamation in 1995, outstanding options for 371,211 common shares
of Rainy River were converted into options for 386,060 of
Stone-Consolidated's common shares. Of the 386,060 options, 195,220 were
granted in 1994 and 190,840 in 1995. One-third of these options vest on each
of the first, second and third anniversary dates of the date of grant.
11. OTHER OPERATING INCOME
In July 1996, Stone-Consolidated suffered major damage to the water
infrastructure at its Port Alfred mill. Other operating income includes an
amount of $22.3 million reflecting the difference between the proceeds from
insurance versus the historical net book value of the damaged assets.
12. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated based on the monthly
average number of common shares outstanding during the year which was 104.0
million, 71.5 million and 65.0 million for 1996, 1995 and 1994, respectively.
The potential exercise of employee stock options would not have a significant
dilutive impact on the net income per common share for 1996 and 1995. For 1994,
the fully diluted loss per common share has not been reported as it would
result in a decrease of the loss per share.
Income available to the common shareholders is calculated based on net
income for the year less the interest on equity element of convertible
debentures.
13. RELATED PARTY TRANSACTIONS
Stone Canada is the major shareholder (currently 46.6% and 74.6% prior to
November 1, 1995) of Stone-Consolidated. Stone-Consolidated had transactions
with Stone Canada with respect to purchases of pulp and transactions with Stone
Canada's parent, Stone Container Corporation, with respect to certain sales of
newsprint tonnage.
The following table summarizes the transactions between Stone-Consolidated
and related parties, which are in the normal course of business at normal trade
terms:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Sales to Stone Container Corporation and affiliates(1)................. $32,227 $31,951 $82,363
Purchases from Stone Canada and affiliates(2).......................... $14,513 $19,826 $14,707
Commissions from Stone Container Corporation(3)........................ $10,829 $12,199 $ 7,700
Expenses charged to Stone Canada(4).................................... $ 4,200 $ 4,835 $ 8,181
Expenses charged by Stone Container Corporation(4)..................... $ 1,549 $ 3,672 $ 4,728
--------------
(1) Included in net sales-manufactured products.
(2) Included in cost of products sold-manufactured products.
(3) Included in other operating income.
(4) Included in selling, general and administrative expenses.
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
(a) At December 31, 1996, the future minimum rental commitments under
operating leases having initial or remaining non-cancellable terms in excess of
one year are reflected below:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1997............................................................................... $ 9,525
1998............................................................................... 10,456
1999............................................................................... 4,587
2000............................................................................... 3,608
2001............................................................................... 2,807
Thereafter......................................................................... 6,667
---------
$37,650
---------
---------
</TABLE>
(b) At December 31, 1996, outstanding commitments for capital expenditures
under purchase orders and contracts amounted to approximately $58 million.
(c) Stone-Consolidated currently estimates that capital expenditures of
approximately $45 million will be required for environmental compliance during
the two-year period ending December 31, 1998.
Various lawsuits and claims are pending by and against Stone-Consolidated.
It is the opinion of management supported by counsel that final determination of
these claims will not have a material adverse effect on the financial position
or the results of Stone-Consolidated.
15. FINANCIAL INSTRUMENTS
Financial derivatives
At December 31, 1996, the amount of U.S. dollar put options outstanding was
US $8 million.
Credit risk
Financial instruments that potentially subject Stone-Consolidated to
concentrations of credit risk consist primarily of cash, short-term deposits and
accounts receivable. Stone-Consolidated does not believe it is subject to any
significant concentration of credit risk. Cash and short-term deposits are held
by major financial institutions. Accounts receivable are due from a large number
of customers who are geographically dispersed. For accounts receivable,
Stone-Consolidated performs periodic credit evaluations and typically does not
charge interest or require collateral. Allowances are maintained for potential
credit losses consistent with the credit risk, historical trends and other
information.
Fair value
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash and short-term deposits............................ $ 27,083 $ 27,083 $ 16,251 $ 16,251
Long-term debt.......................................... $855,088 $894,806 $772,342 $809,297
Redeemable Class A preferred shares..................... $ -- $ -- $100,000 $100,000
Off-balance sheet
U.S. dollar put options............................ $ 300 $ 300 $ 451 $ 451
</TABLE>
Due to their short-term maturity, the carrying values of cash and
short-term deposits, accounts receivable and accounts payable are reasonable
estimates of their fair values. The fair value of the redeemable Class A
preferred shares is based on their quoted market value. The fair values of long-
term debt are estimated based on rates currently available to Stone-Consolidated
for long-term debt with similar terms. The fair value of financial derivatives
reflects the estimated amounts that Stone-Consolidated would receive or pay to
settle the contracts at the reporting date.
Interest rate risk
Stone-Consolidated's exposure to interest rate risk as at December 31, 1996
is as follows:
<TABLE>
<S> <C>
Cash............................................... Non-interest bearing
Short-term deposits................................ Floating interest rate
Accounts receivable................................ Non-interest bearing
Accounts payable................................... Non-interest bearing
Long-term debt
Senior notes ($458,816)....................... Fixed interest rate maturing
in 2 to 5 years
Other facilities ($396,272)................... Floating interest rate
</TABLE>
16. PENSION PLANS
Stone-Consolidated either participates in or has defined benefit pension
plans available to substantially all employees, which are funded, trusteed and
principally contributory. The funding policy for the pension plans is to
contribute annually the statutory required minimum. The pension plans provide
reduced benefits for early retirement and take into account offsets for
government pension benefits.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the year....................... $ 14,535 $ 6,321 $ 7,282
Interest cost on projected benefit obligations..................... 54,483 40,607 36,579
Actual return on plan assets....................................... (122,945) (68,645) (11,676)
Net amortization and deferral...................................... 59,803 29,386 (25,440)
--------- -------- --------
Net pension expense................................................ $ 5,876 $ 7,669 $ 6,745
--------- -------- --------
--------- -------- --------
</TABLE>
The following table sets forth the funded status of the pension plans and
the amount recorded in the balance sheet:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits.......................................................... $(612,687) $(606,849)
Non-vested benefits...................................................... (61,067) (48,915)
--------- ---------
Accumulated benefit obligations............................................... (673,754) (655,764)
Effect of increase in compensation levels..................................... (69,906) (80,864)
--------- ---------
Projected benefit obligations for services rendered........................... (743,660) (736,628)
Plan assets at fair value, primarily stocks, bonds and real estate............ 787,601 670,904
--------- ---------
Plan assets greater (less) than projected benefit obligations................. 43,941 (65,724)
Unrecognized net loss from actual experience different from that assumed and
changes in assumptions...................................................... 46,617 139,662
--------- ---------
Deferred pension costs........................................................ $ 90,558 $ 73,938
--------- ---------
--------- ---------
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.75% and 7.5%
respectively for 1996 and 1995. The expected long-term rate of return on assets
and the rate of increase in future compensation levels were 11% and 4%
respectively for all years. The change in the weighted average discount rate had
the effect of decreasing the total projected benefit obligations at December 31,
1996 by approximately $24.1 million.
17. SEGMENT INFORMATION
(a) Stone-Consolidated's primary activity is the production and marketing
of newsprint and uncoated groundwood papers.
(b) Stone-Consolidated's manufacturing facilities are located in Canada,
the United States and the United Kingdom. Canadian export sales were $1,372
million for 1996, $1,222 million for 1995 and $800 million for 1994. United
Kingdom export sales were $63 million for 1996, $60 million for 1995 and $46
million for 1994. United States export sales were $53 million for 1996 and $13
million for 1995.
The table below provides information on Stone-Consolidated's operations
based on the region in which the operations are located.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales from
Canada............................................................. $1,586,581 $1,389,939 $ 921,501
United Kingdom..................................................... 255,679 241,954 169,815
United States...................................................... 444,178 96,304 --
---------- ---------- ----------
$2,286,438 $1,728,197 $1,091,316
---------- ---------- ----------
---------- ---------- ----------
Income before taxes
Canada............................................................. $ 266,894 $ 331,557 $ 64,956
United Kingdom..................................................... 48,319 7,752 (2,467)
United States...................................................... 20,061 11,318 --
Interest expense................................................... (71,565) (51,477) (54,449)
---------- ---------- ----------
$ 263,709 $ 299,150 $ 8,040
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization
Canada............................................................. $ 144,609 $ 87,918 $ 79,009
United Kingdom..................................................... 18,332 15,043 14,537
United States...................................................... 12,623 2,360 --
---------- ---------- ----------
$ 175,564 $ 105,321 $ 93,546
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures
Canada............................................................. $ 243,338 $ 188,554 $ 87,498
United Kingdom..................................................... 21,504 61,920 7,819
United States...................................................... 28,335 6,769 --
---------- ---------- ----------
$ 293,177 $ 257,243 $ 95,317
---------- ---------- ----------
---------- ---------- ----------
Assets
Canada............................................................. $3,175,158 $3,051,407 $1,807,707
United Kingdom..................................................... 430,434 362,254 291,964
United States...................................................... 284,866 206,194 --
---------- ---------- ----------
$3,890,458 $3,619,855 $2,099,671
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
18. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada (Canadian GAAP). In
certain respects, Canadian GAAP differs from generally accepted accounting
principles in the United States (U.S. GAAP).
The following summary sets out the material adjustments to
Stone-Consolidated's reported net earnings which would be made in order to
conform with U.S. GAAP:
<TABLE>
<CAPTION>
EARNINGS ADJUSTMENTS 1996 1995 1994
- ------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Income before income taxes in accordance with Canadian GAAP........ $263,709 $299,150 $ 8,040
Add (deduct)
Currency translation(a)....................................... (237) 9,365 (16,734)
Post-retirement benefits other than pensions and post-
employment benefits(b)...................................... (1,373) -- (1,480)
Pension cost(c)............................................... 3,739 2,909 3,023
Goodwill(e)................................................... 312 -- --
Interest on equity element of convertible debentures(f)....... -- (10,700) (12,000)
-------- -------- --------
Income (loss) before income taxes in accordance with U.S. GAAP..... 266,150 300,724 (19,151)
-------- -------- --------
Provision for income taxes in accordance with Canadian GAAP........ 99,402 108,380 7,682
Add (deduct)
Income tax on above adjustments............................... 775 366 (8,661)
Income tax rate adjustment.................................... (10,489) -- --
-------- -------- --------
Provision (credit) for income taxes in accordance with U.S. GAAP... 89,688 108,746 (979)
-------- -------- --------
Net income (loss) in accordance with U.S. GAAP..................... $176,462 $191,978 $(18,172)
-------- -------- --------
-------- -------- --------
Net income (loss) per common share in accordance with U.S. GAAP (in
dollars)......................................................... $ 1.70 $ 2.68 $ (0.28)
-------- -------- --------
-------- -------- --------
</TABLE>
The following summary sets out the material differences in
Stone-Consolidated's balance sheet between accounting principles generally
accepted in Canada and the United States:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- --------------------------------------
CANADIAN U.S. CANADIAN U.S.
BALANCE SHEET COMPONENTS GAAP ADJUSTMENT GAAP GAAP ADJUSTMENT GAAP
- ------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Goodwill(b)(d)(e).............. $ 755,587 $(10,379) $ 745,208 $ 752,418 $(10,691) $ 741,727
Other assets(a)(c)............. $ 156,342 $(18,725) $ 137,617 $ 142,663 $(38,688) $ 103,975
Deferred tax liability
(a)(b)(c)(d)(e).............. $ 351,220 $(42,202) $ 309,018 $ 263,442 $(37,878) $ 225,564
Other long-term liability
(b)(c)....................... $ -- $ 28,070 $ 28,070 $ -- $ 26,697 $ 26,697
Shareholders' equity
(a)(b)(c).................... $2,326,772 $(14,973) $2,311,799 $2,134,445 $(38,198) $2,096,247
</TABLE>
- ------------
(a)Currency translation.
Under Canadian GAAP, unrealized exchange gains and losses on translation of
long-term debt are deferred and amortized over the term of the debt. Under U.S.
GAAP, such gains or losses are credited or charged to income.
(b) Post-retirement benefits other than pensions and post-employment benefits.
Under Canadian GAAP, post-retirement benefits other than pensions are
accounted for on a 'pay-as-you-go' basis. Under U.S. GAAP, in accordance with
Statement of Financial Accounting Standards No. 106, 'Employer's Accounting for
Post-retirement Benefits other than Pension', post-retirement benefits are
accounted for on an accrual basis.
The net post-retirement benefit cost would include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the year................ $ 575 $ 279 $ 309
Interest cost on accumulated post-retirement benefit obligation............ 2,329 1,995 1,925
Net amortization and deferral.............................................. 470 226 448
------ ------ ------
Net post-retirement benefit cost........................................... $3,374 $2,500 $2,682
------ ------ ------
------ ------ ------
</TABLE>
The discount rate used in determining the accumulated post-retirement
benefit cost was 7.5% for 1996. The assumed health care cost trend rates for
substantially all employees used in measuring the accumulated post-retirement
benefit obligation range from 11% in 1996 decreasing by 1% per year to an
ultimate rate of 8% per annum starting in 1999. If the health care cost trend
rate assumptions were increased by 1%, the accumulated post-retirement benefit
obligation at December 31, 1996 and 1995 would not be significantly different.
The details of the accumulated post-retirement benefit obligation other
than pensions are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Retirees.......................................................................... $20,691 $21,752
Active employees -- fully eligible................................................ 3,020 2,868
Other active employees............................................................ 10,222 8,996
------- -------
33,933 33,616
Unrecognized loss................................................................. (6,606) (7,662)
------- -------
Accumulated post-retirement benefit obligation.................................... $27,327 $25,954
------- -------
------- -------
</TABLE>
Stone-Consolidated is not required to fund and has not funded any of its
accumulated post-retirement benefit obligations.
Under Canadian GAAP, post-employment benefits are accounted for on a
'pay-as-you-go' basis. Under U.S. GAAP, Statement of Financial Accounting
Standards No. 112, 'Employer's Accounting for Post-employment Benefits',
requires accrual accounting for the estimated cost of providing certain benefits
to former or inactive employees, and the employees' beneficiaries and dependents
after employment but before retirement.
(c) Employer's Accounting for Pensions
Under U.S. GAAP, in accordance with Statement of Financial Accounting
Standards No. 87, 'Employer's Accounting for Pensions', Stone-Consolidated would
have recorded an additional minimum liability for underfunded plans representing
the excess of the unfunded accumulated benefit obligation over the pension plan
assets. At December 31, 1996 and 1995, the additional minimum liability would be
$36.1 million and $53.6 million respectively, and would be recorded as a
reduction of the deferred pension costs with an offsetting intangible asset of
$12.0 million and $13.1 million respectively, and a charge to shareholders'
equity of $16.2 million and $26.3 million respectively, net of a tax benefit of
$7.9 million and $14.2 million respectively.
In addition, amortization of experience gains and losses is included as a
component of net pension cost only to the extent that the experience gains and
losses exceed 10% of the greater of the projected benefit obligation or the
market-related value of plan assets at the beginning of the year.
(d) Accounting for income taxes
Under U.S. GAAP, Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes', requires use of the liability method versus the
deferred method prescribed under Canadian GAAP. The liability method requires
the recognition of changes in statutory tax rates.
Refer to (e) below for differences resulting from acquisition of Rainy
River.
(e) Purchase accounting
The application of purchase accounting under Canadian and U.S. GAAP as it
relates to the acquisition of Rainy River is not materially different except for
(i) the recognition of a liability for post-retirement benefits other than
pensions at the date of acquisition under U.S. GAAP and (ii) differences in
accounting for income taxes.
In 1995, the net effect of these two differences was to decrease goodwill
recorded relating to the acquisition of Rainy River in the amount of $10,691,
increase other long-term liabilities in the amount of $6,628, and decrease
deferred tax liability in the amount of $17,319.
(f) Under U.S. GAAP, the interest expense related to the principal amount
of the convertible debentures is charged to income. Under Canadian GAAP, the
interest expense, net of income taxes, related to the equity element of the
convertible debentures is charged to retained earnings.
Statement of changes in financial position
Under U.S. GAAP, certain items included as financing and investing
activities in the statement of changes in financial position do not result in
cash flows and therefore should be excluded. For the year ended December 31,
1995, these items relate primarily to the acquisition of Rainy River. Under U.S.
GAAP, these sections are presented as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
INVESTING ACTIVITIES
Acquisitions........................................................................ $ (72,740)
Capital expenditures................................................................ (257,243)
Other-net........................................................................... 17,919
---------
Net cash used in investing activities............................................... $(312,064)
---------
---------
FINANCING ACTIVITIES
Issuance of common shares-net....................................................... $ 210
Redemption of redeemable preferred shares........................................... (400,000)
Issuance of debt, net of financing costs............................................ 391,749
Payment of debt..................................................................... (85,000)
---------
Net cash used in financing activities............................................... $ (93,041)
---------
---------
</TABLE>
19. ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
Cash flows
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for
Interest (net of capitalization).................................. $71,565 $52,718 $40,742
Income taxes...................................................... $ 8,941 $11,494 $ 4,902
</TABLE>
The net changes in non-cash working capital are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable................................... $ 70,728 $(48,141) $(120,774)
(Increase) decrease in inventories........................................... (93,596) (44,216) 39,668
Increase in other current assets............................................. (3,834) (626) (309)
Increase (decrease) in accounts payable and other current liabilities........ (14,518) 28,714 6,166
Other-net.................................................................... (13,715) 545 2,726
-------- -------- ---------
$(54,935) $(63,724) $ (72,523)
-------- -------- ---------
-------- -------- ---------
</TABLE>
Allowance for doubtful accounts
The allowance for doubtful accounts is $4,673 and $4,618 at December 31,
1996 and 1995, respectively.
Depreciation and amortization
The components of depreciation and amortization are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Property, plant and equipment........................................ $152,139 $ 88,681 $78,532
Goodwill............................................................. 21,609 14,756 13,412
Pre-production costs................................................. 1,816 1,884 1,602
-------- -------- -------
$175,564 $105,321 $93,546
-------- -------- -------
-------- -------- -------
</TABLE>
Rental expense
Rental expense under Stone-Consolidated's operating leases totaled $11,161,
$8,975 and $7,846 for the years ended December 31, 1996, 1995 and 1994
respectively.
Accrued and other current liabilities
The major components of accrued and other current liabilities are as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accrued wages..................................................................... $ 7,395 $ 8,658
Accrued interest.................................................................. 5,081 7,158
Accrued vacation pay.............................................................. 28,867 31,509
Taxes and stumpage dues........................................................... 23,176 10,259
Other............................................................................. 28,970 32,448
------- -------
$93,489 $90,032
------- -------
------- -------
</TABLE>
Selected pro forma financial information in accordance with U.S. GAAP
The following is selected pro forma financial information of
Stone-Consolidated as though the acquisition of Rainy River had been made as of
January 1, 1995 and 1994, respectively. Refer to Note 3 for further details.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1995 1994
---------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales.................................................................. $2,690,460 $ 1,900,520
Net income (loss).......................................................... $ 259,334 $ (105,491)
Net income (loss) per common share (in dollars)............................ $ 2.49 $ (1.01)
</TABLE>
The above pro forma financial information is not necessarily indicative of
the actual results of operations that would have occurred had the purchase
actually been made at the beginning of 1995 and 1994.
20. SUBSEQUENT EVENT
On February 14, 1997, the Boards of Directors of Abitibi-Price Inc. and
Stone-Consolidated approved a merger arrangement to amalgamate Abitibi-Price
Inc. and Stone-Consolidated. The new name of the combined company is expected to
be Abitibi-Consolidated Inc.
Under the arrangement, each common share of Abitibi-Price Inc. will be
exchanged for one common share of Abitibi-Consolidated Inc. and each common
share of Stone-Consolidated will be exchanged for 1.0062 common shares of
Abitibi-Consolidated Inc.
The transaction is expected to close in the second quarter of 1997 subject
to, among other things, necessary approvals from Canadian and U.S. regulatory
authorities and from each company's shareholders. In addition,
Stone-Consolidated's debt instruments contain restrictions and/or covenants that
would be breached upon amalgamation. Stone-Consolidated intends to launch a
tender offer bid to redeem both senior notes and remove all restrictions and
covenants attached thereto. The term, revolving and reducing credit facilities
will be replaced upon closing of the amalgamation.
ANNEX A
AGREEMENT AND PLAN OF MERGER
Dated as of May 10, 1998*
among
JEFFERSON SMURFIT CORPORATION,
a Delaware corporation,
JSC ACQUISITION CORPORATION,
a Delaware corporation
and a wholly-owned subsidiary of Jefferson Smurfit Corporation,
and
STONE CONTAINER CORPORATION,
a Delaware corporation
* Text of Annex A reflects Amendment No. 1 dated as of October 2, 1998 to the
Agreement and Plan of Merger, but the Agreement and Plan of Merger dated as of
May 10, 1998 has not been amended and restated.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger............................................................................ A-1
SECTION 1.02. Certificate of Incorporation and Bylaws of the Surviving Corporation.................. A-2
SECTION 1.03. Directors and Officers of the Surviving Corporation................................... A-2
SECTION 1.04. Boards, Committees and Officers of JSC................................................ A-2
ARTICLE 2
CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Capital Stock........................................................... A-2
SECTION 2.02. Exchange of Certificates.............................................................. A-3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF STONE
SECTION 3.01. Organization and Power................................................................ A-6
SECTION 3.02. Corporate Authorization............................................................... A-6
SECTION 3.03. Governmental Authorization............................................................ A-6
SECTION 3.04. Non-Contravention..................................................................... A-7
SECTION 3.05. Capitalization........................................................................ A-7
SECTION 3.06. SEC Filings; Financial Statements..................................................... A-8
SECTION 3.07. No Undisclosed Liabilities............................................................ A-8
SECTION 3.08. Litigation............................................................................ A-8
SECTION 3.09. Absence of Certain Changes or Events.................................................. A-8
SECTION 3.10. Compliance with Laws; No Default; No Non-Competes..................................... A-9
SECTION 3.11. Taxes................................................................................. A-9
SECTION 3.12. Intellectual Property................................................................. A-10
SECTION 3.13. Environmental Matters................................................................. A-10
SECTION 3.14. Employee Benefits and Labor Matters................................................... A-11
SECTION 3.15. Transactions with Affiliates.......................................................... A-13
SECTION 3.16. Information Supplied.................................................................. A-13
SECTION 3.17. Opinion of Financial Advisor.......................................................... A-13
SECTION 3.18. Finders' Fees......................................................................... A-13
SECTION 3.19. Takeover Statutes..................................................................... A-13
SECTION 3.20. Rights Agreement...................................................................... A-14
SECTION 3.21. Non-Recourse Debt and Obligations..................................................... A-14
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF JSC AND SUB
SECTION 4.01. Organization and Power................................................................ A-14
SECTION 4.02. Corporate Authorization............................................................... A-14
SECTION 4.03. Governmental Authorization............................................................ A-15
SECTION 4.04. Non-Contravention..................................................................... A-15
SECTION 4.05. Capitalization........................................................................ A-15
SECTION 4.06. SEC Filings; Financial Statements..................................................... A-16
SECTION 4.07. No Undisclosed Liabilities............................................................ A-17
SECTION 4.08. Litigation............................................................................ A-17
SECTION 4.09. Absence of Certain Changes or Events.................................................. A-17
SECTION 4.10. Compliance with Laws; No Default; No Non-Competes..................................... A-17
SECTION 4.11. Taxes................................................................................. A-17
SECTION 4.12. Intellectual Property................................................................. A-18
SECTION 4.13. Environmental Matters................................................................. A-18
SECTION 4.14. Employee Benefits and Labor Matters................................................... A-19
SECTION 4.15. Transactions with Affiliates.......................................................... A-21
SECTION 4.16. Information Supplied.................................................................. A-21
SECTION 4.17. Opinion of Financial Advisor.......................................................... A-21
SECTION 4.18. Finders' Fees......................................................................... A-21
SECTION 4.19. Non-Recourse Debt and Obligations..................................................... A-21
ARTICLE 5
CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Stone...................................................................... A-21
SECTION 5.02. Conduct of JSC........................................................................ A-23
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. No Solicitation....................................................................... A-25
SECTION 6.02. Proxy Statement; Registration Statement............................................... A-26
SECTION 6.03. Stockholders' Meetings................................................................ A-27
SECTION 6.04. Access to Information................................................................. A-27
SECTION 6.05. Notices of Certain Events............................................................. A-28
SECTION 6.06. Appropriate Action; Consents; Filings................................................. A-28
SECTION 6.07. Public Disclosure..................................................................... A-30
SECTION 6.08. Reorganization........................................................................ A-30
SECTION 6.09. Obligations of Sub.................................................................... A-30
SECTION 6.10. Affiliates............................................................................ A-30
SECTION 6.11. Listing or Quotation of Stock......................................................... A-30
SECTION 6.12. Indemnification of Directors and Officers............................................. A-30
SECTION 6.13. Stone Stock Options................................................................... A-31
SECTION 6.14. JSC Stock Options..................................................................... A-31
SECTION 6.15. Benefits Continuation, etc. .......................................................... A-31
SECTION 6.16. Certain Other Employee Benefits Matters............................................... A-32
SECTION 6.17. Convertible Debt...................................................................... A-32
SECTION 6.18. Confidentiality Agreement............................................................. A-32
SECTION 6.19. Takeover Statutes..................................................................... A-32
SECTION 6.20. Rights Agreement...................................................................... A-32
SECTION 6.21. Headquarters; Logo.................................................................... A-33
SECTION 6.22. Stock Purchase Agreement.............................................................. A-33
ARTICLE 7
CONDITIONS TO MERGER
SECTION 7.01. Conditions to Each Party's Obligations................................................ A-33
SECTION 7.02. Additional Conditions to Obligations of JSC and Sub................................... A-33
SECTION 7.03. Additional Conditions to Obligations of Stone......................................... A-34
ARTICLE 8
TERMINATION
SECTION 8.01. Termination........................................................................... A-34
SECTION 8.02. Effect of Termination................................................................. A-36
SECTION 8.03. Fees and Expenses..................................................................... A-36
SECTION 8.04. Amendment............................................................................. A-37
SECTION 8.05. Extension; Waiver..................................................................... A-37
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations, Warranties and Agreements............................. A-37
SECTION 9.02. Notices............................................................................... A-38
SECTION 9.03. Interpretation........................................................................ A-38
SECTION 9.04. Disclosure Schedules.................................................................. A-38
SECTION 9.05. Counterparts.......................................................................... A-38
SECTION 9.06. Entire Agreement; No Third Party Beneficiaries........................................ A-38
SECTION 9.07. Governing Law......................................................................... A-39
SECTION 9.08. Assignment............................................................................ A-39
</TABLE>
EXHIBITS
Exhibit A -- JSC Voting Agreement (SIBV)
Exhibit B -- JSC Voting Agreement (MSLEF)
Exhibit C -- Stone Voting Agreement
Exhibit D -- Stone Charter Amendments
Exhibit E -- Corporate Governance
Exhibit F -- Registration Rights Agreement
Exhibit G -- Form of Affiliate's Letter
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------------------------- -----------
<S> <C>
Adjusted Option..................................................................................... 6.13(a)(i)
Affiliate........................................................................................... 3.15
Affected Employees.................................................................................. 6.15(a)
Certificate......................................................................................... 2.02(b)
Closing............................................................................................. 1.01(b)
Closing Date........................................................................................ 1.01(b)
Code................................................................................................ Recitals
Confidentiality Agreement........................................................................... 6.04
Convertible Debentures.............................................................................. 3.05(a)
Convertible Notes................................................................................... 3.05(a)
DGCL................................................................................................ 1.01(a)
Effective Time...................................................................................... 1.01(c)
End Date............................................................................................ 8.01(b)
Environmental Laws.................................................................................. 3.13(b)(i)
ERISA............................................................................................... 3.14(a)
Exchange Act........................................................................................ 3.03
Exchange Agent...................................................................................... 2.02(a)
Exchange Fund....................................................................................... 2.02(a)
Exchange Ratio...................................................................................... 2.01(c)
Former Employees.................................................................................... 6.15(b)
Governmental Authority.............................................................................. 3.03
Hazardous Substance................................................................................. 3.13(b)(ii)
HSR Act............................................................................................. 3.03
Indemnified Parties................................................................................. 6.12(b)
IRS................................................................................................. 3.11(c)
JSC................................................................................................. Preamble
JSC Balance Sheet................................................................................... 4.06(d)
JSC Benefit Arrangements............................................................................ 4.13(d)
JSC Common Stock.................................................................................... 2.01(c)
JSC Disclosure Schedule............................................................................. Article 4
JSC Employee Plans.................................................................................. 4.14(a)
JSC ERISA Affiliate................................................................................. 4.14(b)
JSC Intellectual Property Rights.................................................................... 4.12(a)
JSC Material Adverse Effect......................................................................... Article 4
JSC Material Contracts.............................................................................. 4.10(b)
JSC Preferred Stock................................................................................. 4.05(a)
JSC SEC Reports..................................................................................... 4.06(a)
JSC Stockholders' Meeting........................................................................... 3.16
JSC Tax Certificate................................................................................. 6.08
JSC Third Party Acquisition Event................................................................... 8.03(e)
JSC Voting Agreements............................................................................... Recitals
JSG................................................................................................. Article 3
Lien................................................................................................ 3.05(a)
Merger.............................................................................................. 1.01(a)
Nasdaq.............................................................................................. 2.02(e)
NYSE................................................................................................ 2.02(e)
Person.............................................................................................. 2.01(b)
Proxy Statement..................................................................................... 3.16
Registration Rights Agreement....................................................................... 4.02
Registration Statement.............................................................................. 3.16
Rights.............................................................................................. 3.20
Rights Agreement.................................................................................... 3.05(a)
Rule 145 Affiliates................................................................................. 6.10
SEC................................................................................................. 3.06(a)
Securities Act...................................................................................... 3.03
SIBV................................................................................................ Recitals
Significant Subsidiary.............................................................................. 6.01(a)
Stock Purchase Agreement............................................................................ Article 3
Stockholders' Meetings.............................................................................. 3.16
Stone............................................................................................... Preamble
Stone Balance Sheet................................................................................. 3.06(d)
Stone Benefit Arrangements.......................................................................... 3.14(d)
Stone Common Stock.................................................................................. 2.01(b)
Stone Disclosure Schedule........................................................................... Article 3
Stone Employee Plans................................................................................ 3.14(a)
Stone ERISA Affiliate............................................................................... 3.14(b)
Stone Intellectual Property Rights.................................................................. 3.12(a)
Stone Material Adverse Effect....................................................................... Article 3
Stone Material Contracts............................................................................ 3.10(b)
Stone Preferred Stock............................................................................... 3.05(a)
Stone SEC Reports................................................................................... 3.06(a)
Stone Series D Preferred Stock...................................................................... 3.05(a)
Stone Series E Preferred Stock...................................................................... 2.01(d)
Stone Stock Options................................................................................. 6.13(a)(i)
Stone Stockholders' Meeting......................................................................... 3.16
Stone Tax Certificate............................................................................... 6.08
Stone Third Party Acquisition Event................................................................. 8.03(c)
Stone Voting Agreement.............................................................................. Recitals
Sub................................................................................................. Preamble
Sub Common Stock.................................................................................... 4.05(c)
Subsidiary.......................................................................................... 2.01(b)
Superior Proposal................................................................................... 6.01(b)
Surviving Corporation............................................................................... 1.01(a)
Takeover Proposal................................................................................... 6.01(a)
Takeover Statute.................................................................................... 3.19
Tax Return.......................................................................................... 3.11(e)
Taxes............................................................................................... 3.11(e)
Taxing Authority.................................................................................... 3.11(e)
Transaction Agreements.............................................................................. Article 3
</TABLE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this 'Agreement') dated as of May 10, 1998**
among Jefferson Smurfit Corporation, a Delaware corporation ('JSC'), JSC
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
JSC ('Sub'), and Stone Container Corporation, a Delaware corporation ('Stone').
- ------------
** Text reflects Amendment No. 1 dated as of October 2, 1998 to the Agreement
and Plan of Merger, but the Agreement and Plan of Merger dated as of May 10,
1998 has not been amended and restated.
RECITALS
WHEREAS, the Boards of Directors of JSC, Sub and Stone deem it advisable
and in the best interests of each corporation and its respective stockholders
that JSC and Stone enter into a strategic business combination in order to
advance the long-term business interests of JSC and Stone, and have therefore
approved this Agreement, the Merger (as hereinafter defined) and the other
transactions contemplated by this Agreement; and
WHEREAS, the combination of JSC and Stone shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
Stone, Stone will become a wholly-owned subsidiary of JSC and the common
stockholders of Stone will become stockholders of JSC, which will be renamed
Smurfit-Stone Container Corporation; and
WHEREAS, as a condition and inducement to JSC's and Stone's willingness to
enter into this Agreement, concurrently with the execution and delivery of this
Agreement, (i) Stone and certain stockholders of JSC, including Smurfit
International B.V ('SIBV') and Morgan Stanley Leveraged Equity Fund II, Inc.
('MSLEF'), are entering into Voting Agreements dated as of the date of this
Agreement in the forms attached hereto as Exhibits A and B (the 'JSC Voting
Agreements'), pursuant to which such stockholders have agreed to vote their
shares of JSC Common Stock in favor of the proposal to issue JSC Common Stock in
the Merger and to amend the JSC certificate of incorporation as contemplated by
Section 1.04(a) hereof and (ii) JSC and the Chief Executive Officer of Stone are
entering into a Voting Agreement dated as of the date of this Agreement in the
form attached hereto as Exhibit C (the 'Stone Voting Agreement'), pursuant to
which he has agreed to vote his shares of Stone Common Stock (as hereinafter
defined) in favor of the proposal to approve and adopt the Merger and this
Agreement and the amendments to the Stone certificate of incorporation
contemplated hereby; and
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the 'Code'); and
WHEREAS, JSC, Sub and Stone desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. (a) Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time (as hereinafter defined), Sub
shall be merged (the 'Merger') with and into Stone in accordance with the
Delaware General Corporation Law (the 'DGCL'), whereupon the separate existence
of Sub shall cease, and Stone shall continue as the surviving corporation (the
'Surviving Corporation').
(b) Upon the terms and subject to the conditions of this Agreement, the
closing of the Merger (the 'Closing') shall take place at 10:00 a.m. on a date
to be specified by the parties (the 'Closing Date'), which date shall be no
later than the second business day after satisfaction of the conditions set
forth in Article 7, at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017, unless another time, date or place is agreed
to in writing by the parties hereto.
(c) Upon the Closing, Stone and Sub will file a certificate of merger with
the Secretary of State of the State of Delaware and make all other filings or
recordings required by the DGCL in connection with the Merger. The Merger shall
become effective at such time as the certificate of merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as is
agreed by JSC and Stone and specified in the certificate of merger (the
'Effective Time').
(d) The Merger shall have the effects set forth in Section 259 of the
Delaware Law.
SECTION 1.02. Certificate of Incorporation and Bylaws of the Surviving
Corporation. Prior to the Effective Time, the certificate of incorporation of
Stone shall be amended as set forth in Exhibit D-1. At the Effective Time, the
certificate of incorporation of Stone, as in effect immediately prior to the
Effective Time, shall be amended as set forth in Exhibit D-2 and, as so amended,
such certificate of incorporation shall be the certificate of incorporation of
the Surviving Corporation. The bylaws of the Sub as in effect immediately prior
to the Effective Time shall be the bylaws of the Surviving Corporation.
SECTION 1.03. Directors and Officers of the Surviving Corporation. The
directors of Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and bylaws of the Surviving Corporation, and
the officers of Stone immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed.
SECTION 1.04. Boards, Committees and Officers of JSC. (a) The restated
certificate of incorporation of JSC, as in effect immediately prior to the
Effective Time, shall be amended and restated as of the Effective Time to read
in its entirety as set forth in Exhibit E-1 and, as so amended and restated,
such certificate of incorporation shall be the certificate of incorporation of
JSC until thereafter changed or amended as provided therein or by applicable
law.
(b) The bylaws of JSC, as in effect immediately prior to the Effective
Time, shall be amended and restated as of the Effective Time to read in its
entirety as set forth in Exhibit E-2 and, as so amended and restated, such
bylaws shall be the bylaws of JSC until thereafter changed or amended as
provided therein or by applicable law.
(c) From and after the Effective Time, certain governance matters will be
as set forth in Exhibit E-3.
ARTICLE 2
CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
securities of Stone Common Stock or Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of capital
stock of Sub shall be converted into and become 1,100,000 duly authorized,
validly issued, fully paid and nonassessable shares of common stock, par
value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and JSC-Owned Stock. Each share of
common stock, par value $0.01 per share, of Stone ('Stone Common Stock'),
together with any associated Right (as hereinafter defined), that is owned
by Stone as treasury stock and each share of Stone Common Stock that is
owned by JSC or any of its wholly owned Subsidiaries shall be canceled and
retired and shall cease to exist, and no shares of JSC capital stock or
other consideration shall be delivered in exchange therefor. For purposes
of this Agreement other than Section 5.01, 'Subsidiary' means, with
respect to any Person, any corporation or other organization, whether
incorporated or unincorporated, of which directly or indirectly at least
50% of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person
or by any one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries. Solely for purposes of Section 5.01,
'Subsidiary' means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which directly or
indirectly at least a majority of the securities or other interests having
by their terms, subject to contractual or shareholder agreements existing
as of the date hereof, ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries. Solely for purposes of
the representations and warranties made by Stone in this Agreement,
Abitibi-Consolidated Inc. and S&G Packaging Company, L.L.C. each will be
deemed a Subsidiary of Stone but Stone's representations and warranties
insofar as they relate to Abitibi-Consolidated Inc. and S&G Packaging
Company, L.L.C. will be deemed to speak only as of the date hereof
regardless of whether they are so limited. For purposes of this Agreement,
'Person' means an individual, a corporation, a limited liability company,
a partnership, an association, a trust or any other entity or
organization, including a Governmental Authority (as hereinafter defined).
(c) Conversion of Stone Common Stock. Subject to Section 2.02, each
issued and outstanding share of Stone Common Stock, together with any
associated Right (other than shares to be canceled pursuant to Section
2.01(b) or fractional shares for which cash will be paid pursuant to
Section 2.02(e)), shall be converted into .99 shares (as adjusted pursuant
to Section 2.01(e), the 'Exchange Ratio') of a duly authorized, validly
issued, fully paid and nonassessable share of common stock, par value $0.01
per share, of JSC ('JSC Common Stock'). All such shares of Stone Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive (i)
certificates representing the number of whole shares of JSC Common Stock
into which such shares have been converted, (ii) certain dividends and
other distributions in accordance with Section 2.02(c) and (iii) cash in
lieu of fractional shares of JSC Common Stock in accordance with Section
2.02(e).
(d) Adjustment of Stone Preferred Stock. At the Effective Time, each
issued and outstanding share of Series E Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share, of Stone ('Stone
Series E Preferred Stock') shall 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.
(e) Adjustment to Exchange Ratio. If, prior to the Effective Time, JSC
shall declare a stock dividend or other similar distribution of shares of
JSC Common Stock or securities convertible into shares of JSC Common Stock,
or effect a stock split, reclassification, recapitalization, stock
combination or other change with respect to the JSC Common Stock, the
Exchange Ratio shall be appropriately adjusted to reflect such dividend,
distribution, stock split, reclassification, recapitalization, stock
combination or other change. Notwithstanding anything herein to the
contrary, the Exchange Ratio shall not be adjusted as a result of the Pulp
Co. Transaction (as defined and described in Section 5.01 of the Stone
Disclosure Schedule).
SECTION 2.02. Exchange of Certificates. The procedures for exchanging
outstanding shares of Stone Common Stock for JSC Common Stock pursuant to the
Merger shall be as follows:
(a) Exchange Agent. Prior to or at the Effective Time, JSC shall
deposit with an exchange agent as may be designated by JSC and reasonably
acceptable to Stone (the 'Exchange Agent'), for the benefit of the holders
of shares of Stone Common Stock, for exchange in accordance with this
Section 2.02, certificates representing the shares of JSC Common Stock
issuable pursuant to Section 2.01 in exchange for outstanding shares of
Stone Common Stock and shall from time to time deposit cash in an amount
required to be paid pursuant to subsections (c) and (e) of this Section
2.02 (such shares of JSC Common Stock and cash being hereinafter referred
to as the 'Exchange Fund').
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Stone Common Stock (each a 'Certificate'
and, collectively, the 'Certificates') whose shares were converted into
shares of JSC Common Stock pursuant to Section 2.01, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as JSC and Stone may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of JSC Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a
certificate or certificates representing that whole number of shares of JSC
Common Stock which such holder has the right to receive pursuant to the
provisions of this Article 2 in such denominations and registered in such
names as such holder may request and (y) a check representing the amount of
cash in lieu of fractional shares, if any, which such holder has the right
to receive pursuant to the provisions of this Article 2, after giving
effect to any required withholding tax. In the event of a transfer of
ownership of shares of Stone Common Stock which is not registered on the
transfer records of Stone, a certificate representing the proper number of
shares of JSC Common Stock, together with a check for the cash to be paid
in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, may be issued to such transferee if the Certificate
representing such shares of Stone Common Stock held by such transferee is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding
any other provisions of this Agreement, no dividends or other distributions
declared or made after the Effective Time with respect to any shares of JSC
Common Stock having a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate, and no cash payment in lieu of
fractional shares shall be paid to any such holder, until the holder of
such Certificate shall surrender such Certificate as provided in this
Section 2.02. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of JSC Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of JSC Common
Stock to which such holder is entitled pursuant to subsection (e) of this
Section 2.02 and the amount of dividends or other distributions with a
record date after the Effective Time previously paid with respect to such
whole shares of JSC Common Stock, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of JSC Common Stock,
less the amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in Stone Common Stock. All shares of
JSC Common Stock issued upon the surrender for exchange of shares of Stone
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to this Article 2) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Stone Common
Stock, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by Stone on such
shares of Stone Common Stock on or prior to the date hereof and which
remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Stone Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of JSC Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to exercise any rights of a
stockholder of JSC. Notwithstanding any other provision of this Agreement,
each holder of shares of Stone Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a
share of JSC Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in 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 New York Stock Exchange (the 'NYSE') Composite
Tape or The Nasdaq National Market (the 'Nasdaq'), as the case may be, on
the last full trading day immediately preceding the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Stone for one year after
the Effective Time shall be delivered to JSC, and any stockholders of Stone
who have not previously complied with this Section 2.02 shall thereafter
look only to JSC for payment of their claim for shares of JSC Common Stock,
any cash in lieu of fractional shares of JSC Common Stock and any dividends
or distributions with respect to JSC Common Stock.
(g) No Liability. Neither JSC nor the Surviving Corporation shall be
liable to any holder of shares of Stone Common Stock or JSC Common Stock,
as the case may be, for such shares (or dividends or distributions with
respect thereto) of JSC Common Stock or cash from the Exchange Fund
delivered to a public official as required by any applicable abandoned
property, escheat or similar law. If any Certificates shall not have been
surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any shares of JSC Common Stock, any
dividends or distributions with respect thereto, or any cash in lieu of
fractional shares in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Authority), any such shares,
dividends or distributions or cash in respect of such Certificate shall, to
the extent permitted by applicable laws, become the property of JSC, free
and clear of all claims or interest of any Person previously entitled
thereto.
(h) Missing Certificates. In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact and
the providing of an appropriate indemnity or surety bond by the Person
claiming such Certificate to be lost, stolen or destroyed, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the shares of JSC Common Stock, dividends and distributions and cash in
lieu of fractional shares deliverable in respect thereof pursuant to this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF STONE
Stone represents and warrants to JSC and Sub that the statements contained
in this Article 3 are true and correct, except as set forth in the disclosure
schedule delivered by Stone to JSC prior to execution of this Agreement (the
'Stone Disclosure Schedule') or in the Stone SEC Reports (as hereinafter
defined) filed prior to the date of this Agreement or as otherwise expressly
contemplated by this Agreement, the Registration Rights Agreement, the JSC
Voting Agreements, the Stone Voting Agreement, the Stock Purchase Agreement
(the 'Stock Purchase Agreement') dated as of the date hereof among Jefferson
Smurfit Group plc ('JSG'), SIBV, MSLEF, JSC and certain other JSC stockholders
or the Voting Agreement dated as of the date hereof among SIBV, MSLEF and Mr.
Roger Stone (collectively, the 'Transaction Agreements'). For purposes of this
Agreement, 'Stone Material Adverse Effect' means a material adverse effect (i)
on the business, properties, assets, liabilities (contingent or otherwise) or
financial condition of Stone and its Subsidiaries, taken as a whole, or (ii) on
the ability of Stone to perform its obligations under or to consummate the
transactions contemplated by this Agreement, other than effects caused by (x)
changes resulting from the announcement of this Agreement and the proposed
consummation of the Merger and the other transactions contemplated by this
Agreement or (y) changes resulting from conditions affecting the containerboard
or newsprint industries generally.
SECTION 3.01. Organization and Power. Each of Stone and its Subsidiaries is
a corporation, partnership or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, and has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be in good
standing or have such power, authority or approvals would not, individually or
in the aggregate, be reasonably expected to have a Stone Material Adverse
Effect. Each of Stone and its Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not, individually or in
the aggregate, be reasonably expected to have a Stone Material Adverse Effect.
SECTION 3.02. Corporate Authorization. The execution and delivery by Stone
of this Agreement, and the consummation by Stone of the transactions
contemplated hereby, are within Stone's corporate powers and, except as set
forth in the next succeeding sentence of this Section 3.02, have been duly
authorized by all necessary corporate action. The affirmative vote of two-thirds
of the outstanding shares of Stone Common Stock is the only vote of any class or
series of Stone's capital stock necessary to approve and adopt this Agreement
and the transactions contemplated by this Agreement (other than the amendment to
the Stone certificate of incorporation), and the affirmative vote of a majority
of the outstanding shares of Stone Common Stock is the only vote of any class or
series of Stone capital stock necessary to approve the amendments to the Stone
certificate of incorporation contemplated by Section 1.02 hereof. This Agreement
has been duly executed and delivered by Stone and, subject to the receipt of the
approval described in the immediately preceding sentence in the case of this
Agreement, constitutes a legal, valid and binding agreement of Stone,
enforceable against Stone in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, regardless of whether in a
proceeding at equity or at law).
SECTION 3.03. Governmental Authorization. The execution and delivery by
Stone of this Agreement, and the consummation by Stone of the transactions
contemplated hereby, require no action by or in respect of, or filing with, any
federal, state or local government or any court, administrative agency or
commission or other governmental agency or authority, whether domestic or
foreign (a 'Governmental Authority'), other than (i) the filing of a certificate
of merger with respect to the Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
Stone is qualified to do business; (ii) the filing of a certificate of amendment
to the Stone certificate of incorporation with respect to the amendments
contemplated by Section 1.02, (iii) compliance with any applicable requirements
of (x) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the 'HSR Act'), (y) laws,
rules and regulations analogous to the HSR Act existing in foreign
jurisdictions, including but not limited to the European Union and Canada and
(z) the Investment Canada Act; (iv) compliance with any applicable requirements
of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the 'Securities Act'); (v) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the 'Exchange Act'); (vi)
compliance with any other applicable securities laws; (vii) compliance with any
environmental, health or safety law or regulation requiring any notification,
disclosure or approval in connection with the Merger; (viii) actions or filings
which, if not taken or made, would not, individually or in the aggregate, be
reasonably expected to have a Stone Material Adverse Effect; and (ix) filings
and notices not required to be made or given until after the Effective Time.
SECTION 3.04. Non-Contravention. The execution and delivery of this
Agreement by Stone does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with, or result in any violation or
breach of any provision of the certificate of incorporation or bylaws of Stone,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, contract or other agreement, instrument or obligation to which
Stone or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject to the consents,
approvals, orders, authorizations, filings and registrations contemplated by
Section 3.03, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Stone or any of its Subsidiaries or any of their
respective properties or assets, except in the case of clause (ii) for any such
violations, breaches, defaults, terminations, cancellations or accelerations
which would not, individually or in the aggregate, be reasonably expected to
have a Stone Material Adverse Effect.
SECTION 3.05. Capitalization. (a) The authorized capital stock of Stone
consists of 200,000,000 shares of Stone Common Stock and 10,000,000 shares of
Preferred Stock, par value $0.01 per share ('Stone Preferred Stock'), of which
2,000,000 shares have been designated Series D Junior Participating Preferred
Stock ('Stone Series D Preferred Stock') and 4,600,000 shares have been
designated Stone Series E Preferred Stock. As of April 27, 1998, (i) 99,717,665
shares of Stone Common Stock were issued and outstanding, (ii) 134,529 shares of
Stone Common Stock were held in the treasury of Stone or by Subsidiaries of
Stone, (iii) 4,640,926 shares of Stone Common Stock were reserved for issuance
pursuant to the Stone Employee Plans and the Stone Benefit Arrangements (as
hereinafter defined), (iv) 4,599,300 shares of Stone Series E Preferred Stock
were issued and outstanding, (v) no shares of Stone Series D Preferred Stock
were issued and outstanding, (vi) 2,000,000 shares of Stone Series D Preferred
Stock were reserved for issuance under the Rights Agreement dated as of July 25,
1988 between Stone and The First National Bank of Chicago, as amended (the
'Rights Agreement'), and (vii) 6,408,122 shares of Stone Common Stock were
reserved for issuance upon the conversion of Stone's 8.875% Convertible Senior
Subordinated Notes ('Convertible Notes') and Stone's 6.75% Convertible
Subordinated Debentures ('Convertible Debentures'). No change in such
capitalization has occurred since such date except as permitted and contemplated
by Section 5.01(d). All outstanding shares of Stone capital stock are, and all
shares of Stone Common Stock and Stone Preferred Stock subject to issuance as
specified above, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be, duly authorized,
validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of Stone or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Stone Common Stock or Stone Preferred
Stock or the capital stock of any Stone Subsidiary or make any investment (in
the form of a loan, capital contribution or otherwise) in any such Subsidiary.
All of the outstanding shares of capital stock of, or other equity interests in,
each of Stone's Subsidiaries have been duly authorized and validly issued and
are fully paid and nonassessable and, except for director's qualifying shares,
are owned directly or indirectly by Stone, free and clear of all Liens and free
of any other restriction (including any restriction on the right to vote, sell
or otherwise dispose of such shares or other equity interests). For purposes of
this Agreement, 'Lien' means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
(b) Except as set forth in Section 3.05(a), there are no equity securities
of any class of Stone, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as set
forth in Section 3.05(a), there are no options, warrants, securities, calls,
rights, commitments or agreements of any character to which Stone or any of its
Subsidiaries is a party or by which any of them are bound obligating Stone or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Stone or any of its
Subsidiaries or obligating Stone or any of its Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. There are no voting trusts or
other agreements or understandings with respect to the shares of capital stock
of Stone to which Stone is a party.
SECTION 3.06. SEC Filings; Financial Statements. (a) Stone has filed all
required reports, schedules, forms, statements and other documents with the
Securities and Exchange Commission (the 'SEC') since December 31, 1994 (the
'Stone SEC Reports').
(b) As of its filing date, each Stone SEC Report filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent that such statements have been
modified or superseded by a later filed Stone SEC Report.
(c) Each Stone SEC Report that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act as of the date
such registration statement or amendment became effective did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except to the
extent that such statements have been modified or superseded by a later filed
Stone SEC Report.
(d) The consolidated financial statements (including, in each case, any
related notes) contained in the Stone SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted for presentation in
Quarterly Reports on Form 10-Q), and fairly presented in all material respects
(subject in the case of unaudited statements to normal, recurring audit
adjustments) the consolidated financial position of Stone and its Subsidiaries
as at the respective dates and the consolidated results of its operations and
cash flows for the periods indicated. The audited balance sheet of Stone as of
December 31, 1997 is referred to herein as the 'Stone Balance Sheet'.
SECTION 3.07. No Undisclosed Liabilities. Stone and its Subsidiaries do not
have any liabilities or obligations of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(a) liabilities or obligations which would not, individually or in the
aggregate, be reasonably expected to have a Stone Material Adverse Effect;
(b) liabilities or obligations disclosed or provided for in the Stone
Balance Sheet or in the notes thereto or in the Stone SEC Reports filed
prior to the date hereof;
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated by this Agreement; or
(d) liabilities or obligations incurred since December 31, 1997 in the
ordinary course of business consistent with past practices.
SECTION 3.08. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Stone, threatened against or
affecting, Stone or any of its Subsidiaries or any of their respective
properties before any Governmental Authority which, individually or in the
aggregate, would be reasonably expected to have a Stone Material Adverse Effect.
SECTION 3.09. Absence of Certain Changes or Events. Since the date of the
Stone Balance Sheet, except as contemplated by or as disclosed in this
Agreement, Stone and its Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (a) any Stone Material Adverse Effect or any event
or development (including in connection with the Merger) that would,
individually or in the aggregate, reasonably be expected to have a Stone
Material Adverse Effect, (b) any event that would, individually or in the
aggregate, reasonably be expected to prevent or materially delay the performance
of this Agreement by Stone, or (c) any action taken by Stone or any of its
Subsidiaries during the period from the date of the Stone Balance Sheet through
the date of this Agreement that, if taken during the period from the date of
this Agreement through the Effective Time, would constitute a breach of Section
5.01.
SECTION 3.10. Compliance with Laws; No Default; No Non-Competes. (a)
Neither Stone nor any of its Subsidiaries is in violation of or has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree, order, writ, injunction, permit or license or other authorization or
approval of any Governmental Authority applicable to its business or operations,
except for violations and failures to comply that would not, individually or in
the aggregate, be reasonably expected to result in a Stone Material Adverse
Effect.
(b) Each material agreement, contract or commitment to which Stone or any
of its Subsidiaries is a party and which can reasonably be expected to require
the payment of money in excess of $10,000,000 per annum ('Stone Material
Contracts') is a valid, binding and enforceable obligation of Stone or such
Subsidiary and in full force and effect, except where the failure to be valid,
binding and enforceable and in full force and effect would not, individually or
in the aggregate, be reasonably expected to have a Stone Material Adverse
Effect. None of Stone or any of its Subsidiaries is in default or violation of
any term, condition or provision of (i) its respective certificate of
incorporation or by-laws or similar organizational documents or (ii) any Stone
Material Contract, except in the case of clause (ii) for any defaults or
violations that would not, individually or in the aggregate, be reasonably
expected to have a Stone Material Adverse Effect.
(c) Neither Stone nor any of its Subsidiaries is a party to any agreement
that expressly limits the ability of Stone or such Subsidiary to compete in or
conduct any line of business or compete with any Person or in any geographic
area or during any period of time except to the extent that any such limitation
would not, individually or in the aggregate, be reasonably expected to have a
JSC Material Adverse Effect after giving effect to the Merger.
SECTION 3.11. Taxes. (a) Each of Stone and its Subsidiaries has timely
filed (or has had timely filed on its behalf) or will file or cause to be timely
filed, all material Tax Returns required by applicable law to be filed by it
prior to or as of the Effective Time, and all such material Tax Returns are, or
will be at the time of filing, complete in all material respects.
(b) Each of Stone and its Subsidiaries has paid (or has had paid on its
behalf) or, where payment is not yet due, has established (or has had
established on its behalf and for its sole benefit and recourse) or will
establish or cause to be established in accordance with generally accepted
accounting principles on or before the Effective Time an adequate accrual for
the payment of, all material Taxes due with respect to any period ending prior
to or as of the Effective Time.
(c) The federal income Tax Returns of Stone and its Subsidiaries have been
examined and settled with the Internal Revenue Service (the 'IRS') (or the
applicable statutes of limitation for the assessment of federal income Taxes for
such periods have expired) for all years through 1992, except for the years
1986, 1987 and 1988 which are currently in appeals.
(d) There are no material Tax claims pending against Stone or any of its
Subsidiaries and Stone does not know of any threatened claim for material Tax
deficiencies or any basis for such claims, no material issues have been raised
in writing in any examination by any taxing authority with respect to Stone or
any of its Subsidiaries which, by application of similar principles, reasonably
could be expected to result in a material proposed deficiency for any other
period not so examined, and there is not now in force any waiver or agreement by
Stone or any of its Subsidiaries for the extension of time for the assessment of
any material Tax, nor has any such waiver or agreement been requested in writing
by any taxing authority. Neither Stone nor any of its Subsidiaries has any
liability with respect to any material United States federal, state, local,
foreign or other Taxes of any corporation or entity other than Stone and its
Subsidiaries.
(e) No transaction contemplated by this Agreement is subject to withholding
under Section 1445 of the Code.
(f) Neither Stone nor any of its Subsidiaries, nor any of its other
Affiliates, (i) has taken any action, agreed to take any action, or failed to
take any action, or (ii) has knowledge of any fact or circumstance that (without
regard to any action taken or agreed to be taken by JSC or any of its
Affiliates) could reasonably be expected to cause the Merger to fail to qualify
as a 'reorganization' within the meaning of Section 368(a) of the Code.
(g) 'Taxes' shall mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessment or similar charges
imposed by the IRS or any taxing authority (whether domestic or foreign
including any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)) (a 'Taxing
Authority'), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments. 'Tax Return' shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.
SECTION 3.12. Intellectual Property. (a) Stone and its Subsidiaries own, or
are licensed or otherwise possess legally enforceable rights and are otherwise
legally entitled to use, all patents, trade secrets, trademarks, trade names,
service marks, copyrights and mask works, all applications for and registrations
of such patents, trademarks, trade names, service marks, copyrights and mask
works, and all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of Stone and its Subsidiaries as currently conducted (the 'Stone Intellectual
Property Rights') except to the extent that the failure to have such rights
would not, individually or in the aggregate, be reasonably expected to have a
Stone Material Adverse Effect.
(b) Neither Stone nor any of its Subsidiaries is or will be as a result of
the execution and delivery of this Agreement, or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Stone Intellectual Property Rights or any license,
sublicense or other agreement pursuant to which Stone or any of its Subsidiaries
is authorized to use any third party patents, trademarks or copyrights,
including software, which are used in the manufacture of, incorporated in, or
form a part of any product of Stone or any of its Subsidiaries, except for
breaches which, individually or in the aggregate, would not be reasonably
expected to have a Stone Material Adverse Effect.
(c) All patents, registered and common law trademarks, service marks and
copyrights held by Stone or any of its Subsidiaries which are material to the
business of Stone and its Subsidiaries are valid and enforceable. Neither Stone
nor any of its Subsidiaries (i) has been sued in any suit, action or proceeding
which involves a claim of infringement of any patent, trade secret, trademark,
service mark or copyright or the violation of any trade secret or other
proprietary right of any third party or (ii) has any knowledge that the
manufacturing, importation, marketing, licensing, sale, offer for sale, or use
of any of its products infringes any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party, which infringement,
individually or in the aggregate, would be reasonably expected to have a Stone
Material Adverse Effect.
SECTION 3.13. Environmental Matters. (a) Except as would not, individually
or in the aggregate, reasonably be expected to have a Stone Material Adverse
Effect:
(i) no notice, demand, request for information, request for an
investigation, notice of violation, citations, summons, claim, complaint or
order has been received by, or, to Stone's knowledge, is pending or
threatened by any Person against, Stone or any of its Subsidiaries nor has
any material penalty been assessed or, to Stone's knowledge, is pending or
threatened against Stone or any of its Subsidiaries with respect to any
matters relating to Stone or any of its Subsidiaries and relating to or
arising out of Environmental Laws;
(ii) no property now or previously owned, leased or operated by Stone
or any of its Subsidiaries nor any property to which Stone or any of its
Subsidiaries has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substance is listed or, to Stone's
knowledge, proposed for listing on any federal, state, local or foreign
list of sites requiring investigation or clean-up;
(iii) to Stone's knowledge, no Hazardous Substance has been
discharged, emitted, released or is present at any property now or
previously owned, leased or operated by Stone or any of its Subsidiaries in
a manner that violated, or that is required to be investigated, remediated
or removed pursuant to, Environmental Laws;
(iv) there are no liabilities of or relating to Stone or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to
Environmental Laws; and
(v) Stone and its Subsidiaries have or have applied for all permits or
licenses necessary to operate their facilities in material compliance with
Environmental Laws and are currently in material compliance with
Environmental Laws.
(b) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) 'Environmental Laws' means any applicable federal, state, local
and foreign statutes, laws, judicial decisions, regulations, rules, codes,
injunctions, permits, licenses, approvals, agreements or governmental
restrictions, each as in effect on or prior to the Closing Date, relating
to protection of the environment or human health and safety or to the
manufacture, use, treatment, storage, disposal or handling of, or to
emissions, discharges or releases of, pollutants, contaminants, wastes or
other hazardous substances into the environment.
(ii) 'Hazardous Substance' means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable, corrosive or otherwise
hazardous substance, waste, or material, including without limitation
petroleum, its derivatives, by-products and other hydrocarbons, which in
any event is regulated under Environmental Laws.
SECTION 3.14. Employee Benefits and Labor Matters. (a) The Stone Disclosure
Schedule contains a list identifying each 'employee benefit plan' (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ('ERISA')),
which is subject to any provision of ERISA and is maintained, administered or
contributed to by Stone or any of its Affiliates and covers any employee or
former employee of Stone or any of its Subsidiaries or under which Stone or any
of its Subsidiaries has any liability. Copies of such plans (and, if applicable,
related trust agreements) and all amendments thereto have been made available to
JSC together with the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) prepared in connection with any such plan and
the three most recent actuarial valuation reports prepared in connection with
any such plan. Such plans are referred to collectively herein as the 'Stone
Employee Plans'. The only Stone Employee Plans which individually or
collectively would constitute an 'employee pension benefit plan' (as defined in
Section 3(2) of ERISA) are identified as such in the list referred to above.
(b) No 'accumulated funding deficiency' (as defined in Section 412 of the
Code) has been incurred with respect to any Stone Employee Plan subject to
Title IV of ERISA, whether or not waived. No 'reportable event' (within the
meaning of Section 4043 of ERISA) and no event described in Section 4041, 4042,
4062 or 4063 of ERISA has occurred in connection with any Stone Employee Plans
other than any reportable event which would not, individually or in the
aggregate, be reasonably expected to have a Stone Material Adverse Effect. No
condition exists and no event has occurred that could constitute grounds for
termination of any Stone Employee Plans other than any such terminations that
would not, individually or in the aggregate, be reasonably expected to have a
Stone Material Adverse Effect. Neither Stone nor any Stone ERISA Affiliate has
any material unsatisfied liability under Title IV of ERISA in connection with
the termination of, or complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA. Nothing done or omitted to be done and
no transaction or holding of any asset under or in connection with any Stone
Employee Plan has or will make Stone or any of its Subsidiaries or any officer
or director of Stone or any of its Subsidiaries subject to any liability under
Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code
that would, individu-ally or in the aggregate, be reasonably expected to have a
Stone Material Adverse Effect. For purposes of this Section, 'Stone ERISA
Affiliate' means any other Person which, together with Stone, would be treated
as a single employer under Section 414 of the Code.
(c) Each Stone Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a determination letter from the IRS that
it is so qualified and, to the knowledge of Stone, is so qualified and has been
so qualified during the period since its adoption. To the knowledge of Stone,
each trust created under any such Stone Employee Plan is exempt from tax under
Section 501(a) of the Code and, to the knowledge of Stone, has been so exempt
since its creation. Stone has made available to JSC the most recent
determination letter of the IRS relating to each such Stone Employee Plan. Each
Stone Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including, but not limited to, ERISA and the Code, which are
applicable to such Stone Employee Plan, excluding any instances of
non-compliance that would not, individually or in the aggregate, be reasonably
expected to have a Stone Material Adverse Effect.
(d) The Stone Disclosure Schedule contains a list of each material
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which is not a Stone Employee Plan, is
entered into, maintained or contributed to, as the case may be, by Stone or any
of its Affiliates and covers any employee or former employee of Stone or any of
its Subsidiaries. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to JSC,
are referred to collectively herein as the 'Stone Benefit Arrangements'. Each
Stone Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations that are applicable to such Stone Benefit Arrangement,
excluding any instances of non-compliance that would not, individually or in the
aggregate, be reasonably expected to have a Stone Material Adverse Effect.
(e) No Stone Employee Plan, Stone Benefit Arrangement or related document
contains any provision that would prevent Stone or any of its Subsidiaries from
amending or terminating any post-retirement health, medical or life insurance
benefits and, to the knowledge of Stone, no agent or representative of Stone or
any of its Affiliates has made any statements that would limit the ability of
Stone or any of its Subsidiaries to amend or terminate any such benefits.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by Stone or any of its Affiliates relating to, or
change in employee participation or coverage under, any Stone Employee Plans or
Stone Benefit Arrangement which would increase materially the expense of
maintaining such Stone Employee Plans or Stone Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended on
the closing date of the Stone Balance Sheet.
(g) The execution of, and the performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Stone Employee
Plan, Stone Benefit Arrangement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, director or consultant
of Stone or any of its Subsidiaries, or result in the triggering or imposition
of any restrictions or limitations on the right of JSC, Stone or any of its
Subsidiaries to amend or terminate any Stone Employee Plans and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. There is no contract, agreement, plan
or arrangement covering any employee or former employee of Stone or any of its
Subsidiaries that, individually or in the aggregate, could give rise to the
payment of any amount that would not be deductible pursuant to the terms of
Sections 162(a)(1), 162(i)(2) or 280G of the Code.
(h) No work stoppage, labor strike or slowdown against Stone or any of its
Subsidiaries is pending or threatened. Neither Stone nor any of its Subsidiaries
is involved in or threatened with any labor dispute or grievance which,
individually or in the aggregate, has had or would be reasonably expected to
have a Stone Material Adverse Effect. To the knowledge of Stone there is no
organizing effort or representation question at issue with respect to any
employee of Stone or any of its Subsidiaries. No collective bargaining agreement
to which Stone or any of its Subsidiaries is or may be a party is currently
under negotiation or renegotiation and no existing collective bargaining
agreement is due for expiration, renewal or renegotiation within the one year
period after the date hereof.
SECTION 3.15. Transactions with Affiliates. Since the date of Stone's last
proxy statement prior to the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings between Stone or its
Subsidiaries, on the one hand, and Stone's Affiliates (other than wholly-owned
Subsidiaries of Stone) or other Persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act. For purposes of this Agreement, 'Affiliate', when used with respect to any
Person, means any other Person directly or indirectly controlling, controlled
by, or under common control with such Person. As used in the definition of
'Affiliate', the term 'control' means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
SECTION 3.16. Information Supplied. The information supplied by Stone for
inclusion in the registration statement on Form S-4 or any amendment or
supplement thereto pursuant to which shares of JSC Common Stock issuable in the
Merger will be registered with the SEC (the 'Registration Statement') shall not
at the time the Registration Statement is declared effective by the SEC contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The information supplied by Stone for inclusion in the joint proxy
statement/prospectus or any amendment or supplement thereto (the 'Proxy
Statement') to be sent to the stockholders of Stone in connection with their
meeting to consider this Agreement and the Merger and the amendments to the
Stone certificate of incorporation contemplated by Section 1.02 hereof (the
'Stone Stockholders' Meeting') and to the stockholders of JSC in connection with
their meeting to consider the issuance of shares of JSC Common Stock in the
Merger and the amendments to the JSC certificate of incorporation contemplated
by Section 1.04(a) hereof (the 'JSC Stockholders' Meeting' and together with the
Stone Stockholders' Meeting, the 'Stockholders' Meetings') shall not, on the
date the Proxy Statement is first mailed to the stockholders of Stone and JSC or
at the time of the Stockholders' Meetings, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.17. Opinion of Financial Advisor. The financial advisor of Stone,
Salomon Smith Barney, has delivered to Stone a written opinion dated the date of
this Agreement to the effect that the Exchange Ratio is fair from a financial
point of view to the common stockholders of Stone. Stone has delivered to JSC a
copy of such opinion.
SECTION 3.18. Finders' Fees. Except for Salomon Smith Barney, a copy of
whose engagement agreement has been provided to JSC, no investment banker,
broker, finder, other intermediary or other Person is entitled to any investment
banking, broker's, finder's or similar fee or commission from Stone or any of
its Subsidiaries upon consummation of the transactions contemplated by this
Agreement.
SECTION 3.19. Takeover Statutes. The Board of Directors of Stone has
approved the Merger and this Agreement, and such approval is sufficient to
render inapplicable to the Merger, this Agreement and the transactions
contemplated by this Agreement the provisions of Section 203 of the DGCL. To
the best of Stone's knowledge, no other 'fair price', 'moratorium', 'control
share acquisition' or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States (each, a 'Takeover Statute')
applicable to Stone or any of its Subsidiaries is applicable to the Merger or
the other transactions contemplated hereby.
SECTION 3.20. Rights Agreement. Stone has amended the Rights Agreement to
(i) extend its final maturity date to December 31, 1998, (ii) render the Rights
Agreement inapplicable to the Merger and the other transactions contemplated by
this Agreement and (iii) provide that JSC shall not be deemed an Acquiring
Person (as defined in the Rights Agreement), the Distribution Date (as defined
in the Rights Agreement) shall not be deemed to occur and the rights issuable
pursuant to the Rights Agreement (the 'Rights') will not separate from the
shares of Stone Common Stock, as a result of entering into this Agreement or
consummating the Merger and the other transactions contemplated hereby, and,
except as otherwise provided herein, such amended Rights Agreement may not be
further amended by Stone without the prior written consent of JSC in its sole
discretion.
SECTION 3.21. Non-Recourse Debt and Obligations. Stone has no guarantees,
keep-well arrangements nor any liabilities with respect to the indebtedness of
the Stone entities listed in Section 3.21 of the Stone Disclosure Schedule, and,
except as provided therein, has no continuing financial or commercial
obligations to such entities, including with respect to the support or funding
of such entities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF JSC AND SUB
JSC and Sub represent and warrant to Stone that the statements contained in
this Article 4 are true and correct, except as set forth in the disclosure
schedule delivered by JSC to Stone prior to the execution of this Agreement (the
'JSC Disclosure Schedule') or in the JSC SEC Reports (as hereinafter defined)
filed prior to the date of this Agreement or as otherwise expressly contemplated
by the Transaction Agreements. For purposes of this Agreement, 'JSC Material
Adverse Effect' means a material adverse effect (i) on the business, properties,
assets, liabilities (contingent or otherwise) or financial condition of JSC and
its Subsidiaries, taken as a whole, or (ii) on the ability of JSC or Sub to
perform their respective obligations under or to consummate the transactions
contemplated by this Agreement, other than effects caused by (x) changes
resulting from the announcement of this Agreement and the proposed consummation
of the Merger and the other transactions contemplated by this Agreement or (y)
changes resulting from conditions affecting the containerboard or newsprint
industries generally.
SECTION 4.01. Organization and Power. Each of JSC and its Subsidiaries is a
corporation, partnership or other entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, and has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be in good
standing or have such power, authority or approvals would not, individually or
in the aggregate, be reasonably expected to have a JSC Material Adverse Effect.
Each of JSC and its Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, individually or in the
aggregate, be reasonably expected to have a JSC Material Adverse Effect.
SECTION 4.02. Corporate Authorization. The execution and delivery by JSC
and Sub of this Agreement and by JSC of the Registration Rights Agreement dated
the date hereof among JSC, SIBV, MSLEF and certain other JSC stockholders (the
'Registration Rights Agreement') in substantially the form attached hereto as
Exhibit F, and the consummation by JSC and Sub of the transactions contemplated
hereby and thereby, are within the corporate powers of JSC and Sub and, except
as set forth in the next succeeding sentence, have been duly authorized by all
necessary corporate action. The affirmative vote of a majority of the
outstanding shares of JSC Common Stock present in person or by proxy at the JSC
Stockholders' Meeting is the only vote of any class or series of JSC capital
stock necessary to approve the issuance of JSC Common Stock in the Merger, and
the affirmative vote of two-thirds of the outstanding shares of JSC Common
Stock is the only vote of any class or series of JSC capital stock necessary to
effect the amendments to the JSC certificate of incorporation contemplated by
Section 1.04(a) hereof. This Agreement has been duly executed and delivered by
JSC and Sub and, subject to the receipt of the approval described in the
immediately preceding sentence, constitutes a legal, valid and binding
agreement of JSC and Sub, enforceable against JSC and Sub in accordance with
its terms (subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws affecting creditors'
rights generally from time to time in effect and to general principles of
equity, regardless of whether in a proceeding at equity or at law). The
Registration Rights Agreement has been duly executed and delivered by JSC and
constitutes a legal, valid and binding agreement of JSC, enforceable against
JSC in accordance with its terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity, regardless of whether in a proceeding at equity
or at law). The shares of JSC Common Stock issued pursuant to the Merger, when
issued in accordance with the terms hereof, will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights.
SECTION 4.03. Governmental Authorization. The execution and delivery by JSC
and Sub of this Agreement and by JSC of the Registration Rights Agreement, and
the consummation by JSC and Sub of the transactions contemplated hereby and
thereby, require no action by or in respect of, or filing with, any Governmental
Authority other than (i) the filing of a certificate of merger with respect to
the Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which JSC is qualified to do
business; (ii) the filing of an amended and restated certificate of
incorporation of JSC with respect to the amendments contemplated by Section
1.04(a) hereof; (iii) compliance with any applicable requirements of (x) the HSR
Act, (y) laws, rules and regulations analogous to the HSR Act existing in
foreign jurisdictions, including but not limited to the European Union and
Canada and (z) the Investment Canada Act; (iv) compliance with any applicable
requirements of the Securities Act; (v) compliance with any applicable
requirements of the Exchange Act; (vi) compliance with any other applicable
securities laws; (vii) compliance with any environmental, health or safety law
or regulation requiring any notification, disclosure or approval in connection
with the Merger; (viii) actions or filings which, if not taken or made, would
not, individually or in the aggregate, be reasonably expected to have a JSC
Material Adverse Effect; and (ix) filings and notices not required to be made or
given until after the Effective Time.
SECTION 4.04. Non-Contravention. The execution and delivery of this
Agreement by JSC and Sub, and the execution and delivery of the Registration
Rights Agreement by JSC, does not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in any
violation or breach of any provision of the certificate of incorporation or
bylaws of JSC or Sub, (ii) result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or obligation to which JSC or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) subject to
the consents, approvals, orders, authorizations, filings and registrations
contemplated by Sections 4.02 and 4.03, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to JSC or any of its Subsidiaries
or any of their respective properties or assets, except in the case of clause
(ii) for any such violations, breaches, defaults, terminations, cancellations or
accelerations which would not, individually or in the aggregate, be reasonably
expected to have a JSC Material Adverse Effect.
SECTION 4.05. Capitalization. (a) The authorized capital stock of JSC
consists of 250,000,000 shares of JSC Common Stock and 50,000,000 shares of
Preferred Stock, par value $0.01 per share ('JSC Preferred Stock'). As of April
30, 1998, (i) 110,997,184 shares of JSC Common Stock were issued and
outstanding, (ii) no shares of JSC Common Stock were held in the treasury of
JSC or by Subsidiaries of JSC, (iii) 8,353,848 shares of JSC Common Stock were
reserved for issuance pursuant to the JSC Employee Plans and the JSC Benefit
Arrangements and (iv) no shares of JSC Preferred Stock were issued and
outstanding. No change in such capitalization has occurred since such date
except as permitted or contemplated by Section 5.02(d). All outstanding shares
of JSC capital stock are, and all shares of JSC Common Stock subject to
issuance as specified above, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be,
duly authorized, validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of JSC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of JSC Common Stock or JSC
Preferred Stock or the capital stock of any JSC Subsidiary or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary. All of the outstanding shares of capital stock of, or other
equity interests in, each of JSC's Subsidiaries have been duly authorized and
validly issued and are fully paid and nonassessable and, except for director's
qualifying shares, are owned directly or indirectly by JSC, free and clear of
all Liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such shares or other equity
interests).
(b) Except as set forth in Section 4.05(a), there are no equity securities
of any class of JSC, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as set
forth in Section 4.05(a) and as contemplated by this Agreement, there are no
options, warrants, securities, calls, rights, commitments or agreements of any
character to which JSC or any of its Subsidiaries is a party or by which any of
them are bound obligating JSC or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of JSC or any of its Subsidiaries or obligating JSC or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement. There
are no voting trusts or other agreements or understandings with respect to the
shares of capital stock of JSC to which JSC is a party.
(c) The authorized capital stock of Sub consists solely of 100 shares of
capital stock, par value $0.01 per share ('Sub Common Stock'), all of which
shares, as of the date hereof, are issued and outstanding and held by JSC free
and clear of all Liens.
SECTION 4.06. SEC Filings; Financial Statements. (a) JSC has filed all
required reports, schedules, forms, statements and other documents with the SEC
since December 31, 1994 (the 'JSC SEC Reports').
(b) As of its filing date, each JSC SEC Report filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent that such statements have been
modified or superseded by a later filed JSC SEC Report.
(c) Each JSC SEC Report that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act as of the date
such registration statement or amendment became effective did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except to the
extent that such statements have been modified or superseded by a later filed
JSC SEC Report.
(d) The consolidated financial statements (including, in each case, any
related notes) contained in the JSC SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted for presentation in
Quarterly Reports on Form 10-Q), and fairly presented in all material respects
(subject in the case of unaudited statements to normal, recurring audit
adjustments) the consolidated financial position of JSC and its Subsidiaries as
at the respective dates and the consolidated results of its operations and cash
flows for the periods indicated. The audited balance sheet of JSC as of December
31, 1997 is referred to herein as the 'JSC Balance Sheet'.
SECTION 4.07. No Undisclosed Liabilities. JSC and its Subsidiaries do not
have any liabilities or obligations of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(a) liabilities or obligations which would not, individually or in the
aggregate, be reasonably expected to have a JSC Material Adverse Effect;
(b) liabilities or obligations disclosed or provided for in the JSC
Balance Sheet or in the notes thereto or in the JSC SEC Reports filed prior
to the date hereof;
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated by this Agreement; or
(d) liabilities or obligations incurred since December 31, 1997 in the
ordinary course of business consistent with past practices.
SECTION 4.08. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of JSC, threatened against or
affecting, JSC or any of its Subsidiaries or any of their respective properties
before any Governmental Authority which, individually or in the aggregate, would
be reasonably expected to have a JSC Material Adverse Effect.
SECTION 4.09. Absence of Certain Changes or Events. Since the date of the
JSC Balance Sheet, except as contemplated by or as disclosed in this Agreement,
JSC and its Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been (a) any JSC Material Adverse Effect or any event or development
(including in connection with the Merger) that would, individually or in the
aggregate, reasonably be expected to have a JSC Material Adverse Effect, (b) any
event that would, individually or in the aggregate, reasonably be expected to
prevent or materially delay the performance of this Agreement by JSC, or (c) any
action taken by JSC or any of its Subsidiaries during the period from the date
of the JSC Balance Sheet through the date of this Agreement that, if taken
during the period from the date of this Agreement through the Effective Time,
would constitute a breach of Section 5.02.
SECTION 4.10. Compliance with Laws; No Default; No Non-Competes. (a)
Neither JSC nor any of its Subsidiaries is in violation of or has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree, order, writ, injunction, permit or license or other authorization or
approval of any Governmental Authority applicable to its business or operations,
except for violations and failures to comply that would not, individually or in
the aggregate, be reasonably expected to result in a JSC Material Adverse
Effect.
(b) Each material agreement, contract or commitment to which JSC or any of
its Subsidiaries is a party and which can reasonably be expected to require the
payment of money in excess of $10,000,000 per annum ('JSC Material Contracts')
is a valid, binding and enforceable obligation of JSC or such Subsidiary and in
full force and effect, except where the failure to be valid, binding and
enforceable and in full force and effect would not, individually or in the
aggregate, be reasonably expected to have a JSC Material Adverse Effect. None of
JSC or any of its Subsidiaries is in default or violation of any term, condition
or provision of (i) its respective certificate of incorporation or by-laws or
similar organizational documents or (ii) any JSC Material Contract, expect in
the case of clause (ii) for any defaults or violations that would not,
individually or in the aggregate, be reasonably expected to have a JSC Material
Adverse Effect.
(c) Neither JSC nor any of its Subsidiaries is a party to any agreement
that expressly limits the ability of JSC or such Subsidiary to compete in or
conduct any line of business or compete with any Person or in any geographic
area or during any period of time except to the extent that any such limitation
would not, individually or in the aggregate, be reasonably expected to have a
JSC Material Adverse Effect after giving effect to the Merger.
SECTION 4.11. Taxes. (a) Each of JSC and its Subsidiaries has timely filed
(or has had timely filed on its behalf) or will file or cause to be timely
filed, all material Tax Returns required by applicable law to be filed by it
prior to or as of the Effective Time, and all such material Tax Returns are, or
will be at the time of filing, complete in all material respects.
(b) Each of JSC and its Subsidiaries has paid (or has had paid on its
behalf) or, where payment is not yet due, has established (or has had
established on its behalf and for its sole benefit and recourse) or will
establish or cause to be established in accordance with generally accepted
accounting principles on or before the Effective Time an adequate accrual for
the payment of, all material Taxes due with respect to any period ending prior
to or as of the Effective Time.
(c) The federal income Tax Returns of JSC and its Subsidiaries have been
examined by and settled with the IRS (or the applicable statutes of limitation
for the assessment of federal income Taxes for such periods have expired) for
all years through 1988.
(d) There are no material Tax claims pending against JSC or any of its
Subsidiaries and JSC does not know of any threatened claim for material Tax
deficiencies or any basis for such claims, no material issues have been raised
in writing in any examination by any taxing authority with respect to JSC or any
of its Subsidiaries which, by application of similar principles, reasonably
could be expected to result in a material proposed deficiency for any other
period not so examined, and there is not now in force any waiver or agreement by
JSC or any of its Subsidiaries for the extension of time for the assessment of
any material Tax, nor has any such waiver or agreement been requested in writing
by any taxing authority. Neither JSC nor any of its Subsidiaries has any
liability with respect to any material United States federal, state, local,
foreign or other Taxes of any corporation or entity other than JSC and its
Subsidiaries.
(e) Neither JSC nor any of its Subsidiaries, nor any of its other
Affiliates, (i) has taken any action, agreed to take any action, or failed to
take any action, or (ii) has knowledge of any fact or circumstance that (without
regard to any action taken or agreed to be taken by Stone or any of its
Affiliates) could reasonably be expected to cause the Merger to fail to qualify
as a 'reorganization' within the meaning of Section 368(a) of the Code.
SECTION 4.12. Intellectual Property. (a) JSC and its Subsidiaries own, or
are licensed or otherwise possess legally enforceable rights and are otherwise
legally entitled to use, all patents, trade secrets, trademarks, trade names,
service marks, copyrights and mask works, all applications for and registrations
of such patents, trademarks, trade names, service marks, copyrights and mask
works, and all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of JSC and its Subsidiaries as currently conducted (the 'JSC Intellectual
Property Rights') except to the extent that the failure to have such rights
would not, individually or in the aggregate, be reasonably expected to have a
JSC Material Adverse Effect.
(b) Neither JSC nor any of its Subsidiaries is or will be as a result of
the execution and delivery of this Agreement, or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the JSC Intellectual Property Rights or any license,
sublicense or other agreement pursuant to which JSC or any of its Subsidiaries
is authorized to use any third party patents, trademarks or copyrights,
including software, which are used in the manufacture of, incorporated in, or
form a part of any product of JSC or any of its Subsidiaries, except for
breaches which would not, individually or in the aggregate, be reasonably
expected to have a JSC Material Adverse Effect.
(c) All patents, registered and common law trademarks, service marks and
copyrights held by JSC or any of its Subsidiaries which are material to the
business of JSC and its Subsidiaries are valid and enforceable. Neither JSC nor
any of its Subsidiaries (i) has been sued in any suit, action or proceeding
which involves a claim of infringement of any patent, trade secret, trademark,
service mark or copyright or the violation of any trade secret or other
proprietary right of any third party or (ii) has any knowledge that the
manufacturing, importation, marketing, licensing, sale, offer for sale, or use
of any of its products infringes any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party, which infringement,
individually or in the aggregate, would be reasonably expected to have a JSC
Material Adverse Effect.
SECTION 4.13. Environmental Matters. (a) Except as would not, individually
or in the aggregate, reasonably be expected to have a JSC Material Adverse
Effect:
(i) no notice, demand, request for information, request for an
investigation, notice of violation, citations, summons, claim, complaint or
order has been received by, or, to JSC's knowledge, is pending or
threatened by any Person against, JSC or any of its Subsidiaries nor has
any material penalty been assessed or, to JSC's knowledge, is pending or
threatened against JSC or any of its Subsidiaries with respect to any
matters relating to JSC or any of its Subsidiaries and relating to or
arising out of Environmental Laws;
(ii) no property now or previously owned, leased or operated by JSC or
any of its Subsidiaries nor any property to which JSC or any of its
Subsidiaries has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substance is listed or, to JSC's knowledge,
proposed for listing on any federal, state, local or foreign list of sites
requiring investigation or clean-up;
(iii) to JSC's knowledge, no Hazardous Substance has been discharged,
emitted, released or is present at any property now or previously owned,
leased or operated by JSC or any of its Subsidiaries in a manner that
violated, or that is required to be investigated, remediated or removed
pursuant to, Environmental Laws;
(iv) there are no liabilities of or relating to JSC or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to
Environmental Laws; and
(v) JSC and its Subsidiaries have or have applied for all permits or
licenses necessary to operate their facilities in material compliance with
Environmental Laws and are currently in material compliance with
Environmental Laws.
SECTION 4.14. Employee Benefits and Labor Matters. (a) The JSC Disclosure
Schedule contains a list identifying each 'employee benefit plan' (as defined in
Section 3(3) of ERISA), which is subject to any provision of ERISA and is
maintained, administered or contributed to by JSC or any of its Affiliates and
covers any employee or former employee of JSC or any of its Subsidiaries or
under which JSC or any of its Subsidiaries has any liability. Copies of such
plans (and, if applicable, related trust agreements) and all amendments thereto
have been made available to JSC together with the most recent annual report
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan and the three most recent actuarial valuation reports
prepared in connection with any such plan. Such plans are referred to
collectively herein as the 'JSC Employee Plans'. The only JSC Employee Plans
which individually or collectively would constitute an 'employee pension benefit
plan' (as defined in Section 3(2) of ERISA) are identified as such in the list
referred to above.
(b) No 'accumulated funding deficiency' (as defined in Section 412 of the
Code) has been incurred with respect to any JSC Employee Plan subject to Title
IV of ERISA, whether or not waived. No 'reportable event' (within the meaning of
Section 4043 of ERISA) and no event described in Section 4041, 4042, 4062 or
4063 of ERISA has occurred in connection with any JSC Employee Plans other than
any reportable event which would not, individually or in the aggregate, be
reasonably expected to have a JSC Material Adverse Effect. No condition exists
and no event has occurred that could constitute grounds for termination of any
JSC Employee Plans other than any such terminations that would not, individually
or in the aggregate, be reasonably expected to have a JSC Material Adverse
Effect. Neither JSC nor any JSC ERISA Affiliate has any material unsatisfied
liability under Title IV of ERISA in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any JSC Employee Plan has or
will make JSC or any of its Subsidiaries or any officer or director of JSC or
any of its Subsidiaries subject to any liability under Title I of ERISA or
liable for any Tax pursuant to Section 4975 of the Code that would, individually
or in the aggregate, be reasonably expected to have a JSC Material Adverse
Effect. For purposes of this Section, 'JSC ERISA Affiliate' means any other
Person which, together with JSC, would be treated as a single employer under
Section 414 of the Code.
(c) Each JSC Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a determination letter from the IRS that it is
so qualified and, to the knowledge of JSC, is so qualified and has been so
qualified during the period since its adoption. To the knowledge of JSC, each
trust created under any such JSC Employee Plan is exempt from tax under Section
501(a) of the Code and, to the knowledge of JSC, has been so exempt since its
creation. JSC has made available to JSC the most recent determination letter of
the IRS relating to each such JSC Employee Plan. Each JSC Employee Plan has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, which are applicable to such
JSC Employee Plan, excluding any instances of non-compliance that would not,
individually or in the aggregate, be reasonably expected to have a JSC Material
Adverse Effect.
(d) The JSC Disclosure Schedule contains a list of each material
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which is not a JSC Employee Plan, is entered
into, maintained or contributed to, as the case may be, by JSC or any of its
Affiliates and covers any employee or former employee of JSC or any of its
Subsidiaries. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to JSC,
are referred to collectively herein as the 'JSC Benefit Arrangements'. Each JSC
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such JSC Benefit Arrangement, excluding any
instances of non-compliance that would not, individually or in the aggregate, be
reasonably expected to have a JSC Material Adverse Effect.
(e) No JSC Employee Plan, JSC Benefit Arrangement or related document
contains any provision that would prevent JSC or any of its Subsidiaries from
amending or terminating any post-retirement health, medical or life insurance
benefits and, to the knowledge of JSC, no agent or representative of JSC or any
of its Affiliates has made any statements that would limit the ability of JSC or
any of its Subsidiaries to amend or terminate any such benefits.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by JSC or any of its Affiliates relating to, or change
in employee participation or coverage under, any JSC Employee Plans or JSC
Benefit Arrangement which would increase materially the expense of maintaining
such JSC Employee Plans or JSC Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on the closing
date of the JSC Balance Sheet.
(g) The execution of, and the performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any JSC Employee
Plan, JSC Benefit Arrangement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, director or consultant
of JSC or any of its Subsidiaries, or result in the triggering or imposition of
any restrictions or limitations on the right of JSC, JSC or any of its
Subsidiaries to amend or terminate any JSC Employee Plans and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. There is no contract, agreement, plan
or arrangement covering any employee or former employee of JSC or any of its
Subsidiaries that, individually or in the aggregate, could give rise to the
payment of any amount that would not be deductible pursuant to the terms of
Sections 162(a)(1), 162(i)(2) or 280G of the Code.
(h) No work stoppage, labor strike or slowdown against JSC or any of its
Subsidiaries is pending or threatened. Neither JSC nor any of its Subsidiaries
is involved in or threatened with any labor dispute or grievance which,
individually or in the aggregate, has had or would be reasonably expected to
have a JSC Material Adverse Effect. To the knowledge of JSC there is no
organizing effort or representation question at issue with respect to any
employee of JSC or any of its Subsidiaries. No collective bargaining agreement
to which JSC or any of its Subsidiaries is or may be a party is currently under
negotiation or renegotiation and no existing collective bargaining agreement is
due for expiration, renewal or renegotiation within the one year period after
the date hereof.
SECTION 4.15. Transactions with Affiliates. Since the date of JSC's last
proxy statement prior to the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings between JSC or its
Subsidiaries, on the one hand, and JSC's Affiliates (other than wholly-owned
Subsidiaries of JSC) or other Persons, on the other hand, that would be required
to be disclosed under Item 404 of Regulation S-K under the Securities Act.
SECTION 4.16. Information Supplied. The information supplied by JSC for
inclusion in the Registration Statement shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by JSC for inclusion in the Proxy Statement to be sent to the
stockholders of Stone in connection with the Stone Stockholders' Meeting and to
the stockholders of JSC in connection with the JSC Stockholders' Meeting shall
not, on the date the Proxy Statement is first mailed to the stockholders of
Stone and JSC or at the time of the Stockholders' Meetings, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 4.17. Opinion of Financial Advisor. Merrill Lynch & Co. has
delivered to JSC a written opinion dated the date of this Agreement to the
effect that the Exchange Ratio is fair from a financial point of view to JSC.
JSC has delivered to Stone a copy of such opinion.
SECTION 4.18. Finders' Fees. Except for Merrill Lynch & Co., Morgan Stanley
& Co. Incorporated and BT Wolfensohn, a copy of each of whose engagement
agreement has been provided to Stone, no investment banker, broker, finder,
other intermediary or other Person is entitled to any investment banking,
broker's, finder's or similar fee or commission from JSC or any of its
Subsidiaries upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.19. Non-Recourse Debt and Obligations. JSC has no guarantees,
keep-well arrangements nor any liabilities with respect to the indebtedness of
the JSC entities listed in Section 4.19 of the JSC Disclosure Schedule, and,
except as provided therein, has no continuing financial or commercial
obligations to such entities, including with respect to the support or funding
of such entities.
ARTICLE 5
CONDUCT OF BUSINESS
SECTION 5.01. Conduct of Stone. Stone agrees that from the date hereof
until the Effective Time, except as set forth in the Stone Disclosure Schedule
or as otherwise expressly contemplated by the Transaction Agreements or with the
prior written consent of JSC, Stone and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall 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 hereof until the Effective Time, except as set forth in
the Stone Disclosure Schedule or as expressly contemplated by the Transaction
Agreements, without the prior written consent of JSC, Stone 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 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 this 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 on Section 5.01(d) of the
Stone 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 Section 5.01(i)(ii)(B) (except to
the extent that the proceeds from such indebtedness to be incurred under
such clause (B) will be used to repay borrowings under Section
5.01(i)(ii)(C)(y)) or pursuant to Section 5.01(i)(ii)(C)(y); 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 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 shall 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
Section 5.01, (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 shall 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 or,
except in connection with transactions permitted under this Section
5.01(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 this
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 Section 5.01(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 election or take any position on any Tax
Return filed on or after the date of this Agreement or adopt any method
therefor that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar 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 hereof, (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 this 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
hereunder 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.
SECTION 5.02. Conduct of JSC. JSC agrees that from the date hereof until
the Effective Time, except as set forth in Section 5.02 of the JSC Disclosure
Schedule or as otherwise expressly contemplated by the Transaction Agreements
or with the prior written consent of Stone, JSC and its Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall 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 hereof until the Effective Time,
except as set forth in the JSC Disclosure Schedule or as expressly contemplated
by the Transaction Agreements, without the prior written consent of Stone, JSC
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 JSC 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 JSC or any of its Subsidiaries (other than the
issuance of shares by a wholly owned subsidiary of JSC to JSC or another
wholly owned Subsidiary of JSC), 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 JSC 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 JSC or
any of its Subsidiaries, except in the case of either clause (i) or (ii)
(A) the issuance of JSC Common Stock upon the exercise of JSC Stock
Options, (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
this Agreement, (D) sales, transfers or dispositions of receivables in
connection with the securitization of such receivables or (E) sales or
other dispositions of property and assets of JSC and its Subsidiaries
listed on Section 5.02(d) of the JSC Disclosure Schedule in an aggregate
amount that does not exceed $390,000,000 less the amount of indebtedness
for borrowed money incurred by JSC and its Subsidiaries pursuant to
Section 5.02(i)(ii)(B);
(e) create or incur any material Lien 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 JSC made in
the ordinary course and consistent with past practices;
(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 JSC to JSC or to any other direct or
indirect wholly owned Subsidiary of JSC in the ordinary course and
consistent with past practice) 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;
(i) (i) acquire (including, without limitation, by merger,
consolidation 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 is not, in the aggregate, in excess of $20,000,000,
(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 JSC of 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 Section 5.02,
(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, and (C) other indebtedness for borrowed money incurred under
JSC's revolving credit agreement for working capital purposes only and not
for the repayment of any of the outstanding public debt of JSC and its
Subsidiaries, (iii) terminate, cancel, waive any rights under or request
any material change in, or agree to any material change in, any JSC
Material Contract or, except in connection with transactions permitted
under this Section 5.02(i), enter into any contract or agreement material
to the business, results of operations or financial condition of JSC 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 this
Agreement through June 30, 1998 and $37,500,000 during any calendar
quarter thereafter, for JSC 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 Section 5.02(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 election or take any position on any Tax
Return filed on or after the date of this Agreement or adopt any method
therefor that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar 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 hereof, (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 JSC 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 this 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 would, individually or in the aggregate,
reasonably be expected to make any representation and warranty of JSC
hereunder 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.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. No Solicitation. (a) Stone and JSC each agree that it shall
not, nor shall it permit any of its Subsidiaries to, nor shall 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, (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 to, any Person who
indicates a willingness to make a Superior Proposal. For all purposes of this
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 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 this
Agreement or the transactions contemplated by Section 6.01(a) of the Stone
Disclosure Schedule. Each of Stone and JSC immediately shall cease and cause to
be terminated all existing discussions or negotiations with any Persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any Takeover Proposal. As used herein, a 'Significant Subsidiary'
means any Subsidiary that would constitute a 'significant subsidiary' within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of Stone nor any committee thereof shall
(i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
JSC or Sub, the approval or recommendation by the Board of Directors of Stone or
any such committee of this Agreement or the Merger or the amendments to the
Stone certificate of incorporation contemplated hereby or (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal. Neither
the Board of Directors of JSC nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Stone, the
approval or recommendation by the Board of Directors of JSC 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 hereby or (ii)
approve or recommend, or propose to approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, (i) the Board of Directors of Stone or JSC, 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), may approve or recommend a Superior Proposal (and, in connection
therewith, withdraw or modify its approval or recommendation of this Agreement
or the Merger or the amendments to the Stone certificate of incorporation
contemplated hereby (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 as contemplated hereby (in the case of JSC)) and (ii) nothing
contained in this Agreement shall prevent the Board of Directors of Stone or JSC
from complying with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act
with regard to a Takeover Proposal. For all purposes of this 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 Board of Directors
of Stone or JSC, 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 this Agreement) and
for which financing, to the extent required, is then fully committed or
reasonably determined to be available by the Board of Directors of Stone or JSC,
as the case may be.
(c) Stone and JSC shall each 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. Such notice to the other
party shall be made orally and in writing and shall indicate the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact. Such
party shall 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.
SECTION 6.02. Proxy Statement; Registration Statement. (a) As promptly as
practicable after the execution of this Agreement, JSC and Stone shall prepare
and file with the SEC the Proxy Statement, and JSC shall prepare and file with
the SEC the Registration Statement (in which the Proxy Statement will be
included). JSC and Stone shall use their best efforts to cause the Registration
Statement to become effective under the Securities Act as soon after such
filing as practicable. The Proxy Statement shall include the recommendation of
the Board of Directors of Stone in favor of approval and adoption of this
Agreement and the Merger and the amendments to the Stone certificate of
incorporation contemplated by Section 1.02 hereof, except to the extent the
Board of Directors of Stone shall have withdrawn or modified its approval or
recommendation of this Agreement or the Merger or the amendments to the Stone
certificate of incorporation contemplated hereby as permitted by Section
6.01(b), and the recommendation of the Board of Directors of JSC in favor of
approval of the issuance of JSC Common Stock in the Merger and the amendments
to the JSC certificate of incorporation contemplated by Section 1.04(a) hereof,
except to the extent the Board of Directors of JSC shall have withdrawn or
modified its approval or recommendation of the issuance of shares of JSC Common
Stock in the Merger or the amendments to the JSC certificate of incorporation
contemplated hereby as permitted by Section 6.01(b). JSC shall use best efforts
to cause the Proxy Statement to be mailed to its stockholders, and Stone shall
use best efforts to cause the Proxy Statement to be mailed to its stockholders,
in each case as promptly as practicable after the Registration Statement
becomes effective.
(b) JSC and Stone shall make all necessary filings with respect to the
Merger and the transactions contemplated thereby under the Securities Act and
the Exchange Act and applicable state blue sky laws and the rules and
regulations thereunder. No filing of, or amendment or supplement to, the
Registration Statement or the Proxy Statement will be made by JSC without
providing Stone the opportunity to review and comment thereon. JSC will advise
Stone, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the JSC Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information. If at any time prior
to the Effective Time any information relating to JSC or Stone, or any of their
respective affiliates, officers or directors, should be discovered by JSC or
Stone which should be set forth in an amendment or supplement to any of the
Registration Statement or the Proxy Statement, so that any of such documents
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of JSC and Stone.
SECTION 6.03. Stockholders' Meetings. Stone shall duly call, give notice
of, convene and hold a meeting of its stockholders for the purpose of voting on
the adoption and approval of this Agreement and the Merger and the amendments to
the Stone certificate of incorporation contemplated hereby and, through its
Board of Directors, will recommend to its stockholders adoption and approval of
this Agreement and the Merger and the amendments to the Stone certificate of
incorporation contemplated hereby, except to the extent that the Board of
Directors of Stone shall have withdrawn or modified its approval or
recommendation of this Agreement and the Merger or the amendments to the Stone
certificate of incorporation as contemplated hereby as permitted by Section
6.01(b). JSC shall duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of voting on the approval of the issuance of shares
of JSC Common Stock in the Merger and the amendments to the JSC certificate of
incorporation contemplated hereby and, through its Board of Directors, will
recommend to its stockholders approval of the issuance of shares of JSC Common
Stock in the Merger and the amendments to the JSC certificate of incorporation
contemplated hereby, except to that extent that the Board of Directors of JSC
shall have withdrawn or modified its approval or recommendation of the issuance
of shares of JSC Common Stock in the Merger or the amendments to the JSC
certificate of incorporation contemplated hereby as permitted by Section
6.01(b). JSC and Stone will use best efforts to hold the JSC Stockholders'
Meeting and the Stone Stockholders' Meeting on the same date and as soon as
practicable after the date hereof. Except to the extent that the Board of
Directors of Stone shall have withdrawn or modified its approval or
recommendation as aforesaid, Stone will use best efforts to solicit from its
stockholders proxies in favor of such matters.
SECTION 6.04. Access to Information. Upon reasonable notice and subject to
applicable law and other legal obligations, each of Stone and JSC shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of the other, access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of Stone and JSC shall, and shall cause each of its Subsidiaries to,
furnish promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal securities laws and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Unless otherwise required by law, the parties
will hold any such information which is nonpublic in confidence in accordance
with the Confidentiality Agreement dated as of July 9, 1997 between JSC and
Stone, including the related letter agreements entered into by SIBV, MSLEF and
The Morgan Stanley Leveraged Equity Fund II, L.P. (the 'Confidentiality
Agreement'). No information or knowledge obtained in any investigation pursuant
to this Section 6.04 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of
the parties to consummate the Merger.
SECTION 6.05. Notices of Certain Events. (a) JSC and Stone shall promptly
notify each other of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement.
(b) Stone shall promptly notify JSC of any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting Stone or any of its
Subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.08 or which relate to the
consummation of the transactions contemplated by this Agreement.
(c) JSC shall promptly notify Stone of any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting JSC or any of its
Subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.08 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 6.06. Appropriate Action; Consents; Filings. (a) (i) Subject to
the terms and conditions of this Agreement and except to the extent that (x)
the Board of Directors of Stone shall have withdrawn or modified its approval
or recommendation of this Agreement or the Merger or the amendments to the
Stone certificate of incorporation contemplated hereby or (y) the Board of
Directors of JSC shall have withdrawn or modified its recommendation of the
approval of the issuance of shares of JSC Common Stock in the Merger or the
amendments to the JSC certificate of incorporation contemplated hereby, in each
case as permitted by Section 6.01(b), JSC and Stone shall use their best
efforts to (A) take, or cause to be taken, all actions, and do, or cause to be
done, all things, necessary, proper or advisable under applicable laws to
consummate the Merger and the other transactions contemplated by this Agreement
as promptly as practicable, (B) obtain from any Governmental Authority any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by JSC and Stone or any of their Subsidiaries,
or to avoid any action or proceeding by any Governmental Authority (including,
without limitation, those in connection with the HSR Act), in connection with
the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated herein, and (C) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under the Securities Act, the
Exchange Act and any other applicable law; provided that JSC and Stone shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and
its advisors prior to filing and, if requested, accepting all reasonable
additions, deletions or changes suggested in connection therewith. JSC and
Stone shall furnish to each other all information required for any application
or other filing to be made pursuant to the rules and regulations of any
applicable law in connection with the transactions contemplated by this
Agreement. Subject to the terms and conditions of this Agreement and except to
the extent that (x) the Board of Directors of Stone shall have withdrawn or
modified its approval or recommendation of this Agreement or the Merger or the
amendments to the Stone certificate of incorporation contemplated hereby or (y)
the Board of Directors of JSC shall have withdrawn or modified its
recommendation of the approval of the issuance of shares of JSC Common Stock in
the Merger or the amendments to the JSC certificate of incorporation
contemplated hereby, in each case as permitted by Section 6.01(b), JSC and
Stone shall not take any action, or refrain from taking any action, the effect
of which would be to delay or impede the ability of JSC and Stone to consummate
the transactions contemplated by this Agreement.
(ii) Each of the parties hereto agrees, and shall cause each of its
respective Subsidiaries to cooperate and to use their respective best efforts,
to obtain any government clearances required for the consummation of the
transactions contemplated hereby (including through compliance with the HSR Act
and any applicable foreign governmental reporting requirements), to respond to
any government requests for information, and to contest and resist any action,
including any legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) that restricts,
prevents or prohibits the consummation of the Merger or any other transactions
contemplated this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Each of the parties hereto also agrees to take any
and all of the following actions to the extent necessary to obtain the approval
of any Governmental Authority with jurisdiction over the enforcement of any
applicable laws regarding the Merger: entering into negotiations; providing
information; substantially complying with any second request for information
pursuant to the HSR Act; making proposals; entering into and performing
agreements or submitting to judicial or administrative orders; selling or
otherwise disposing of, or holding separate (through the establishment of a
trust or otherwise) particular assets or categories of assets, or businesses of
JSC, Stone or any of their respective Subsidiaries; and withdrawing from doing
business in a particular jurisdiction. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or in behalf of any party
thereto in connection with proceedings under or relating to the HSR Act or any
other federal, state or foreign antitrust or fair trade law. Each party shall
promptly notify the other party of any communication to that party from any
Governmental Authority in connection with any required filing with, or approval
or review by, such Governmental Authority in connection with the Merger and
permit the other party to review in advance any such proposed communication to
any Governmental Authority. Neither party shall agree to participate in any
meeting with any Governmental Authority in respect of any such filings,
investigation or other inquiry unless it consults with the other party in
advance and, to the extent permitted by such Governmental Authority, gives the
other party the opportunity to attend and participate thereat. Notwithstanding
any other provision of this Agreement, in connection with seeking any such
approval of a Governmental Authority, without the other party's prior written
consent, neither party shall, and neither party shall be required to, commit to
any divestiture transaction, agree to sell or hold separate, before or after the
Effective Time, any of JSC's or Stone's businesses, product lines, properties or
assets, or agree to any changes or restrictions in the operation of such
businesses, product lines, properties or assets, in any such case if such
divestiture or such restrictions would, individually or in the aggregate, be
reasonably expected to have a material adverse effect on the financial condition
or results of operations of JSC and its Subsidiaries, taken as a whole, after
giving effect to the Merger.
(b) (i) JSC and Stone shall give, or shall cause their respective
Subsidiaries to give, any notices to third parties, and use, and cause their
respective Subsidiaries to use, all best efforts to obtain any third party
consents (A) necessary, proper or advisable in order to consummate the
transactions contemplated by this Agreement or (B) required to prevent a JSC
Material Adverse Effect or a Stone Material Adverse Effect from occurring prior
to or after the Effective Time.
(ii) In the event that either party shall fail to obtain any third party
consent described in Section 6.06(b)(i) above, such party shall use all best
efforts, and shall take any such actions reasonably requested by the other party
hereto, to minimize any adverse effect upon JSC and Stone, their respective
Subsidiaries, and their respective businesses resulting, or which could
reasonably be expected to result after the Effective Time, from the failure to
obtain such consent.
SECTION 6.07. Public Disclosure. JSC and Stone shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement or the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law, court
process or by stock exchange rules.
SECTION 6.08. Reorganization. JSC and Stone shall each use its best efforts
to cause the Merger to be treated as a reorganization within the meaning of
Section 368(a) of the Code, and Stone shall use its best efforts to obtain the
opinion of its counsel referred to in Section 7.03(c). JSC shall make (to the
extent it can truthfully do so) the representations of JSC contained in a
certificate of JSC (the 'JSC Tax Certificate') substantially in the form of the
JSC Tax Certificate contained in the JSC Disclosure Schedule, and Stone shall
make (to the extent it can truthfully do so) the representations of Stone
contained in a certificate of Stone (the 'Stone Tax Certificate') substantially
in the form of the Stone Tax Certificate contained in the Stone Disclosure
Schedule.
SECTION 6.09. Obligations of Sub. JSC will take all action necessary to
cause Sub to perform its obligations under this Agreement and to consummate the
Merger on the terms and conditions set forth in this Agreement.
SECTION 6.10. Affiliates. Within 30 days of the date hereof, Stone will
provide JSC with a list of those Persons who are, in Stone's reasonable
judgment, 'affiliates' of Stone within the meaning of Rule 145 under the
Securities Act ('Rule 145 Affiliates'). Stone shall use its best efforts to
deliver or cause to be delivered to JSC on or prior to the Closing Date from
each of the Rule 145 Affiliates, an executed letter agreement, in the form
attached hereto as Exhibit G.
SECTION 6.11. Listing or Quotation of Stock. JSC shall use its best efforts
to cause the shares of JSC Common Stock to be issued in the Merger to be
approved for listing on the NYSE or approved for quotation on the Nasdaq on or
prior to the Closing Date, subject to official notice of issuance.
SECTION 6.12. Indemnification of Directors and Officers. (a) JSC and the
Surviving Corporation agree that the indemnification obligations set forth in
Stone's certificate of incorporation and bylaws, in each case as of the date of
this Agreement, shall survive the Merger (and, prior to the Effective Time, JSC
shall cause the bylaws of Sub to reflect such provisions) and shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of the individuals who on or prior to the Effective Time were directors,
officers, employees or agents of Stone or its Subsidiaries.
(b) After the Effective Time, JSC and the Surviving Corporation shall, to
the same extent and on the same terms and conditions provided for in Stone's
certificate of incorporation and bylaws, in each case as of the date of this
Agreement, to the extent consistent with applicable law, indemnify and hold
harmless, each present and former director or officer of Stone and each
Subsidiary of Stone (collectively, the 'Indemnified Parties') against all costs
and expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer or director, in each case occurring before the Effective Time (including
the transactions contemplated by this Agreement).
(c) For a period of six years from the Effective Time, JSC shall provide
or cause the Surviving Corporation to provide to Stone's current directors and
officers liability insurance protection substantially equivalent in kind and
scope as that provided by Stone's current directors' and officers' liability
insurance policies (copies of which have been made available to JSC); provided,
however, that in no event shall JSC or the Surviving Corporation be required to
expend in any one year an amount in excess of 300% of the annual premiums
currently paid by Stone for such insurance; provided, further, that if during
such period the annual premiums for such comparable insurance coverage exceed
such amount, JSC shall be obligated to provide or cause the Surviving
Corporation to provide a policy which, in the reasonable judgment of JSC,
provides the best coverage available for a cost not exceeding such amount.
SECTION 6.13. Stone Stock Options. (a) As soon as practicable following the
date of this Agreement, the Stone Board of Directors (or, if appropriate, any
committee administering the Stone Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding options to purchase shares of
Stone Common Stock (the 'Stone Stock Options') granted under any plan or
arrangement providing for the grant of options to current or former
officers, directors, employees or consultants of Stone (the 'Stone Stock
Plans'), whether vested or unvested, as necessary to provide that, at the
Effective Time, each Stone Stock Option outstanding immediately prior to
the Effective Time shall become vested and exercisable and shall 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) (each, as so adjusted, an 'Adjusted Option'); and
(ii) make such other changes to the Stone Stock Plans as JSC and Stone
may agree are appropriate to give effect to the Merger.
(b) The adjustments provided herein with respect to any Stone Stock Options
that are 'incentive stock options' as defined in Section 422 of the Code shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code.
(c) As soon as practicable following the Effective Time, JSC shall prepare
and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of JSC Common Stock equal to
the number of shares subject to the Adjusted Options. Such registration
statement shall be kept effective (and the current status of the initial
offering prospectus or prospectuses required thereby shall be maintained) for at
least as long as any Adjusted Options remain outstanding.
(d) Except as otherwise contemplated by this Section 6.13 and except to the
extent required under the respective terms of the Stone Stock Options or other
applicable agreements, all restrictions or limitations on transfer with respect
to Stone Stock Options awarded under the Stone Stock Plans, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption of such options by JSC as set forth above.
SECTION 6.14. JSC Stock Options. Effective as of the Closing, each then
outstanding option to purchase shares of JSC Common Stock granted under the JSC
Amended and Restated 1992 Stock Option Plan (as amended and restated effective
as of May 1, 1997), regardless of the extent vested and exercisable, shall
become vested and exercisable.
SECTION 6.15. Benefits Continuation, etc. (a) Comparable Benefits. In
addition to JSC's obligations pursuant to the next sentence, for not less than
one year following the Effective Time, JSC shall maintain, or shall 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
Benefit Arrangements and Stone Employee Plans as in effect on the date hereof.
For not less than one year following the Effective Time, JSC shall maintain or
shall 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 the welfare benefit plans listed in Section 6.15 of the Stone
Disclosure Schedule. Without limiting the generality of the foregoing, for not
less than one year following the Effective Time, JSC shall provide, or 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 this Agreement. Notwithstanding the foregoing, JSC
shall have the right (i) following the Effective Time to transfer to one or
more employee benefit plans maintained by JSC any employee of Stone or any
Subsidiary who becomes an employee of JSC or any of its Subsidiaries and (ii)
in the good faith exercise of its managerial discretion, to terminate the
employment of any employee. Nothing in this Agreement shall be construed as
granting to any employee any rights of continuing employment.
(b) Honoring Stone Employee Plans and Accrued Vacation. JSC shall, or shall
cause Stone to, honor all Stone Employee Plans and other contractual commitments
in effect immediately prior to the Effective Time between Stone or its
Subsidiaries and Affected Employees or former employees of Stone or its
Subsidiaries. Without limiting the generality or the foregoing, JSC shall honor
all vacation, holiday, sickness and personal days accrued by Affected Employees
and, to the extent applicable, former employees of Stone and its Subsidiaries
('Former Employees') as of the Effective Time.
(c) Participation in Benefit Plans. Employees and, to the extent
applicable, Former Employees shall be given credit for all service with Stone
and its Subsidiaries (or service credited by Stone or such Subsidiaries) under
all employee benefit plans and arrangements currently maintained by JSC or any
of its Subsidiaries in which they are or become participants for purposes of
eligibility, vesting, level of participant contribution and benefit accruals
(but subject to an offset, if necessary, to avoid duplication of benefits) to
the same extent as if rendered to JSC or any of its Subsidiaries. JSC shall
cause to be waived any pre-existing condition limitation under its welfare plans
that might otherwise apply to an Affected Employee or, to the extent applicable,
a Former Employee. JSC agrees to recognize (or cause to be recognized) the
dollar amount of all expenses incurred by Affected Employees or, to the extent
applicable, Former Employees, during the calendar year in which the Effective
Time occurs for purposes of satisfying the calendar year deductions and co-
payment limitations for such year under the relevant benefit plans of JSC and
its Subsidiaries.
SECTION 6.16. Certain Other Employee Benefits Matters. Each of JSC and
Stone may take the actions indicated by it in Schedule 6.16 to their respective
Disclosure Schedules at or prior to the times specified therein.
SECTION 6.17. Convertible Debt. Stone and JSC shall take all necessary
action to enter into supplemental indentures prior to the Effective Time with
the trustees under the indentures pursuant to which the Convertible Notes and
Convertible Debentures were issued that provide, among other things, that from
and after the Effective Time the Convertible Notes and Convertible Debentures
will be convertible only into the consideration payable to holders of shares of
Stone Common Stock in the Merger.
SECTION 6.18. Confidentiality Agreement. The parties hereto agree that the
Confidentiality Agreement shall be hereby amended to provide that any provision
therein which in any manner would be inconsistent with this Agreement or the
transactions contemplated hereby shall terminate as of the date hereof. The
parties further agree that the Confidentiality Agreement shall terminate as of
the Effective Time.
SECTION 6.19. Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger, each of JSC and Stone shall take such actions as are
necessary so that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger and such other transactions.
SECTION 6.20. Rights Agreement. Stone shall not redeem the Rights issued
under the Rights Agreement or terminate the Rights Agreement until immediately
prior to the Effective Time unless required to do so by a court of competent
jurisdiction.
SECTION 6.21. Headquarters; Logo. As soon as practicable following the
Effective Time, JSC shall take all action necessary to locate JSC's corporate
headquarters in Chicago, Illinois. The logo of JSC prior to the Effective Time
shall be the logo of JSC after the Effective Time.
SECTION 6.22. Stock Purchase Agreement. JSC covenants and agrees that it
shall 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.
ARTICLE 7
CONDITIONS TO MERGER
SECTION 7.01. Conditions to Each Party's Obligations. The respective
obligations of each party to this Agreement to consummate the Merger and the
transactions contemplated hereby shall be subject to the satisfaction of the
following conditions:
(a) Stockholder Approvals. (i) This Agreement and the Merger and the
amendments to the Stone certificate of incorporation contemplated hereby
shall have been approved and adopted by the stockholders of Stone, (ii)
this Agreement and the Merger shall have been approved and adopted by the
sole stockholder of Sub and (iii) the issuance of the shares of JSC Common
Stock in the Merger and the amendments to the JSC certificate of
incorporation contemplated hereby shall have been approved by the
stockholders of JSC.
(b) Waiting Periods; Approvals. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, any necessary approvals under similar laws of the European
Union shall have been obtained and any other approvals required under
applicable analogous foreign laws shall have been obtained, except where
the failure to obtain such approval would not, individually or in the
aggregate, be reasonably expected to have a material adverse effect on the
financial condition or results of operations of JSC and its Subsidiaries,
taken as a whole, after giving effect to the Merger.
(c) 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 shall
prohibit the consummation of the Merger.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) Listing or Quotation of Stock. The shares of JSC Common Stock to
be issued in the Merger shall have been approved for listing on the NYSE or
approved for quotation on the Nasdaq, subject to official notice of
issuance.
(f) Consummation of Stock Purchase. The consummation of the stock
purchase pursuant to the Stock Purchase Agreement shall occur concurrently
with consummation of the Merger (it being understood that the purchase of
shares of JSC Common Stock thereunder shall be deemed not to occur until
the Merger has occurred).
SECTION 7.02. Additional Conditions to Obligations of JSC and Sub. The
obligations of JSC and Sub to consummate the Merger and the transactions
contemplated hereby shall be subject to the satisfaction of the following
additional conditions, any of which, subject to Section 9.06, may be waived in
writing exclusively by JSC:
(a) Representations and Warranties. The representations and warranties
of Stone set forth in this Agreement that are qualified as to Stone
Material Adverse Effect shall be true and correct as of the Closing Date
and the representations and warranties that are not so qualified, taken
together, shall be 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); and JSC
and Sub shall have received a certificate signed on behalf of Stone by an
executive officer of Stone to such effect.
(b) Performance of Obligations. Stone shall have performed in all
material respects each obligation and agreement and shall have complied in
all material respects with each covenant required to be performed and
complied with by it under this Agreement at or prior to the Effective Time;
and JSC and Sub shall have received a certificate signed on behalf of Stone
by an executive officer of Stone to such effect.
SECTION 7.03. 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 and Sub set forth in this Agreement that are qualified as to JSC
Material Adverse Effect shall be true and correct as of the Closing Date
and the representations and warranties that are not so qualified, taken
together, shall be 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); and
Stone shall have received a certificate signed on behalf of JSC by an
executive officer of JSC and on behalf of Sub by an executive officer of
Sub to such effect.
(b) Performance of Obligations. Each of JSC and Sub shall have
performed in all material respects each obligation and agreement and shall
have complied in all material respects with each covenant required to be
performed or complied with by it under this Agreement at or prior to the
Effective Time; and Stone shall have received a certificate signed on
behalf of JSC by an executive officer of JSC and on behalf of Sub by an
executive officer of Sub to such effect.
(c) Tax Opinion. Stone shall have 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. In rendering such opinion, such
counsel may require and rely upon reasonable representations and
certificates of JSC (including, without limitation, representations
contained in the JSC Tax Certificate), Sub, Stone (including, without
limitation, representations contained in the Stone Tax Certificate); and
JSC, Sub and Stone will make such representations and deliver such
certificates.
ARTICLE 8
TERMINATION
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(m),
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 shall not have been
consummated by December 31, 1998 (the 'End Date'); provided, however, that
the right to terminate this Agreement under this Section 8.01(b) shall not
be available to any party whose failure to fulfill any obligation under
this 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 shall have issued a final, non-appealable
order, decree or ruling, or taken any other action, having 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 this Agreement and the Merger and
the amendments to the Stone certificate of incorporation contemplated
hereby shall not have been 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 hereby shall not have been obtained; or
(e) by Stone, if the Board of Directors of JSC shall not have
recommended or shall have 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 hereby; or
(f) by Stone, if JSC or any of its Affiliates shall have materially
and knowingly breached the covenant contained in Section 6.01; or
(g) by Stone or JSC, if the Board of Directors of JSC shall have
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 Section 6.01, that such Takeover Proposal
constitutes a Superior Proposal; provided that JSC may not exercise its
right to terminate under this Section 8.01(g) (and may not enter into a
binding written agreement with respect to such Takeover Proposal) until 45
days after the date of this Agreement, but not later than the date that is
the later of (x) the date that is 120 days after the date hereof 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 Board of Directors of JSC has authorized and intends to effect the
termination of this Agreement pursuant to this Section 8.01(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 Board of Directors of JSC 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 this Agreement
(including, without limitation, Section 6.01) and (iv) on or prior to such
termination JSC shall have paid to Stone the fee provided for in Section
8.03(d); 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 hereby 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 this
Agreement shall have occurred which would cause the conditions set forth in
Sections 7.02(a) or 7.02(b) not to be satisfied, and such conditions are
incapable of being satisfied by the End Date; or
(i) by JSC, if the Board of Directors of Stone shall not have
recommended or shall have modified in a manner materially adverse to JSC
its recommendation of this Agreement and the Merger or the amendments to
the Stone certificate of incorporation contemplated hereby; or
(j) by JSC, if Stone or any of its Affiliates shall have materially
and knowingly breached the covenant contained in Section 6.01; or
(k) by JSC or Stone, if the Board of Directors of Stone shall have
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 Section 6.01, that such Takeover Proposal
constitutes a Superior Proposal; provided that Stone may not exercise its
right to terminate under this Section 8.01(k) (and may not enter into a
binding written agreement with respect to such Takeover Proposal) until 45
days after the date of this Agreement, but not later than the date that is
the later of (x) the date that is 120 days after the date hereof 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 Board of Directors of Stone has authorized and intends to effect the
termination of this Agreement pursuant to this Section 8.01(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 Board of Directors of Stone 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
this Agreement (including, without limitation, Section 6.01) and (iv) on
or prior to such termination Stone shall have paid to JSC the fee provided
for in Section 8.03(b); 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 hereby and that it will notify JSC
promptly if its intention to enter into such written agreement shall
change 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 this
Agreement shall have occurred which would cause the conditions set forth in
Sections 7.03(a) or 7.03(b) 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 Voting Agreements) shall have 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 parties to the Stone Voting Agreement) shall
have acquired ownership of a majority of the then outstanding shares of
Stone Common Stock.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, there shall be no liability or obligation on
the part of JSC, Stone, Sub, or their respective officers, directors,
stockholders or Affiliates, except as set forth in Section 8.03 and except to
the extent that such termination results from the willful breach by a party of
any of its representations, warranties, covenants or agreements contained in
this Agreement; provided that the provisions of Sections 8.03, 9.02 and 9.07 of
this Agreement and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
SECTION 8.03. Fees and Expenses. (a) Except as set forth in this Section
8.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that JSC
and Stone shall share equally all fees and expenses, other than attorneys' and
accounting fees and expenses, incurred in relation to the printing and filing of
the Proxy Statement (including any related preliminary materials) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) If this Agreement is terminated by JSC pursuant to Section 8.01(i),
8.01(j), 8.01(k) or 8.01(m)(ii) or by Stone pursuant to Section 8.01(k), Stone
shall pay to JSC a termination fee of $50 million in cash within one business
day after such termination.
(c) If this Agreement is terminated by either JSC or Stone pursuant to
Section 8.01(d)(i) and a Takeover Proposal with respect to Stone shall have been
made prior to the Stone Stockholders' Meeting, Stone shall pay to JSC a
termination fee of $50 million in cash within one business day after such
termination; provided that if the Board of Directors of Stone did not exercise
any of its rights under Section 6.01 (other than a recommendation of rejection
of a Takeover Proposal pursuant to Rule 14d-9 and Rule 14e-2 promulgated under
the Exchange Act) with respect to the Takeover Proposal, such fee shall not be
payable unless concurrently with or within 9 months after such termination, a
Stone Third Party Acquisition Event occurs. In such event, Stone shall pay JSC
the termination fee of $50 million in cash within one business day of the
occurrence of the Stone Third Party Acquisition Event.
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 this Agreement). For purposes of Section 8.03,
the term 'beneficial owner' shall be defined by reference to Section 13(d) of
the Exchange Act.
(d) If this Agreement is terminated by Stone pursuant to Section 8.01(e),
8.01(f), 8.01(g) or 8.01(m)(i) or by JSC pursuant to Section 8.01(g), JSC shall
pay to Stone a termination fee of $60 million in cash within one business day
after such termination.
(e) If this Agreement is terminated by either Stone or JSC pursuant to
Section 8.01(d)(ii) and a Takeover Proposal with respect to JSC shall have been
made prior to the JSC Stockholders' Meeting, JSC shall pay to Stone a
termination fee of $60 million in cash within one business day after such
termination; provided that if the Board of Directors of JSC did not exercise any
of its rights under Section 6.01 (other than a recommendation of rejection of a
Takeover Proposal pursuant to Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act) with respect to the Takeover Proposal, such fee shall not be
payable unless concurrently with or within 9 months after such termination, a
JSC Third Party Acquisition Event occurs. In such event, JSC shall pay Stone the
termination fee of $60 million in cash within one business day of the occurrence
of the JSC Third Party Acquisition Event.
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 this Agreement).
(f) If one party fails to promptly pay to the other any fee or expense due
hereunder, the defaulting party shall pay the costs and expenses (including
legal fees and expenses) in connection with any action, including the filing of
any lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. from the date such fee was required to be paid.
SECTION 8.04. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Stone or JSC, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 8.05. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto contained herein, (ii) waive any inaccuracies in the representations and
warranties of the other parties hereto contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the agreements
or conditions of the other parties hereto contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for covenants and agreements which, by their
terms, are to be performed after the Effective Time. Except as otherwise
provided in Section 6.17, the Confidentiality Agreement shall survive the
execution and delivery of this Agreement but shall terminate and be of no
further force and effect as of the Effective Time.
SECTION 9.02. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to JSC or Sub, to
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Patrick J. Moore, Vice President and Chief Financial Officer
Michael E. Tierney, Esq., General Counsel
Facsimile No.: (314) 746-1184
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John R. Ettinger, Esq.
Facsimile No.: (212) 450-4800
(b) if to Stone, to:
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Attention: Roger W. Stone, Chief Executive Officer
Facsimile No.: (312) 580-4625
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Frederick C. Lowinger, Esq.
Facsimile No.: (312) 853-7036
SECTION 9.03. Interpretation. When a reference is made in this Agreement to
a section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words 'include,'
'includes' or 'including' are used in this Agreement they shall be deemed to be
followed by the words 'without limitation.' The phrase 'made available' in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrase 'to the knowledge of' a party shall mean the actual knowledge of any of
the executive officers of such party after due inquiry of those employees of the
party who could reasonably be expected to have information relating to the
subject matter of the representation.
SECTION 9.04. Disclosure Schedules. Each exception to a section of this
Agreement set forth in the JSC Disclosure Schedule or the Stone Disclosure
Schedule will specifically refer to the section of the Agreement to which it
relates.
SECTION 9.05. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.06. Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Sections 1.04 and 6.12 and
this Section 9.06, is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. For purposes of Section
7.01(f), the condition contained therein may not be waived, and this provision
may not be amended, by JSC and Stone without the express written consent of JSG
and MSLEF who are hereby expressly made third party beneficiaries of this
provision.
SECTION 9.07. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules. Each party hereto irrevocably and
unconditionally consents and submits to the jurisdiction of the courts of the
State of Delaware and of the United States of America located in the State of
Delaware for any actions, suits or proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby, and further agrees that
service of any process, summons, notice or document by U.S. registered or
certified mail to the party at the address specified in Section 9.02, shall be
effective service of process for any action, suit or proceeding brought against
such party in any such court. Each party hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of Delaware located in Wilmington, Delaware
or the United States of America located in Wilmington, Delaware, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. If any provision of this
Agreement is held to be unenforceable for any reason, it shall be modified
rather than voided, if possible, in order to achieve the intent of the parties
to the extent possible. In any event, all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, and any attempted assignment thereof without such
consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
IN WITNESS WHEREOF, JSC, Sub and Stone have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
JEFFERSON SMURFIT CORPORATION
By: /s/ Patrick J. Moore
_________________________________
Name: Patrick J. Moore
Title: Vice President and Chief
Financial Officer
JSC ACQUISITION CORPORATION
By: /s/ Patrick J. Moore
_________________________________
Name: Patrick J. Moore
Title: Vice President and Chief
Financial Officer
STONE CONTAINER CORPORATION
By: /s/ Roger W. Stone
_________________________________
Name: Roger W. Stone
Title: Chief Executive Officer
ANNEX B
RESTATED CERTIFICATE OF INCORPORATION
OF
JEFFERSON SMURFIT CORPORATION
(BEING RENAMED SMURFIT-STONE CONTAINER CORPORATION)
Jefferson Smurfit Corporation, a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on August 4, 1989 and a Restated Certificate of
Incorporation of which was filed with the Secretary of State of the State of
Delaware on May 11, 1994, HEREBY CERTIFIES that this Restated Certificate of
Incorporation, restating, integrating and amending its Certificate of
Incorporation, was duly adopted in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is Smurfit-Stone Container Corporation
(the 'Corporation').
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the 'GCL').
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 425,000,000 shares, consisting of 400,000,000
shares of common stock, par value $.01 per share (the 'Common Stock'), and
25,000,000 shares of preferred stock, par value $.01 per share (the 'Preferred
Stock').
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the Preferred Stock in one or more classes or series,
and to fix for each such class or series such voting powers, full or limited, or
no voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series and as may be permitted by the GCL, including,
without limitation, the authority to provide that any such class or series may
be (i) subject to redemption at such time or times and at such price or prices,
(ii) entitled to receive dividends (which may be cumulative or non-cumulative)
at such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series, (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation or (iv) convertible
into, or exchangeable for, shares of any other class or classes of stock, or of
any other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with such
adjustments, all as may be stated in such resolution or resolutions.
FIFTH: As and when Stone Container Corporation, a Delaware corporation
('Stone'), is required to deliver shares of Common Stock (or other securities
of the Corporation, if applicable), upon conversion of shares of Stone's Series
E Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share
('Series E Preferred Stock') (or upon conversion of any 7% Convertible
Subordinate Exchange Debentures due 2007 issued in exchange for the Series E
Preferred Stock (the '7% Convertible Debentures')) in accordance with Section 6
of Subpart I.B. of Stone's Restated Certificate of Incorporation, as amended
(or in accordance with the terms of the indenture under which the 7%
Convertible Debentures were issued, as it may be amended or supplemented (the
'7% Indenture')) the Corporation shall make available to Stone sufficient
shares of Common Stock (or other securities and property of the Corporation, if
applicable) to permit Stone to satisfy such conversion requirements. The
Corporation shall deliver such shares of Common Stock (or other securities and
property of the Corporation, if applicable) to Stone no later than the time
when Stone is required to deliver such securities and property upon conversion
of the Stone Series E Preferred Stock (or upon conversion of any 7% Convertible
Debentures), and the Corporation shall not be required to deliver such
securities and property prior to such time. In addition, the Corporation shall
take any and all action contemplated to be taken by the Corporation when, as
and if required pursuant to the provisions of Section 6 of Subpart I.B. of
Stone's Restated Certificate of Incorporation, as amended, or the 7% Indenture,
as the case may be.
SIXTH: A. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors consisting of not less than
three (3) and not more than fifteen (15) directors, the exact number of
directors to be determined as set forth in the Amended and Restated Bylaws of
the Corporation (such Bylaws, as amended from time to time in accordance with
this Restated Certificate of Incorporation and the Amended and Restated Bylaws,
being referred to herein as the 'Bylaws'). Notwithstanding the first sentence of
this Paragraph A of this Article SIXTH, until the date (the 'Article 5
Termination Date') which is the earlier of (i) the date upon which Mr. Roger W.
Stone ('Mr. Stone') ceases to be the President and Chief Executive Officer (the
'CEO') of the Corporation or (ii) February 16, 2001, the Board of Directors
shall consist of twelve (12) members unless such number shall be increased or
decreased upon the affirmative vote of stockholders holding at least 75% of the
voting power of the Corporation's then outstanding capital stock entitled to
vote thereon.
B. Each director shall serve for a term expiring at the next annual meeting
of stockholders and at each annual meeting of stockholders directors shall be
elected for a term expiring at the next annual meeting of stockholders, provided
that each director shall hold office until his or her successor shall be elected
and shall qualify, subject to prior death or incapacity, resignation,
retirement, disqualification or removal from office.
C. To the extent and for so long as provided in Article 5 of the Bylaws,
the Nominating Committees, the Compensation Committee, the Audit Committee, the
Independent Committee, the Supervisory Committees and the Officer Appointment
Committee (as each such term is defined in Article 5 of the Bylaws) shall each
be constituted in accordance with, and shall be vested with such powers and
authority as are provided in, Article 5 of the Bylaws.
D. Notwithstanding anything in this Restated Certificate of Incorporation
to the contrary, the second sentence of Paragraph A, Paragraph C and this
Paragraph D of this Article SIXTH may not be altered, amended or repealed, nor
may any provision inconsistent therewith be adopted, except by the affirmative
vote of stockholders holding at least 75% of the voting power of the
Corporation's then outstanding capital stock entitled to vote thereon.
SEVENTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which
the director derived an improper personal benefit. Any alteration, amendment or
repeal of this Article SEVENTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such alteration, amendment or repeal with respect to
acts or omissions occurring prior to such alteration, amendment or repeal.
EIGHTH: The Corporation is to have perpetual existence.
NINTH: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
TENTH: A. The Bylaws may be altered, amended or repealed in whole or in
part, and new Bylaws may be adopted, (i) by the Board of Directors with the
affirmative vote of such number of directors as may be required by, and
otherwise in accordance with the procedures specified in, the Bylaws or (ii) by
the affirmative vote of stockholders required pursuant to the Bylaws and the
GCL.
B. Notwithstanding Paragraph A of this Article TENTH, until the Article 5
Termination Date, no provision of Article 5 of the Bylaws may be altered,
amended or repealed by the stockholders, nor may any provision inconsistent
with Article 5 of the Bylaws be adopted by the stockholders, except by the
affirmative vote of stockholders holding at least 75% of the voting power of
the Corporation's then outstanding capital stock entitled to vote thereon.
C. Notwithstanding Paragraph A of this Article TENTH, for so long as Morgan
Stanley Leveraged Equity Fund II, Inc. ('MSLEF') beneficially owns (such term,
as used herein, as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as such rule is in effect on the date of adoption hereof) at least the
MSLEF Threshold Amount of Shares (as defined below), no provision of the Bylaws
relating to (i) the authority and membership of the MSLEF Committee and the
Compensation Committee of the Corporation, (ii) the inclusion of the MSLEF
Director (as defined in the Bylaws) on the Independent Committee and the JSG
Supervisory Committee of the Corporation (if such committees exist) or (iii) the
nomination, removal or replacement of the MSLEF Director, may be altered,
amended or repealed by the stockholders, nor may any provision inconsistent with
any such provision of the Bylaws be adopted by the stockholders, except by the
affirmative vote of stockholders holding at least 75% of the voting power of the
Corporation's then outstanding capital stock entitled to vote thereon.
D. Notwithstanding anything in this Restated Certificate of Incorporation
to the contrary, no provision of Paragraphs B or C or this Paragraph D of this
Article TENTH may be altered, amended or repealed, nor may any provision
inconsistent therewith be adopted, except by the affirmative vote of
stockholders holding at least 75% of the voting power of the Corporation's then
outstanding capital stock entitled to vote thereon.
ELEVENTH: Any action required or permitted to be taken by the stockholders
of the Corporation may be effected solely at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders in lieu of such a meeting.
TWELFTH: A. Special meetings of stockholders may be called by any of (i)
the Chairman of the Board of Directors, (ii) the CEO, (iii) any Vice President
or (iv) the Secretary, and shall be called by any such officer, only at the
request in writing (delivered to such officer at the executive offices of the
Corporation) of either (x) subject to Paragraph B of this Article TWELFTH, a
majority of the entire Board of Directors pursuant to a resolution adopted
thereby (which resolution shall constitute the aforementioned written request)
or (y) stockholders holding at least 25% of the voting power of the
Corporation's then outstanding capital stock entitled to vote, in either case,
as promptly as practicable following such request. Such request shall state the
purpose or purposes of the meeting and the place, date and hour of the meeting.
In the event a special meeting of stockholders is called for the purpose of
electing one or more directors, any stockholder may nominate a person or persons
(as the case may be) for election to such positions as are specified in the
Corporation's notice of the special meeting. In order for a stockholder to make
a nomination, such stockholder must provide timely notice thereof in proper
written form (as set forth in the Bylaws) to the Secretary of the Corporation.
B. Notwithstanding Paragraph A of this Article TWELFTH, (i) until the
Article 5 Termination Date, with respect to any director other than a MSLEF
Director, and (ii) until MSLEF beneficially owns less than the MSLEF Threshold
Amount of Shares, with respect to the MSLEF Director, the Board of Directors
shall not request that a special meeting of stockholders be called, at which
meeting the removal of a director from office is to be voted on, unless the
Board of Directors has first determined, by the affirmative vote of at least 75%
of the members of the entire Board of Directors, that there exists Cause (as
defined below) to remove such director from the Board of Directors.
C. Notwithstanding anything in this Restated Certificate of Incorporation
to the contrary, no provision of Paragraph B or this Paragraph C of this Article
TWELFTH may be altered, amended or repealed, nor may any provision inconsistent
therewith be adopted, except by the affirmative vote of stockholders holding at
least 75% of the voting power of the Corporation's then outstanding capital
stock entitled to vote thereon.
THIRTEENTH: As used in this Restated Certificate of Incorporation:
(x) the term 'entire Board of Directors' means the total number of
directors which the Corporation would have if there were no vacancies;
(y) the term 'Cause' means a director's (i) willful and continued
failure to substantially perform his or her duties to the Corporation as a
director, (ii) willful conduct which is significantly injurious to the
Corporation, monetarily or otherwise, or (iii) conviction for, or guilty
plea to, a felony; and
(z) the term 'MSLEF Threshold Amount of Shares' means 1,000,000 shares
of Common Stock, determined on a primary basis and adjusted, as
appropriate, for any stock dividend or similar distribution of capital
stock of the Corporation, stock split, reclassification, recapitalization,
stock combination or other similar change involving the Common Stock.
FOURTEENTH: The Corporation reserves the right to amend, alter or repeal
any provision contained in this Restated Certificate of Incorporation, and all
rights conferred upon stockholders hereby are granted subject to this
reservation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed in its name and attested by its duly authorized officers this [ ] day of
[ ], 1998.
JEFFERSON SMURFIT CORPORATION
By:
---------------------------------
ANNEX C
AMENDED AND RESTATED
BYLAWS
OF
SMURFIT-STONE CONTAINER CORPORATION
(hereinafter called the 'Corporation')
ARTICLE 1
OFFICES
SECTION 1.01. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.02. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE 2
MEETING OF STOCKHOLDERS
SECTION 2.01. Place of Meetings. Subject to Section 2.03 hereof, meetings
of the stockholders for the election of directors or for any other purpose shall
be held at such time and place, either within or without the State of Delaware,
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2.02. Annual Meetings. The annual meeting of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which meeting
the stockholders shall elect directors by a plurality vote, and transact such
other business as may properly be brought before the meeting. Written notice of
the annual meeting stating the place, date and hour of the meeting shall be
given to each stockholder entitled to vote at such meeting not less than ten
(10) nor more than sixty (60) days before the date of the meeting.
SECTION 2.03. Special Meetings. Unless otherwise prescribed by applicable
law, rule or regulation or by the Restated Certificate of Incorporation as it
may be amended from time to time (the 'Certificate of Incorporation'), special
meetings of stockholders ('Special Meetings') may be called by any of (i) the
Chairman of the Board of Directors (the 'Chairman'), (ii) the President and
Chief Executive Officer (the 'CEO'), (iii) any Vice President, or (iv) the
Secretary, and shall be called by such officer, only at the request in writing
(delivered to such officer at the executive offices of the Corporation) of (x)
subject to Section 5.03(b) hereof, a majority of the entire Board of Directors
pursuant to a resolution adopted thereby (which resolution shall constitute the
aforementioned written request) or (y) the holders of at least 25% of the voting
power of the capital stock of the Corporation issued and outstanding and
entitled to vote, in either case, as promptly as practicable following such
request. Such request shall state the purpose or purposes of the meeting and the
place, date and hour of the meeting. The Corporation shall provide written
notice of a Special Meeting, stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called (as set forth in the
written request), not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to vote at such meeting.
In the event a Special Meeting is called for the purpose of electing one
or more directors, any stockholder may nominate a person or persons (as the
case may be) for election to such positions as are specified in the
Corporation's notice of the Special Meeting. In order for a stockholder to make
a nomination, such stockholder must provide timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice to the Secretary must be delivered to or received at the principal
executive offices of the Corporation not later than the close of business on
the tenth (10th) day following the day on which the notice of the date of the
Special Meeting was mailed or public disclosure of the date of the Special
Meeting was first made, whichever first occurs. To be in proper written form,
the stockholder's notice must set forth, as to each person whom the stockholder
proposes to nominate for election as a director, the name, age, business
address and residence address of the person.
No business shall be conducted at a Special Meeting except as described in
the notice of the Special Meeting, provided that, once business has been
properly brought before a Special Meeting, nothing in this Section 2.03 shall be
deemed to preclude discussion by any stockholder of any such business. If the
officer presiding at a Special Meeting determines that business was not properly
brought before the Special Meeting in accordance with the foregoing procedures,
such officer shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
SECTION 2.04. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting (satisfying the requirements of the notice
described in Section 2.03 above) shall be given to each stockholder entitled to
vote at the meeting.
SECTION 2.05. Voting. Unless otherwise required by applicable law, rule or
regulation or the Certificate of Incorporation or these Amended and Restated
Bylaws, any question brought before any meeting of stockholders shall be decided
by the vote of the holders of a majority of the voting power of the capital
stock of the Corporation represented and entitled to vote thereat. Each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder or such other vote as is set forth in the Certificate of
Incorporation. Such votes may be cast in person or by proxy but no proxy shall
be voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot,
provided that all elections of directors shall be by written ballot.
SECTION 2.06. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting of stockholders, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting of
stockholders during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
SECTION 2.07. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2.06 or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
SECTION 2.08. Nomination of Directors at Annual Meetings. Subject to
Article 5 hereof, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation at an annual meeting, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders (a) subject to
Article 5 hereof, by or at the direction of the Board of Directors (or any duly
authorized committee of the Board of Directors) or (b) by any stockholder of
the Corporation (i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 2.08 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 2.08.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder at an annual meeting, such stockholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was first made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned of record or beneficially owned (such term, as used herein, as
defined in Section 5.13 below) by the person and (iv) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended from time to time (the 'Exchange Act'), and the
rules and regulations promulgated thereunder, and (b) as to the stockholder
giving the notice (i) the name and record address of such stockholder, (ii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iii) a description of
all arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, to the extent such
information would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder, (iv) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
nominate the persons named in its notice and (v) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
Subject to Article 5 hereof, no person shall be eligible for election as a
director of the Corporation at an annual meeting unless nominated in accordance
with the procedures set forth in this Section 2.08. If the officer presiding at
an annual meeting of stockholders determines that a nomination was not made in
accordance with the foregoing procedures, such officer shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded. Nothing in this Section 2.08 shall affect the rights of
stockholders to remove and replace directors, or otherwise nominate and elect
directors, at a Special Meeting duly called for such purpose.
SECTION 2.09. Business at Annual Meetings. No business may be transacted
at an annual meeting of stockholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Corporation who (i) is a stockholder of record on the date of the giving
of the notice provided for in this Section 2.09 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
complies with the notice procedures set forth in this Section 2.09.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation. To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was first made, whichever first
occurs. To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.09; provided, however, that once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.09 shall be deemed to preclude discussion by any
stockholder of any such business. If the officer presiding at an annual meeting
of stockholders determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, such officer shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
ARTICLE 3
DIRECTORS
SECTION 3.01. Number and Election of Directors. The Board of Directors
shall consist of not less than three (3) nor more than fifteen (15) members, the
exact number of which shall initially upon the adoption of these Amended and
Restated Bylaws be twelve (12) and, subject to the Certificate of Incorporation
and Section 5.02(a) hereof, shall be fixed thereafter from time to time by
resolution of the Board of Directors adopted in accordance with Section 3.05
hereof. Except as provided in Section 3.02, directors shall be elected by a
plurality of the votes cast at annual meetings of stockholders, or at a Special
Meeting duly called for such purpose, and each director so elected shall hold
office until the next annual meeting of stockholders and until his or her
successor is duly elected and qualified, or until his or her earlier death or
incapacity, resignation, retirement, disqualification or removal from office.
Any director may resign at any time upon notice to the Corporation. Directors
need not be stockholders.
SECTION 3.02. Vacancies. Subject to Article 5 hereof and the terms of any
one or more classes or series of preferred stock of the Corporation, newly
created directorships resulting from any increase in the number of directors
and any vacancies in the Board of Directors resulting from death or incapacity,
resignation, retirement, disqualification or removal from office may be filled
only by the affirmative vote of a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, or by stockholders
at a Special Meeting duly called for such purpose, and directors so elected
shall hold office until the next annual meeting of stockholders and until their
successors are duly elected and qualified, or until their earlier death or
incapacity, resignation, retirement, disqualification or removal from office.
SECTION 3.03. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which, directly or
through one or more committees thereof as provided herein, may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Amended and Restated
Bylaws directed or required to be exercised or done by the stockholders.
SECTION 3.04. Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, the
CEO, or any director. Notice thereof stating the place, date and hour of the
meeting and the matters to be acted on at such meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting (and, if such notice is given by mail within seven (7) days prior to
the date of the meeting, concurrently by telephone, telegram, facsimile,
electronic mail, telex or cable), by telephone, telegram, facsimile, telex or
cable on twenty-four (24) hours' notice, or on such shorter notice as the person
or persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 3.05. Quorum; Actions by Board. Except as may be otherwise
specifically provided by applicable law, the Certificate of Incorporation or
these Amended and Restated Bylaws, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.06. Action by Written Consent. Unless otherwise provided by the
Certificate of Incorporation or these Amended and Restated Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or any committee thereof, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or such committee.
SECTION 3.07. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Amended and Restated
Bylaws, members of the Board of Directors, or any committee thereof, may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 3.07 shall constitute presence in person at
such meeting.
SECTION 3.08. Committees. Subject to Article 5 hereof, the Board of
Directors may, by resolution, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. Except as
otherwise provided in these Amended and Restated Bylaws, any committee, to the
extent allowed by applicable law and provided in the resolution establishing
such committee, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation. Each committee shall keep regular minutes and report to the Board
of Directors when required.
SECTION 3.09. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors and/or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 3.10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose if (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
SECTION 3.11. Compensation Committee. There is hereby established a
Compensation Committee. Until the Article 5 Termination Date (as defined in
Section 5.01(a) below), the Compensation Committee shall be constituted in
accordance with Section 5.05 hereof. After the Article 5 Termination Date, but
subject to Section 5.01(b) hereof, the Compensation Committee shall consist of
such number of directors as from time to time shall be designated by the Board
of Directors, who shall serve on such committee for the term for which each
member is designated or until such member's successor is duly elected and
qualified, or until such member's earlier death or incapacity, resignation,
retirement, disqualification or removal from office. None of the members of the
Compensation Committee shall be an officer or an employee of the Corporation or
of any subsidiary of the Corporation. The Compensation Committee shall have the
duty to review at least once each fiscal year and to establish compensation
(including fringe benefits) for all Executive Officers (such term, as used in
these Amended and Restated Bylaws, shall have the meaning of the term 'officer'
as defined in Rule 16a-1 under the Exchange Act) of the Corporation and its
subsidiaries. The Compensation Committee shall also have the exclusive authority
to approve the adoption of, amendment to and make all decisions with respect to,
all bonus, incentive and other employee benefit plans (including, without
limitation, equity-based or equity-related plans) and shall make all decisions
with respect to grants or awards thereunder.
ARTICLE 4
OFFICERS
SECTION 4.01. General. Subject to Article 5 hereof, the officers of the
Corporation shall be chosen by the Board of Directors and there shall be a
Chairman (who must be a director), a CEO, an Executive Vice President-Deputy
Chief Executive (the 'EVP'), a Chief Financial Officer (the 'CFO'), a Secretary
and a Treasurer. Subject to Article 5 hereof, the Board of Directors in its
discretion may also choose one or more Vice Presidents, Assistant
Secretaries/Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by applicable law, rule
or regulation, the Certificate of Incorporation or these Amended and Restated
Bylaws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman and subject to Article 5
hereof, need such officers be directors of the Corporation.
SECTION 4.02. Election. Subject to Article 5 hereof, the Board of
Directors at its meeting held after each annual meeting of stockholders shall
elect the officers of the Corporation who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and qualified,
or until their earlier death or incapacity, resignation, retirement,
disqualification or removal from office. Subject to Article 5 hereof, any
officer elected by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors present at any meeting of the
Board of Directors at which there is a quorum. Subject to Article 5 hereof, any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The compensation of all officers of the Corporation shall be
determined as set forth in Section 3.11 hereof.
SECTION 4.03. Voting Securities Owned by the Corporation. Subject to the
control of the Board of Directors, powers of attorney, proxies, waivers of
notice of meeting, consents and other instruments relating to securities owned
by the Corporation may be executed in the name of and on behalf of the
Corporation by the CEO, the EVP, the CFO or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
SECTION 4.04. Chairman of the Board of Directors. The Chairman shall serve
as the non-executive chairman of the Board of Directors and shall be a member of
the Board of Directors. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors at which the Chairman is present.
Subject to Article 5 hereof and subject to the control of the Board of
Directors, the Chairman, together with the CEO, shall have general supervisory
responsibilities with respect to the business affairs and officers of the
Corporation. Subject to Article 5 hereof, the Chairman shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him or her by these Amended and Restated Bylaws or by the Board of
Directors.
SECTION 4.05. Chief Executive Officer. Subject to Article 5 hereof and
subject to the control of the Board of Directors, the CEO, together with the
Chairman, shall have general supervisory responsibilities with respect to the
business affairs and officers of the Corporation. The CEO shall execute all
bonds, mortgages, contracts and other instruments of the Corporation requiring a
seal, under the seal of the Corporation, except where required or permitted by
applicable law, rule or regulation to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Amended and Restated Bylaws, the Board of Directors
(subject to Article 5 hereof) or the CEO. In the absence or disability of the
Chairman, the CEO shall preside at all meetings of the stockholders and of the
Board of Directors. Subject to Article 5 hereof, the CEO shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him or her by these Amended and Restated Bylaws or by the Board of
Directors.
SECTION 4.06. Executive Vice President-Deputy Chief Executive. The EVP, in
his or her capacity as chairman of the Cost Reduction/Divestiture Committee (as
described in Section 5.10(b) below), shall be the officer principally
responsible for (i) the development of the Corporation's asset divestiture
program and cost reduction program and (ii) implementation of the asset
divestiture program and, in consultation with the CEO, implementation of the
cost reduction program, in each case subject to the control of the Board of
Directors. In addition to the normal responsibilities of the EVP, the EVP shall
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 Board of
Directors not inconsistent with the responsibilities of the CEO as provided
herein. The EVP shall have the authority of a Vice President.
SECTION 4.07. Chief Financial Officer. The CFO shall exercise general
supervision over the finances of the Corporation and shall supervise and be
responsible for all matters pertaining to the raising of debt and equity
capital and cash management functions of the Corporation. The CFO shall render
periodically such balance sheets and other financial statements or reports
relating to the business of the Corporation as may be required by the Board of
Directors, the Chairman, the CEO or any other authorized officer of the
Corporation. The CFO shall be a Vice President and shall report to the CEO.
SECTION 4.08. Vice Presidents. Subject to Article 5 hereof, at the request
of the CEO or in the absence of the CEO or in the event of the inability or
refusal of the CEO to act, the Vice President or the Vice Presidents if there is
more than one (first the EVP, second the CFO and then in the order designated by
the Board of Directors) shall perform the duties of the CEO, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
CEO. Subject to Article 5 hereof, each Vice President shall perform such other
duties and have such other powers as the Board of Directors from time to time
may prescribe. Subject to Article 5 hereof, if there be no Vice President, the
Board of Directors shall designate the officer of the Corporation who, in the
absence of the CEO or in the event of the inability or refusal of the CEO to
act, shall perform the duties of the CEO, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the CEO.
SECTION 4.09. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees of the
Board of Directors when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and, subject to Article 5 hereof, shall perform such other
duties as may be prescribed by the Board of Directors or the CEO, under whose
supervision he or she shall be. If the Secretary shall be unable or shall refuse
to cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary then,
subject to Article 5 hereof, either the Board of Directors or the CEO may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 4.10. Treasurer. The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the CEO and the Board of Directors, at its regular meetings, or when the Board
of Directors so requires, an account of all his or her transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his or her office and for the
restoration to the Corporation, in case of his or her death or incapacity,
resignation, retirement, disqualification or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
SECTION 4.11. Assistant Secretaries. Subject to Article 5 hereof and
except as may be otherwise provided in these Amended and Restated Bylaws,
Assistant Secretaries, if there be any, shall perform such duties and have such
powers as from time to time may be assigned to them by the Board of Directors,
the CEO, any Vice President, if there be one, or the Secretary and in the
absence of the Secretary or in the event of his or her disability or refusal to
act, shall perform the duties of the Secretary, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the Secretary.
SECTION 4.12. Assistant Treasurers. Subject to Article 5 hereof, assistant
Treasurers, if there be any, shall perform such duties and have such powers as
from time to time may be assigned to them by the Board of Directors, the CEO,
any Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his or her disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Corporation, in case of his or her death
or incapacity, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in his
or her possession or under his or her control belonging to the Corporation.
SECTION 4.13. Other Officers. Subject to Article 5 hereof, such other
officers as the Board of Directors may choose shall perform such duties and have
such powers as from time to time may be assigned to them by the Board of
Directors. Subject to Article 5, the Board of Directors may delegate to any
other officer of the Corporation the power to choose such other officers and to
prescribe their respective duties and powers.
ARTICLE 5
CERTAIN PROVISIONS CONCERNING THE BOARD OF DIRECTORS AND OFFICERS
SECTION 5.01. Effectiveness and Interpretation. (a) Except as provided in
paragraph (b) below, this Article 5 shall be in effect from the date of adoption
of these Amended and Restated Bylaws until the earlier of (i) the date upon
which Mr. Roger W. Stone ('Mr. Stone') ceases to be CEO or (ii) February 16,
2001, at which time (the 'Article 5 Termination Date'), subject to paragraph
(b) below, the terms and provisions of this Article 5 shall, immediately and
automatically, terminate and no longer have any force or effect. Subject to
paragraph (b) below, upon the termination of Article 5 pursuant to this Section
5.01, the provisions of these Amended and Restated Bylaws other than Article 5
shall be the Bylaws of the Corporation until amended, modified or repealed in
accordance with the terms hereof.
(b) Notwithstanding paragraph (a) above, (i) the terms of Section 5.11(f)
shall remain in effect until the annual meeting of stockholders referred to
therein, (ii) the terms of Sections 5.07(b), 5.07(d) and 5.08 shall remain in
effect until the Fifth Anniversary (as defined in Section 5.07(b) below), and
(iii) so long as MSLEF beneficially owns at least the MSLEF Threshold Amount of
Shares (as defined in Section 5.13 below), (A) the MSLEF Committee and the MSLEF
Director (as defined in Section 5.13 below) shall each continue to exercise all
power and authority delegated to them, respectively, pursuant to these Amended
and Restated Bylaws (including, but not limited to, pursuant to Section 5.02
(with respect to the nomination or replacement of the MSLEF Director), Section
5.03 (with respect to the removal of the MSLEF Director), Section 5.05, Section
5.07 (unless there is no Independent Committee), and Section 5.08 (unless there
is no JSG Supervisory Committee)) and (B) the proviso contained in Section
5.12(b) shall remain in effect.
(c) In the event of any conflict between the provisions of this Article 5
and any other provisions of these Amended and Restated Bylaws or, to the extent
that any of the provisions of this Article 5 overlap with and/or are more
specific or more restrictive than any other provisions contained in these
Amended and Restated Bylaws, the provisions of this Article 5 shall govern.
SECTION 5.02. Representation on the Board of Directors. (a) The total
authorized number of directors constituting the entire Board of Directors shall
be twelve (12) and such number shall not be increased or decreased without the
affirmative vote of the holders of at least 75% of the voting power of the
Corporation's then outstanding capital stock entitled to vote thereon.
(b) There are hereby established the following three committees for
designating persons as the nominees of the Board of Directors for election as
directors and for filling director vacancies, as provided below: the Stone
Committee, the JSC Committee and the MSLEF Committee (each, a 'Nominating
Committee'). The three Nominating Committees shall be comprised as follows: (i)
the Stone Committee shall be comprised exclusively of each of the Stone
Directors (as defined in Section 5.13 below), (ii) the JSC Committee shall be
comprised exclusively of each of the JSC Directors (as defined in Section 5.13
below) and (iii) the MSLEF Committee shall be comprised exclusively of the
MSLEF Director. Except as otherwise provided in this Article 5, the Nominating
Committees shall exercise all power and authority of the Board of Directors
with respect to designating persons as the nominees of the Board of Directors
for election to, or appointing persons to fill vacancies on, the Board of
Directors.
(c) Prior to each meeting of the stockholders at which directors are to be
elected, (i) the Stone Committee shall 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 (subject to Section 5.11(a) hereof),
(ii) the JSC Committee shall 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 (subject to Sections 5.11(a) hereof)
and one person as nominee both for election as a director and for appointment as
EVP (subject to Sections 5.11(a) hereof) and (iii) subject to paragraph (g)
below, the MSLEF Committee shall designate one person as nominee for election as
a director.
(d) At each meeting of the stockholders at which directors are to be
elected, the officer of the Corporation presiding at such meeting shall
nominate, on behalf of the Nominating Committees, as directors the persons
designated for nomination by the Nominating Committees in accordance with
paragraph (c) above, and the nominations so made shall be deemed for purposes of
Section 2.08 hereof to be made at the direction of the Nominating Committees. At
any meeting of stockholders at which directors are to be elected, neither the
Board of Directors nor any committee thereof shall nominate or direct there to
be nominated as a director any person not designated by one of the Nominating
Committees.
(e) If any director (other than an Unaffiliated Director (as defined in
Section 5.13 below)) is removed from the Board of Directors, resigns, retires,
dies or otherwise cannot continue to serve as a member of the Board of
Directors, and such director is:
(i) a Stone Director, then the Stone Committee shall have the
exclusive authority to appoint a person to fill such vacancy;
(ii) a JSC Director, then the JSC Committee shall have the exclusive
authority to appoint a person to fill such vacancy; provided that if (x)
such JSC Director is also the Chairman or the EVP and (y) Jefferson Smurfit
Group plc ('JSG') and its subsidiaries beneficially own less than 15% of
the then outstanding shares of Common Stock of the Corporation, then such
vacancy shall not be filled by the JSC Committee but shall instead only be
filled by vote of a majority of the entire Board of Directors, in which
case such newly appointed director shall be considered an Unaffiliated
Director; or
(iii) a MSLEF Director, then a majority of the entire Board of
Directors shall have the exclusive authority to appoint a person to fill
such vacancy, in which case such newly appointed director shall be
considered an Unaffiliated Director, provided that if (A) a MSLEF Director
tenders his or her resignation from the Board of Directors effective as of
a future date, (B) prior to and in contemplation of such future date the
MSLEF Committee designates a person to replace such resigning MSLEF
Director, and (C) at such future date MSLEF beneficially owns at least the
MSLEF Threshold Amount of Shares, then such person so designated by the
MSLEF Committee shall be appointed to the Board of Directors effective as
of such future date (to fill the vacancy left by the resigning MSLEF
Director) and such successor shall be considered as the MSLEF Director.
(f) If an Unaffiliated Director is removed from the Board of Directors or
resigns, retires, dies or otherwise cannot continue to serve as a member of the
Board of Directors, then a majority of the entire Board of Directors shall have
the exclusive authority to appoint a person to fill such vacancy, and such newly
appointed director shall be considered an Unaffiliated Director.
(g) Notwithstanding anything to the contrary contained herein, if at any
time Morgan Stanley Leveraged Equity Fund II, Inc. ('MSLEF') beneficially owns
less than the MSLEF Threshold Amount of Shares (i) from and after such time, the
director serving as the MSLEF Director shall no longer be considered as the
MSLEF Director and shall instead be considered as an Unaffiliated Director,
(ii) the MSLEF Committee shall be immediately disbanded, (iii) all powers and
authority theretofore vested in the MSLEF Committee to designate a person as the
nominee of the Board of Directors for election to, and to fill vacancies on, the
Board of Directors pursuant to this Article 5, shall revert immediately to, and
be exercised exclusively by, a majority of the members of the entire Board of
Directors and (iv) any director nominated or appointed by the Board of Directors
pursuant to this paragraph (g) shall be considered an Unaffiliated Director and
there shall no longer be any director designated as a MSLEF Director on the
Board of Directors.
(h) The Stone Committee shall use its best efforts to ensure that at all
times at least two of its nominees or appointees to the Board of Directors are
Independent Directors (as defined in Section 5.13 below), and the JSC Committee
shall use its best efforts to ensure that at all times at least two of its
nominees or appointees to the Board of Directors are Independent Directors.
SECTION 5.03. Retirement/Removal of Directors. (a) Each director shall be
required to retire no later than, and shall not be qualified for re-election as
of or after, the date of the first annual meeting of stockholders to be held
following his or her 72nd birthday.
(b) The Board of Directors shall not request that a Special Meeting be
called, at which meeting the removal of a director from office is to be voted
on, unless the Board of Directors has first determined, by the affirmative vote
of at least 75% of the members of the entire Board of Directors, that there
exists Cause (as defined in Section 5.13) to remove such director from the Board
of Directors, provided that this Section 5.03(b) shall not apply to the calling
of a Special Meeting to remove the MSLEF Director at any time after MSLEF
beneficially owns less than the MSLEF Threshold Amount of Shares.
SECTION 5.04. Actions by the Board. In addition to any other actions of the
Board of Directors which require the approval of at least 75% of the members of
the entire Board of Directors pursuant to these Amended and Restated Bylaws, the
Board of Directors shall not authorize or approve any of the following actions
without the affirmative vote of at least 75% of the members of the entire Board
of Directors:
(i) any recommendation to the stockholders to change the number of
directors constituting the entire Board of Directors;
(ii) subject to Section 5.11(a) hereof, any change in the tenure of
Mr. Stone as CEO as provided for in Section 5.11(f);
(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 the
Corporation representing more than 40% of the voting power represented by
all outstanding capital stock of the Corporation (or, if such ownership is
already more than 40%, increasing such beneficial ownership); and
(v) other than pursuant to this Article 5, any change in the scope or
composition of any of the committees of the Board of Directors (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 (as defined in Section 5.10 below))
described in Section 5.10 hereof.
SECTION 5.05. Compensation Committee. The Compensation Committee (as
described in Section 3.11 hereof) shall be comprised exclusively of (i) one
Independent Director designated by the Stone Committee, (ii) one Independent
Director designated by the JSC Committee and (iii) one director, who shall be
chairman of the committee, designated by the MSLEF Committee, provided that if
there is no MSLEF Committee pursuant to Section 5.02(g) hereof or if the MSLEF
Committee, by resolution, permanently waives its right to designate a director
to serve on the Compensation Committee, the Compensation Committee shall
include, in lieu of the director specified in clause (iii) above, a third
director designated by a majority of the members of the entire Board of
Directors and shall be chaired by one of the directors of the committee
designated by at least 75% of the members of the entire Board of Directors.
SECTION 5.06. Audit Committee. (a) There is hereby established an Audit
Committee of the Board of Directors which shall be comprised exclusively of each
of the Independent Directors. The Audit Committee shall have the following
powers and authority to: (i) employ independent public accountants to audit the
books of account, accounting procedures and financial statements of the
Corporation and to perform such other duties from time to time as the Audit
Committee may prescribe, (ii) receive the reports and comments of the
Corporation's internal auditors and of the independent public accountants
employed by the committee and to take such action with respect thereto as may
seem appropriate, (iii) request the Corporation's consolidated subsidiaries and
affiliated companies to employ independent public accountants to audit their
respective books of account, accounting procedures, and financial statements,
(iv) request the independent public accountants to furnish to the Compensation
Committee the certifications required under any present or future stock option,
incentive compensation or employee benefit plan of the Corporation, (v) review
the adequacy of internal financial controls, (vi) approve the accounting
principles employed in financial reporting, (vii) approve the appointment or
removal of the Corporation's general auditor, and (viii) review the accounting
principles employed in financial reporting.
SECTION 5.07. Independent Committee. (a) There is hereby established an
Independent Committee of the Board of Directors which shall be comprised
exclusively of (i) two Independent Directors designated by the Stone Committee,
(ii) two Independent Directors designated by the JSC Committee and (iii) the
MSLEF Director, provided that if there is no MSLEF Director, the Independent
Committee shall be comprised of only four directors.
(b) From the Effective Time (as defined in the Merger Agreement (as defined
in Section 5.13 below)), until the date which is the fifth anniversary (the
'Fifth Anniversary') of the Effective Time, the Board of Directors shall not
authorize or approve any of the following actions unless such actions shall
first have been recommended by at least a majority of the members of the entire
Independent Committee: any commercial or other transactions (including, without
limitation, any squeeze-out of other stockholders effected by merger, reverse
stock split or otherwise) and agreements between the Corporation and its
subsidiaries, on the one hand, and JSG and its subsidiaries (other than the
Corporation and its subsidiaries), on the other hand, other than (x)
transactions pursuant to the current terms of agreements currently in effect on
the date of the Merger Agreement or entered into in connection with the Merger
Agreement, or replacement agreements (so long as the terms of such replacement
agreements are not materially less favorable to the Corporation), (y) any
individual sale of assets involving a net book value or purchase price of less
than $500,000 (provided that the aggregate amount of all such sales within any
12-month period shall not exceed $5,000,000), or (z) product sales in the
ordinary course of business effected on arm's length equivalent terms and not
otherwise requiring Board of Directors approval.
(c) The Independent Committee shall also have the exclusive authority to
make such decisions and to take such actions as delegated to the Independent
Committee pursuant to Section 5.09 hereof.
(d) From the Article 5 Termination Date until the Fifth Anniversary, the
Independent Committee shall consist exclusively of Independent Directors
designated by not less than a majority of the members of the entire Board of
Directors, provided that, solely for purposes of this paragraph (d), the MSLEF
Director, if any, shall be considered an Independent Director so long as such
MSLEF Director is not an officer or employee of the Corporation or a director,
officer or employee of any beneficial owner of 15% or more of the capital stock
of the Corporation.
SECTION 5.08. Supervisory Committees. There are hereby established two
committees of the Board of Directors to ensure enforcement of the Standstill
Agreement (as defined in Section 5.13 below): the JSG Supervisory Committee and
the MSLEF Supervisory Committee (together, the 'Supervisory Committees'). The
JSG Supervisory Committee shall be comprised exclusively of the MSLEF Director
and each director who is both Independent (as defined in Section 5.13 below)
with respect to JSG and not a JSC Director. The JSG Supervisory Committee shall
have the authority and responsibility for enforcing against JSG the Standstill
Agreement. The MSLEF Supervisory Committee shall be comprised exclusively of
each director, other than the MSLEF Director (if any), who is Independent with
respect to MSLEF. The MSLEF Supervisory Committee shall have the authority and
responsibility for enforcing against MSLEF the Standstill Agreement.
SECTION 5.09. Officer Appointment Committee. (a) There is hereby
established an Officer Appointment Committee of the Board of Directors which,
subject to paragraph (b) below, shall have the exclusive authority to appoint or
terminate the employment of Executive Officers of the Corporation other than the
CEO, EVP and the CFO, including the creation of additional Executive Officer
positions. The Officer Appointment Committee shall also have the authority set
forth in Section 5.10(c) below. The Officer Appointment Committee shall be
comprised exclusively of the Chairman and, if and for so long as the CEO is a
director, the CEO. The Officer Appointment Committee shall exercise its
authority only in accordance with the recommendations of the CEO, subject to the
unanimous approval of the Officer Appointment Committee.
(b) If any disagreement arises between the Officer Appointment Committee
and the CEO with respect to any decision of the Officer Appointment Committee,
the Independent Committee (instead of the Officer Appointment Committee) shall
have exclusive authority with respect to the subject of such disagreement (i.e.
whether or not to appoint or terminate the employment of the person in question,
to create the new Executive Officer position in question or designate the
officer in question to the Management Operating Committee, as the case may be).
SECTION 5.10. Management Committees. (a) There are hereby established two
management committees: the Cost Reduction/Divestiture Committee and the
Management Operating Committee. These committees shall report to the Board of
Directors and shall not be considered committees of the Board of Directors.
(b) The Cost Reduction/Divestiture Committee shall have responsibility for
the development and implementation, subject to approval by the Board of
Directors, of a plan that is designed to (i) achieve asset divestitures by the
Corporation, over a period of time to be determined by such committee and (ii)
develop a program of cost reductions and other synergies. The Cost
Reduction/Divestiture Committee shall be comprised of the Chairman, the CEO, the
EVP (who shall be chairman of the Committee) and the CFO.
(c) The Management Operating Committee shall be responsible for setting and
implementing, subject to approval by the Board of Directors, policies and
objectives of the Corporation and reviewing performance and the achievement of
such policies and objectives. The Management Operating Committee shall be
comprised of the Chairman, the CEO, the EVP, the CFO and certain other officers
designated by the CEO, subject to review and approval by the Officer Appointment
Committee (subject to Section 5.09). There shall be no chairman of the
Management Operating Committee.
SECTION 5.11. Officers. (a) The termination of employment of the Chairman
(in his or her capacity as an officer), the CEO or the EVP shall only be for
Cause as determined by at least 75% of the members of the entire Board of
Directors.
(b) If the Chairman (in his or her capacity as an officer) or the EVP is
removed from office in accordance with paragraph (a) above, resigns, retires,
dies or otherwise cannot continue to serve as an officer of the Corporation,
then (i) in the case of the Chairman, the JSC Committee shall appoint one of the
directors to serve as Chairman and (ii) in the case of the EVP, the JSC
Committee shall appoint a person to serve as EVP.
(c) Termination of the employment or any material diminution in the
responsibilities of the CFO shall require the approval of at least a majority of
the members of the entire Board of Directors. The CFO shall report to the CEO.
(d) The CEO shall be the officer principally responsible for the day-to-day
operations of the Corporation and shall report directly to the Board of
Directors.
(e) The Chairman and the CEO together shall have general supervisory
responsibilities with respect to the business affairs and officers of the
Corporation.
(f) Notwithstanding anything to the contrary contained herein but subject
to earlier termination pursuant to paragraph (a) above and subject to Section
5.04(ii) hereof, the term of office of Mr. Stone as CEO shall expire upon the
date of the first annual meeting of stockholders occurring after February 16,
2001.
SECTION 5.12. Amendment. Article 5 of these Amended and Restated Bylaws may
not be altered, amended or repealed, nor may any provision inconsistent with
Article 5 be adopted except by:
(a) the Board of Directors, with the approval of at least 75% of the
members of the entire Board of Directors, provided that, for so long as MSLEF
owns not less than the MSLEF Threshold Amount of Shares, the unanimous approval
of each of the members of the entire Board of Directors shall be required for
the Board of Directors to amend any provisions of these Amended and Restated
Bylaws relating to (i) the authority and membership of the MSLEF Committee and
the Compensation Committee, (ii) the inclusion of the MSLEF Director on the
Independent Committee and the JSG Supervisory Committee (if such committees
exist), (iii) the nomination, removal or replacement of the MSLEF Director or
(iv) this proviso of this paragraph (a); or
(b) the stockholders, with the affirmative vote of the holders of at least
75% of the voting power of the Corporation's then outstanding capital stock
entitled to vote thereon provided that, notwithstanding the occurrence of the
Article 5 Termination Date, for so long as MSLEF owns not less than the MSLEF
Threshold Amount of Shares, the affirmative vote of the holders of at least 75%
of the voting power of the Corporation's then outstanding capital stock entitled
to vote thereon shall be required for the stockholders to amend any provisions
of these Amended and Restated Bylaws relating to (i) the authority and
membership of the MSLEF Committee and the Compensation Committee, (ii) the
inclusion of the MSLEF Director on the Independent Committee and the JSG
Supervisory Committee (if such committees exist), (iii) the nomination, removal
or replacement of the MSLEF Director or (iv) this proviso of this paragraph (b).
SECTION 5.13. Certain Definitions. The following terms as used in these
Amended and Restated Bylaws shall have the following meanings:
'beneficially owns' (or any similar phrase) shall have the meaning set
forth in Rule 13d-3 under the Securities Exchange Act of 1934, as such rule was
in effect on May 10, 1998. An entity shall not be deemed to beneficially own
securities held in a pension trust or non-profit foundation or trust controlled
by such entity.
'Cause' means an officer's or director's (i) willful and continued failure
to substantially perform his or her duties to the Corporation in accordance with
his or her established position at the Corporation, (ii) willful conduct which
is significantly injurious to the Corporation, monetarily or otherwise or (iii)
conviction for, or guilty plea to, a felony.
'Independent' means, with respect to any director or prospective director
and with respect to any corporation, an individual who, in accordance with Rule
303.00 of the New York Stock Exchange (the 'NYSE'), as such rule or any
successor rule may be amended from time to time, would be eligible for
membership on an Audit Committee of such corporation if it were listed on the
NYSE and who is not (i) an officer or employee of, or consultant or professional
advisor (or employee, officer or partner of an entity that is such) to the
corporation or any of its subsidiaries, (ii) a beneficial owner of more than 15%
of the outstanding shares of common stock of the corporation or (iii) an officer
or employee of, or consultant or professional advisor (or employee, officer or
partner of an entity that is such) to, any such beneficial owner.
'Independent Director' means, with respect to any director or prospective
director of the Corporation, an individual who is Independent with respect to
the Corporation, provided that any director of the Corporation who was serving
as a director of the Corporation on May 10, 1998 and was considered an
independent director of the Corporation pursuant to the former Bylaws and
policies of the Corporation at such time, shall be considered an Independent
Director so long as such director continues to satisfy the requirements of such
former Bylaws and policies.
'JSC Directors' means (i) each of the four directors initially designated
as such by the Board of Directors (effective as of the Effective Time), (ii) the
Chairman and the EVP, each as of the Effective Time and (iii) each other
director nominated or appointed by the JSC Committee in accordance with this
Article 5.
'Merger Agreement' means the Merger Agreement by and among Jefferson
Smurfit Corporation, JSC Acquisition Corporation and Stone Container
Corporation, dated May 10, 1998, as amended on October 2, 1998 and as it may be
further amended from time to time.
'MSLEF Director' means, subject to Section 5.02(g) hereof, (i) the director
initially designated as such by the Board of Directors (effective as of the
Effective Time), (ii) each other director nominated or appointed by the MSLEF
Committee in accordance with this Article 5 and (iii) if there is then otherwise
no MSLEF Director, no more than one director designated as such by the
affirmative vote of the holders of at least a majority of the voting power of
the Corporation's then outstanding capital stock entitled to vote thereon.
'MSLEF Threshold Amount of Shares' means 1,000,000 shares of the Common
Stock of the Corporation, determined on a primary basis and adjusted, as
appropriate, for any stock dividend or similar distribution of capital stock of
the Corporation, stock split, reclassification, recapitalization, stock
combination or other similar change involving the Common Stock of the
Corporation.
'Standstill Agreement' means the Standstill Agreement by and among JSG,
MSLEF and the Corporation, dated as of May 10, 1998, as amended on October 2,
1998 and as it may be further amended from time to time.
'Stone Directors' means (i) each of the four directors initially designated
as such by the Board of Directors (as of the Effective Time), (ii) the CEO, as
of the Effective Time, and (iii) each other director nominated or appointed by
the Stone Committee in accordance with this Article 5.
'Unaffiliated Director' means (i) any member of the Board of Directors who
has not been nominated or appointed to the Board of Directors by one of the
Nominating Committees or (ii) any other member of the Board of Directors
designated as such pursuant to these Amended and Restated Bylaws.
ARTICLE 6
STOCK
SECTION 6.01. Forms of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman, the CEO or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him in the
Corporation.
SECTION 6.02. Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
SECTION 6.03. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such amount as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
SECTION 6.04. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by applicable law, rule or regulation and in these Amended
and Restated Bylaws. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by his or her
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 6.05. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6.06. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares of capital stock to receive dividends, and to vote as such owner, and
to hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law. Notwithstanding this Section 6.06, the determination
of whether MSLEF owns the MSLEF Threshold Amount of Shares shall be calculated
based on the beneficial ownership of such stock by MSLEF.
ARTICLE 7
NOTICES
SECTION 7.01. Notices. Whenever written notice is required by applicable
law, rule or regulation, the Certificate of Incorporation or these Amended and
Restated Bylaws to be given to any director, member of a committee or
stockholder, such notice may be given by mail, addressed to such director,
member of a committee or stockholder, at his or her address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram,
facsimile, telex or cable.
SECTION 7.02. Waivers of Notice. Whenever any notice is required by
applicable law, rule or regulation, the Certificate of Incorporation or these
Amended and Restated Bylaws to be given to any director, member of a committee
or stockholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.01. Dividends. Dividends upon the capital stock of the
Corporation, if any, may, subject to the provisions of the Certificate of
Incorporation, be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of capital stock.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
SECTION 8.02. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 8.03. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 8.04. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, and may have inscribed thereon the year of
its organization and the words 'Corporate Seal, Delaware'. The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE 9
INDEMNIFICATION
SECTION 9.01. Power to Indemnify in Actions, Suits or Proceedings other
than those by or in the Right of the Corporation. Subject to Section 9.03
hereof, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, trustee, administrator, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts (including attorneys' fees paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
SECTION 9.02. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 9.03 hereof, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, trustee, administrator, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such excuses which the Court of Chancery or such other court shall
deem proper.
SECTION 9.03. Authorization of Indemnification. Any indemnification under
this Article 9 (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of such person is proper in the circumstances because such
person has met the applicable standard of conduct set forth in Section 9.01 or
Section 9.02 hereof, as the case may be. Such determination shall be made with
respect to a person who is a director or officer at the time of such
determination, (i) by the Board of Directors by a majority vote of the
directors who were not parties to such action, suit or proceeding (the
'Uninvolved Directors'), even though less than a quorum, or (ii) by a committee
of such Uninvolved Directors designated by majority vote of the Uninvolved
Directors, even though less than a quorum, or (iii) if there are no Uninvolved
Directors, or if the Uninvolved Directors so direct, by independent legal
counsel in a written opinion, or (iv) by the stockholders. To the extent,
however, that a director or officer of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
SECTION 9.04. Good Faith Defined. For purposes of any determination under
Section 9.03 hereof, a person shall be deemed to have acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe such person's conduct was
unlawful, if such person's action is based on the records or books of account of
the Corporation or another enterprise, or on information supplied to such person
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term 'another enterprise' as used in this Section 9.04
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, trustee,
administrator, employee or agent. The provisions of this Section 9.04 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 9.01 or 9.02 hereof, as the case may be.
SECTION 9.05. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 9.03 hereof, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
9.01 and 9.02 hereof. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 9.01 or 9.02 hereof, as the case may be. Neither a
contrary determination in the specific case under Section 9.03 hereof nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 9.05 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
SECTION 9.06. Expenses Payable in Advance. Expenses (including, without
limitation, attorneys' fees) actually and reasonably incurred by a director or
officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
Corporation as authorized in this Article 9.
SECTION 9.07. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article 9 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of,
and advances of expenses to, the persons specified in Section 9.01 and 9.02
hereof shall be made to the fullest extent permitted by law. The provisions of
this Article 9 shall not be deemed to preclude the indemnification of, and
advancement of expenses to, any person who is not specified in Sections 9.01 or
9.02 of this Article 9 but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the State of
Delaware (the 'GCL'), or otherwise.
SECTION 9.08. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation or is or was a director or officer of the Corporation serving at the
request of the Corporation as a director, officer, trustee, administrator,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power or the obligation to indemnify such person against such liability under
the provisions of this Article 9.
SECTION 9.09. Certain Definitions. For purposes of this Article 9,
references to 'the Corporation' shall include, in addition to the Corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors or
officers, so that any person who is or was a director or officer of such
constituent corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as a
director, officer, trustee, administrator, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article 9 with respect to the resulting or surviving corporation as such person
would have had with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article 9, references to 'fines'
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to 'serving at the request of the Corporation'
shall include any service as a director, officer, trustee, administrator,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner 'not opposed to the best interests of the Corporation' as referred to in
this Article 9.
SECTION 9.10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses obligations set forth in this
Article 9 shall inure to the benefit of the heirs, executors, administrators and
personal representatives of those persons entitled thereto and shall be binding
upon any successor to the Corporation to the fullest extent permitted by law.
Neither any amendment or repeal of the provisions of this Article 9 nor adoption
of any provision of the Certificate of Incorporation or of these Amended and
Restated Bylaws which is inconsistent with the provisions of this Article 9
shall adversely affect any right or protection of a person existing at the time
of such amendment, repeal or adoption with respect to actions, suits or
proceedings relating to acts or omissions of such person occurring prior to such
amendment, repeal or adoption.
SECTION 9.11. Limitation on Indemnification. Notwithstanding anything
contained in this Article 9 to the contrary, except for proceedings to enforce
rights to indemnification and rights to advancement of expenses (which shall be
governed by Section 9.06 hereof), the Corporation shall not be obligated to
indemnify, or advance expenses to, any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors.
SECTION 9.12. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article 9 to
directors and officers of the Corporation.
ARTICLE 10
AMENDMENTS
SECTION 10.01. Subject to Article 5 hereof, these Amended and Restated
Bylaws may not be altered, amended or repealed, in whole or in part, nor may new
Bylaws be adopted, except by a majority of the members of the entire Board of
Directors or by the affirmative vote of stockholders as required by the
Certificate of Incorporation, these Amended and Restated Bylaws and the GCL;
provided, that notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such meeting of stockholders or Board of
Directors, as the case may be.
SECTION 10.02. Entire Board of Directors. As used in these Amended and
Restated Bylaws generally, the term 'entire Board of Directors' means the total
number of directors which the Corporation would have if there were no vacancies.
ANNEX D-1
AMENDMENTS TO STONE'S RESTATED CERTIFICATE OF INCORPORATION
EFFECTED IMMEDIATELY PRIOR TO THE MERGER
PURSUANT TO THE STONE MERGER PROPOSAL
1. Section 4(a) of Subpart I.B. of ARTICLE FOURTH of the Restated
Certificate of Incorporation of the Corporation is hereby amended so as to read
in its entirety as follows:
'In addition to the voting rights provided in Sections 4(b), 7(b) and
9 and the voting rights required by law, the holders of shares of the
Series E Preferred Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote and be entitled to
one vote thereon per share of Series E Preferred Stock (except that in the
case of the elections of directors (other than the election of directors
provided for in Section 4(b)), holders of shares of the Series E Preferred
Stock shall have the same cumulative voting rights as holders of Common
Stock in accordance with Subpart II.C.), with the holders of the Series E
Preferred Stock and the Common Stock voting together as one class on any
such matters, except as otherwise provided by law.'
2. The last sentence of Section 4(b) of Subpart I.B. of ARTICLE FOURTH of
the Restated Certificate of Incorporation of the Corporation is hereby amended
so as to read in its entirety as follows:
'Notwithstanding any voting rights that the holders of the shares of
the Series E Preferred Stock shall have under this Section 4(b), holders of
shares of the Series E Preferred Stock shall not be divested of any other
voting rights provided to such stockholders pursuant to Sections 4(a), 7(b)
and 9 or by law.'
ANNEX D-2
AMENDMENTS TO STONE'S CERTIFICATE OF INCORPORATION TO BE
EFFECTED IN THE MERGER PURSUANT TO THE MERGER AGREEMENT
Section 6 of Subpart I.B. of ARTICLE FOURTH of the Restated Certificate of
Incorporation, as amended, of Stone Container Corporation is hereby amended so
as to read in its entirety as follows:
SECTION 6. Conversion.
(a) Holders of shares of the Series E Preferred Stock shall have the
right, exercisable at any time and from time to time, except in the case of
shares of the Series E Preferred Stock called for redemption or to be
exchanged for Series E Debentures (as described in Section 7 hereof), to
convert all or any such shares of the Series E Preferred Stock into shares
of common stock, par value $.01 per share ('SSCC Common Stock'), of
Smurfit-Stone Container Corporation (formerly known as Jefferson Smurfit
Corporation), a Delaware corporation ('SSCC') (calculated as to each
conversion to the nearest 1/100th of a share) at the conversion price of
$34.28 per share of SSCC Common Stock (equivalent to a conversion rate of
.729 shares of SSCC Common Stock for each share of the Series E Preferred
Stock so converted), subject to adjustment as described below. In the case
of shares of the Series E Preferred Stock called for redemption or to be
exchanged for Series E Debentures (as described in Section 7 hereof),
conversion rights will expire at the close of business on the last business
day preceding the Series E Redemption Date or the last business day
preceding the Series E Exchange Date (as hereinafter defined), as the case
may be. Notice of an optional redemption or exchange must be mailed not
less than 30 days and not more than 60 days prior to the Series E
Redemption Date or Series E Exchange Date, as the case may be. Upon
conversion or exchange, no adjustment or payment will be made for dividends
or interest, but if any holder surrenders a share of the Series E Preferred
Stock for conversion after the close of business on the record date for the
payment of a dividend and prior to the opening of business on the next
dividend payment date, then, notwithstanding such conversion, the dividend
payable on such dividend payment date will be paid to the registered holder
of such share on such record date. In such event, such share, when
surrendered for conversion, must be accompanied by payment of an amount
equal to the dividend payable on such dividend payment date on the share so
converted.
(b) Any holder of a share or shares of the Series E Preferred Stock
electing to convert such share or shares thereof shall deliver the
certificate or certificates therefor to the principal office of any
transfer agent for the Common Stock, with the form of notice of election to
convert as the Corporation shall prescribe fully completed and duly
executed and (if so required by the Corporation or any conversion agent)
accompanied by instruments of transfer in form satisfactory to the
Corporation and to any conversion agent, duly executed by the registered
holder or his duly authorized attorney, and transfer taxes, stamps or funds
therefor or evidence of payment thereof if required pursuant to Section
6(a) or 6(d) hereof. The conversion right with respect to any such shares
shall be deemed to have been exercised at the date upon which the
certificates therefor accompanied by such duly executed notice of election
and instruments of transfer and such taxes, stamps, funds, or evidence of
payment shall have been so delivered, and the person or persons entitled to
receive the shares of SSCC Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares
of SSCC Common Stock upon said date.
(c) No fractional shares of SSCC Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series
E Preferred Stock. If more than one share of the Series E Preferred Stock
shall be surrendered for conversion at one time by the same holder, the
number of full shares of SSCC Common Stock which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate number
of shares of the Series E Preferred Stock so surrendered. Instead of any
fractional shares of SSCC Common Stock which would otherwise be issuable
upon conversion of any shares of the Series E Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction of the closing price for SSCC Common
Stock on the last business day preceding the date of conversion. The
closing price for such day shall be the last reported sales price regular
way or, in case no such reported sale takes place on such date, the
average of the reported closing bid and asked prices regular way, in
either case on the New York Stock Exchange, or if SSCC Common Stock is not
listed or admitted to trading on such Exchange, on the principal national
securities exchange on which SSCC Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, the closing sale price of SSCC Common Stock or in
case no reported sale takes place, the average of the closing bid and
asked prices, on NASDAQ or any comparable system. If SSCC Common Stock is
not quoted on NASDAQ or any comparable system, the Board of Directors of
the Corporation shall in good faith determine the current market price on
the basis of such quotation as it considers appropriate.
(d) If a holder converts a share or shares of the Series E Preferred
Stock, the Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of SSCC Common Stock upon the conversion. The
holder, however, shall pay to the Corporation the amount of any tax which
is due (or shall establish to the satisfaction of the Corporation payment
thereof) if the shares are to be issued in a name other than the name of
such holder and shall pay to the Corporation any amount required by the
last sentence of Section 6(a) hereof.
(e) The certificate of incorporation of SSCC, as amended, requires
SSCC to make available to the Corporation and to reserve and at all times
have reserved out of its authorized but unissued shares of SSCC Common
Stock enough shares of SSCC Common Stock to permit the conversion of the
then outstanding shares of the Series E Preferred Stock and to take all
action necessary so that all shares of SSCC Common Stock which may be
issued upon conversion of shares of the Series E Preferred Stock shall be
validly issued, fully paid and nonassessable. In order that the Corporation
may deliver shares of SSCC Common Stock upon conversion of shares of the
Series E Preferred Stock, the Corporation will endeavor to comply with all
applicable Federal and State securities laws and will endeavor to cause
SSCC to list such shares of SSCC Common Stock to be issued upon conversion
on each securities exchange on which SSCC Common Stock is listed.
(f) The conversion rate in effect at any time shall be subject to
adjustment from time to time as follows:
(i) In case SSCC shall (1) pay a dividend in shares of SSCC Common
Stock to holders of SSCC Common Stock, (2) make a distribution in shares
of SSCC Common Stock to holders of SSCC Common Stock, (3) subdivide the
outstanding shares of SSCC Common Stock into a greater number of shares
of SSCC Common Stock or (4) combine the outstanding shares of SSCC
Common Stock into a smaller number of shares of SSCC Common Stock, the
conversion rate immediately prior to such action shall be adjusted so
that the holder of any shares of the Series E Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of SSCC Common Stock which he would have owned immediately
following such action had such shares of the Series E Preferred Stock
been converted immediately prior thereto. An adjustment made pursuant to
this Section 6(f)(i) shall become effective immediately after the record
date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(ii) In case SSCC shall issue rights or warrants to substantially
all holders of SSCC Common Stock entitling them (for a period
commencing no earlier than the record date for the determination of
holders of SSCC Common Stock entitled to receive such rights or
warrants and expiring not more than 45 days after such record date) to
subscribe for or purchase shares of SSCC Common Stock (or securities
convertible into shares of SSCC Common Stock) at a price per share less
than the current market price (as determined pursuant to Section
6(f)(iv)) of SSCC Common Stock on such record date, the number of
shares of SSCC Common Stock into which each share of the Series E
Preferred Stock shall be convertible shall be adjusted so that the same
shall be equal to the number determined by multiplying the number of
shares of SSCC Common Stock into which such share of the Series E
Preferred Stock was convertible immediately prior to such record date
by a fraction of which the numerator shall be the number of shares of
SSCC Common Stock outstanding on such record date plus the number of
additional shares of SSCC Common Stock offered (or into which the
convertible securities so offered are convertible), and of which the
denominator shall be the number of shares of SSCC Common Stock
outstanding on such record date, plus the number of shares of SSCC
Common Stock which the aggregate offering price of the offered shares
of SSCC Common Stock (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price. Such adjustments shall become effective immediately after
such record date.
(iii) In case SSCC shall distribute to all holders of SSCC Common
Stock shares of any class of capital stock other than SSCC Common Stock,
evidences of indebtedness or other assets (other than cash dividends out
of current or retained earnings), or shall distribute to substantially
all holders of SSCC Common Stock rights or warrants to subscribe for
securities (other than those referred to in Section 6(f)(ii)), then in
each such case the number of shares of SSCC Common Stock into which each
share of the Series E Preferred Stock shall be convertible shall be
adjusted so that the same shall equal the number determined by
multiplying the number of shares of SSCC Common Stock into which such
share of the Series E Preferred Stock was convertible immediately prior
to the date of such distribution by a fraction of which the numerator
shall be the current market price (determined as provided in Section
6(f)(iv)) of SSCC Common Stock on the record date mentioned below, and
of which the denominator shall be such current market price of SSCC
Common Stock, less the then fair market value (as determined by the
Board of Directors of the Corporation, whose determination shall be
conclusive evidence of such fair market value) of the portion of the
assets so distributed or of such subscription rights or warrants
applicable to one share of SSCC Common Stock. Such adjustment shall
become effective immediately after the record date for the determination
of the holders of SSCC Common Stock entitled to receive such
distribution. Notwithstanding the foregoing, in the event that SSCC
shall distribute rights or warrants (other than those referred to in
Section 6(f)(ii)) ('Rights') pro rata to holders of SSCC Common Stock,
the Corporation may, in lieu of making any adjustment pursuant to this
Section 6(f)(iii), have SSCC make proper provision so that each holder
of a share of Series E Preferred Stock who converts such share after the
record date for such distribution and prior to the expiration or
redemption of the Rights shall be entitled to receive upon such
conversion, in addition to the shares of SSCC Common Stock issuable upon
such conversion (the 'Conversion Shares'), a number of Rights to be
determined as follows: (i) if such conversion occurs on or prior to the
date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the 'Distribution Date'), the same
number of Rights to which a holder of a number of shares of SSCC Common
Stock equal to the number of Conversion Shares is entitled at the time
of such conversion in accordance with the terms and provisions of and
applicable to the Rights; and (ii) if such conversion occurs after the
Distribution Date, the same number of Rights to which a holder of the
number of shares of SSCC Common Stock into which a share of the Series E
Preferred Stock so converted was convertible immediately prior to the
Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of and applicable to the
Rights.
(iv) The current market price per share of SSCC Common Stock on
any date shall be deemed to be the average of the daily closing prices
for thirty consecutive trading days commencing forty-five trading days
before the day in question. The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale
takes place on such date, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock
Exchange, or if SSCC Common Stock is not listed or admitted to trading
on such Exchange, on the principal national securities exchange on
which SSCC Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the
closing sale price of SSCC Common Stock, or in case no reported sale
takes place, the average of the closing bid and asked prices, on NASDAQ
or any comparable system, or if SSCC Common Stock is not quoted on
NASDAQ or any comparable system, the closing sale price or, in case no
reported sale takes place, the average of the closing bid and asked
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation
for that purpose.
(v) In any case in which this Section 6 shall require that an
adjustment be made immediately following a record date, the Corporation
may elect to defer (but only until five business days following the
mailing of the notice described in Section 6(j)) delivering to the
holder of any share of the Series E Preferred Stock converted after such
record date the shares of SSCC Common Stock and other capital stock of
SSCC deliverable upon such conversion over and above the shares of SSCC
Common Stock and other capital stock of SSCC issuable upon such
conversion only on the basis of the conversion rate prior to adjustment;
and, in lieu of the shares the delivery of which is so deferred, the
Corporation shall request that SSCC issue or cause its transfer agents
to issue due bills or other appropriate evidence of the right to receive
such shares.
(g) No adjustment in the conversion rate shall be required until
cumulative adjustments result in a concomitant change of 1% or more of the
conversion price as existed prior to the last adjustment of the conversion
rate; provided, however, that any adjustments which by reason of this
Section 6(g) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. No adjustment to the conversion rate shall
be made for cash dividends.
(h) In the event that, as a result of an adjustment made pursuant to
Section 6(f), the holder of any share of the Series E Preferred Stock
thereafter surrendered for conversion shall become entitled to receive any
shares of capital stock of SSCC other than shares of SSCC Common Stock,
thereafter the number of such other shares so receivable upon conversion of
any shares of the Series E Preferred Stock shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to SSCC Common Stock contained
in this Section 6.
(i) The Corporation may make such increases in the conversion rate, in
addition to those required by Sections 6(f)(i), (ii) and (iii), as it
considers to be advisable in order that any event treated for Federal
income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients thereof.
(j) Whenever the conversion rate is adjusted, the Corporation shall
promptly mail to all holders of record of shares of the Series E Preferred
Stock a notice of the adjustment.
(k) In the event that:
(1) SSCC takes any action which would require an adjustment in the
conversion rate,
(2) SSCC consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and stockholders
of SSCC must approve the transaction, or
(3) there is a dissolution or liquidation of SSCC,
a holder of shares of the Series E Preferred Stock may wish to
convert some or all of such shares into shares of SSCC Common Stock
prior to the record date for, or the effective date of, the transaction
so that he may receive the rights, warrants, securities or assets which
a holder of shares of SSCC Common Stock on that date may receive.
Therefore, the Corporation shall mail to holders of shares of the
Series E Preferred Stock a notice stating the proposed record or
effective date, as the case may be. The Corporation shall mail the
notice at least 10 days before such date; however, failure to mail such
notice or any defect therein shall not affect the validity of any
transaction referred to in clause (1), (2) or (3) of this Section 6(k).
(l) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of SSCC Common Stock
issuable upon conversion of shares of the Series E Preferred Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation or merger to which SSCC is a party other than a
merger in which SSCC is the continuing corporation and which does not
result in any reclassification of, or change (other than a change in name,
or par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination) in, outstanding
shares of SSCC Common Stock or (iii) any sale or conveyance of all or
substantially all of the property or business of SSCC as an entirety, then
SSCC or such successor or purchasing corporation, as the case may be, shall
as a condition precedent to such reclassification, change, consolidation,
merger, sale or conveyance, provide in its certificate of incorporation or
other charter document that each share of the Series E Preferred Stock
shall be convertible into the kind and amount of shares of capital stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of SSCC Common Stock deliverable upon
conversion of such share of the Series E Preferred Stock immediately prior
to such reclassification, change, consolidation, merger, sale or
conveyance. Such certificate of incorporation or other charter document
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The
foregoing, however, shall not in any way affect the right a holder of a
share of the Series E Preferred Stock may otherwise have, pursuant to
clause (ii) of the last sentence of Section 6(f)(iii), to receive Rights
upon conversion of a share of the Series E Preferred Stock. If, in the case
of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder
of SSCC Common Stock includes shares of capital stock or other securities
and property of a corporation other than the successor or purchasing
corporation, as the case may be, in such consolidation, merger, sale or
conveyance, then the certificate of incorporation or other charter document
of such other corporation shall contain such additional provisions to
protect the interests of the holders of shares of the Series E Preferred
Stock as the Board of Directors of the Corporation shall reasonably
consider necessary by reason of the foregoing. The provision of this
Section 6(l) shall similarly apply to successive consolidations, mergers,
sales or conveyances.
2. ARTICLE FOURTH, Section 7(b) Subpart I.B. of the Restated Certificate of
Incorporation, as amended, of Stone Container Corporation is hereby amended by
adding the following sentence as a new, penultimate sentence of Section 7(b):
Notwithstanding anything to the contrary in this Section 7, prior to
giving notice of intention to exchange, the Corporation shall amend or
supplement the Series E Indenture prior to the Series E Exchange Date in
order to conform the relevant terms thereof to read substantially similar
to the provisions of Section 6.
ANNEX E
[Merrill Lynch, Pierce, Fenner & Smith Incorporated Letterhead]
May 10, 1998
Board of Directors
Jefferson Smurfit Corporation
Jefferson Smurfit Center
8182 Maryland Avenue
St. Louis, Missouri 63105
Members of the Board of Directors:
Stone Container Corporation (the 'Company'), Jefferson Smurfit Corporation
(the 'Acquiror') and JSC Acquisition Corporation, a wholly owned subsidiary of
the Acquiror (the 'Acquisition Sub'), propose to enter into the Agreement and
Plan of Merger dated as of May 4, 1998 (the 'Agreement') pursuant to which
Acquisition Sub will be merged with and into the Company in a transaction (the
'Merger') in which each outstanding share of the Company's common stock, par
value $0.01 per share (the 'Company Shares'), will be converted into the right
to receive 0.99 shares (the 'Exchange Ratio') of the common stock of the
Acquiror, par value $0.01 per share (the 'Acquiror Shares') and each outstanding
share of Series E Cumulative Convertible Exchangeable Preferred Stock, par value
$0.01 per share, of the Company shall become convertible into the number of
shares of Acquiror Shares that its holder would have received in the Merger if
such holder had converted such preferred stock immediately prior to the Merger.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror (with respect to the Company such
financial forecasts were limited to forecasts for fiscal year 1998), as
well as the amount and timing of the cost savings and related expenses and
synergies expected to result from the Merger (the 'Expected Synergies')
furnished to us by the Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the Merger and the Expected
Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed a draft of the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We have
not been provided with financial forecasts for the Company beyond 1998 and have
relied exclusively on publicly available analysts' forecasts for the Company for
1999 and thereafter. We have further assumed that the Merger will qualify as a
tax-free reorganization for U.S. federal income tax purposes. We have also
assumed that the final form of the Agreement will be substantially similar to
the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have 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.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory and financing
services to the Acquiror and the Company and/or its affiliates and may continue
to do so and have received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the Company Shares and other securities of the Company as well as the
Acquiror Shares and other securities of the Acquiror, for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Merger and does not constitute a recommendation to
any shareholder of the Acquiror as to how such shareholder should vote on the
proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated
------------------------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
ANNEX F
[Salomon Smith Barney Letterhead]
October 8, 1998
Board of Directors
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Members of the Board of Directors:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares ('Shares') of common
stock, par value $.01 per share (the 'Company Common Stock'), of Stone Container
Corporation (the 'Company'), of the Exchange Ratio (as defined below) in
connection with the proposed merger (the 'Merger') contemplated by the Agreement
and Plan of Merger dated as of May 10, 1998, as amended prior to the date hereof
(the 'Agreement'), among the Company, Jefferson Smurfit Corporation ('JSC') and
Jefferson Smurfit Acquisition Corporation ('Acquisition Sub').
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, in the Merger, Acquisition Sub will merge with and into
the Company and each issued and outstanding Share, together with any associated
Right (as defined in the Agreement)(other than Shares held by the Company as
treasury stock and Shares owned by JSC or its wholly owned subsidiaries), will
be converted into 0.99 of a share (the 'Exchange Ratio') of common stock, par
value $.01 per share (the 'JSC Common Stock'), of JSC, and the Company will
continue as the surviving corporation, which will be a wholly owned subsidiary
of JSC.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, the Standstill Agreement
dated as of May 10, 1998, as amended prior to the date hereof, among Jefferson
Smurfit Group PLC ('JSG'), Morgan Stanley Leveraged Equity Fund II, Inc.
('MSLEF') and JSC, the Voting Agreement dated as of May 10, 1998, as amended
prior to the date hereof, among Smurfit International B.V. ('SIBV'), MSLEF and
Mr. Roger Stone, the Stock Purchase Agreement dated as of May 10, 1998 among
SIBV, JSG, MSLEF, JSC and certain other parties and the Asset Purchase
Agreement dated as of May 10, 1998 between Jefferson Smurfit Corporation
(U.S.), as buyer, and Smurfit Paperboard, Inc., as seller; (ii) certain
publicly available information concerning the Company, including the Annual
Reports on Form 10-K of the Company for each of the years in the three year
period ended December 31, 1997 and the Quarterly Reports on Form 10-Q of the
Company for the quarters ended March 31, 1998 and June 30, 1998; (iii) certain
internal information concerning the business and operations of the Company,
furnished to us by the Company for purposes of our analysis; (iv) certain
publicly available information concerning the trading of, and the trading
market for, the Company 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 us by JSC for purposes of our 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 we believe to be
comparable to the Company 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 we consider
relevant to our inquiry; (x) certain publicly available information, prepared
by third-parties, including equity research analysts, concerning the business,
operations and financial prospects of the Company and JSC and the sectors in
which they operate; and (xi) the October 2, 1998 draft of the joint proxy
statement/prospectus to be used in connection with the Merger (the "Draft Proxy
Statement"). We also have considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that we
deemed relevant. We also have met with certain officers and employees of the
Company and JSC to discuss the foregoing as well as other matters we believe
relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company or JSC, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or appraisals.
With respect to financial forecasts, we have relied on publicly available
third-party equity research forecasts, which have been approved by the
management of the Company, and we express no view with respect to such forecasts
or the assumptions on which they were based. We also have assumed that the
Merger will be consummated in a timely manner and in accordance with the terms
of the Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and JSC; (ii) the business prospects of the Company and JSC; (iii) the
historical and current market for the Company Common Stock, the JSC Common
Stock and for the equity securities of certain other companies that we believe
to be comparable to the Company or JSC; (iv) the nature and terms of certain
other merger transactions that we believe to be relevant; and (v) such other
financial information set forth in the Draft Proxy Statement that we believe to
be relevant. We have also taken into account our assessment of general
economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. We
have not been asked to consider, and our opinion does not address, the relative
merits of the Merger as compared to any alternative business strategy that
might exist for the Company. Our opinion necessarily is based upon conditions
as they exist and can be evaluated on the date hereof and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion is, in any event, limited
to the fairness, from a financial point of view, of the Exchange Ratio and does
not address the Company's underlying business decision to effect the Merger or
constitute a recommendation of the Merger to the Company or a recommendation to
any holder of Shares as to how such holder should vote with respect to the
Merger. Our opinion also does not constitute an opinion or imply any conclusion
as to the price at which JSC Common Stock will trade following the consummation
of the Merger.
As you are aware, Salomon Smith Barney Inc. (as successor to Salomon
Brothers Inc and Smith Barney Inc.) is acting as financial advisor to the
Company in connection with the Merger and will receive a fee for such services,
a substantial portion of which is contingent upon consummation of the Merger.
Additionally, Salomon Smith Barney Inc. or its predecessors or affiliates have
previously rendered certain investment banking and financial advisory services
to the Company and JSC, for which we or our predecessors or affiliates received
customary compensation. In addition, in the ordinary course of business,
Salomon Smith Barney Inc. may actively trade the securities of the Company and
JSC 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. Salomon Smith
Barney Inc. and its affiliates (including Citigroup Inc.) may have other
business relationships with the Company and JSC.
This opinion is intended for the benefit and use of the Company (including
its management and directors) in considering the transaction to which it
relates and may not be used by the Company for any other purpose or reproduced,
disseminated, quoted or referred to by the Company at any time, in any manner
or for any purpose, without the prior written consent of Salomon Smith Barney
Inc., except that this opinion may be reproduced in full in, and references to
the opinion and to Salomon Smith Barney Inc. and its relationship with the
Company (in each case in such form as Salomon Smith Barney Inc. shall approve)
may be included in, the proxy statement the Company distributes to holders of
Shares in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Shares.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
------------------------------------
SALOMON SMITH BARNEY INC.
ANNEX G
STOCK PURCHASE AGREEMENT
dated as of
May 10, 1998
among
SMURFIT INTERNATIONAL B.V., as Buyer,
JEFFERSON SMURFIT GROUP PLC, as Guarantor,
MORGAN STANLEY LEVERAGED EQUITY FUND II, INC.
and
THE OTHER SHAREHOLDERS OF
JEFFERSON SMURFIT CORPORATION PARTY HERETO,
as Sellers,
and
JEFFERSON SMURFIT CORPORATION
Relating to the purchase and sale
of
20,000,000 Shares of Common Stock
of
Jefferson Smurfit Corporation
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions........................................................................... G-1
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale..................................................................... G-2
SECTION 2.02. Purchase Price........................................................................ G-2
SECTION 2.03. Closing............................................................................... G-2
SECTION 2.04. Time and Place of Closing............................................................. G-2
SECTION 2.05. Additional Purchase Price............................................................. G-2
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF OBLIGORS
SECTION 3.01. Organization.......................................................................... G-3
SECTION 3.02. Authority............................................................................. G-3
SECTION 3.03. No Violation.......................................................................... G-3
SECTION 3.04. Securities Act Representation......................................................... G-3
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
SECTION 4.01. Title to Shares....................................................................... G-4
SECTION 4.02. Organization.......................................................................... G-4
SECTION 4.03. Authority............................................................................. G-4
SECTION 4.04. No Violation.......................................................................... G-4
SECTION 4.05. No Solicitation....................................................................... G-4
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF JSC
SECTION 5.01. Organization.......................................................................... G-5
SECTION 5.02. Authority............................................................................. G-5
SECTION 5.03. No Violation.......................................................................... G-5
ARTICLE 6
COVENANTS
SECTION 6.01. Efforts to Consummate................................................................. G-5
SECTION 6.02. Notices of Certain Events............................................................. G-5
SECTION 6.03. Public Announcements.................................................................. G-6
SECTION 6.04. Escrow Arrangements................................................................... G-6
SECTION 6.05. Ownership of Shares................................................................... G-6
ARTICLE 7
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of Buyer, JSC and Sellers................................... G-6
SECTION 7.02. Conditions to Obligation of Sellers................................................... G-6
SECTION 7.03. Conditions to Obligation of Buyer..................................................... G-7
ARTICLE 8
SURVIVAL; INDEMNIFICATION
SECTION 8.01. Survival.............................................................................. G-7
SECTION 8.02. Indemnification....................................................................... G-7
ARTICLE 9
TERMINATION
SECTION 9.01. Termination........................................................................... G-9
SECTION 9.02. Effect of Termination................................................................. G-9
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. The Guaranty, etc..................................................................... G-9
SECTION 10.02. Notices............................................................................... G-9
SECTION 10.03. Expenses.............................................................................. G-11
SECTION 10.04. Entire Agreement...................................................................... G-11
SECTION 10.05. Successors and Assigns................................................................ G-11
SECTION 10.06. Amendments and Waivers................................................................ G-12
SECTION 10.07. Agreement of Sellers.................................................................. G-12
SECTION 10.08. Stockholders' Agreement............................................................... G-12
SECTION 10.09. Governing Law......................................................................... G-12
SECTION 10.10. WAIVER OF JURY TRIAL, ETC............................................................. G-12
SECTION 10.11. Counterparts.......................................................................... G-12
SECTION 10.12. Captions.............................................................................. G-12
SECTION 10.13. Specific Performance.................................................................. G-12
SECTION 10.14. Representations, Warranties, Covenants and Agreements................................. G-13
</TABLE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of May 10, 1998 among Smurfit International B.V., a
corporation organized under the laws of the Netherlands ('Buyer'), Jefferson
Smurfit Group plc, a corporation organized under the laws of Ireland
('Guarantor'), Morgan Stanley Leveraged Equity Fund II, Inc., a Delaware
corporation ('MSLEF'), and the other Sellers listed on the signature pages
hereof (collectively, and together with MSLEF, the 'Sellers'), and Jefferson
Smurfit Corporation, a Delaware corporation ('JSC').
W I T N E S S E T H
WHEREAS, Buyer and Sellers are shareholders of JSC;
WHEREAS, JSC, a wholly owned subsidiary of JSC and Stone Container
Corporation, a Delaware corporation ('Stone'), are parties to an Agreement and
Plan of Merger dated as of the date hereof (the 'Merger Agreement'), pursuant to
which a wholly owned subsidiary of JSC will merge with and into Stone (the
'Merger'), upon the terms and subject to the conditions set forth therein; and
WHEREAS, in connection with the Merger, Sellers wish to sell to Buyer, and
Buyer wishes to purchase from Sellers, the shares of common stock, par value
$0.01 per share, of JSC (the 'Common Stock') listed on Schedule A hereto
(adjusted to give effect to any stock splits, stock dividends, recapitalizations
or similar transactions declared or occurring between the date hereof and the
closing hereunder), upon the terms and subject to the conditions hereinafter set
forth.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
'Closing Date' means the date of the Closing.
'HSR Act' means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
'1933 Act' means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
'1934 Act' means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
'Obligor' means each of Buyer and Guarantor.
'Person' means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
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TERM SECTION
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Additional Purchase Price.................................................................... 2.05(a)
Buyer Indemnified Parties.................................................................... 8.02(a)
Closing...................................................................................... 2.04
Common Stock................................................................................. Recitals
Encumbrances................................................................................. 4.01
Indemnification Claim........................................................................ 8.02(d)
Initial Purchase Price....................................................................... 2.02
Losses....................................................................................... 8.02(a)
JSC Indemnified Parties...................................................................... 8.02(a)
Post-Merger Average Market Price............................................................. 2.05(b)
Seller Indemnified Parties................................................................... 8.02(b)
Shares....................................................................................... 2.01
Stockholders' Agreement...................................................................... 4.01
Volume Weighted Prices....................................................................... 2.05(a)
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ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, at the Closing each Seller, severally and not
jointly, agrees to sell to Buyer, and Buyer agrees to purchase from each Seller,
the number of shares of Common Stock set forth opposite such Seller's name on
Schedule A to this Agreement (the 'Shares').
SECTION 2.02. Purchase Price. The purchase price to be paid by Buyer at the
Closing to each Seller for each Share to be sold and purchased hereunder (the
'Initial Purchase Price') shall be an amount equal to $25.00 plus interest
thereon from and including the date hereof to but excluding the date on which
payment is made at a rate of 6% per annum. Such interest shall accrue daily on
the basis of a year of 365 days and the actual number of days for which due, but
shall not compound. The Initial Purchase Price shall be adjusted to give effect
to any stock splits, stock dividends, recapitalizations and similar transactions
declared or occurring between the date hereof and the Closing. The Initial
Purchase Price shall be paid as provided in Section 2.03.
SECTION 2.03. Closing. At the Closing:
(a) Buyer will wire transfer to each Seller, in immediately available
funds to an account designated by such Seller by written notice to Buyer
not later than two business days prior to the Closing, the Initial Purchase
Price payable for the Shares sold by such Seller to Buyer hereunder; and
(b) Each Seller will deliver or cause to be delivered to Buyer one or
more certificates for the Shares sold by such Seller to Buyer hereunder,
duly endorsed for transfer in blank, with any required stock transfer
stamps attached.
SECTION 2.04. Time and Place of Closing. The consummation of the purchase
and sale of the Shares hereunder (the 'Closing') will take place at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York, concurrently
with the consummation of the Merger, or at such other time or place as Buyer and
MSLEF may mutually agree (it being understood that the purchase of the Shares
shall not be deemed to have occurred until the Merger has occurred).
SECTION 2.05. Additional Purchase Price. (a) If the Post-Merger Average
Market Price exceeds $28.00, the purchase price payable hereunder in respect of
each Share shall be increased by an amount equal to 25% of such excess, not to
exceed $0.50 per Share (such additional payment, the 'Additional Purchase
Price'). For purposes of the foregoing, the 'Post-Merger Average Market Price'
shall mean the arithmetic average of the 'Volume Weighted Prices.' 'Volume
Weighted Prices' shall mean, for each of the ten trading days beginning on and
including the second trading day after the Closing Date, 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. The
transaction reports of the New York Stock Exchange or The Nasdaq National
Market shall be used to calculate each Volume Weighted Price. The provisions of
this Section 2.05(a) relating to the Additional Purchase Price shall be
adjusted to give effect to any stock splits, stock dividends, recapitalizations
and similar transactions declared or occurring between the date hereof and the
payment date.
(b) The Additional Purchase Price, if any, shall be paid by Buyer to each
Seller, by wire transfer of immediately available funds to the account of such
Seller to which the Initial Purchase Price was paid, not later than two business
days after the end of the ten trading day period referred to in Section 2.05(a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF OBLIGORS
Each Obligor, severally and not jointly, represents and warrants (with
respect to itself only) to each Seller and JSC as of the date hereof and as of
the Closing Date that:
SECTION 3.01. Organization. Buyer is a corporation duly organized and
validly existing under the laws of the Netherlands. Guarantor is a corporation
duly organized and validly existing under the laws of Ireland.
SECTION 3.02. Authority. Such Obligor has all corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by such
Obligor of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of such Obligor. No other action on the part of such Obligor or its stockholders
is necessary to authorize the execution and delivery of this Agreement by such
Obligor or the performance by such Obligor of its obligations hereunder. This
Agreement has been duly executed and delivered by such Obligor and constitutes a
legal, valid and binding agreement of such Obligor, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights generally
and subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.03. No Violation. The execution and delivery of this Agreement by
such Obligor, and the performance by such Obligor of its obligations hereunder
and the consummation of the transactions contemplated hereby will not: (a)
violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to such Obligor, (b)
require the consent, waiver, approval, license or authorization or any filing by
such Obligor with any governmental authority (other than pursuant to the merger
control regulations of the European Union and a notification form filed under
the HSR Act (and the expiration or termination of the waiting period thereunder)
and any filings required under the 1934 Act) or (c) assuming compliance with the
matters referred to in clause (b), violate, result (with or without notice or
the passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter or other governing document, bylaw,
agreement, note, indenture, mortgage, contract, order, judgment, ordinance,
regulation or decree to which such Obligor is subject or by which such Obligor
is bound and which would have an adverse effect on the ability of such Obligor
to perform its obligations under this Agreement.
SECTION 3.04. Securities Act Representation. Buyer is not purchasing any
Shares with a view to a distribution or resale of any of such Shares in
violation of any applicable securities laws. Buyer understands that the Shares
constitute restricted securities, are not registered under the 1933 Act or any
state securities law, and the certificates representing the Shares will bear a
legend to that effect. Buyer agrees that it shall not sell any of such Shares in
violation of the 1933 Act. Buyer represents that it is a sophisticated investor
and is able to bear the risk of an investment in JSC.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, severally and not jointly, represents and warrants (with
respect to itself only) to each Obligor and JSC as of the date hereof and as of
the Closing Date that:
SECTION 4.01. Title to Shares. Such Seller has good and valid title to the
Shares set forth opposite such Seller's name on Schedule A to this Agreement,
free and clear of any security interests, liens, claims, pledges, encumbrances
or other rights or claims of any other person of any kind or any preemptive
rights (collectively, 'Encumbrances'), except as may exist under the
Stockholders' Agreement (the 'Stockholders' Agreement') dated as of May 3, 1994
and amended as of January 13, 1997 (which Stockholders' Agreement shall
terminate as hereinafter provided) or the related Registration Rights Agreement
dated as of the same date. At the Closing, Buyer will acquire all of such
Seller's right, title and interest in and to the Shares and will receive good
and valid title to the shares of Common Stock set forth opposite such Seller's
name on Schedule A to this Agreement, free and clear of any and all
Encumbrances.
SECTION 4.02. Organization. Such Seller is a corporation, partnership,
limited liability company or trust duly incorporated or formed, validly existing
and (other than in the case of a trust) in good standing under the laws of its
jurisdiction of its incorporation or formation.
SECTION 4.03. Authority. Such Seller has all corporate, partnership or
other power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated on its part hereby. The execution,
delivery and performance by such Seller of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate, shareholder, partnership or other action on the part of
such Seller. No other action on the part of such Seller or its stockholders or
partners, as the case may be, is necessary to authorize the execution and
delivery of this Agreement by such Seller or the performance by such Seller of
its obligations hereunder. This Agreement has been duly executed and delivered
by such Seller and constitutes a legal, valid and binding agreement of such
Seller, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 4.04. No Violation. The execution and delivery of this Agreement by
such Seller, and performance by such Seller of its obligations hereunder and the
consummation of the transactions contemplated hereby will not: (a) violate any
provision of law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to Seller, (b) require the consent, waiver,
approval, license or authorization or any filing by such Seller with any
governmental authority (other than a notification form filed under the HSR Act
(and the expiration or termination of the waiting period thereunder) and any
filings required under the 1934 Act), (c) assuming compliance with the matters
referred to in clause (b), violate, result (with or without notice or the
passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter or other governing document, bylaw,
agreement, note, indenture, mortgage, contract, order, judgment, ordinance,
regulation or decree to which such Seller is subject or by which such Seller is
bound and which would have an adverse effect on the ability of such Seller to
perform its obligations under this Agreement or (d) result in the creation or
imposition of any tax or Encumbrance on the Shares, except for transfer taxes,
if any.
SECTION 4.05. No Solicitation. No Seller, nor anyone acting on its behalf,
has taken or will take any action that would subject the sale of the Shares as
contemplated hereby to the registration provisions of the 1933 Act.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF JSC
JSC represents and warrants to each Seller and each Obligor as of the date
hereof and as of the Closing Date that:
SECTION 5.01. Organization. JSC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
SECTION 5.02. Authority. JSC has all corporate power and authority to
execute and deliver this Agreement, and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by JSC
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of JSC.
No other action on the part of JSC is necessary to authorize the execution and
delivery of this Agreement by JSC or the performance by JSC of its obligations
hereunder. This Agreement has been duly executed and delivered by JSC and
constitutes a legal, valid and binding agreement of JSC, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights generally
and subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 5.03. No Violation. The execution and delivery of this Agreement by
JSC, and performance by JSC of its obligations hereunder and the consummation of
the transactions contemplated hereby will not: (a) violate any provision of law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to JSC, (b) require the consent, waiver, approval, license or
authorization or any filing by JSC with any governmental authority (other than a
notification form filed under the HSR Act (and the expiration or termination of
the waiting period hereunder) and any filings required under the 1934 Act) or
(c) assuming compliance with the matters referred to in clause (b), violate,
result (with or without notice or the passage of time, or both) in a breach of
or give rise to the right to accelerate, terminate or cancel any obligation
under or constitute (with or without notice or the passage of time, or both) a
default under, any of the terms or provisions of any charter or other governing
document, bylaw, agreement, note, indenture, mortgage, contract, order,
judgment, ordinance, regulation or decree to which JSC is subject or by which
JSC is bound and which would have an adverse effect on the ability of JSC to
perform its obligations under this Agreement.
ARTICLE 6
COVENANTS
SECTION 6.01. Efforts to Consummate. Upon the terms and subject to the
conditions of this Agreement, each of Buyer, JSC and each Seller agrees to use
its respective best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to consummate
the transactions contemplated by this Agreement. In case at any time after the
Closing Date any further action is reasonably necessary or desirable to carry
out the purposes of this Agreement, the proper partners, officers or directors
of each party to this Agreement will take all such reasonably necessary action.
No party hereto will take any action for the purpose of delaying, impairing or
impeding the receipt of any required consent, authorization, order or approval
or the making of any required filing.
SECTION 6.02. Notices of Certain Events. Each party agrees that it will,
upon obtaining knowledge of any of the following, promptly notify the other
parties hereto of: (a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated hereby; (b) any notice or other communication
from any governmental or regulatory agency or authority in connection with the
transactions contemplated hereby; (c) any actions, suits, claims, investigations
or proceedings commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Buyer, any Seller or JSC that relates to this
Agreement or the consummation of the transactions contemplated hereby.
SECTION 6.03. Public Announcements. Except as required by law or regulation
or the rules of any stock exchange, so long as this Agreement is in effect,
Buyer and each of the Sellers hereto agrees that it will not, and Buyer and each
of the Sellers agrees to cause its respective affiliates (excluding JSC) not to,
issue or cause the publication of any press release or other announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other parties hereto, which consent will not be unreasonably withheld or
delayed.
SECTION 6.04. Escrow Arrangements. As promptly as practicable but in no
event later than fourteen (14) days after the date hereof, each Seller will
deposit one or more certificates covering the Shares to be sold by such Seller
hereunder, duly endorsed for transfer or accompanied by stock powers in blank,
to the Escrow Agent pursuant to the Escrow Agreement. The Escrow Agent shall be
Bankers Trust Company, or such other party as the Buyer and MSLEF shall agree,
and the Escrow Agreement shall be an escrow agreement in customary form which
satisfies the applicable requirements of the Employee Retirement Income Security
Act of 1974, as amended, which is reasonably satisfactory to Buyer, MSLEF and
JSC and which provides that (i) the Escrow Agent holds the Shares and any
dividend or distribution on the Shares for the benefit of the Sellers (except
that any dividends on the Shares shall be paid promptly to the Sellers); (ii)
each Seller retains all rights to vote all Shares deposited by it in escrow;
(iii) the Escrow Agent will deliver the Shares to Buyer at Closing or to the
applicable Seller if this Agreement is terminated in accordance with its terms;
and (iv) the Escrow Agreement may not be amended, waived or terminated without
the written consent of Buyer, MSLEF and JSC, which, in the case of termination,
will not be unreasonably withheld.
SECTION 6.05. Ownership of Shares. Subject to the assignment rights of
First Plaza Group Trust and Leeway & Co, in Section 10.05, each Seller shall
retain beneficial ownership of not less than the number of shares of Common
Stock set forth opposite such Seller's name on Schedule A hereto until the
Closing (Shares held in the escrow arrangement described in SECTION 6.04 being
included among Shares beneficially owned). The number of Shares to be retained
by each Seller will be adjusted to give effect to any stock splits, stock
dividends, recapitalizations and similar transactions declared or occurring
between the date hereof and the Closing. Leeway & Co. acts as nominee for State
Street Bank and Trust Company and the Trustee for the Long Term Investment
Trust.
ARTICLE 7
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of Buyer, JSC and Sellers. The
respective obligations of Buyer, JSC and the Sellers to consummate the Closing
are subject to the satisfaction or waiver by the Buyer, JSC and MSLEF of each of
the following conditions:
(a) No domestic or foreign governmental authority or other agency or
commission or state court or judicial body of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and has the effect of prohibiting consummation
of the transactions contemplated by this Agreement.
(b) Any applicable waiting period under the HSR Act shall have expired
or been terminated and any necessary approvals under similar laws of the
European Union shall have been obtained.
(c) The Merger shall be consummated in accordance with the terms of
the Merger Agreement, as the same may be amended from time to time,
concurrently with the consummation of the Closing hereunder (it being
understood that the purchase of Shares shall not be deemed to have occurred
until the Merger has occurred).
SECTION 7.02. Conditions to Obligation of Sellers. The obligation of each
Seller to consummate the Closing is subject to the satisfaction or waiver by
MSLEF of the following further condition:
(a) The representations and warranties of Buyer and JSC contained in
this Agreement shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of such date.
SECTION 7.03. Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of each of the following
further conditions:
(a) The representations and warranties of each Seller contained in
this Agreement shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of such date.
(b) Sellers shall deliver an aggregate of 20,000,000 shares of Common
Stock at the Closing (adjusted to give effect to any stock splits, stock
dividends, recapitalizations and similar transactions declared or occurring
between the date hereof and the Closing).
ARTICLE 8
SURVIVAL; INDEMNIFICATION
SECTION 8.01. Survival. The representations, warranties, covenants and
agreements of the parties contained in this Agreement shall survive the Closing
for the applicable statute of limitations period, notwithstanding any
investigation by or on behalf of any party before or after the Closing, except
that the agreements contained in clause (y) of paragraph (c) of SECTION 8.02
hereof shall survive the Closing for a period of ten months. Notwithstanding the
preceding sentence, the indemnification obligations set forth in Section 8.02
hereof shall survive the time at which they would otherwise terminate pursuant
to the preceding sentence, if notice of the events or other matters giving rise
to such right of indemnity shall have been given to the party against whom such
indemnity may be sought hereunder.
SECTION 8.02. Indemnification. (a) After the Closing Date, each Seller
agrees, severally and not jointly, to indemnify (i) each Obligor and each
officer, director, partner, shareholder or employee of each Obligor, the
officers, directors, partners and employees of each such shareholder or partner,
and the affiliates, advisors and representatives of each Obligor or any such
affiliate (collectively, the 'Buyer Indemnified Parties') and (ii) JSC and each
officer, director, partner, shareholder or employee of JSC, the officers,
directors, partners and employees of each such shareholder or partner, and the
affiliates, advisors and representatives of JSC or any such affiliate
(collectively, the 'JSC Indemnified Parties') on a reasonable periodic basis
against any and all liabilities, damages, losses, costs or expenses whatsoever,
including reasonable fees of counsel and expenses of investigation
(collectively, 'Losses'), suffered or incurred by any Buyer Indemnified Party or
JSC Indemnified Party arising out of or resulting from any breach of any
representation or warranty or non-performance of any covenant or agreement of
such Seller under this Agreement.
(b) After the Closing Date, each Obligor agrees to indemnify (i) each
Seller and each officer, director, partner, shareholder, trustee or employee of
any Seller, the officers, directors, partners and employees of each such
trustee, shareholder or partner, and the affiliates, advisors and
representatives of any Seller or any of such affiliate (the 'Seller Indemnified
Parties') and (ii) each JSC Indemnified Party on a reasonable periodic basis
against any and all Losses suffered or incurred by any Seller Indemnified Party
or JSC Indemnified Party arising out of or resulting from any breach of any
representation or warranty or non-performance of any covenant or agreement of
such Obligor under this Agreement.
(c) JSC agrees to indemnify (i) each Seller Indemnified Party and (ii)
each Buyer Indemnified Party on a reasonable periodic basis against any and all
Losses suffered or incurred by any Seller Indemnified Party or Buyer
Indemnified Party arising out of or resulting from (x) any breach of any
representation or warranty or non-performance of any covenant or agreement of
JSC under this Agreement or (y) any claim, action, suit, proceeding or
investigation based on or arising out of this Agreement, the Merger Agreement
or the transactions contemplated hereby or thereby regardless of whether any
such claim, action, suit, proceeding or investigation is asserted or commenced
prior to or after the date hereof, provided that the indemnification provided
for in this clause (y) shall not be 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 Indemnified Party (in the case of
indemnification of a Seller Indemnified Party) or a Buyer Indemnified Party (in
the case of indemnification of a Buyer Indemnified Party); (B) a Seller
Indemnified Party or Buyer Indemnified Party has indemnification obligations in
respect of such Loss in accordance with Section 8.02(a) or 8.02(b); (C) a Loss
relates to a claim between the parties to any of the Transaction Agreements (as
defined in the Merger Agreement) or the Asset Purchase Agreement (as defined in
the Merger 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.
(d) If any third party asserts a claim against any indemnified party for
which indemnification would be available under SECTION 8.02 hereof (an
'Indemnification Claim'), the indemnified party will promptly give notice of
such Indemnification Claim, describing such Indemnification Claim with
reasonable specificity, to the indemnifying party; provided that the failure to
give such notice will not affect the right of the indemnified party to
indemnification hereunder except to the extent that such failure prejudices the
ability of the indemnifying party to defend any Indemnification Claim or take
any other remedial action. The indemnifying party shall be entitled to assume
the defense of such Indemnification Claim, including the employment of counsel
(who may be the indemnifying party's counsel) reasonably satisfactory to the
indemnified party; provided that if the indemnified party reasonably determines
in good faith that its interest with respect to such Indemnification Claim
cannot appropriately be represented by the indemnifying party, such indemnified
party shall have the right to assume control of the defense of such
Indemnification Claim and retain counsel, including local counsel, separate from
indemnifying party's counsel. In addition, in the event that such indemnifying
party, within a reasonable time after notice of any such Indemnification Claim,
fails to defend any indemnified party, such indemnified party will (upon further
notice to such indemnifying party) have the right to undertake its defense of
such Indemnification Claim for the account of such indemnifying party and to
have its expenses reimbursed promptly with respect to such Indemnification
Claim. Regardless of which party is controlling the defense of any
Indemnification Claim, both the indemnifying party and the indemnified party
shall act in good faith and no settlement of such Indemnification Claim may be
agreed to without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. The controlling party shall deliver, or
cause to be delivered, to all applicable indemnified parties copies of all
correspondence, pleadings, motions, briefs, appeals or other written statement
relating to or submitted in connection with the defense of any such
Indemnification Claim, and timely notices of any hearing or other court
proceeding relating to such Indemnification Claim. No indemnifying party shall,
without the written consent of the applicable indemnified party, effect a
settlement or compromise of, or consent to the entry of any judgment with
respect to, any Indemnified Claim (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment includes an unconditional release of all applicable
indemnified parties for all liability arising out of or relating to such
Indemnified Claim and involves the payment by the indemnifying party of only
monetary damages. Notwithstanding the foregoing, in any matter no indemnifying
party shall be liable under this Agreement for the fees and expenses of more
than one counsel for the JSC Indemnified Parties, the Buyer Indemnified Parties
or the Seller Indemnified Parties, as the case may be, in addition to one local
counsel.
(e) An indemnifying party shall also be liable for and pay promptly the
fees and expenses (including the fees and expenses of counsel) incurred by an
indemnified party in enforcing its indemnification rights hereunder.
ARTICLE 9
TERMINATION
SECTION 9.01. Termination. This Agreement may be terminated at any time
prior to the Closing by mutual written agreement of JSC, Buyer and MSLEF by
written notice to the other parties hereto. This Agreement shall automatically
terminate if the Merger Agreement is terminated.
SECTION 9.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 9.01, all further obligations of the parties hereto under
this Agreement shall terminate without further liability or obligation of any
party to any other party, including liability for damages, except that (x) the
agreements contained in Section 8.02 shall survive the termination hereof with
respect to any right of indemnity thereunder if notice of the events or other
matters giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought no later than 18 months
following termination, (y) this Section 9.02 shall survive the termination
hereof and (z) no such termination shall relieve any party hereto from liability
for breach of this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. The Guaranty, etc. (a) The Guarantor hereby agrees to cause
Buyer to perform in full all of its obligations (including, without limitation,
its obligation to pay the amounts specified in Sections 2.02 and 2.05 and its
obligation to pay any amounts due pursuant to Section 8.02) pursuant to this
Agreement (as the same may hereafter be amended). The Guarantor hereby further
unconditionally guarantees the full and punctual payment of all amounts payable
by Buyer under this Agreement. Upon failure by the Buyer to pay punctually any
such amount, Guarantor shall forthwith on demand pay the amount not so paid.
(b) The obligations of the Guarantor hereunder shall be unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by any change in the corporate
existence, structure or ownership of the Buyer, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Buyer or its assets or
any resulting release, discharge or amendment of any obligation of the Buyer
contained in this Agreement.
(c) The Guarantor irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein, as well as any
requirement that at any time any action be taken by any person or entity against
the Buyer or any other person or entity.
SECTION 10.02. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Guarantor, to
Jefferson Smurfit Group plc
Beech Hill, Clonskeogh
Dublin 4, Ireland
Attention: Michael Pettigrew
Fax: 353-1-269-4481
if to Buyer, to:
Smurfit International B.V.
Strawinskylaan 2001
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services, B.V.
Fax: 31-20-546-0717
in either case, with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
William Fry
Fitzwilton House,
Wilton Place,
Dublin 2, Ireland
Attention: Houghton Fry, Esq.
Fax: 353-1-639-5333
if to Sellers, to:
Morgan Stanley Leveraged Equity Fund II, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Alan E. Goldberg
Fax: (212) 762-6466
with a copy to:
Morgan Stanley Capital Partners
1221 Avenue of the Americas
New York, New York 10020
Attention: Peter R. Vogelsang, Esq.
Fax: (212) 762-6466
and
Leeway & Co.
c/o State Street and Trust Company
1 Enterprise Drive
North Quincy, Massachusetts 02171
Attention: Kim Moynihan
Fax: (617) 537-6567
with a copy to:
J.P. Morgan Investment Management, Inc.
522 Fifth Avenue
New York, NY 10036
Attention: Eduard Beit
Fax: (212) 837-1301
Art Siler, Esq.
Ropes & Gray
One International Place
Boston, MA 02110-2624
Fax: (617) 951-7050
and
General Motors Investment
Management Corporation
767 Fifth Avenue, 16th Floor
New York, New York 10153
Attention: S. Lawrence Rusoff,
Portfolio Manager
with a copy to:
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: Laurie A. Adams,
Account Manager
Fax: (412) 236-4225
Gerald S. Backman, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Fax: (212) 310-8007
If to JSC, to:
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, MO 63105
Attention: Patrick Moore, Vice President and
Chief Financial Officer
Fax: (314) 746-1184
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: John R. Ettinger, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding business day in the place of
receipt.
SECTION 10.03. Expenses. Except as provided in the Merger Agreement, all
costs and expenses incurred in connection with the Agreement and the
transactions contemplated hereby will be paid by the party incurring such cost
or expense; provided that Buyer and all Sellers (as a group) will share equally
any transfer taxes payable in the United States in connection with the purchase
and sale of the Shares hereunder and that JSC shall pay at the Closing the fees
of legal counsel and financial advisor to Buyer and Guarantor in connection with
the transactions contemplated hereby and pursuant to the Merger Agreement as and
to the extent further provided in a letter of even date herewith.
SECTION 10.04. Entire Agreement. This Agreement (including any Schedules
and Exhibits hereto) constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter of this Agreement.
SECTION 10.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Buyer may transfer
or assign, in whole or from time to time in part, to any one or more of its
direct or indirect subsidiaries, the right to purchase all or a portion of the
Shares and First Plaza Group Trust and Leeway & Co. shall have the right to
assign this Agreement to one or more successor trustees, plans or nominees for,
or successors by reorganization of, a qualified pension plan trust holding the
Shares set forth in Schedule A hereto, but no such transfer or assignment will
relieve Buyer, First Plaza Group Trust or Leeway & Co. of its obligations
hereunder.
SECTION 10.06. Amendments and Waivers. (a) Subject to Section 10.07, any
provision of this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
Buyer, Guarantor, JSC and MSLEF, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.07. Agreement of Sellers. The Sellers (including MSLEF) agree to
be bound by any amendments, termination, waivers or other determinations made
hereunder by MSLEF; provided that no such determination shall discriminate among
the Sellers.
SECTION 10.08. Stockholders' Agreement. The Stockholders' Agreement and the
related Registration Rights Agreement shall terminate as of the Closing. Between
the date hereof and the Closing, or the termination of this Agreement if
earlier, the MS Holders (as defined in the Stockholders' Agreement) collective
ownership of Common Stock shall be deemed to remain in Tier I (as defined
therein) for purposes of the Stockholders' Agreement and JSC's By-laws,
irrespective of sales or transfers by the MS Holders during such time.
Notwithstanding the foregoing, in the event of termination of this Agreement,
the provisions of the Stockholders' Agreement (and the related Registration
Rights Agreement) shall thereafter remain in full force and effect, including
the provisions thereof that affect the rights of MS Holders as a result of sales
or transfers by the MS Holders (whether prior to or after such termination).
SECTION 10.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of the State of New York.
SECTION 10.10. WAIVER OF JURY TRIAL, ETC. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE PARTIES AGREE, SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF, AND TO WAIVE ANY OBJECTION AS TO VENUE IN, THE FEDERAL OR STATE
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF PROCESS
IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF
DELIVERED OR SENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10.02 HEREOF.
SECTION 10.11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
SECTION 10.12. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 10.13. Specific Performance. The parties hereto acknowledge that,
in view of the uniqueness of the parties hereto and the transactions
contemplated hereby, the parties hereto would not have an adequate remedy at law
for money damages in the event that this Agreement were not performed in
accordance with its terms, and therefore agree that the parties shall be
entitled to specific enforcement of the terms hereof in addition to any other
remedy to which the parties hereto may be entitled at law or in equity.
SECTION 10.14. Representations, Warranties, Covenants and Agreements.
References in representations, warranties, covenants and agreements in this
Agreement to the 'transactions contemplated by this Agreement' (and similar
references) shall not be deemed to include the Merger. The parties agree that
they are making no representations and warranties except as expressly set forth
herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SMURFIT INTERNATIONAL B.V.
By: /s/ Houghton Fry
-------------------------------------
Name: Houghton Fry
Title: Attorney-in-Fact
JEFFERSON SMURFIT GROUP PLC
By: /s/ Raymond M. Curran
-------------------------------------
Name: Raymond M. Curran
Title: Finance Director
JEFFERSON SMURFIT CORPORATION
By: /s/ Patrick J. Moore
-------------------------------------
Name: Patrick J. Moore
Title: Vice President and Chief
Financial
Officer
SELLERS: THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: MORGAN STANLEY LEVERAGED
EQUITY FUND, INC., its General
Partner
By: /s/ Alan E. Goldberg
-------------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
By: /s/ Michael M. Janson
-------------------------------------
Name: Michael M. Janson
Title: Managing Director
MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.
By: /s/ Alan E. Goldberg
-------------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
SIBV/MS EQUITY INVESTORS, L.P.
By: MORGAN STANLEY EQUITY
INVESTORS INC. (General Partner)
By: /s/ Alan E. Goldberg
-------------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
FIRST PLAZA GROUP TRUST
By: Mellon Bank, N.A., solely in its
capacity as trustee for First Plaza
Group Trust (as directed by General
Motors Investment Management
Corporation) and not in its
individual capacity
By: /s/ Bernadette A. Rist
-------------------------------------
Name: Bernadette A. Rist
Title: Authorized Signatory
LEEWAY & CO.
By: STATE STREET BANK AND TRUST
COMPANY, a Partner
By: /s/ Kimberly A. Moynihan
-------------------------------------
Name: Kimberly A. Moynihan
Title: Assistant Secretary
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
SELLERS SOLD BY SELLER
- ----------------------------------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Leveraged
Equity Fund II, Inc.................................................................... 525,960
The Morgan Stanley Leveraged
Equity Fund II, L.P.................................................................... 15,340,643
SIBV/MS Equity Investors, L.P............................................................ 113,296
First Plaza Group Trust.................................................................. 2,512,563
Leeway & Co.............................................................................. 1,507,538
--------------
Total............................................................................... 20,000,000
--------------
--------------
</TABLE>
ANNEX H
STANDSTILL AGREEMENT
Dated as of
May 10, 1998*
among
JEFFERSON SMURFIT GROUP PLC,
MORGAN STANLEY LEVERAGED EQUITY FUND II, INC.
and
JEFFERSON SMURFIT CORPORATION
- ------------
* Text of Annex H reflects Amendment No. 1 dated as of October 2, 1998 to the
Standstill Agreement, but the Standstill Agreement dated as of May 10, 1998
has not been amended and restated.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
STANDSTILL AND TRANSFER MATTERS
SECTION 1.01. Acquisitions........................................................................... H-1
SECTION 1.02. Certain Other Matters.................................................................. H-2
SECTION 1.03. Transfer Restrictions.................................................................. H-2
SECTION 1.04. Suspension; Termination................................................................ H-2
SECTION 1.05. Pulp Co. Transaction................................................................... H-3
SECTION 1.06. Effective Date of this Agreement....................................................... H-3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Organization........................................................................... H-4
SECTION 2.02. Authority.............................................................................. H-4
SECTION 2.03. No Violation........................................................................... H-4
ARTICLE 3
TERMINATION
SECTION 3.01. Termination............................................................................ H-4
SECTION 3.02. Effect of Termination.................................................................. H-4
ARTICLE 4
MISCELLANEOUS
SECTION 4.01. Notices................................................................................ H-5
SECTION 4.02. Entire Agreement....................................................................... H-6
SECTION 4.03. Successors and Assigns................................................................. H-6
SECTION 4.04. Amendments and Waivers................................................................. H-6
SECTION 4.05. Governing Law.......................................................................... H-6
SECTION 4.06. WAIVER OF JURY TRIAL, ETC.............................................................. H-6
SECTION 4.07. Counterparts........................................................................... H-6
SECTION 4.08. Captions............................................................................... H-7
SECTION 4.09. Specific Performance; Enforcement...................................................... H-7
SECTION 4.10. Certain Definitions.................................................................... H-7
</TABLE>
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT dated as of May 10, 1998** among Jefferson Smurfit
Group plc, a corporation organized under the laws of Ireland ('JSG'), Morgan
Stanley Leveraged Equity Fund II, Inc., a Delaware corporation ('MSLEF'), and
Jefferson Smurfit Corporation, a Delaware corporation ('JSC').
- ------------
** Text reflects Amendment No. 1 dated as of October 2, 1998 to the Standstill
Agreement, but the Standstill Agreement dated as of May 10, 1998 has not been
amended and restated.
WITNESSETH
WHEREAS, concurrently with the execution of this Agreement, Stone Container
Corporation, a Delaware corporation ('Stone'), and JSC are executing an
Agreement and Plan of Merger (the 'Merger Agreement'), providing for the merger
(the 'Merger') of JSC Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of JSC ('Merger Sub'), with and into Stone; and
WHEREAS, following the consummation of the Merger, MSLEF and certain
Subsidiaries (as defined below) of JSG will continue to beneficially own shares
of common stock, par value $0.01 per share ('JSC Common Stock'), of JSC; and
WHEREAS, in connection with the Merger, the parties hereto wish to enter
into this Agreement to address certain matters with respect to the shares of JSC
Common Stock beneficially owned by such Subsidiaries of JSG and by MSLEF;
The parties hereto agree as follows:
ARTICLE 1
STANDSTILL AND TRANSFER MATTERS
SECTION 1.01. Acquisitions. (a) Subject to Section 1.04, from the Effective
Date (as defined in Section 1.06) until the fifth anniversary of the Effective
Date, JSG will not, and will cause each of its Subsidiaries not to, directly or
indirectly, acquire, by purchase, gift, business combination or otherwise, any
Voting Securities such that, after giving effect to such transaction, JSG and
its Subsidiaries beneficially own Voting Securities representing more than 40%
of Total Voting Power; provided that the provisions of this Section 1.01(a)
shall not require JSG or any of its Subsidiaries to sell or otherwise dispose of
Voting Securities representing more than 40% of Total Voting Power (such Voting
Securities representing Voting Power in excess of 40% of Total Voting Power,
'Excess Voting Securities') to the extent, but only to the extent, that such
Voting Securities constitute Excess Voting Securities solely as a result of a
repurchase or other retirement of Voting Securities by JSC or any of its
Subsidiaries or solely as a result of purchases made by JSG or its Subsidiaries
during any period in which the restrictions contained in this Section 1.01(a)
were suspended pursuant to Section 1.04 (irrespective of any subsequent
reinstatement thereunder).
(b) Subject to Section 1.04, from the Effective Date until the fifth
anniversary of the Effective Date, MSLEF will not, and will cause each of its
Subsidiaries not to, directly or indirectly, acquire, by purchase, gift or
otherwise, any Voting Securities (except for shares of JSC Common Stock acquired
pursuant to a stock split, stock dividend, rights offering, recapitalization,
reclassification or similar transaction).
(c) If JSG or any of its Subsidiaries or MSLEF or any of its Subsidiaries,
as the case may be, acquires any Voting Securities in violation of this
Agreement, JSG or MSLEF or the applicable Subsidiary, as the case may be, shall,
as soon as it becomes aware of such violation, give immediate notice to JSC and
such Voting Securities shall immediately be disposed of (in accordance with the
terms of Section 1.03, in the case of any such disposition by JSG or any of its
Subsidiaries) to persons or entities who are not affiliates or associates of the
breaching party; provided that JSC may also pursue any other available remedy to
which it may be entitled as a result of such violation.
SECTION 1.02. Certain Other Matters. Subject to Section 1.04 and except as
expressly contemplated by JSC's Bylaws (as amended and restated in the manner
contemplated by the Merger Agreement, the 'Bylaws') or the Voting Agreement
dated as of the date hereof among Smurfit International B.V., MSLEF and Mr.
Roger Stone (as amended, the 'Voting Agreement') from the Effective Date until
the Article 5 Termination Date (as defined in the Bylaws) (or, in the case of
paragraph (g) of this Section 1.02, until the fifth anniversary of the Effective
Date), JSG 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
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (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 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; provided that this Section 1.02(b) shall not prohibit any such
arrangement solely among JSG and any of its Subsidiaries;
(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; provided that this Section 1.02(c) shall not prohibit any
such arrangement solely among JSG and any of 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 Board of
Directors of JSC or seek the removal of any member of the Board of
Directors of JSC;
(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 Board of Directors of JSC 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.
SECTION 1.03. Transfer Restrictions. (a) Subject to Section 1.04, from the
Effective Date until the Article 5 Termination Date, JSG 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)
more than five percent (5%) of Total Voting Power; provided that the provisions
of this Section 1.03(a) will not prohibit sales or transfers solely among JSG
and its Subsidiaries.
(b) Any sale or transfer made in violation of Section 1.03(a) shall be null
and void, and JSC shall not register any such sale or transfer in its books and
records.
SECTION 1.04. Suspension; Termination. (a) In the event that JSC enters
into a written agreement concerning an Acquisition Proposal, then the
restrictions set forth in Sections 1.01, 1.02 and 1.03 as to JSG and its
Subsidiaries shall thereupon be suspended (and during such period of suspension
be of no force and effect). If such agreement is terminated without the
consummation of the Acquisition Proposal, then such restrictions shall
thereupon 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 this Section 1.04, '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) 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 Sections 1.01, 1.02
and 1.03 as to JSG and its Subsidiaries shall thereupon 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 paragraph (c) of this Section 1.04 applicable, then such
restrictions shall thereupon 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) In the event that it is publicly announced or JSG or JSC shall become
aware (in which case it shall 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 in Sections 1.01 and 1.02 as to JSG and its Subsidiaries
shall thereupon be terminated (without reinstatement) except as set forth in the
following proviso; provided that if such Person falls within any of the
categories set forth in Rule 13d-1(b)(1)(ii) under the 1934 Act and any Schedule
13D or 13G filed under the 1934 Act with respect to such beneficial ownership
does not state any intention to or reserve the right to seek to control or
influence the management or policies of JSC or engage in any of the actions
specified in clauses (b) through (i) of Item 4 of Schedule 13D, then such
restrictions shall not be terminated, but shall be suspended effective
immediately following the 30th day following such public announcement or JSG or
JSC providing notice to the other of such an acquisition (unless during such
30-day period or at any time thereafter such Person publicly states any such
intention or reserves any such right, in which case such restrictions shall be
terminated without reinstatement (so long as, at the time of such statement of
intention or reservation of right, such Person continues to be the beneficial
owner of Voting Securities representing more than 15% of the Total Voting
Power)); and provided, further, that if, during such 30-day period or thereafter
(but prior to any termination of such restrictions) such Person divests a
sufficient number of Voting Securities so that such Person, together with such
Person's Subsidiaries, no longer beneficially owns Voting Securities
representing more than 15% of the Total Voting Power, then (if such divestiture
occurs during such 30-day period) such suspension shall not become effective or
(if such divestiture occurs thereafter) such restrictions shall be reinstated.
SECTION 1.05. Pulp Co. Transaction. In the event the Pulp Co. Transaction
(as defined in the schedules to the Merger Agreement other than as to timing) is
effected, JSG and MSLEF agree to enter into a standstill agreement for a period
to end five years after the Effective Date (or earlier as specified herein) in
substantially the form hereof with Pulp Co. (as defined in the schedules to the
Merger Agreement).
SECTION 1.06. Effective Date of this Agreement. The 'Effective Date' of
this Agreement shall be the date of consummation of the Merger.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each party represents (as to itself only) to the other parties as follows:
SECTION 2.01. Organization. Such party is a corporation duly organized,
validly existing and (in the case of JSC and MSLEF) in good standing under the
laws of its jurisdiction of incorporation.
SECTION 2.02. Authority. Such party has all power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated on
its part hereby. The execution, delivery and performance by such party of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary action (corporate, partnership or otherwise) on
the part of such party. No other action on the part of such party (or its
stockholders or partners, if applicable) is necessary to authorize the execution
and delivery of this Agreement by such party or the performance by such party of
its obligations hereunder. This Agreement has been duly executed and delivered
by such party and constitutes a legal, valid and binding agreement of such
party, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 2.03. No Violation. The execution and delivery of this Agreement by
such party, and the performance by such party of its obligations hereunder and
the consummation of the transactions contemplated hereby, will not: (a) violate
any provision of law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award applicable to such party, (b) require the
consent, waiver, approval, license or authorization or any filing by such party
with any governmental authority other than any filings required under the 1934
Act or the laws, rules or regulations of the European Union, or (c) assuming
compliance with the matters referred to in clause (b), violate, result (with or
without notice or the passage of time, or both) in a breach of or give rise to
the right to accelerate, terminate or cancel any obligation under or constitute
(with or without notice or the passage of time, or both) a default under, any of
the terms or provisions of any charter, partnership agreement or other governing
document, bylaw, agreement, note, indenture, mortgage, contract, order,
judgment, ordinance, regulation or decree to which such party is subject or by
which such party is bound and which would have an adverse effect on the ability
of such party to perform its obligations under this Agreement.
ARTICLE 3
TERMINATION
SECTION 3.01. Termination. This 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 shall be effective only if approved by a majority of (i) Disinterested
Directors with respect to MSLEF in the case of any termination of obligations
binding on MSLEF and its Subsidiaries or (ii) Disinterested Directors with
respect to JSG in the case of any termination of obligations of JSG and its
Subsidiaries. For purposes of this Section 3.01 and Section 4.04, (i)
'Disinterested Director with respect to MSLEF' shall mean a member of the JSC
Board of Directors who (x) is not the MSLEF Director (as such term is defined in
the Bylaws) and (y) would otherwise constitute an Independent Director (as such
term is defined in the Bylaws) vis-a-vis MSLEF and (ii) 'Disinterested Director
with respect to JSG' shall mean the MSLEF Director, if any, or a member of the
JSC Board of Directors who (x) is not a JSC Director (as such term is defined in
the Bylaws) and (y) would otherwise constitute an Independent Director vis-a-vis
JSG.
In addition to the foregoing, this Agreement shall terminate automatically
in the event the Merger Agreement terminates without consummation of the Merger.
SECTION 3.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 3.01, all further obligations of the party hereto whose
obligations have been terminated under this Agreement shall terminate without
further liability or obligation of such party and JSC to each other, including
liability for damages; provided that such termination shall not relieve any
party hereto from liability for breach of this Agreement.
ARTICLE 4
MISCELLANEOUS
SECTION 4.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to JSG to:
Jefferson Smurfit Group plc
Beech Hill, Clonskeagh,
Dublin 4, Ireland
Attention: Michael Pettigrew
Fax: 353-1-269-4481
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
William Fry
Fitzwilton House,
Wilton Place,
Dublin 2, Ireland
Attention: Houghton Fry, Esq.
Fax: 353-1-639-5333
if to MSLEF, to:
Morgan Stanley Leveraged Equity Fund II, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Alan E. Goldberg
Fax: (212) 762-6466
with a copy to:
Morgan Stanley Capital Partners
1221 Avenue of the Americas
New York, New York 10020
Attention: Peter R. Vogelsang, Esq.
Fax: (212) 762-6466
If to JSC, to:
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, MO 63105
Attention: Patrick J. Moore, Vice President and
Chief Financial Officer
Fax: (314) 746-1184
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: John R. Ettinger, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 4.02. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 4.03. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors (including, in the case of JSG, any holding company formed
by or on behalf of JSG to hold, directly or indirectly, a majority of the shares
of JSG) and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto.
SECTION 4.04. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed (i) in the case of an amendment or waiver of any provision binding
on MSLEF and its Subsidiaries, by MSLEF and JSC and (ii) in the case of an
amendment or waiver of any provision binding on JSG and its Subsidiaries, by JSG
and JSC; provided that any such written agreement of JSC shall be effective only
if approved by (x) a majority of Disinterested Directors with respect to MSLEF
in the case of an amendment or waiver referred to in clause (i), or (y) a
majority of Disinterested Directors with respect to JSG in the case of an
amendment or waiver referred to in clause (ii).
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 4.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of the State of New York.
SECTION 4.06. WAIVER OF JURY TRIAL, ETC. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE PARTIES AGREE, SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF, AND TO WAIVE ANY OBJECTION AS TO VENUE IN, THE FEDERAL OR STATE
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF PROCESS
IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF
DELIVERED OR SENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.01 HEREOF.
SECTION 4.07. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
SECTION 4.08. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 4.09. Specific Performance; Enforcement. (a) The parties hereto
acknowledge that, in view of the uniqueness of the parties hereto and the
transactions contemplated hereby, the parties hereto would not have an adequate
remedy at law for money damages in the event that this Agreement were not
performed in accordance with its terms, and therefore agree that the parties
shall be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which the parties hereto may be entitled at law or in equity.
(b) The Disinterested Directors as to JSG shall have the authority to
enforce this Agreement as against JSG and the Disinterested Directors as to
MSLEF shall have the authority to enforce this Agreement as against MSLEF, in
each case for and on behalf of JSC without any other action by the Board of
Directors of JSC.
SECTION 4.10. Certain Definitions. For purposes of this Agreement, (i) the
term 'beneficially own' (or any similar phrase) and the terms 'affiliates' and
'associates' shall have the respective meanings set forth in Rule 13d-3 under
the 1934 Act; (ii) the term 'Voting Securities' shall mean any securities
entitled to vote generally in the election of directors of JSC or its
successors, securities convertible or exchangeable into or exchangeable for such
securities and any rights or options to acquire any of the foregoing securities;
(iii) the term 'Voting Power' shall mean the power to vote generally in the
election of directors (or persons serving similar functions) of JSC or its
successors; (iv) the term 'Total Voting Power' shall mean the total combined
Voting Power of all Voting Securities then outstanding; (v) the term
'Subsidiary', with respect to any Person, shall mean any corporation or other
entity (a) of which a majority of the securities or other ownership interests
generally having voting power to elect a majority of the board of directors or
other individuals performing similar functions are at the time directly or
indirectly owned by such Person or (b) as to which such Person directly or
indirectly has the power to elect or designate such majority of the board of
directors or such other individuals; and (vi) the term 'Person' shall mean an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization. A Subsidiary shall not
be deemed to beneficially own securities held in a pension fund or non-profit
foundation or trust controlled by the Subsidiary.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
JEFFERSON SMURFIT GROUP PLC
By: /s/ Raymond M. Curran
-----------------------------------
Name: Raymond M. Curran
Title: Finance Director
MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.
By: /s/ Alan E. Goldberg
-----------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
JEFFERSON SMURFIT CORPORATION
By: /s/ Patrick J. Moore
-----------------------------------
Name: Patrick J. Moore
Title: Vice President and Chief
Financial Officer
ANNEX I
SMURFIT-STONE CONTAINER CORPORATION
1998 LONG TERM INCENTIVE PLAN
SECTION 1. Purpose.
The purposes of this Smurfit-Stone Container Corporation 1998 Long Term
Incentive Plan (the 'PLAN') are to promote the interest of Smurfit-Stone
Container Corporation (the 'COMPANY') and its shareholders by (i) attracting and
retaining officers, key employees or directors of the Company and its
Affiliates, (ii) motivating such employees or directors by means of
performance-related incentives to achieve longer-range performance goals, and
(iii) enabling such employees or directors to participate in the long-term
growth and financial success of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
'AFFILIATE' shall mean (i) any entity that, directly or indirectly, is
controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
'AWARD' shall mean any Option or Performance Award.
'AWARD AGREEMENT' shall mean any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
'BOARD' shall mean the Board of Directors of the Company.
'COMMITTEE' shall mean the Compensation Committee of the Board or any
one or more other committees of the Board, which in any case have been
designated by the Board to administer the Plan. In the absence of any such
delegation to the Compensation or other committee, references herein to the
Committee shall refer to the Board.
'COMMON STOCK' shall mean the Company's common stock, par value $.01
per share.
'DIRECTOR' shall mean any member of the Board.
'EMPLOYEE' shall mean (i) an officer or employee of the Company or of
any Affiliate, or (ii) an advisor or consultant to the Company or to any
Affiliate, in each case as determined by the Committee.
'EXCHANGE ACT' shall mean the U.S. Securities Exchange Act of 1934, as
amended.
'FAIR MARKET VALUE' shall mean, as of any given date and except as
otherwise expressly provided by the Committee: (i) with respect to a Share,
the closing price of a Share on the Nasdaq National Market on the last
preceding day on which a sale of shares occurred; and (ii) with respect to
any other property, the fair market value of such property as determined by
the Committee in its sole discretion.
'NON-EMPLOYEE DIRECTOR' shall mean a member of the Board who is not an
officer or employee of the Company or of any of its subsidiaries.
'OPTION' shall mean an option granted under of the Plan.
'PARTICIPANT' shall mean any Employee or Director granted an Award
under the Plan.
'PERFORMANCE AWARD' shall mean any right granted under Section 6(b) of
the Plan.
'PERSON' shall mean any individual, corporation, company, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
'RESTORATION OPTION' shall mean an Option described in Section
6(a)(iv) of the Plan.
'SHARE' shall mean one share of Common Stock.
'SUBSTITUTE AWARDS' shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company
acquired by the Company or its Affiliate, or with which the Company or its
Affiliate combines.
SECTION 3. Administration.
(a) Authority of Committee. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, in addition to
other express powers and authorizations conferred on the Committee by the Plan,
and except as otherwise limited by the Board, the Committee shall have full
power and authority to (i) designate Participants; (ii) determine the type or
types of Awards to be granted to an eligible Employee or, subject to Section
3(b), Director; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be exercised, canceled, forfeited, or suspended and the method or methods by
which Awards may be exercised, canceled, forfeited, or suspended; (vi) determine
whether, to what extent, and under what circumstances Shares, other securities,
other Awards, other property and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (vii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (viii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.
(b) Grants of Awards to Non-Employee Directors. Notwithstanding the
provisions of Section 3(a), grants of Awards to Non-Employee Directors must be
approved by the Board.
(c) Committee Discretion Binding. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations, and other decisions
under or with respect to the Plan or any Award shall be within the sole
discretion of the Committee, may be made at any time and shall be final,
conclusive, and binding upon all Persons, including the Company, any Affiliate,
any Participant, any holder or beneficiary of any Award, any Shareholder and any
Employee or, subject to Section 3(b), Director.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(b) and
(c), the number of Shares with respect to which Awards may be granted under the
Plan shall be 15,000,000. No individual may be granted in any calendar year
Awards covering more than 2,000,000 Shares.
(b) Adjustments. If, after the effective date of the Plan, any Shares
covered by an Award granted under the Plan or by an award granted under any
prior equity award plan of the Company, or to which such an Award or award
relates, are forfeited, or if such an Award or award terminates or is canceled
without the delivery of Shares, then the Shares covered by such Award or award,
or to which such Award or award relates, or the number of Shares otherwise
counted against the aggregate number of Shares with respect to which Awards may
be granted, to the extent of any such forfeiture, termination or cancellation,
shall again become Shares with respect to which Awards may be granted. In the
event that any Option or other Award granted hereunder or any award granted
under any prior equity award plan of the Company is exercised through the
delivery of Shares or in the event that withholding tax liabilities arising from
such Award or award are, with the approval of the Board, satisfied by the
withholding of Shares by the Company, the number of Shares available for Awards
under the Plan shall be increased by the number of Shares so surrendered or
withheld. Any Shares underlying Substitute Awards shall not be counted against
the Shares available for Awards under the Plan.
(c) Antidilution. In the event that the Committee determines that any
distribution (whether in the form of cash, limited company interests, other
securities, or other property), recapitalization (including, without
limitation, any subdivision or combination of limited company interests),
reorganization, consolidation, combination, repurchase, or exchange of limited
company interests or other securities of the Company, issuance of warrants or
other rights to purchase equity interests or other securities of the Company,
or other similar transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee may, in such manner as it may
deem equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Awards may be granted in aggregate and to any individual
under Section 4(a), (ii) the number of Shares or other securities of the
Company (or number and kind of other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award, or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award. Any such adjustment or arrangement may provide
for the elimination without compensation of any fractional Share which might
otherwise become subject to an Option, and shall be final and binding upon the
optionee.
SECTION 5. Eligibility.
Subject to Section 3(b), any Employee or Director shall be eligible to be
designated a Participant.
SECTION 6. Awards.
(a) Options.
(i) Grant. Subject to the provisions of the Plan, the Committee shall
(subject to Section 3(b)) have sole and complete authority to determine the
Employees and/or Directors to whom Options shall be granted, the number of
Shares to be covered by each Option, the exercise price therefor and the
conditions and limitations applicable to the vesting and exercise of the
Option.
(ii) Exercise Price. Except in the case of Substitute Awards, the
exercise price of an Option shall be not less than the Fair Market Value of
the Shares subject to the Option on the date the Option is granted.
(iii) Exercise. The Committee may impose such conditions with respect
to the exercise of Options, including without limitation, any relating to
the achievement of specified performance objectives and to the application
of federal or state securities laws, as it may deem necessary or advisable.
(iv) Restoration Options. In the event that any Participant delivers
Shares in payment of the exercise price of any Option granted hereunder in
accordance with Section 7(b), or in the event that the withholding tax
liability arising upon exercise of any Option by a Participant is satisfied
through the withholding by the Company of Shares otherwise deliverable upon
exercise of the Option, the Committee shall have the authority to grant or
provide for the automatic grant of a Restoration Option to such
Participant. The grant of a Restoration Option shall be subject to the
satisfaction of such conditions or criteria as the Committee in its sole
discretion shall establish from time to time. A Restoration Option shall
entitle the holder thereof to purchase a number of Shares equal to the
number of such Shares so delivered or withheld upon exercise of the
original Option, in the discretion of the Committee. A Restoration Option
shall have a per Share exercise price and such other terms and conditions
as the Committee in its sole discretion shall determine.
(b) Performance Awards.
(i) Grant. The Committee shall (subject to Section 3(b)) have sole
and complete authority to determine the Employees and/or Directors who
shall receive a 'Performance Award', which shall consist of a right which
is (i) denominated in Shares, (ii) valued, as determined by the Committee,
in accordance with the achievement of such performance goals during such
performance periods as the Committee shall establish, and (iii) payable at
such time and in such form as the Committee shall determine. Performance
goals established under this Section shall be expressed in terms of the
achievement by the Company or any of its operating units of specified
levels of 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 the foregoing over a specified period.
(ii) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount and
kind of any payment or transfer to be made pursuant to any Performance
Award.
(iii) Payment of Performance Awards. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
SECTION 7. General Provisions Applicable to Awards.
(a) Awards May be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan or
any award granted under any other plan of the Company or any Affiliate. Awards
granted in addition to or in tandem with other Awards or awards granted under
any other plan of the Company or any Affiliate may be granted either at the same
time as or at a different time from the grant of such other Awards or awards.
(b) Forms of Payment by Company Under Awards. Subject to the terms of the
Plan and of any applicable Award Agreement and the requirements of applicable
law, payments or transfers to be made by the Company or an Affiliate upon the
grant, exercise or payment of an Award may be made in such form or forms as the
Committee shall determine, including Shares, other securities, other Awards or
other property, or any combination thereof, and may be made in a single payment
or transfer, in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments.
(c) Limits on Transfer of Awards. Except as otherwise provided by the
Committee with respect to any Award, no Award shall be transferable by a holder
other than by will or the laws of descent and distribution.
(d) Terms of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(e) Consideration for Grants. Awards may be granted for no cash
consideration, for such nominal cash consideration as may be required by
applicable law or for such greater amount as may be established by the
Committee.
SECTION 8. Amendment and Termination.
(a) Amendments to the Plan. The Board or, if so authorized by the Board,
the Committee, may amend, alter, suspend, discontinue, or terminate the Plan or
any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without the approval of
the shareholders of the Company if such approval is necessary to comply with any
tax or regulatory requirement for which or with which the Board deems it
necessary or desirable to qualify or comply. Notwithstanding anything to the
contrary herein, the Board or, if so authorized by the Board, the Committee may
amend the Plan in such manner as may be necessary so as to have the Plan conform
with local rules and regulations in any jurisdiction outside the United States.
(b) Amendments to Awards. Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively and accelerate the
vesting and exercisability of any Award at any time in its sole discretion;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would adversely affect the
rights of any Participant or any holder or beneficiary of any Award theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(c) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
(d) Cancellation. Any provision of this Plan or any Award Agreement to the
contrary notwithstanding, the Committee may, if so authorized by the Board,
cause any Award granted hereunder to be canceled in consideration of a cash
payment or alternative Award made to the holder of such canceled Award equal in
value to the Fair Market Value of such canceled Award.
SECTION 9. Miscellaneous.
(a) No Rights to Awards. No Employee, Director, Participant or other Person
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Directors, Participants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the same
with respect to each recipient.
(b) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock market or exchange upon which such Shares or other securities are then
listed or traded, and any applicable Federal or state laws, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(c) Delegation. Subject to the terms of the Plan and applicable law, the
Committee, if so authorized by the Board, may delegate to one or more officers
or managers of the Company or any Affiliate, or to a committee of such officers
or managers, the authority, subject to the terms and limitations as the
Committee, as authorized by the Board, shall determine, to make all decisions of
a ministerial nature in connection with the operation of the Plan and Awards
thereunder.
(d) Withholding. A Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made
under any Award or under the Plan or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities, other Awards or
other property) of any applicable withholding taxes in respect of an Award, its
exercise, or any payment or transfer under an Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(e) Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and may, but need not, be
executed by the Participant and shall specify the terms and conditions of the
Award and any rules applicable thereto, including but not limited to the effect,
if any, on such Award of the death, retirement or other termination of
employment of a Participant and of a change in control of the Company.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements, including without limitation any such
arrangements that provide for the grant of options and other types of Awards
provided for hereunder (subject to approval of the shareholders of the Company
if such approval is required), and such arrangements may be either generally
applicable or applicable only in specific cases.
(g) No Right to Employment or Directorship. The grant of an Award shall
not be construed as giving a Participant the right to be retained in the employ
of the Company or any Affiliate, or to be retained as a Director. Further, the
Company or an Affiliate may at any time dismiss a Participant from service,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan, in any Award Agreement or in any other agreement between
the Company or any Affiliate and the Participant.
(h) No Rights as Shareholder. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a shareholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the internal laws of the State of Delaware.
(j) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan of the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(k) Additional Powers. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole discretion,
it determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws and any other laws to which such offer, if made, would
be subject.
(l) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(m) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Term of the Plan.
(a) Effective Date. This Plan shall be effective as of the date of its
adoption by the Board (the 'Effective Date') subject to the Plan's approval by
the shareholders of the Company.
(b) Expiration Date. No Award shall be granted under the Plan after the
tenth anniversary of the Effective Date. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may, and the authority of the Board or the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, extend beyond such date.
[JEFFERSON SMURFIT CORPORATION LOGO] [STONE CONTAINER CORPORATION LOGO]
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ............................... 'SS'
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Exculpation. Section 102(b)(7) of the Delaware Law permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision may not eliminate or limit
the liability of a director for any breach of the director's duty of loyalty
to the corporation or its stockholders, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
for the payment of unlawful dividends or unlawful stock repurchases, or for
any transaction from which the director derived an improper personal benefit.
The Old JSC Charter incorporates, and the SSCC Charter will
incorporate, the exculpation provisions permitted by Section 102(b)(7)
described above.
Indemnification. Section 145 of the Delaware Law permits a
corporation to indemnify any of its directors, officers, employees or agents
who was or is a party, or is threatened to be made a party, to any third party
proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, for expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe that such person's conduct was unlawful. In a derivative
action, i.e., one by or in the right of a corporation, the corporation is
permitted to indemnify directors, officers, employees or agents against
expenses (including attorneys' fees) actually and reasonably incurred by them
in connection with the defense or settlement of an action or suit if they
acted in good faith and in a manner that they reasonably believed to be in or
not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable
to the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that such person
is fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
The Old JSC Bylaws make mandatory, and the SSSC Bylaws will
make mandatory, the indemnification permitted by Section 145 described above.
Insurance. The directors and officers of JSC are insured under
a policy of directors' and officers' liability insurance.
Stone Directors and Officers. The Merger Agreement provides
that SSCC will (or will cause Stone to) indemnify and hold harmless, to the
same extent provided for in the Stone Charter and Stone Bylaws, current or
former directors or officers of Stone for damages and liabilities (including
reasonable attorneys' fees) arising out of or pertaining to any action or
inaction in their capacity as an officer or director occurring before the
Effective Time (including transactions contemplated by the Merger Agreement).
The Merger Agreement further provides that the indemnification obligations set
forth in the Stone Charter and Stone Bylaws as of the date thereof, will
survive the Merger and will not be amended, repealed or otherwise modified for
a period of six years after the Effective Time in a manner that would
adversely affect the rights of individuals who were directors, officers,
employees or agents of Stone or its subsidiaries on or prior to the Effective
Time.
The Merger Agreement also provides that for a period of six
years after the Effective Time, SSCC will provide to Stone's current directors
and officers liability insurance protection substantially equivalent in kind
and scope to that provided by Stone's current directors' and officers'
liability insurance policies in effect the date thereof; provided however,
SSCC will not be required to expend in any one year an amount in excess of
300% of the annual premiums currently paid by Stone for such insurance (such
amount, the "Maximum Premium"); provided, further, that if during such period
the annual premiums for comparable insurance coverage exceed the Maximum
Premium, SSCC shall be obligated to provide a policy that, in the reasonable
judgment of SSCC, provides the best coverage available for a cost not
exceeding the Maximum Premium.
Item 21. Exhibits and Financial Statement Schedules.
(a) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<S> <C> <C>
2(a) Agreement and Plan of Merger dated as of May 10, 1998, as amended,
among JSC, Stone and JSC Acquisition Corporation (included as Annex A
to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
2(b) Stock Purchase Agreement dated as of May 10, 1998 among SIBV, JSG,
MSLEF, JSC and certain other shareholders of JSC (included as Annex G
to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
2(c) Asset Purchase Agreement dated as of May 10, 1998 between JSC and
Smurfit Packaging Corporation.
3(a) Form of Restated Certificate of Incorporation of JSC (included as Annex
B to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
3(b) Form of Restated Bylaws of JSC (included as Annex C to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
4 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to JSC's Registration Statement on Form S-1 (File No. 33-75520) dated
February 18, 1994).
5 Opinion of Davis Polk & Wardwell regarding the validity of the securities
being registered.
8 Opinion of Sidley & Austin regarding certain federal income tax
consequences relating to the Merger.
10(a) Standstill Agreement dated as of May 10, 1998, as amended, among JSG,
MSLEF and JSC (included as Annex H to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
10(b) Letter Agreement dated as of May 10, 1998 between SIBV and Stone.
10(c) Letter Agreement dated as of May 10, 1998 between MSLEF and Stone.
10(d) Letter Agreement dated as of May 10, 1998 between Mr. Roger W. Stone
and JSC.
10(e) Registration Rights Agreement dated as of May 10, 1998 among MSLEF,
SIBV, JSC and the other parties identified on the signature pages thereto.
10(f) Voting Agreement dated as of May 10, 1998, as amended, among SIBV,
MSLEF and Mr. Roger W. Stone.
10(g) SSCC 1998 Long Term Incentive Plan (included as Annex I to the Joint
Proxy Statement/Prospectus contained in this Registration Statement).
10(h) Forms of Employment Security Agreements.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of PricewaterhouseCoopers LLP.
23(c) Consent of PricewaterhouseCoopers.
23(d) Consent of Davis Polk & Wardwell (included in the opinion filed as
Exhibit 5 to this Registration Statement).
23(e) Consent of Sidley & Austin (included in the opinion filed as Exhibit 8 to
this Registration Statement).
23(f) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23(g) Consent of Salomon Smith Barney Inc. (included as a part of Annex F to the
Joint Proxy Statement/Prospectus contained in this Registration Statement).
24 Power of Attorney (included as part of the signature page to this
Registration Statement).
99(a) Amendment to Restated Certificate of Incorporation of Stone (included as
Annex D-1 to the Joint Proxy Statement/Prospectus contained in this
Registration Statement).
99(b) Amendment to Restated Certificate of Incorporation of Stone (included as
Annex D-2 to the Joint Proxy Statement/Prospectus contained in this
Registration Statement).
99(c) Form of JSC Proxy Card.
99(d) Form of Stone Proxy Card.
99(e) Form of Stone Instruction Letter.
99(f) Consent of Ray M. Curran.
99(g) Consent of Dionisio Garza.
99(h) Consent of Richard A. Giesen.
99(i) Consent of Alan E. Goldberg.
99(j) Consent of Richard W. Graham.
99(k) Consent of Matthew S. Kaplan.
99(l) Consent of James J. O'Connor.
99(m) Consent of Jerry K. Pearlman.
99(n) Consent of Thomas A. Reynolds, III.
99(o) Consent of Dermot F. Smurfit.
99(p) Consent of Michael W. J. Smurfit.
99(q) Consent of Roger W. Stone.
</TABLE>
(b) Not applicable.
(c) The opinions of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney are included as
Annex E and Annex F, respectively, to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(4) To respond to requests for information that is incorporated
by reference into the Joint Proxy Statement/Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(5) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Louis, State of Missouri, on October 8, 1998.
JEFFERSON SMURFIT CORPORATION
(Registrant)
Date: October 8, 1998 By: /s/ Richard W. Graham
----------------------------
President, Chief Executive
Officer and Director
--------------
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes
and appoints Patrick J. Moore and Michael E. Tierney, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) and supplements to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and hereby grants to such
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard W. Graham President, Chief Executive Officer and October 8, 1998
- --------------------------- Director (Principal Executive Officer)
(Richard W. Graham)
/s/ Patrick J. Moore Vice President and Chief Financial Officer October 8, 1998
- ----------------------------- (Principal Financial and Accounting Officer)
(Patrick J. Moore)
/s/ Leigh J. Abramson Director October 8, 1998
- -----------------------------
(Leigh J. Abramson)
/s/ Alan E. Goldberg Director October 8, 1998
- -----------------------------
(Alan E. Goldberg)
/s/ Michael C. Hoffman Director October 8, 1998
- -----------------------------
(Michael C. Hoffman)
/s/ G. Thompson Hutton Director October 8, 1998
- -----------------------------
(G. Thompson Hutton)
/s/ Michael M. Janson Director October 8, 1998
- -----------------------------
(Michael M. Janson)
/s/ Howard E. Kilroy Director October 8, 1998
- -----------------------------
(Howard E. Kilroy)
/s/ Thomas A. Reynolds, III Director October 8, 1998
- -----------------------------
(Thomas A. Reynolds, III)
/s/ Michael W. J. Smurfit Chairman of the Board and Director October 8, 1998
- -----------------------------
(Michael W. J. Smurfit)
/s/ James E. Terrill Director October 8, 1998
- -----------------------------
(James E. Terrill)
</TABLE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<S> <C> <C>
2(a) Agreement and Plan of Merger dated as of May 10, 1998, as amended,
among JSC, Stone and JSC Acquisition Corporation (included as Annex A
to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
2(b) Stock Purchase Agreement dated as of May 10, 1998 among SIBV, JSG,
MSLEF, JSC and certain other shareholders of JSC (included as Annex G
to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
2(c) Asset Purchase Agreement dated as of May 10, 1998 between JSC and
Smurfit Packaging Corporation.
3(a) Form of Restated Certificate of Incorporation of JSC (included as Annex
B to the Joint Proxy Statement/Prospectus contained in this Registration
Statement).
3(b) Form of Restated Bylaws of JSC (included as Annex C to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
4 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 to JSC's Registration Statement on Form S-1 (File No. 33-75520) dated
February 18, 1994).
5 Opinion of Davis Polk & Wardwell regarding the validity of the securities
being registered.
8 Opinion of Sidley & Austin regarding certain federal income tax
consequences relating to the Merger.
10(a) Standstill Agreement dated as of May 10, 1998, as amended, among JSG,
MSLEF and JSC (included as Annex H to the Joint Proxy
Statement/Prospectus contained in this Registration Statement).
10(b) Letter Agreement dated as of May 10, 1998 between SIBV and Stone.
10(c) Letter Agreement dated as of May 10, 1998 between MSLEF and Stone.
10(d) Letter Agreement dated as of May 10, 1998 between Mr. Roger W. Stone
and JSC.
10(e) Registration Rights Agreement dated as of May 10, 1998 among MSLEF,
SIBV, JSC and the other parties identified on the signature pages thereto.
10(f) Voting Agreement dated as of May 10, 1998, as amended, among SIBV,
MSLEF and Mr. Roger W. Stone.
10(g) SSCC 1998 Long Term Incentive Plan (included as Annex I to the Joint
Proxy Statement/Prospectus contained in this Registration Statement).
10(h) Forms of Employment Security Agreements.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of PricewaterhouseCoopers LLP.
23(c) Consent of PricewaterhouseCoopers.
23(d) Consent of Davis Polk & Wardwell (included in the opinion filed as
Exhibit 5 to this Registration Statement).
23(e) Consent of Sidley & Austin (included in the opinion filed as Exhibit 8 to
this Registration Statement).
23(f) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23(g) Consent of Salomon Smith Barney Inc. (included as a part of Annex F to the
Joint Proxy Statement/Prospectus contained in this Registration Statement).
24 Power of Attorney (included as part of the signature page to this
Registration Statement).
99(a) Amendment to Restated Certificate of Incorporation of Stone (included as
Annex D-1 to the Joint Proxy Statement/Prospectus contained in this
Registration Statement).
99(b) Amendment to Restated Certificate of Incorporation of Stone (included as
Annex D-2 to the Joint Proxy Statement/Prospectus contained in this
Registration Statement).
99(c) Form of JSC Proxy Card.
99(d) Form of Stone Proxy Card.
99(e) Form of Stone Instruction Letter.
99(f) Consent of Ray M. Curran.
99(g) Consent of Dionisio Garza.
99(h) Consent of Richard A. Giesen.
99(i) Consent of Alan E. Goldberg.
99(j) Consent of Richard W. Graham.
99(k) Consent of Matthew S. Kaplan.
99(l) Consent of James J. O'Connor.
99(m) Consent of Jerry K. Pearlman.
99(n) Consent of Thomas A. Reynolds, III.
99(o) Consent of Dermot F. Smurfit.
99(p) Consent of Michael W. J. Smurfit.
99(q) Consent of Roger W. Stone.
</TABLE>
EXHIBIT 2(c)
ASSET PURCHASE AGREEMENT
dated as of
May 10, 1998
between
JEFFERSON SMURFIT CORPORATION (U.S.), as Buyer,
and
SMURFIT PAPERBOARD, INC., as Seller
Relating to the Purchase and Sale of the No. 2 Linerboard Machine
at the Fernandina Beach, Florida Paper Mill and Other Assets
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.....................................................1
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchased Assets................................................4
SECTION 2.02. Assumed Liabilities.............................................5
SECTION 2.03. Excluded Liabilities............................................5
SECTION 2.04. Assignments Requiring Consent...................................6
SECTION 2.05. Purchase Price..................................................6
SECTION 2.06. Closing.........................................................7
SECTION 2.07. Time and Place of Closing.......................................7
SECTION 2.08. Termination of Agreements.......................................7
SECTION 2.09. Termination of Merger Agreement.................................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 3.01. Organization....................................................8
SECTION 3.02. Authority.......................................................9
SECTION 3.03. No Violation....................................................9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 4.01. Title to Purchased Assets......................................10
SECTION 4.02. Organization...................................................10
SECTION 4.03. Authority......................................................10
SECTION 4.04. No Violation...................................................10
ARTICLE 5
COVENANTS OF BUYER AND SELLER
SECTION 5.01. Efforts to Consummate..........................................11
SECTION 5.02. Consents.......................................................11
SECTION 5.03. Conduct of Seller's Business...................................11
SECTION 5.04. Antitrust......................................................12
SECTION 5.05. Notices of Certain Events......................................12
SECTION 5.06. Public Announcements...........................................12
SECTION 5.07. Insurance......................................................12
SECTION 5.08. Information....................................................13
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of Buyer and Seller..................13
SECTION 6.02. Conditions to Obligation of Seller.............................14
SECTION 6.03. Conditions to Obligation of Buyer..............................14
ARTICLE 7
SURVIVAL; INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties.....................14
SECTION 7.02. Indemnification................................................15
ARTICLE 8
TERMINATION
SECTION 8.01. Termination....................................................16
SECTION 8.02. Effect of Termination..........................................16
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices........................................................17
SECTION 9.02. Expenses.......................................................18
SECTION 9.03. Entire Agreement...............................................18
SECTION 9.04. Successors and Assigns.........................................18
SECTION 9.05. Amendments and Waivers.........................................19
SECTION 9.06. Third Party Beneficiaries......................................19
SECTION 9.07. Governing Law..................................................19
SECTION 9.08. WAIVER OF JURY TRIAL, ETC......................................19
SECTION 9.09. Counterparts...................................................19
SECTION 9.10. Captions.......................................................20
SECTION 9.11. Specific Performance...........................................20
SECTION 9.12. Representations, Warranties, Covenants and Agreements..........20
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of May 10, 1998 between Jefferson Smurfit
Corporation (U.S.), a Delaware corporation ("Buyer"), and Smurfit Paperboard,
Inc., a Delaware Corporation ("Seller").
W I T N E S S E T H
WHEREAS, Buyer is a wholly owned Subsidiary of Jefferson Smurfit
Corporation, a Delaware corporation ("JSC"); and
WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase
from Seller, the No. 2 linerboard machine that on the date hereof is located at
JSC's Fernandina Beach, Florida paper mill (the "Fernandina Mill") and the other
Purchased Assets (as defined herein);
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such other Person; provided that, for purposes of this Agreement, JSC and its
Subsidiaries shall not be considered Affiliates of Seller.
"Applicable Law" means any domestic or foreign, federal, state or local
statute, law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, directive, judgment, decree or other requirement of any
Governmental Authority.
"Closing Date" means the date of the Closing.
"Collateral Trustee" means Bankers Trust Company, as collateral
trustee.
"Collateral Trustee Lien" means the Liens granted by Buyer or Seller to
the Collateral Trustee in the Purchased Assets to secure the obligations under
the Credit Agreement dated as of May 17, 1996 among JSC, JSCE, Inc., Buyer and
the banks party thereto and related agreements.
"Contracts" means all contracts, agreements, leases, licenses,
commitments, purchase and sales orders and other instruments of any kind,
whether written or oral (including, in each case, deposits relating thereto),
other than any contracts, agreements or other arrangements or instruments of any
kind relating to any Tax or Indebtedness.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or elf-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means any liability or obligation in respect of (i) any
indebtedness for borrowed money or for the deferred purchase price of property
or services or which is evidenced by a note, bond, debenture or similar
instrument; (ii) any accounts payable for goods and services, (iii) any capital
lease; (iv) any obligation (whether fixed or contingent) to reimburse a bank or
other Person in respect of amounts paid or payable under a letter of credit,
performance bond or similar agreement or arrangement, or (v) any guarantee.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest or encumbrance in respect of such
property or asset.
"Permitted Liens" means (i) the Collateral Trustee Lien and (ii)
mechanics', materialsman's, carrier's, repairer's and other similar Liens
arising or incurred in the ordinary course of business that are not yet due and
payable or are being contested in good faith.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Tax" means (i) all taxes or other levies imposed by any Governmental
Authority, domestic or foreign (a "Taxing Authority") including, without
limitation, any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, license, registration, recording, documentary, conveyancing, gains,
withholding on amounts paid to or by Seller, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom duty or other tax or other like assessment, together with any
interest, penalty, addition to tax or additional amount imposed by any Taxing
Authority, or (ii) liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group or being a party to any agreement under which
liability is determined or taken account with reference to the liability of any
other Person; or (iii) liability for the payment of any amounts of the type
described in (i) as a result of any express or implied obligation to indemnify
any other Person or as a result of being party to any other arrangement or
agreement.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
- ------- ----------
Assumed Liabilities 2.02
Buyer Indemnified Parties 7.02(a)
Closing 2.07
Excluded Liabilities 2.03
Indemnification Claim 7.02(c)
Losses 7.02(a)
Merger Agreement 2.09
No. 2 Machine 2.01(a)
Operating Agreement 2.08(a)
Purchased Assets 2.01
Purchase Price 2.05
Rescission Notice 2.09
Rights Agreement 2.08(a)
Seller Indemnified Parties 7.02(b)
SPI Assets 2.01(b)
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchased Assets. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase from Seller and Seller
agrees to sell, convey, transfer, assign and deliver, or cause to be sold,
conveyed, transferred, assigned and delivered, at the Closing to Buyer, free and
clear of all Liens other than the Collateral Trustee Lien, all of Seller's
right, title and interest in, to and under the following assets, properties and
rights as the same shall exist on the Closing Date (collectively, the "Purchased
Assets"):
(a) the No. 2 linerboard machine and related structures, equipment and
other property located at the Fernandina Mill as described on Schedule A to this
Agreement1 (such machine and other property, as now configured and as altered or
supplemented from time to time, "Machine No. 2");
(b) the additions or enhancements to a certain pulp washer and digester
located at the Fernandina Mill, which additions or enhancements are described on
Schedule B to this Agreement,2 as now configured and as altered or supplemented
from time to time (collectively with Machine No. 2, the "SPI Assets");
- --------
1 To be conformed to Schedule B to the Rights Agreement.
2 To be conformed to Schedule C to the Rights Agreement.
(c) to the extent primarily used or held for use, sale or consumption
in connection with, or arising from or otherwise directly related to, the SPI
Assets, the Fernandina Mill or any products that are, in whole or in part,
manufactured at the Fernandina Mill:
(i) all machinery, equipment, fixtures, spare and replacement
parts, operating supplies and similar personal property;
(ii) all Contracts, if any;
(iii) all raw materials, work in progress, finished goods,
supplies, rolls and storeroom contents, fuel and other inventories;
(iv) all domestic and foreign inventions, trademarks, service
marks, trade names, mask works, patents, trade secrets, copyrights,
know-how (including any registrations or applications for registration
of any of the foregoing), and any other similar type of intellectual
property right;
(v) all transferable licenses, permits or other governmental
authorizations;
(vi) all software, communications equipment, computer applications
and operating programs;
(vii) all books, records, files and papers, whether in hard copy or
computer format, including without limitation engineering information,
sales and promotional literature, manuals and data, sales and purchase
correspondence, lists of present and former suppliers, lists of present
and former customers, design and engineering specifications, production
standards and practices; and
(viii) all other tangible or intangible personal property and other
interests owned by Seller or any of its Affiliates;
(ix) all of Seller's rights, claims, counterclaims, crossclaims,
credits, causes or action or rights of set-off against third parties
relating to the Purchased Assets or Assumed Liabilities, including
without limitation unliquidated rights under manufacturers' and
vendors' warranties; and
(d) all goodwill associated with the Purchased Assets.
SECTION 2.02. Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees, effective at the time of the
Closing, to assume and to pay, perform and discharge all Assumed Liabilities. As
used herein, the term "Assumed Liabilities" means all liabilities and
obligations of Seller (whether absolute or contingent, foreseen or unforeseen,
or known or unknown and whether or not arising before or after the Closing) to
the extent arising primarily from, primarily related to or incurred primarily in
connection with the operation or use of the Purchased Assets or any portion
thereof prior to the Closing Date, including without limitation all liabilities
and obligations of Seller arising under any Contracts (other than Contracts
entered into or made in violation of this Agreement); provided that in no event
will the Assumed Liabilities include any Excluded Liabilities.
SECTION 2.03. Excluded Liabilities. Notwithstanding any provision in
this Agreement or any other writing to the contrary, Buyer is assuming only the
Assumed Liabilities and is not assuming any other liability or obligation of
Seller or any of its Affiliates of whatever nature, whether presently in
existence or arising hereafter. All such other liabilities and obligations shall
be retained by and remain obligations and liabilities of Seller (all such
liabilities and obligations not being assumed being herein referred to as the
"Excluded Liabilities"). Without limiting the effect of the foregoing and
notwithstanding anything to the contrary in this Agreement or any other writing,
all of the following shall be Excluded Liabilities:
(a) any Indebtedness of Seller or any of its Affiliates;
(b) any liability or obligation of Seller or any of its Affiliates for
any Taxes; provided that any transfer taxes incurred in connection with the
transactions contemplated by this Agreement shall be paid in the manner set
forth in Section 9.02 hereof;
(c) any liability or obligation of Seller or any of its Affiliates
relating to employee compensation, employee benefits or similar matters;
(d) any liability or obligation whether presently existing or
hereafter arising relating to fees, commissions or expenses owed to any broker,
finder, investment banker, accountant, attorney or other intermediary or advisor
employed by Seller or any of its Affiliates in connection with the transactions
contemplated by this Agreement; and
(e) any liability or obligation of Seller or any of its Affiliates to
Buyer, JSC or any of their respective Affiliates, including without limitation
the liabilities and obligations of Seller to Buyer under the Operating
Agreement.
SECTION 2.04. Assignments Requiring Consent. Anything in this Agreement
to the contrary notwithstanding, this Agreement shall not constitute an
agreement to assign any Purchased Asset or any right thereunder if an attempted
assignment, without the consent of a third party, would constitute a breach or
in any way adversely affect the rights of Buyer or Seller thereunder. If such
consent is not obtained, Seller and Buyer will cooperate in a mutually agreeable
arrangement under which Buyer would obtain the benefits of, and assume the
obligations under, the relevant Purchased Asset in accordance with this
Agreement. To the extent that Buyer and Seller have not been able to enter into
such an alternative arrangement, the Purchase Price shall be appropriately
reduced.
SECTION 2.05. Purchase Price. The purchase price to be paid by Buyer at
the Closing to Seller for the Purchased Assets (the "Purchase Price") is
$175,000,000. The Purchase Price will be paid as provided in Section 2.06.
SECTION 2.06. Closing. At the Closing:
(a) Buyer will issue a promissory note to Seller in the form of
Exhibit A hereto with a face amount equal to the Purchase Price (the "Promissory
Note") unless the Closing shall occur following consummation of the Merger
between a wholly owned Subsidiary of JSC and Stone Container Corporation, a
Delaware corporation ("Stone"), in which case the Buyer will wire transfer the
Purchase Price to Seller in immediately available funds to an account designated
by Seller by written notice to Buyer not later than two business days prior to
the Closing; and
(b) Seller will enter into an Assignment and Assumption Agreement
substantially in the form attached hereto as Exhibit B and, subject to the
provisions hereof, Seller will deliver to Buyer such bills of sale,
endorsements, consents, assignments and other good and sufficient instruments of
conveyance and assignment as the parties and their respective counsel shall deem
reasonably necessary to vest in Buyer all right, title and interest in, to and
under the Purchased Assets.
SECTION 2.07. Time and Place of Closing. The consummation of the
purchase and sale of the Purchased Assets hereunder (the "Closing") will take
place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York, on January 15, 1999, subject to the satisfaction or waiver (by the
relevant party) of the conditions set forth in Article 6 or at such other time
or place as Buyer and Seller may agree.
SECTION 2.08. Termination of Agreements. (a) Subject to Sections
2.08(c) and 2.09, Buyer and Seller hereby agree to terminate, effective as of
the Closing Date, the Operating Agreement dated as of April 30, 1992, as amended
(the "Operating Agreement"), between Buyer and Seller, the Rights Agreement
dated as of April 30, 1992 (the "Rights Agreement") among Buyer, Seller and
Bankers Trust Company, as Collateral Trustee, and any other agreements between
Buyer and Seller relating to Machine No. 2 or any other Purchased Assets (other
than this Agreement or any other agreements entered into on or after the date
hereof).
(b) Any amounts payable by Buyer or Seller pursuant to Article II of
the Operating Agreement for any period ending on or prior to the Closing Date
will be reconciled and paid in accordance with past practice.
(c) Notwithstanding termination of the Operating Agreement and Rights
Agreement, the rights and obligations of Buyer and Seller under Article VII of
the Operating Agreement (Exculpation and Indemnification), to the extent arising
out of events occurring prior to the Closing Date, shall survive such
termination.
(d) Seller agrees that notwithstanding Section 8.5 of the Rights
Agreement, all of Seller's rights under the Rights Agreement shall be released
and waived, effective as of the Closing Date. Seller agrees that if requested by
the Collateral Trustee, Seller will deliver a certificate or other instrument to
the Collateral Trustee and Buyer in accordance with Section 8.4 of the Rights
Agreement.
SECTION 2.09. Termination of Merger Agreement. In the event that the
Agreement and Plan of Merger dated as of the date hereof (the "Merger
Agreement") among JSC, a wholly-owned Subsidiary of JSC and Stone is terminated
prior to the consummation of the merger contemplated thereby, Buyer shall be
entitled, by delivery of a written notice (a "Rescission Notice") to such effect
to Seller within 30 business days of the termination of the Merger Agreement, to
terminate this Agreement in the event this Agreement has not previously been
consummated or to rescind the transactions contemplated hereby, in which case
(i) the Purchased Assets shall be reconveyed to Seller, (ii) Seller shall
reassume all Assumed Liabilities, (iii) the Operating Agreement and Rights
Agreement shall be reinstated, (iv) Buyer's obligations under the Promissory
Note shall be extinguished, (v) this Agreement (other than the provisions of
this Section 2.09, Section 8.02 and Article 9) shall terminate and (vi) Buyer
and Seller shall enter into all agreements and arrangements necessary or
appropriate to implement the transactions contemplated by this Section 2.09. Any
decision as to whether Buyer should deliver a Rescission Notice shall be made
exclusively by the Board of Directors of JSC (on behalf of Buyer) other than any
members of the Board of Directors selected by Smurfit International B.V.
("SIBV") pursuant to the Stockholders Agreement dated as of May 3, 1994 among
SIBV, Jefferson Smurfit Corporation and various other parties.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as of
the Closing Date that:
SECTION 3.01. Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware.
SECTION 3.02. Authority. Buyer has all corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Buyer. No other action on the part of Buyer is necessary to authorize the
execution and delivery of this Agreement by Buyer or the performance by Buyer of
its obligations hereunder. This Agreement has been duly executed and delivered
by Buyer and constitutes a legal, valid and binding agreement of Buyer,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). When issued and delivered in accordance with the terms of
this Agreement, the Promissory Note will have been duly issued and delivered by
Buyer and will constitute a legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 3.03. No Violation. The execution and delivery of this
Agreement by Buyer, and performance by Buyer of its obligations hereunder and
the consummation of the transactions contemplated hereby will not: (a) violate
any provision of law, rule, regulation, order, writ, judgment, injunction,
decree, determination or aware applicable to Buyer, (b) require the consent,
waiver, approval, license or authorization or any filing by Buyer with any
Governmental Authority (other than a notification form filed under the HSR Act
and such consents, waivers, approvals, licenses and authorizations and filings
as are set forth on Schedule 3.03 hereto) or (c) assuming compliance with the
matters referred to in clause (b) (and except as otherwise set forth on Schedule
3.03 hereto), violate, result (with or without notice or the passage of time, or
both) in a breach of or give rise to the right to accelerate, terminate or
cancel any obligation under or constitute (with or without notice or the passage
of time, or both) a default under, any of the terms or provisions of any charter
or other governing document, bylaw, agreement, note, indenture, mortgage,
contract, order, judgment, ordinance, regulation or decree to which Buyer is
subject or by which Buyer is bound and which would have an adverse effect on the
ability of Seller to perform its obligations under this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as of
the Closing Date that:
SECTION 4.01. Title to Purchased Assets. Seller has good and marketable
title to all Purchased Assets, free and clear of all Liens other than Permitted
Liens. At the Closing, Buyer will acquire all of Seller's right, title and
interest in and to the Purchased Assets, free and clear of any and all Liens
other than the Collateral Trustee Lien.
SECTION 4.02. Organization. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware.
SECTION 4.03. Authority. Seller has all corporate power and authority
to execute and deliver this Agreement, and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by
Seller of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Seller. No other action on the part of Seller is necessary to authorize the
execution and delivery of this Agreement by Seller or the performance by Seller
of its obligations hereunder. This Agreement has been duly executed and
delivered by Seller and constitutes a legal, valid and binding agreement of
Seller, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 4.04. No Violation. The execution and delivery of this
Agreement by Seller, and performance by Seller of its obligations hereunder and
the consummation of the transactions contemplated hereby will not: (a) violate
any provision of law, rule, regulation, order, writ, judgment, injunction,
decree, determination or aware applicable to Seller, (b) require the consent,
waiver, approval, license or authorization or any filing by Seller with any
Governmental Authority (other than a notification form filed under the HSR Act
and such consents, waivers, approvals, licenses and authorizations and filings
as are set forth on Schedule 4.04 hereto), (c) assuming compliance with the
matters referred to in clause (b), violate, result (with or without notice or
the passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter or other governing document, bylaw,
agreement, note, indenture, mortgage, contract, order, judgment, ordinance,
regulation or decree to which Seller is subject or by which Seller is bound and
which would have an adverse effect on the ability of Seller to perform its
obligations under this Agreement or (d) result in the creation or imposition of
any Tax or Lien on any Purchased Assets, except for transfer taxes, if any.
ARTICLE 5
COVENANTS OF BUYER AND SELLER
SECTION 5.01. Efforts to Consummate. Upon the terms and subject to the
conditions of this Agreement, each of Buyer and Seller agrees to use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and the other transactions contemplated hereby.
In case at any time after the Closing Date any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement, the proper
partners, officers or directors of each party to this Agreement will take all
such reasonably necessary action. No party hereto will take any action for the
purpose of delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing.
SECTION 5.02. Consents. Each of Buyer and Seller agrees to use its best
efforts to obtain or to cause to be obtained all necessary and material waivers,
consents and approvals of all Persons (including, without limitation,
Governmental Authorities) necessary to consummate the transactions contemplated
by this Agreement.
SECTION 5.03. Conduct of Seller's Business. (a) From the date of this
Agreement until the Closing Date, Seller agrees that it will (and will cause its
Affiliates to) (i) conduct the portion of its (or their) business relating to or
affecting the Purchased Assets in the ordinary course consistent with past
practices; (ii) not sell, lease, offer to sell or lease, pledge, encumber or
otherwise dispose of or transfer any interest in or create or suffer to exist
any Lien on any of the Purchased Assets other than Permitted Liens; (iii) not
amend or otherwise modify any Contract without the prior written consent of
Buyer; or (iv) enter into any contract, agreement or commitment with respect to
any of the foregoing.
(b) Without limiting the effect of the foregoing, Seller agrees that
if its consent is required under the Operating Agreement at any time after the
date hereof, its consent will not be unreasonably withheld, delayed or
conditioned. Seller agrees to use the same standards for determining whether to
give any such consent as it used prior to the date hereof.
SECTION 5.04. Antitrust. Each of Buyer and Seller agrees to use its
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary or required by the United Stated Federal Trade
Commission or the United States Department of Justice in connection with the
expiration or termination of the waiting period under the HSR Act as a result of
the transactions contemplated by this Agreement.
SECTION 5.05. Notices of Certain Events. Each of Buyer and Seller
agrees that it will, upon obtaining knowledge of any of the following, promptly
notify the other parties hereto of: (a) any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated hereby; (b) any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated hereby; (c) any actions, suits, claims, investigations
or proceedings commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Buyer, Seller or JSC that relates to this
Agreement or the consummation of the transactions contemplated hereby.
SECTION 5.06. Public Announcements. Except as required by law or
regulation or the rules of any stock exchange, so long as this Agreement is in
effect, each of Buyer and Seller agrees that it will not, and each of Buyer and
Seller agrees to cause its Affiliates not to, issue or cause the publication of
any press release or other announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party hereto and
JSC, which consent will not be unreasonably withheld or delayed.
SECTION 5.07. Insurance. (a) From and after the date of this Agreement
(including after the Closing Date), Seller will (and will cause its Affiliates)
not take or fail to take any action if such action or inaction, as the case may
be, would adversely affect the applicability of any insurance in effect on the
date of this Agreement that covers all or any part of the Purchased Assets or
Assumed Liabilities with respect to events occurring prior to the Closing
("Applicable Insurance").
(b) Seller agrees that, from and after the Closing Date, all
Applicable Insurance directly or indirectly applicable to any Purchased Asset or
Assumed Liability will be for the benefit of Buyer. Without limiting the
generality of the foregoing, from and after the Closing Date and in any manner
requested by Buyer, Seller will use its best efforts to ensure that all
Applicable Insurance policies and arrangements are modified, amended or assigned
so that Buyer is the direct beneficiary of such Applicable Insurance with all
rights to enforce, obtain the benefit of and take all other action in respect of
such Applicable Insurance; provided that, if the modifications, amendments or
assignments contemplated by this Section 5.07(b) are not permissible, Seller
will enter into such other arrangements as Buyer may request to ensure that
Buyer is entitled to the benefit (to the fullest extent set forth in the
relevant policies and arrangements) of any Applicable Insurance.
SECTION 5.08. Information. (a) Except as may be deemed appropriate to
ensure compliance with any Applicable Laws and subject to any applicable
privileges (including, without limitation, the attorney-client privilege), from
and after the Closing, Seller will (and will cause its Affiliates to) afford
promptly to Buyer and its representatives reasonable access to the books and
records of Seller and its Affiliates during normal business hours and upon
reasonable prior notice to the extent reasonably necessary to permit Buyer to
determine any matter relating to any of the Purchased Assets or Buyer's rights
and obligations under this Agreement; provided that any such access by Buyer or
its representatives shall not unreasonably interfere with the conduct of the
business of Seller or any of its Affiliates.
(b) Except as may be deemed appropriate to ensure compliance with any
Applicable Laws and subject to any applicable privileges (including, without
limitation, the attorney-client privilege), from and after the Closing, Buyer
will (and will cause its Affiliates to) afford promptly to Seller and its
representatives reasonable access to the books and records of Buyer and its
Affiliates during normal business hours and upon reasonable prior notice to the
extent reasonably necessary to permit Seller to determine any matter relating to
its rights and obligations under this Agreement; provided that any such access
by Seller or its representative shall not unreasonably interfere with the
conduct of Buyer or any of its Affiliates.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.01. Conditions to Obligations of Buyer and Seller. The
respective obligations of Buyer and Seller to consummate the Closing are subject
to the satisfaction or waiver by the Buyer and Seller of each of the following
conditions:
(a) No governmental authority or other agency or commission or court or
judicial body of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and has the
effect of prohibiting consummation of the transactions contemplated by this
Agreement.
(b) Any applicable waiting period under the HSR Act shall have expired
or been terminated.
(c) Buyer shall have received the consents, waivers, approvals,
licenses and authorizations and filings set forth on Schedule 3.03 hereto, if
and to the extent necessary to prevent a breach of the debt instruments referred
to thereon.
SECTION 6.02. Conditions to Obligation of Seller. The obligation of
Seller to consummate the Closing is subject to the satisfaction of the following
further condition:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
SECTION 6.03. Conditions to Obligation of Buyer. The obligation of
Buyer to consummate the Closing is subject to the satisfaction of each of the
following further conditions:
(a) Seller shall have performed in all material respects its
obligations under this Agreement required to be performed by it on or prior to
the Closing Date pursuant to the terms hereof.
(b) The representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of such date.
ARTICLE 7
SURVIVAL; INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of the parties contained
in this Agreement will survive the Closing.
SECTION 7.02. Indemnification. (a) Seller hereby indemnifies Buyer and
each of its Affiliates and each officer, director, partner, shareholder,
employee, advisor or representative of Buyer or any of its Affiliates
(collectively, the "Buyer Indemnified Parties") against any and all liabilities,
damages, losses, costs or expenses whatsoever, including reasonable fees of
counsel and expenses of investigation (collectively, "Losses"), incurred or
suffered by any Buyer Indemnified Party arising out of or resulting from:
(i) any misrepresentation or breach of any warranty, covenant or
agreement made or to be performed by Seller pursuant to this Agreement;
(ii) any Excluded Liability; or
(iii) the enforcement of their rights under this Section 7.02.
(b) Buyer hereby indemnifies Seller and each of its Affiliates and each
officer, director, partner, shareholder, employee advisor or representative of
Seller or any of its Affiliates (collectively, the "Seller Indemnified Parties")
against any and all Losses incurred or suffered by any Seller Indemnified Party
arising out of or resulting from:
(i) any misrepresentation or breach of any warranty, covenant or
agreement made or to be performed by Buyer pursuant to this Agreement;
(ii) any Assumed Liability; or
(iii) the enforcement of their rights under this Section 7.02.
(c) If any third party asserts a claim against any indemnified party
for which indemnification would be available under Section 7.02 hereof (an
"Indemnification Claim"), the indemnified party will promptly give notice of
such Indemnification Claim, describing such Indemnification Claim with
reasonable specificity, to the indemnifying party; provided that the failure to
give such notice will not affect the right of the indemnified party to
indemnification hereunder except to the extent that such failure prejudices the
ability of the indemnifying party to defend any Indemnification Claim or take
any other remedial action. The indemnifying party shall be entitled to assume
the defense of such Indemnification Claim, including the employment of counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party reasonably determines in good faith that its interest with
respect to such Indemnification Claim cannot appropriately be represented by the
indemnifying party, such indemnified party shall have the right to assume
control of the defense of such Indemnification Claim. In addition, in the event
that such indemnifying party, within a reasonable time after notice of any such
Indemnification Claim, fails to defend any indemnified party, such indemnified
party will (upon further notice to such indemnifying party) have the right to
undertake its defense of such Indemnification Claim for the account of such
indemnifying party and to have its expenses reimbursed promptly with respect to
such Indemnification Claim. Regardless of which party in controlling the defense
of any Indemnification Claim, both the indemnifying party and the indemnified
party shall act in good faith and no settlement of such Indemnification Claim
may be agreed to without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. The controlling party shall deliver,
or cause to be delivered to the other party copies of all correspondence,
pleadings, motions, briefs, appeals or other written statement relating to or
submitted in connection with the defense of any such Indemnification Claim, and
timely notices of any hearing or other court proceeding relating to such
Indemnification Claim. No indemnifying party shall, without the written consent
of the applicable indemnified party, effect a settlement or compromise of, or
consent to the entry of any judgment with respect to, any Indemnified Claim
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment includes an
unconditional release of all applicable indemnified parties for all liability
arising out of or relating to such Indemnified Claim. Notwithstanding the
foregoing, in any matter the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all indemnified parties under this
Agreement in addition to one local counsel.
ARTICLE 8
TERMINATION
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Closing by written notice to the other parties hereto, as follows,
and in no other manner:
(a) by mutual written agreement of Buyer and Seller; and
(b) subject to Section 2.09, by Buyer or Seller if the Merger Agreement
is terminated;
SECTION 8.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 8.01, all further obligations of the parties hereto under
this Agreement shall terminate without further liability or obligation of any
party to any other party, including liability for damages; provided that (i)
such termination shall not relieve any party hereto from liability for breach of
this Agreement, (ii) no termination pursuant to Section 8.01(b) shall limit or
affect any party's rights or obligations set forth in Section 2.09 and (iii) the
provisions of this Section 8.02 and Article 9 shall survive any termination of
this Agreement.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to Buyer to:
Jefferson Smurfit Corporation (U.S.)
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Patrick J. Moore,
Vice President and Chief Financial Officer
Fax: (314) 746-1184
with a copy to:
David Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John R. Ettinger
Fax: (212) 450-4800
if to Seller, to:
Smurfit Paperboard, Inc.
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Patrick J. Moore, Vice President
and Chief Financial Officer
Fax: (314) 746-1184
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
William Fry
Fitzwilton House,
Wilton Place
Dublin 2, Ireland
Attention: Houghton Fry, Esq.
Fax: 353-1-639-5333
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5:00 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 9.02. Expenses. All costs and expenses incurred in connection
with the Agreement and the transactions contemplated hereby will be paid by the
party incurring such cost or expense; provided that any transfer taxes incurred
in connection with the transactions contemplated by the Agreement shall be paid
by Seller.
SECTION 9.03. Entire Agreement. This Agreement (including any Schedules
and Exhibits hereto) constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter of this Agreement.
SECTION 9.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Buyer may transfer
or assign, in whole or from time to time in party, to any one or more of its
direct or indirect majority-owned Subsidiaries, the right to purchase all or a
portion of the Purchased Assets, but no such transfer or assignment will relieve
Buyer of its obligations hereunder.
SECTION 9.05. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective; provided that any amendment or waiver of Section 9.06 will also
require the written consent of JSC and Stone.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.06. Third Party Beneficiaries. No provision of this Agreement
is intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder, except that each of JSC and Stone are hereby designated
as third party beneficiaries to this Agreement.
SECTION 9.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of the State of New York.
SECTION 9.08. WAIVER OF JURY TRIAL, ETC. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. THE PARTIES AGREE, SOLELY IN RESPECT OF THE INTERPRETATION
AND ENFORCEMENT OF THE PROVISIONS OF THE AGREEMENT, TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF, AND TO WAIVE ANY OBJECTION AS TO VENUE IN, THE FEDERAL OR STATE
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF PROCESS
IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF
DELIVERED OR SENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9.01 HEREOF.
SECTION 9.09. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
SECTION 9.10. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 9.11. Specific Performance. The parties hereto acknowledge
that, in view of the uniqueness of the parties hereto and the transactions
contemplated hereby, the parties hereto would not have an adequate remedy at law
for money damages in the event that this Agreement were not performed in
accordance with its terms, and therefore agree that the parties shall be
entitled to specific enforcement of the terms hereof in addition to any other
remedy to which the parties hereto may be entitled at law or in equity.
SECTION 9.12. Representations, Warranties, Covenants and Agreements.
References in representations, warranties, covenants and agreements in this
Agreement to the "transactions contemplated by this Agreement" (and similar
references) shall not be deemed to include the Merger.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
JEFFERSON SMURFIT CORPORATION
(U.S.)
By: /s/ Patrick J. Moore
------------------------------------------
Name: Patrick J. Moore
Title: Vice President and Chief
Financial Officer
SMURFIT PAPERBOARD, INC.
By: /s/ Michael E. Tierney
------------------------------------------
Name: Michael E. Tierney
Title: Vice President and General
Counsel
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ________ __, 199_,
between Jefferson Smurfit Corporation (U.S.), a Delaware corporation ("Buyer"),
and Smurfit Paperboard, Inc., a Delaware Corporation ("Seller").
W I T N E S S E T H :
WHEREAS, Buyer and Seller have concurrently herewith consummated the
purchase by Buyer of the Purchased Assets pursuant to the terms and conditions
of the Asset Purchase Agreement dated as of May 10, 1998 between Buyer and
Seller, (the "Asset Purchase Agreement"; terms defined in the Asset Purchase
Agreement and not otherwise defined herein being used herein as therein
defined);
WHEREAS, pursuant to the Asset Purchase Agreement, Buyer has agreed to
assume certain liabilities and obligations of Seller with respect to the
Purchased Assets;
NOW, THEREFORE, in consideration of the sale of the Purchased Assets
and in accordance with the terms of the Asset Purchase Agreement, Buyer and
Seller agree as follows:
(a) (i) Seller does hereby sell, transfer, assign and deliver to Buyer
all of the right, title and interest of Seller in, to and under the Purchased
Assets; provided that no sale, transfer, assignment or delivery shall be made of
any or any material portion of any Purchased Asset if an attempted sale,
assignment, transfer or delivery, without the consent of a third party, would
constitute a breach or other contravention thereof or in any way adversely
affect the rights of Buyer or Seller thereunder (in which case the provision of
Section 2.04 of the Asset Purchase Agreement shall be applicable).
(ii) Buyer does hereby accept all the right, title and interest of
Seller in, to and under all of the Purchased Assets (except as aforesaid) and
Buyer assumes and agrees to pay, perform and discharge promptly and fully when
due all of the Assumed Liabilities.
(b) This Agreement shall be governed by and construed in accordance
with the law of the State of New York, without regard to the conflicts of law
rules of such state.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
JEFFERSON SMURFIT CORPORATION
(U.S.)
By:
-------------------------------
Name:
Title:
SMURFIT PAPERBOARD, INC.
By:
-------------------------------
Name:
Title:
EXHIBIT 5
[Davis Polk & Wardwell Letterhead]
October 8, 1998
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Ladies and Gentlemen:
We have acted as counsel to Jefferson Smurfit Corporation ("JSC") in
connection with JSC's Registration Statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration by JSC of shares (the "Shares") of common stock, par value $.01 per
share, of JSC to be issued in connection with the merger of JSC Acquisition
Corporation ("Merger Subsidiary"), a wholly-owned subsidiary of JSC, with and
into Stone Container Corporation ("Stone") pursuant to the terms of the
Agreement and Plan of Merger dated as of May 10, 1998, as amended, among JSC,
Stone and Merger Subsidiary (the "Merger Agreement").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates and
other instruments, and have conducted such other investigations of fact and law,
as we have deemed necessary or advisable for the purposes of this opinion.
In rendering this opinion we have assumed that, prior to the issuance
of any of the Shares, (i) the Registration Statement, as then amended, will have
become effective under the Securities Act, (ii) the stockholders of JSC will
have approved the issuance of Shares in the Merger and the amendments to the JSC
restated certificate of incorporation as contemplated by the Merger Agreement,
(iii) the stockholders of Stone will have approved and adopted the Merger
Agreement and approved amendments to the Stone restated certificate of
incorporation as contemplated by the Merger Agreement and (iv) the transactions
contemplated by the Merger Agreement will have been consummated.
On the basis of the foregoing, we are of the opinion that the Shares
have been duly authorized and the Shares, when issued and delivered in
accordance with the terms and conditions of the Merger Agreement, will be
validly issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Experts" in
the Joint Proxy Statement/Prospectus constituting a part of the Registration
Statement.
Very truly yours,
/s/ Davis Polk & Wardwell
-------------------------
Davis Polk & Wardwell
EXHIBIT 8
[Sidley & Austin Letterhead]
October 8, 1998
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Ladies and Gentlemen:
We refer to the Agreement and Plan of Merger dated as of May 10, 1998,
as amended, (the "Agreement") among Jefferson Smurfit Corporation, a Delaware
corporation ("JSC"), JSC Acquisition corporation, a Delaware corporation and
wholly owned subsidiary of JSC ("Sub"), and Stone Container Corporation, a
Delaware corporation ("Stone"), which provides for the merger (the "Merger") of
Sub with and into Stone on the terms and conditions therein set forth, the time
at which the Merger becomes effective being hereinafter referred to as the
"Effective Time." Capitalized terms used but not defined herein have the
meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason of the
Merger: (i) all outstanding shares of Stone Common Stock then owned by Stone or
by any Subsidiary of Stone and each share of Stone Common Stock owned by JSC,
Sub or any other wholly owned Subsidiary of JSC shall be canceled and retired
and shall cease to exist, and no stock of JSC or other consideration shall be
delivered in exchange therefor; (ii) each then issued and outstanding share of
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.01 par value per share, of the Surviving
Corporation; and (iii) each issued and outstanding share of Stone Common Stock
(other than shares canceled as described above) shall be converted into .99
shares of fully paid and nonassessable JSC Common Stock. Cash will be paid in
lieu of fractional shares of JSC Common Stock.
The Merger and the Agreement are more fully described in JSC's
Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration of shares of JSC Common Stock to which this opinion is an
exhibit, which is being filed by JSC with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended. The Registration Statement
includes the Joint Proxy Statement/Prospectus (the "Prospectus") of JSC and
Stone.
In rendering the opinions expressed below, we have relied upon the
accuracy of the facts, information and representations and the completeness of
the covenants contained in the Agreement, the Prospectus and such other
documents as we deemed relevant and necessary. Such opinions are conditioned,
among other things, not only upon such accuracy and completeness as of the date
hereof, but also the continuing accuracy and completeness thereof as of the
Effective Time. Moreover, we have assumed the absence of any change to any of
such documents between the date hereof and the Effective Time.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons and the conformity with original documents of all copies submitted to us
for our examination. We have further assumed that: (i) the transactions related
to the Merger or contemplated by the Agreement will be consummated (A) in
accordance with the Agreement and (B) as described in the Prospectus; and (ii)
as of the date hereof, and as of the Effective Time (as if made as of the
Effective Time), the written statements made by executives of JSC and Stone
contained in the JSC Tax Certificate and Stone Tax Certificate, respectively,
will be accurate in all respects.
In rendering the opinions expressed below, we have considered the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Regulations promulgated thereunder by the United States Treasury
Department (the "Regulations"), pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that the Code, the Regulations and such judicial
decisions, administrative interpretations and other authorities are subject to
change at any time and, in some circumstances, with retroactive effect; and any
such change could affect the opinions stated herein. Furthermore, the opinions
expressed below might not be applicable to Stone stockholders who, for federal
income tax purposes, are nonresident alien individuals, foreign corporations,
foreign partnerships, foreign trusts or foreign estates, or who acquired their
Stone Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation.
Based upon and subject to the foregoing, it is our opinion, as counsel
for Stone, that for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and Stone, Sub and JSC 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
solely in exchange for Stone Common Stock pursuant to the Merger will
include the holding period for such Stone Common Stock exchanged
therefor, provided such Stone Common Stock was held as a capital asset
by the 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 clause (iv) above) and the
amount of cash received;
(vii) no gain or loss will be recognized by the holders of
Stone's Series E preferred stock as a result of the Merger or the Stone
Charter Amendment; and
(viii) a holder of Stone's Series E preferred stock will
recognize gain or loss upon conversion of such 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 Series E preferred stock and the
value of the JSC Common Stock received in exchange therefor.
Except as expressly set forth in paragraphs (i) through (viii),
inclusive, you have not requested, and we do not herein express, any opinion
concerning the tax consequences of, or any other matters related to, the Merger.
We assume no obligation to update or supplement this letter to reflect
any facts or circumstances which may hereafter come to our attention with
respect to the opinions expressed above, including any changes in applicable law
which may hereafter occur.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to all references to our firm included in or made
part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
----------------------------------
Sidley & Austin
EXHIBIT 10(b)
May 10, 1998
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned understands that Jefferson Smurfit Corporation ("JSC")
and Stone Container Corporation ("Stone") are entering into an Agreement and
Plan of Merger dated as of May 10, 1998 (the "Merger Agreement"), providing for,
among other things, a merger between Stone and a wholly owned subsidiary of JSC
(the "Merger"), in which all of the outstanding shares of common stock, par
value $0.01 per share, of Stone (the "Stone Common Stock") will be exchanged for
shares of common stock, par value $0.01 per share, of JSC (the "JSC Common
Stock").
The undersigned is a stockholder of JSC and is entering into this
letter agreement to induce you to enter into the Merger Agreement and to
consummate the transactions contemplated by the Merger Agreement.
The undersigned confirms its agreement with you as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth the number of shares of JSC Common Stock (the
"Shares") of which the undersigned or its subsidiaries is the record or
beneficial owner as of the date hereof and that, as of the date hereof, the
undersigned owns such Shares free and clear of all liens, charges, encumbrances,
voting agreements and commitments of every kind ("Liens"), other than Liens
under the Stockholders' Agreement dated as of May 3, 1994, as amended, among
Smurfit International B.V., Morgan Stanley Leveraged Equity Fund II, Inc.
("MSLEF"), JSC and the other parties listed on the signature pages thereto, and
the Voting Agreement dated as of May 10, 1998 among Smurfit International B.V.,
MSLEF and Mr. Roger W. Stone. If, after the date hereof, the undersigned
acquires beneficial ownership of any shares of JSC Common Stock (any such
shares, "Additional Shares"), the provisions of this Agreement shall be
applicable to such Additional Shares as if such Additional Shares had been
Shares as of the date hereof.
2. The undersigned agrees that, prior to the Merger, it will not, and
it will not permit its subsidiaries to, contract to sell, sell or otherwise
transfer or dispose of any of the Shares, or any interest therein, or securities
convertible thereinto or any voting rights with respect thereto, other than to a
subsidiary of the undersigned or with your prior written consent.
3. Without limiting the scope or effect of paragraph (1) or (2)
hereof, the undersigned agrees to vote or cause to be voted 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 all Shares
beneficially owned by it or its subsidiaries on the record date for the JSC
Stockholders' Meeting (as defined in the Merger Agreement).
4. If the Board of Directors of JSC shall not have recommended 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 or shall
have modified in a manner materially adverse to Stone, or shall have withdrawn,
its recommendation 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, the obligations of the undersigned under paragraphs (2)
and (3) shall be suspended.
The undersigned has all necessary power and authority to enter into
this letter agreement. This agreement is the legal, valid and binding agreement
of the undersigned, and is enforceable against the undersigned in accordance
with its terms.
This letter agreement shall terminate, without further liability or
obligation of the undersigned, including liability for damages, upon the earlier
of the (i) termination of the Merger Agreement in accordance with its terms and
(ii) consummation of the Merger; provided that such termination shall not
relieve the undersigned from liability for breach of this Agreement.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to any applicable conflict
of law rules.
Nothing herein shall be construed to require the undersigned, or any
company, trust or other entity controlled by the undersigned, to take any action
or fail to take any action in violation of applicable law, rule or regulation.
Very truly yours,
SMURFIT INTERNATIONAL B.V.
By: /s/ Houghton Fry
--------------------------------
Name: Houghton Fry
Title: Attorney-in-Fact
Confirmed as of the date first above written:
STONE CONTAINER CORPORATION
By: /s/ Roger W. Stone
-----------------------------------
Name: Roger W. Stone
Title: Chief Executive Officer
SCHEDULE I
Aggregate Number of Shares Owned by Smurfit International B.V.
and its Subsidiaries
51,638,462 Shares
EXHIBIT 10(c)
May 10, 1998
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned understands that Jefferson Smurfit Corporation ("JSC")
and Stone Container Corporation ("Stone") are entering into an Agreement and
Plan of Merger dated as of May 10, 1998 (the "Merger Agreement"), providing
for, among other things, a merger between Stone and a wholly owned subsidiary
of JSC (the "Merger"), in which all of the outstanding shares of common stock,
par value $0.01 per share, of Stone (the "Stone Common Stock") will be
exchanged for shares of common stock, par value $0.01 per share, of JSC (the
"JSC Common Stock").
The undersigned is a stockholder of JSC and is entering into this
letter agreement to induce you to enter into the Merger Agreement and to
consummate the transactions contemplated by the Merger Agreement.
The undersigned confirms its agreement with you as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth the number of shares of JSC Common Stock (the
"Shares") of which the undersigned is the record or beneficial owner as of the
date hereof and that, as of the date hereof, the undersigned owns them free and
clear of all liens, charges, encumbrances, voting agreements and commitments of
every kind ("Liens"), other than Liens under the Stockholders' Agreement dated
as of May 3, 1994, as amended, among Smurfit International B.V., Morgan Stanley
Leveraged Equity Fund II, Inc. ("MSLEF"), JSC and the other parties listed on
the signature pages thereto, the related Registration Rights Agreement dated
the same date, the Voting Agreement dated as of May 10, 1998 among Smurfit
International B.V., MSLEF and Mr. Roger W. Stone and the Stock Purchase
Agreement dated as of May 10, 1998 among Smurfit International B.V., Jefferson
Smurfit Group plc, MSLEF and certain other shareholders of JSC. If, after the
date hereof, the undersigned acquires beneficial ownership of any additional
shares of JSC Common Stock (any such shares, "Additional Shares"), the
provisions of this Agreement shall be applicable to such Additional Shares as
if such Additional Shares had been Shares as of the date hereof.
2. Without limiting the scope or effect of paragraph (1) hereof, the
undersigned agrees to vote or cause to be voted 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 all Shares
beneficially owned by the undersigned on the record date for the JSC
Stockholders' Meeting (as defined in the Merger Agreement).
3. If the Board of Directors of JSC shall not have recommended 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 or shall
have modified in a manner materially adverse to Stone, or shall have withdrawn,
its recommendation 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, the obligation of the undersigned under
paragraph (2) shall be suspended.
The undersigned has all necessary power and authority to enter into
this letter agreement. This agreement is the legal, valid and binding agreement
of the undersigned, and is enforceable against the undersigned in accordance
with its terms.
This letter agreement shall terminate, without further liability or
obligation of the undersigned, including liability for damages, upon the
earlier of the (i) termination of the Merger Agreement in accordance with its
terms and (ii) consummation of the Merger; provided that such termination shall
not relieve the undersigned from liability for breach of this Agreement.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to any applicable
conflict of law rules.
Nothing herein shall be construed to require the undersigned, or any
company, trust or other entity controlled by the undersigned, to take any
action or fail to take any action in violation of applicable law, rule or
regulation.
Very truly yours,
MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
Confirmed as of the date first above written:
STONE CONTAINER CORPORATION
By: /s/ Roger W. Stone
-----------------------------------
Name: Roger W. Stone
Title: Chief Executive Officer
SCHEDULE I
Aggregate MSLEF Interests
31,574,540 Shares*
- --------
* Subject to decrease to the extent Shares (other than Shares to be
sold to SIBV or its Affiliates) are sold or distributed prior to the record
date.
EXHIBIT 10(d)
May 10, 1998
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Ladies and Gentlemen:
The undersigned understands that Jefferson Smurfit Corporation ("JSC")
and Stone Container Corporation ("Stone") are entering into an Agreement and
Plan of Merger dated as of May 10, 1998 (the "Merger Agreement"), providing for,
among other things, a merger between Stone and a wholly owned subsidiary of JSC
(the "Merger"), in which all of the outstanding shares of common stock, par
value $0.01 per share, of Stone (the "Stone Common Stock") will be exchanged for
shares of common stock, par value $0.01 per share, of JSC (the "JSC Common
Stock").
The undersigned is a stockholder of Stone and is entering into this
letter agreement to induce you to enter into the Merger Agreement and to
consummate the transactions contemplated by the Merger Agreement.
The undersigned confirms its agreement with you as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth the number of shares of Stone Common Stock (the
"Shares") of which the undersigned is the record or beneficial owner as of the
date hereof and that, as of the date hereof, the undersigned owns such Shares
free and clear of all liens, charges, encumbrances, voting agreements and
commitments of every kind ("Liens"), other than Liens under the Voting Agreement
dated as of May 10, 1998 among Smurfit International B.V., Morgan Stanley
Leveraged Equity Fund II, Inc. and Mr. Roger W. Stone. If, after the date
hereof, the undersigned acquires beneficial ownership of any shares of Stone
Common Stock (any such shares, "Additional Shares"), the provisions of this
Agreement shall be applicable to such Additional Shares as if such Additional
Shares had been Shares as of the date hereof.
2. The undersigned agrees that, prior to the Merger, he will not
contract to sell, sell or otherwise transfer or dispose of those of his Shares
as to which he has power of disposition or to direct disposition, or any
interest therein, or securities convertible thereinto or any voting rights with
respect thereto, other than (a) pursuant to the Merger, (b) the transfer of up
to 100,000 Shares to a charitable foundation or (c) with your prior written
consent. The undersigned also agrees to use reasonable best efforts to persuade
members of his family to vote in favor of approval and adoption of the Merger
and the Merger Agreement and the amendments to the Stone certificate of
incorporation contemplated by the Merger Agreement.
3. Without limiting the scope or effect of paragraph (1) or (2)
hereof, the undersigned agrees to vote (or cause to be voted) those Shares that
are beneficially owned by the undersigned on the record date and as to which he
has the power to vote or to direct the vote at the Stone Stockholders' Meeting
(as defined in the Merger Agreement) in favor of approval and adoption of the
Merger and the Merger Agreement and the amendments to the Stone certificate of
incorporation contemplated by the Merger Agreement.
4. If the Board of Directors of Stone shall not have recommended the
approval and adoption of the Merger and the Merger Agreement and the amendments
to the Stone certificate of incorporation contemplated by the Merger Agreement
or shall have modified in a manner materially adverse to JSC, or shall have
withdrawn, its recommendation in favor of approval and adoption of the Merger
and the Merger Agreement and the amendments to the Stone certificate of
incorporation contemplated by the Merger Agreement, the obligations of the
undersigned under paragraphs (2) and (3) shall be suspended.
The undersigned has all necessary power and authority to enter into
this letter agreement. This agreement is the legal, valid and binding agreement
of the undersigned, and is enforceable against the undersigned in accordance
with its terms.
This letter agreement shall terminate, without further liability or
obligation of the undersigned, including liability for damages, upon the earlier
of the (i) termination of the Merger Agreement in accordance with its terms and
(ii) consummation of the Merger; provided that, in the case of a termination
pursuant to Section 8.01(d)(i) of the Merger Agreement, such termination shall
not relieve the undersigned from liability for breach of this Agreement.
Nothing herein shall be construed to require the undersigned, or any
company, trust or other entity controlled by the undersigned, to take any action
or fail to take any action in violation of applicable law, rule or regulation or
that the undersigned in good faith reasonably believes would be a violation of
the undersigned's fiduciary duties.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to me a counterpart hereof.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to any applicable conflict
of law rules.
Very truly yours,
/s/ Roger W. Stone
-----------------------------------
Mr. Roger W. Stone
Confirmed as of the date first above written:
JEFFERSON SMURFIT CORPORATION
By: /s/ Michael E. Tierney
-----------------------------------------
Name: Michael E. Tierney
Title: Vice President and General Counsel
SCHEDULE I
Shares Owned by Mr. Roger W. Stone
1,183,203
EXHIBIT 10(e)
REGISTRATION RIGHTS AGREEMENT
among
MORGAN STANLEY LEVERAGED EQUITY FUND II, INC.,
SMURFIT INTERNATIONAL B.V.,
JEFFERSON SMURFIT CORPORATION
and
THE OTHER PARTIES IDENTIFIED
ON THE SIGNATURE PAGES HERETO
Dated as of May 10, 1998
TABLE OF CONTENTS
----------------------
PAGE
SECTION 1. Effectiveness and Certain Definitions............................1
SECTION 2. Demand Registration..............................................5
SECTION 3. Company Registration.............................................9
SECTION 4. Piggyback Registration..........................................10
SECTION 5. Expenses........................................................12
SECTION 6. Registration and Qualification..................................12
SECTION 7. Termination.....................................................15
SECTION 8. Underwriting; Due Diligence, Etc................................15
SECTION 9. Restrictions on Public Sale; Inconsistent Agreements............17
SECTION 10. Indemnification and Contribution................................18
SECTION 11. Rule 144........................................................21
SECTION 12. Miscellaneous...................................................21
SECTION 13. Representations and Warranties..................................25
SECTION 14. Ireland Listing.................................................27
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of May 10, 1998 (this
"Agreement") among MORGAN STANLEY LEVERAGED EQUITY FUND II, INC., a Delaware
corporation ("MSLEF II"), SMURFIT INTERNATIONAL B.V., a corporation organized
under the laws of The Netherlands ("SIBV"), JEFFERSON SMURFIT CORPORATION, a
Delaware corporation (the "Company"), and the other parties identified on the
signature pages hereto.
WHEREAS, the Company, Stone Container Corporation, a Delaware
corporation ("Stone"), and JSC Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of the Company ("Sub"), have entered into a
Merger Agreement (the "Merger Agreement") dated as of the date hereof pursuant
to which, subject to the terms and conditions specified therein, Sub will merge
with and into Stone (the "Merger"); and
WHEREAS, as a condition and inducement to the willingness of SIBV,
MSLEF II and certain of their respective Affiliates to support the Merger by
agreeing to approve the issuance of the Common Stock (as defined below)
necessary to consummate the Merger and certain amendments to the Company's
certificate of incorporation as contemplated by the Merger Agreement, the
Company has agreed to grant MSLEF II and such related parties the registration
rights described herein.
NOW, THEREFORE, upon the premises and the mutual promises herein
contained, and for good and valuable consideration, the receipt and adequacy of
which is acknowledged, the parties agree as follows:
SECTION 1. Effectiveness and Certain Definitions. (a) The parties
hereto hereby agree that, effective as of the closing of the Merger, the
Registration Rights Agreement dated as of May 3, 1994 shall terminate and the
parties hereto agree that, at such time, this Agreement, other than this
Section 1(a) (which shall be effective as of the execution of this Agreement),
shall become effective.
(b) As used in this Agreement the following terms shall have the
following meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended. In the case of any Person which is a trust established under
an employee benefit plan subject to the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time, an "Affiliate" of such
Person shall include any trust (under a plan maintained by the same employer as
such plan) that is a successor to the assets held by such trust or any other
trust established directly or indirectly under such plan or any other such plan
maintained by the same employer.
"Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company, any stock or other securities into which or for which such
stock may hereafter be changed, converted, exercised or exchanged, and any
other securities issued to holders of such stock (or such securities into which
or for which such shares are so changed, converted or exchanged) upon any
reclassification, recapitalization, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event.
"Effective Date" means, with respect to any registration statement,
the date of the effectiveness thereof under the Securities Act (without regard
to any post-effective amendments to such registration statement).
"Equity Investors" shall mean SIBV/MS Equity Investors, L.P., a
Delaware limited partnership.
"Equity Investors Inc." shall mean Morgan Stanley Equity Investors
Inc., a Delaware corporation and the general partner of Equity Investors.
"Morgan Holders" shall mean (i) MSLEF II, (ii) Equity Investors, (iii)
The MSLEF II Fund, (iv) Equity Investors Inc., (v) First Plaza Group Trust
("First Plaza"), (vi) Leeway & Co. ("Leeway"), (vii) MSLEF and (viii) any
Person which has purchased, in one transaction or a series of related
transactions, at least 2% of the outstanding Common Stock from a Morgan Holder
and which has agreed, with the consent of MSLEF II and in form and substance
reasonably satisfactory to the Company and SIBV, to be bound as a Morgan Holder
and to have the rights and obligations of a Morgan Holder for purposes of this
Agreement (each such Person, a "Block Purchaser" and the shares of Common Stock
so purchased, "Block Purchaser Shares").
"MSLEF" shall mean Morgan Stanley Leveraged Equity Holdings, Inc., a
Delaware corporation.
"MSLEF II" shall mean Morgan Stanley Leveraged Equity Fund II, Inc., a
Delaware corporation and the general partner of The MSLEF II Fund.
"Person" means an individual, a corporation, a partnership, a joint
venture, a trust or unincorporated organization, a joint stock company or other
similar organization or any other legal entity.
"Registrable Securities" means the Common Stock; provided that any
such securities shall cease to be Registrable Securities with respect to a
proposed offer or sale thereof (i) when a registration statement with respect
to the sale of such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in accordance with the plan
of distribution set forth in such registration statement or (ii) such
securities shall have been disposed of in accordance with Rule 144 or in a
private placement other than to a Block Purchaser; provided, further,
Registrable Securities in respect of any Person shall not include Common Stock
acquired by such Person after the date hereof (other than (i) shares of Common
Stock acquired as a result of a reclassification, recapitalization, share
combination, share subdivision, share dividend or similar event, (ii) shares
acquired by a Morgan Holder from another Morgan Holder or by an SIBV Holder
from a Morgan Holder and (iii) Block Purchaser Shares).
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its registration obligations set forth in
this Agreement including, without limitation, the following: (i) the fees,
disbursements and expenses of the Company's counsel(s) (United States and
foreign) and accountants in connection with the registration of the Registrable
Securities to be disposed of under the Securities Act; (ii) the reasonable fees
and disbursements of (1) one counsel (other than counsel to the Company)
retained by the Morgan Holders in connection with each such registration in
which a Morgan Holder intends to participate hereunder and (2) one Irish and
one United States counsel (other than counsel to the Company) retained by the
SIBV Holders in connection with each such registration in which an SIBV Holder
intends to and is permitted to participate hereunder; (iii) all expenses in
connection with the preparation, printing and filing of the registration
statement, any preliminary prospectus or final prospectus, any other offering
documents and amendments and supplements thereto and the mailing and delivering
of copies thereof to any underwriters and dealers; (iv) the cost of printing or
producing any agreement(s) among underwriters, underwriting agreement(s), and
blue sky or legal investment memoranda, any selling agreements and any other
documents in connection with the offering, sale or delivery of the Registrable
Securities to be disposed of; (v) all expenses in connection with the
qualification of the Registrable Securities to be disposed of for offering and
sale under state securities laws, including the reasonable fees and
disbursements of counsel for the underwriters or the Selling Holders in
connection with such qualification and in connection with any blue sky and
legal investments memoranda; (vi) the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Registrable Securities to be disposed of; (vii)
transfer agents', depositaries' and registrars' fees and the fees of any other
agent appointed in connection with such offering, including the fees and
expenses of any "qualified independent underwriter", or other person acting in
a similar capacity, pursuant to the requirements of the National Association of
Securities Dealers, Inc. or otherwise (the "Independent Underwriter"); (viii)
all security engraving and security printing expenses; and (ix) all fees and
expenses payable in connection with the listing of the Registrable Securities
on each securities exchange or inter-dealer quotation system on which a class
of common equity securities of the Company is then listed or on which the
Registrable Securities may be listed pursuant to Sections 6(e) and 6(h) hereof.
"Registration Notice" means written notice by any of MSLEF II, SIBV or
the Company, as the case may be, that such Person desires to initiate a
Registration Process in accordance with the terms of this Agreement.
"Registration Process" means the process of registering certain shares
of Common Stock under the Securities Act, which, for purposes of this
Agreement, shall be deemed to be the period of time from the Registration
Notice until the end of any "hold back" period required by the underwriters or,
if there is no such period, then 30 days after the Effective Date of the
registration statement; provided, however, in the event that (i) a registration
statement has not been filed with the SEC within 45 days of a Registration
Notice, (ii) such registration statement has not been declared effective by the
SEC within 75 days of its filing with the SEC, or (iii) the Registration Notice
or the registration statement has been abandoned or withdrawn by MSLEF II, SIBV
or the Company, as the case may be, then the Registration Process shall be
deemed concluded at such time.
"Rule 144" means Rule 144 (or any successor rule) promulgated under
the Securities Act (excluding Rule 144A or any successor rule promulgated under
the Securities Act).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute.
"Selling Holders" shall mean any party hereto selling pursuant to and
in accordance with the terms of this Agreement.
"SIBV Holders" shall mean SIBV and any Affiliate of SIBV holding
Registrable Securities.
"The MSLEF II Fund" shall mean The Morgan Stanley Leveraged Equity
Fund II, L.P., a Delaware limited partnership.
SECTION 2. Demand Registration. (a) Upon a Registration Notice from
(i) MSLEF II, on behalf of the Morgan Holders specified therein, to both the
Company and SIBV or (ii) SIBV, on behalf of the SIBV Holders specified therein,
to both the Company and MSLEF II, in each case in the manner set forth in
Section 12(g) hereof, requesting that the Company effect the registration under
the Securities Act of any or all of the Registrable Securities held by such
Morgan Holders or held by such SIBV Holders, as the case may be, and
specifying, among other things, the number of Registrable Securities which the
Morgan Holders or the SIBV Holders, as the case may be, desire to register and
the intended method or methods of disposition of such Registrable Securities,
the Company will use its best efforts to effect (at the earliest possible date)
the registration under the Securities Act of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such request, provided, however, that the Company shall not be
required to effect an offering on a delayed or continuous basis pursuant to
Rule 415 (or any successor rule to similar effect) promulgated under the
Securities Act; and provided, further, that:
(i) in the event that the Company has delivered a Registration Notice
in accordance with the provisions of Section 3, neither MSLEF II nor
SIBV may deliver a Registration Notice pursuant to this Section 2(a)
until the conclusion of such Company Registration Process;
(ii) in the event that SIBV has delivered a Registration Notice in
accordance with the provisions of this Section 2(a), neither MSLEF II
nor the Company may deliver a Registration Notice pursuant to this
Section 2(a) until the conclusion of such SIBV Registration Process;
(iii) in the event that MSLEF II has delivered a Registration Notice
in accordance with the provisions of this Section 2(a), neither SIBV
nor the Company may deliver a Registration Notice until the conclusion
of such MSLEF II Registration Process; and
(iv) if, while a Registration Process is pending pursuant to this
Section 2, the Chief Financial Officer of the Company, after
consultation with outside counsel for the Company, has determined in
good faith that the filing of a registration statement would require
the disclosure of material information which the Company has a bona
fide business purpose for preserving as confidential, the Company
shall not be required to effect a registration pursuant to this
Section 2 until the earlier of (A) the date upon which such material
information is disclosed to the public or ceases to be material, and
(B) 90 days after the Chief Financial Officer of the Company makes
such good faith determination (a "Company Delay"); provided, however,
the Company shall only be entitled to a Company Delay once in
connection with any MSLEF II Demand in any 270-day period during the
term of this Agreement and once in connection with any SIBV Demand in
any 270-day period during the term of this Agreement.
(b) In the event that any registration pursuant to a request by MSLEF
II under this Section 2, shall involve, in whole or in part, an underwritten
offering, then MSLEF II shall have the right to designate one or more
nationally recognized investment banking firms as the sole managing or
co-managing underwriter(s) of such underwritten offering which may consist of
or include, at the option of MSLEF II, Morgan Stanley & Co. Incorporated
("MS&Co."). If MS&Co. shall not be the sole managing underwriter or shall be a
co-managing underwriter, then any sole or other co-managing underwriters
selected by MSLEF II shall be reasonably acceptable to the Company.
(c) MSLEF II shall have the right to effect up to but not more than
two (2) registrations and SIBV will have the right to effect up to but not more
than two (2) registrations (each such registration, whether requested by MSLEF
II or SIBV, a "Demand"), in each case, pursuant to this Section 2; provided,
however, that, without giving effect to any "cutback" imposed by any
underwriter, (i) each MSLEF II Demand shall effect the registration and sale of
at least 1,000,000 shares of Common Stock (as adjusted for any
reclassification, recapitalization, subdivision, stock dividend, stock split or
combination of the Company's outstanding securities after the date hereof) and
(ii) each SIBV Demand shall effect the registration and sale of at least an
aggregate of at least 1,000,000 shares of Common Stock (as adjusted for any
reclassification, recapitalization, subdivision, stock dividend, stock split or
combination of the Company's outstanding securities after the date hereof).
MSLEF II shall have the right to request registration and effect its two
registrations (such effective registrations, the "Initial MSLEF II
Registrations") prior to SIBV delivering a Registration Notice to MSLEF II and
the Company under Section 2(a); provided that, in the event that the Initial
MSLEF II Registrations are not effected on or prior to the third anniversary of
the effectiveness of this Agreement (such three-year period, the "MSLEF II
Exclusive Period"), then SIBV may request registration in accordance with the
terms of this Agreement.
(d) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by MSLEF II or SIBV pursuant to this Section
2 shall not be deemed to have been effected for purposes of Section 2, (i)
unless it has become effective and maintained effective in accordance with
subsection 6(b), (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
material misrepresentation or a material omission by MSLEF II or any of the
Selling Holders, on the one hand, or SIBV or any of the Selling Holders, on the
other, as the case may be, (iii) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied other than by reason of some act or
omission by MSLEF II or any of the Selling Holders, on the one hand, or SIBV or
any of the Selling Holders, on the other, as the case may be, or (iv) unless
the registration is deemed to be an effected Demand pursuant to Section 5.
(e) In the event of any underwritten registration of Registrable
Securities in which the number of Registrable Securities requested by MSLEF II
(in the case of a MSLEF II Demand) or SIBV (in the case of a SIBV Demand) to be
included in such registration exceeds the number which the managing
underwriter(s) advise MSLEF II or SIBV, as the case may be, in writing can be
sold, then there shall be included in such registration the number of
Registrable Securities which can be sold, allocated, unless MSLEF II or SIBV,
as the case may be, notifies the Company of a different method of allocation,
pro rata among the Morgan Holders or the SIBV Holders, as the case may be, on
the basis of the number of Registrable Securities requested to be included
therein by each such Morgan Holder or SIBV Holder.
(f) In connection with any Demand made by MSLEF II pursuant to this
Section 2 (in the case of SIBV, only from and after, but not before, the
expiration of the MSLEF II Exclusive Period), each of the Company and SIBV
shall have the right to cause the registration of securities for sale for its
own account (the "Piggyback Securities"), upon the written request made by the
Company and/or SIBV within 10 days after receipt of MSLEF II's Registration
Notice (which request shall specify the number of shares intended to be
disposed of and the intended method of disposition thereof), in addition to the
Registrable Securities of the Morgan Holder(s) being sold pursuant to such
MSLEF II Demand, if the number of Registrable Securities requested by MSLEF II
to be included in such registration does not exceed the number which the
managing underwriter(s) advise MSLEF II in writing can be sold; provided that
in the event the managing underwriter(s) advise MSLEF II in writing (with a
copy to the Company and SIBV) that, in their good faith opinion, inclusion of
all such Piggyback Securities would materially and adversely affect the
offering and sale of the Registrable Securities then contemplated to be sold by
the Morgan Holders, including the per share price thereby obtainable, there
shall only be included in such registration: (1) first, all securities
requested to be included in such registration by the Morgan Holders, (2)
second, up to the full number of Piggyback Securities requested to be included
in such registration by the SIBV Holders (if SIBV is entitled hereunder to make
such request) in excess of the number or dollar amount of the Morgan Holders'
Securities to be included in such registration which, in the good faith opinion
of such underwriter(s), can be sold without materially and adversely affecting
such offering (and, if less than the full number of such Piggyback Securities,
allocated pro rata among the SIBV Holders on the basis of the number of
securities requested to be included therein by each SIBV Holder), (3) third, up
to the full number of Piggyback Securities requested to be included in such
registration by the Company in excess of the number or dollar amount of the
Morgan Holders' Securities and SIBV Piggyback Securities (if applicable) which,
in the good faith opinion of such underwriter(s), can be so sold without
materially and adversely affecting such offering. MSLEF II may require that any
such Company Piggyback Securities or SIBV Piggyback Securities (if applicable)
be included in the offering proposed by the Morgan Holders on the same terms
and conditions as such Morgan Holders' Registrable Securities are included
therein.
(g) In connection with any Demand made by SIBV pursuant to this
Section 2, each of the Company and MSLEF II shall have the right to cause the
registration of securities for sale for its own account and, in the case of
MSLEF II, for the account of the Morgan Holders, upon the written request made
by the Company and/or MSLEF II within 10 days after receipt of SIBV's
Registration Notice (which request shall specify the number of shares intended
to be disposed of and the intended method of disposition thereof), in addition
to the Registrable Securities of the SIBV Holder(s) being sold pursuant to such
SIBV Demand, if the number of Registrable Securities requested by SIBV to be
included in such registration does not exceed the number which the managing
underwriter(s) advise SIBV in writing can be sold; provided that in the event
the managing underwriter(s) advise SIBV in writing (with a copy to the Company
and MSLEF II) that, in their good faith opinion, inclusion of all such
Piggyback Securities would materially and adversely affect the offering and
sale of the Registrable Securities then contemplated to be sold by the SIBV
Holders, including the per share price thereby obtainable, there shall only be
included in such registration: (1) first, all securities requested to be
included in such registration by the SIBV Holders, (2) second, up to the full
number of Piggyback Securities requested to be included in such registration by
the Morgan Holders in excess of the number or dollar amount of the SIBV
Holders' Securities to be included in such registration which, in the good
faith opinion of such underwriter(s), can be sold without materially and
adversely affecting such offering (and, if less than the full number of such
Piggyback Securities, allocated pro rata among the Morgan Holders on the basis
of the number of securities requested to be included therein by each Morgan
Holder), (3) third, up to the full number of Piggyback Securities requested to
be included in such registration by the Company in excess of the number or
dollar amount of the Morgan Holders' Piggyback Securities and the SIBV
Securities which, in the good faith opinion of such underwriter(s), can be so
sold without materially and adversely affecting such offering. SIBV may require
that any such Morgan Holders' Piggyback Securities or Company Piggyback
Securities be included in the offering proposed by the SIBV Holders on the same
terms and conditions as such SIBV Holders' Registrable Securities are included
therein.
(h) In connection with each MSLEF II Demand, MSLEF II agrees to use
reasonable best efforts to sell or cause to be sold the lesser of (x) all
Registrable Securities that it owns at the time of such MSLEF II Demand and (y)
all Registrable Securities which the managing underwriter advises MSLEF II
pursuant to Section 2(e) can be sold in such registration; provided that
notwithstanding the foregoing, MSLEF II and any Morgan Holder who has requested
that its Registrable Securities be included in such MSLEF II Demand shall be
under no obligation to sell its Registrable Securities pursuant to the first
MSLEF II Demand if the price per share of Common Stock on the New York Stock
Exchange or The NASDAQ National Market on the Effective Date for such MSLEF II
Demand has decreased by 5% since the date on which MSLEF II delivered its
Registration Notice with respect to such MSLEF II Demand.
(i) Concurrently with the delivery by MSLEF II of a Registration
Notice to the Company pursuant to Section 2(a), MSLEF II shall notify in
writing each of the Morgan Holders of its intent to cause the registration and
sale of Registrable Securities. Such notice shall offer each other Morgan
Holder the opportunity to include in the registration such number of
Registrable Securities held by such Morgan Holder as such Morgan Holder may
request in writing to MSLEF II within 3 business days of receipt of MSLEF II's
notice, subject to Section 2(e).
(j) Promptly (but in no event later than 2 business days) after
receipt by MSLEF II of an SIBV Registration Notice pursuant to Section 2(a),
MSLEF II shall notify in writing each of the Morgan Holders of its receipt of
such Registration Notice. Such notice shall offer each Morgan Holder the
opportunity to include in the registration such number of Registrable
Securities held by such Morgan Holder as such Morgan Holder may request in
writing to MSLEF II within 3 business days of receipt of MSLEF II's notice,
subject to Section 2(g).
SECTION 3. Company Registration. The Company hereby agrees not to file
a registration statement (other than a registration statement on Form S-4 or
Form S-8 or any successor forms) covering its Common Stock or any equity
securities exercisable for, convertible into or exchangeable for Common Stock,
whether or not for sale for its own account, except pursuant to the terms of
this Agreement and following delivery of a Registration Notice as hereinafter
provided. The Company may deliver a Registration Notice to MSLEF II and SIBV at
any time, provided that:
(a) in the event that MSLEF II or SIBV has delivered a Registration
Notice to the Company in accordance with the provisions of Section 2, the
Company may not deliver a Registration Notice pursuant to this Section 3 until
the conclusion of such MSLEF II Registration Process or SIBV Registration
Process, as the case may be; and
(b) the Company may not (i) give a Registration Notice until the
conclusion of a Company Registration Process or (ii) effect an offering on a
delayed or continuous basis of its Common Stock pursuant to Rule 415(a)(1)(ix)
or (a)(1)(x) under the Securities Act.
SECTION 4. Piggyback Registration. If the Company at any time proposes
to register any of its Common Stock or any equity securities exercisable for,
convertible into or exchangeable for Common Stock under the Securities Act,
whether or not for sale for its own account (such Common Stock or other equity
securities being referred to herein as the "Other Securities"), in a manner
which would permit registration of Registrable Securities for sale to the
public under the Securities Act, it will each such time give prompt written
notice to each of the Morgan Holders and SIBV (which notice shall, for purposes
of this Agreement, be deemed to be a Registration Notice with respect to the
registration contemplated thereby, unless a Registration Notice with respect to
such registration shall have been previously delivered by the Company to each
of the Morgan Holders and SIBV under this Section 4, at least 30 days prior to
the anticipated filing date of the registration statement relating to such
registration). Such notice shall offer each Morgan Holder and, after the MSLEF
II Exclusive Period, each SIBV Holder the opportunity to include in such
registration statement such number of Registrable Securities held by such
holders as such holders may request. Upon the written request of Morgan Holders
(which shall be delivered to both the Company and SIBV) and/or SIBV Holders
(which shall be delivered to both the Company and MSLEF II) made within 10 days
after the receipt of the Company's notice requesting that a number of their
shares be disposed of (which request shall specify the number of Piggyback
Securities intended to be disposed of and the intended method of disposition
thereof), the Company will use its best efforts to effect, in connection with
the registration of the Other Securities, the registration under the Securities
Act of all Piggyback Securities, to the extent required to permit the
disposition (in accordance with such intended methods thereof) of the Piggyback
Securities, provided that:
(a) if, at any time after giving such written notice of its intention
to register any Other Securities and prior to the Effective Date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register the Other Securities, the
Company may, at its election, give written notice of such determination to each
of the Morgan Holders and SIBV and thereupon the Company shall be relieved of
its obligation to register the Piggyback Securities in connection with the
registration of such Other Securities (but not from its obligation to pay
Registration Expenses to the extent incurred in connection therewith as
provided in Section 5 hereof), without prejudice, however, to the rights of
MSLEF II or SIBV immediately to request that such registration be effected as a
registration under Section 2 hereof (subject to the Company's right, if any and
if applicable, to a Company Delay);
(b) if the registration referred to in the first sentence of this
Section 4 is to be an underwritten registration on behalf of the Company, and
the managing underwriter(s) advise the Company in writing that in their good
faith opinion such offering would be materially and adversely affected by the
inclusion therein of the Piggyback Securities requested to be included therein,
including the per share price thereby obtainable, the Company shall only
include in such registration: (1) first, all securities the Company proposes to
sell for its own account (2) second, up to the full number of Piggyback
Securities requested to be included in such registration by the Morgan Holders
in excess of the number or dollar amount of Company Securities which, in the
good faith opinion of such underwriter(s), can be so sold without materially
and adversely affecting such offering (and, if less than the full number of
such Piggyback Securities, allocated pro rata among the Morgan Holders on the
basis of the number of securities requested to be included therein by each
Morgan Holder), (3) third, up to the full number of Piggyback Securities
requested to be included in such registration by SIBV Holders in excess of the
number or dollar amount of Company Securities and Morgan Piggyback Securities
which, in the good faith opinion of such underwriter(s), can be sold without
materially and adversely affecting such offering (and, if less than the full
number of such Piggyback Securities, allocated pro rata among the SIBV Holders
on the basis of the number of securities requested to be included therein by
each SIBV Holder) and (4) fourth, an amount of Other Securities (other than the
securities the Company proposes to sell for its own account), if any, requested
to be included therein in excess of the number or dollar amount of the
securities the Company proposes to sell for its own account and Piggyback
Securities which, in the opinion of such underwriter(s), can be so sold without
materially and adversely affecting such offering (allocated among the holders
of such Other Securities in such proportions as such holders and the Company
may agree);
(c) the Company shall not be required to effect any registration of
Registrable Securities held by any Selling Holder under this Section 4
incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans;
(d) no registration of Registrable Securities effected under this
Section 4 shall relieve the Company of its obligation to effect a registration
of other Registrable Securities pursuant to Section 2 hereof;
(e) a Selling Holder may withdraw all or any part of such Holder's
Piggyback Securities from the proposed registration at any time prior to the
later of (i) the Effective Date of the related registration statement and (ii)
the execution of any underwriting agreement related thereto; and
(f) the Company may require that any Piggyback Securities be included
in the offering proposed by the Company on the same terms and conditions as the
Company Securities are included therein, provided the terms of any underwriting
agreement are consistent with the terms of this Agreement.
SECTION 5. Expenses. The Company will pay all Registration Expenses in
connection with (i) MSLEF II's two effected demand registrations of Morgan
Holders' Registrable Securities pursuant to Section 2(a), (ii) SIBV's two
effected demand registrations of SIBV Holders' Registrable Securities pursuant
to Section 2(a) and (iii) all registrations of Selling Holders' Registrable
Securities pursuant to Section 4, except that with respect to any such
registration the Company shall not be obligated to pay underwriting discounts
or commissions or transfer taxes, if any, relating to the sale or disposition
of Selling Holders' Registrable Securities. In the event MSLEF II or SIBV
withdraws a Registration Notice or the Morgan Holders or the SIBV Holders
abandon a registration statement or otherwise do not sell Registrable
Securities following a Registration Notice, then all Registration Expenses in
respect of such Registration Notice shall be borne by the Selling Holders;
provided, however, in the event of a Company Delay following which the Selling
Holders decide by notice in writing to the Company not to sell Registrable
Securities, the Company will pay all Registration Expenses and such shall not
be deemed to be a Demand for purposes of this Agreement. The Company will also
pay all Registration Expenses in connection with any registration of
Registrable Securities that is demanded by MSLEF II or SIBV pursuant to Section
2(a) but that, because of any of the reasons described in clauses (i), (ii) or
(iii) of Section 2(d), is not deemed to have been effected.
SECTION 6. Registration and Qualification. If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 2 or 4
hereof, the Company will as promptly as is practicable:
(a) prepare and file with the SEC, as soon as possible, and use its
best efforts to cause to become effective, a registration statement under the
Securities Act relating to the Registrable Securities to be offered on such form
as MSLEF II or SIBV, as the case may be, or if not filed pursuant to a Demand,
the Company, determines and for which the Company then qualifies;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the earlier of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of nine months (or six months in
the event of a registration statement on Form S-1 (or any successor "long-form"
registration statement)) after such registration statement becomes effective;
provided that such six or nine month period shall be extended in the case of a
Demand for such number of days that equals the number of days elapsing from (i)
the date the written notice contemplated by Section 6(g) hereof is given by the
Company to (ii) the date on which the Company delivers to the Selling Holders
the supplement or amendment contemplated by Section 6(g) hereof;
(c) furnish to the Selling Holders and to any underwriter of
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as the Selling Holders or such underwriter
may reasonably request, and, if requested, a copy of any and all transmittal
letters or other correspondence to, or received from, the SEC or any other
governmental agency or self-regulatory body or other body having jurisdiction
(including any domestic or foreign securities exchange) relating to such
offering;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such registration statement at the earliest
possible moment;
(e) subject to Section 14, use its best efforts to register or qualify
all Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions (domestic or foreign), and to
list or qualify for such securities exchanges and other trading markets, as
MSLEF II or SIBV, as the case may be, or any underwriter of Registrable
Securities shall request, and use its best efforts to obtain all necessary
registrations, permits and consents required in connection therewith, and do any
and all other acts and things which are reasonably requested to enable the
Selling Holder or any such underwriter to consummate the disposition in such
jurisdictions of the Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to consent to general service of process in
any such jurisdiction;
(f) if requested by MSLEF II or SIBV, as the case may be, (i) furnish
to each Selling Holder an opinion of counsel for the Company addressed to each
Selling Holder and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the effective
date of the registration statement), and (ii) use its best efforts to furnish to
each Selling Holder a "cold comfort" letter addressed to each Selling Holder and
signed by the independent public accountants who have audited the Company's
financial statements included in such registration statement, in each such case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(g) immediately notify the Selling Holders in writing (i) at any time
when a prospectus relating to a registration pursuant to Section 2 or 4 hereof
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of the Selling Holders prepare and
furnish to the Selling Holders a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(h) subject to Section 14, use its best efforts to list all such
Registrable Securities covered by such registration on each securities exchange
and inter-dealer quotation system on which a class of common equity securities
of the Company is then listed (and on each exchange and inter-dealer quotation
system requested by MSLEF II), and to pay all fees and expenses in connection
therewith; and
(i) furnish unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations and registered to such
persons or nominees as shall be requested by the Selling Holders or the
underwriters.
SECTION 7. Termination. This Agreement shall terminate upon the earlier
of: (i) the mutual agreement of the parties hereto; and (ii) December 31, 2010.
The rights and obligations of the Morgan Holders shall also terminate after the
Morgan Holders cease to own, in the aggregate, at least 1,000,000 shares of
Common Stock (not taking into account any shares purchased after the date
hereof). The rights and obligations of the SIBV Holders shall also terminate
after the SIBV Holders cease to own, in the aggregate, at least 1,000,000 shares
of Common Stock (not taking into account any shares purchased after the date
hereof other than shares purchased by an SIBV Holder from a Morgan Holder).
Notwithstanding the foregoing, the provisions of Section 5, 6, 10 and 12 shall
survive any such termination of this Agreement or the rights and obligations of
the Morgan Holders or the SIBV Holders, as the case may be.
SECTION 8. Underwriting; Due Diligence, Etc. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant
to a registration requested under this Agreement, the Company will enter into
an underwriting agreement with such underwriters for such offering, which, (x)
in the case of a Morgan Demand, shall be in form reasonably acceptable to MSLEF
II and (y) in the case of a SIBV Demand, shall be in form reasonably acceptable
to SIBV, and which, in the case of a Company Registration Process, shall be in
form reasonably acceptable to the Company, any such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution (provided that any indemnities and contribution shall, unless
MSLEF II or the Agent (as defined below) or SIBV, as the case may be, agrees
otherwise, be to the effect and only to the extent provided in Section 10
hereof) and the provision of opinions of counsel and accountants' letters to
the effect and to the extent provided in Section 6(e) hereof; provided,
however, the Company may negotiate and agree to differing indemnification
obligations with respect to the underwriters, provided such indemnification
obligations (i) do not adversely affect the Selling Holders with respect to
their rights and obligations hereunder and (ii) shall not excuse the Company
from entering into (or delaying the execution of) an underwriting agreement on
the terms as provided herein. The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement, and the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Selling Holders. In no event shall any Selling Holder be required to make
any representation or warranty, other than as to its ownership of the
Registrable Securities and as to due authorization, execution and
enforceability with respect to it of the underwriting agreement. Such
underwriter shall be instructed to use its reasonable best efforts to affect a
wide distribution of the Common Stock so long as doing so shall not, in any
manner, adversely affect the marketing (including timing) or price of such
shares. The Company, if requested by MSLEF II or SIBV, as the case may be, or
the underwriters, will enter into an agreement with the Independent Underwriter
on customary terms.
(b) In the event that any registration pursuant to Section 4 shall
involve, in whole or in part, an underwritten offering, the Company may require
the Registrable Securities requested to be registered pursuant to Section 4 to
be included in such underwriting on the same terms and conditions as shall be
applicable to the other securities being sold through underwriters under such
registration.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company will give the Selling Holders and the underwriters, if any,
and their respective counsel and accountants, such reasonable and customary
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who
have certified the Company's financial statements as shall be necessary, in the
reasonable opinion of such Selling Holder and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act. The Selling Holders and the underwriters, if any, and their
respective counsel and accountants, shall use their reasonable best efforts to
coordinate and time their review so as to not unreasonably interfere with the
business and operations of the Company. Such information shall be governed by
confidentiality provisions comparable to those set forth in the Stockholders
Agreement.
(d) In the event an offering pursuant to this Agreement is not
underwritten, the Company, at the request of MSLEF II or the Agent or SIBV, as
the case may be, will enter into such agreements with any selling agents or
similar persons as are customary. Such agreements shall contain terms and
provisions analogous to those described herein and, to the extent not so
described, customary terms and provisions.
SECTION 9. Restrictions on Public Sale; Inconsistent Agreements. (a)
If any registration of (i) Registrable Securities pursuant to Section 2 shall
be in connection with an underwritten public offering, the Company, SIBV, MSLEF
II, Equity Investors, First Plaza and Leeway (as to themselves severally and,
except in the case of First Plaza or Leeway, as to their respective Affiliates)
agree not to, or (ii) Common Stock pursuant to Section 3 or 4 shall be in
connection with an underwritten public offering, SIBV, MSLEF II, Equity
Investors, First Plaza and Leeway (as to themselves severally and, except in
the case of First Plaza or Leeway, as to their respective Affiliates) agree not
to, effect any public sale or distribution including any sale pursuant to Rule
144 (except as part of such registration), of any of the Company's common
equity securities or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (other than any such sale or
distribution of such securities in connection with any exchange offer, merger
or consolidation by the Company or a subsidiary of the Company or in connection
with the purchase of all or substantially all the assets of any other person or
in connection with an employee stock option or other benefit plan) during the
30 days prior to, and during the 180 day period beginning on, the Effective
Date of such registration statement, or for such shorter period required by the
underwriters of such offering; provided, however, that MSLEF II can waive any
of the foregoing obligations of any party in the case of any MSLEF II Demand
and SIBV can waive any of the foregoing obligations of any party in the case of
any SIBV Demand. For purposes of this Section 9, Leeway shall mean and be
limited to State Street Bank & Trust Company, as trustee for the Long Term
Investment Trust and any successor thereto and any investment advisor or
manager with discretionary investment authority with respect to the Registrable
Securities presently held by Leeway, including any affiliate of J.P. Morgan &
Co., Inc. with discretionary investment authority with respect to such
Registrable Securities.
(b) The Company agrees (1) without the written consent of the
managing underwriters, not to effect any public or private sale or distribution
of the Company's common equity securities or any security convertible into or
exchangeable or exercisable for any equity security of the Company, including a
sale pursuant to Regulation D under the Securities Act, during a MSLEF II
Registration Process or a SIBV Registration Process (except (i) as part of such
underwritten registration or pursuant to registrations on Form S-4 or Form S-8
or any successor forms; or (ii) equity securities issued pursuant to the
conversion or exchange of any securities convertible into or exchangeable for
the Company's common equity securities and which were outstanding prior to the
commencement of the Registration Process, and (2) to use its best efforts to
cause each holder of its privately placed securities purchased from the Company
at any time on or after the date of this Agreement to agree not to effect any
public sale or distribution of any such securities during such period,
including a sale pursuant to Rule 144 (except as part of such underwritten
registration, if permitted).
SECTION 10. Indemnification and Contribution. (a) In the case of each
offering of Registrable Securities made pursuant to this Agreement, the Company
agrees to indemnify and hold harmless each Selling Holder, its partners or
trustees, each underwriter of Registrable Securities so offered, each person,
if any, who controls any of the foregoing persons within the meaning of the
Securities Act, and the officers, directors, trustees, beneficiaries and
advisors of any of the foregoing from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to
which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, and shall promptly reimburse them, as and when incurred, for any
legal or other expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as such losses, claims, damages,
liabilities or actions shall arise out of, or shall be based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement (or in any preliminary or final prospectus included
therein) or in any offering memorandum or other offering document relating to
the offering and sale of such Registrable Securities, or any amendment thereof
or supplement thereto, or in any document incorporated by reference therein, or
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or shall arise out of or be based upon any violation or alleged violation by
the Company of the Securities Act, any blue sky laws, securities laws or other
applicable laws of any state or country in which the Registrable Securities are
offered and relating to action or inaction required of the Company in
connection with such offering; provided, however, that the Company shall not be
liable to a particular Selling Holder in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement, or any omission or alleged
omission, if such statement or omission shall have been made in reliance upon
and in conformity with information relating to such Selling Holder furnished to
the Company in writing by or on behalf of such Selling Holder expressly for use
in the preparation of the registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement thereto or a document
incorporated by reference in any of the foregoing. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of a Selling Holder and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to each Selling Holder, its partners, underwriters of the
Registrable Securities, any controlling person of any of the foregoing or any
officer or director of any of the foregoing.
(b) In the case of each offering made pursuant to this Agreement,
each Selling Holder included in such offering, by exercising its registration
rights hereunder, agrees to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of the Securities
Act (and if requested by the underwriters, each underwriter who participates in
the offering and each person, if any, who controls any such underwriter within
the meaning of the Securities Act), and the officers and directors of any of
the foregoing from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall
promptly reimburse them, as and when incurred, for any legal or other expenses
incurred by them in connection with investigating any claims and defending any
actions, insofar as any such losses, claims, damages, liabilities or actions
shall arise out of, or shall be based upon, any untrue statement or alleged
untrue statement of a material fact contained in the registration statement (or
in any preliminary or final prospectus included therein) or in any offering
memorandum or other offering document relating to the offering and sale of such
Registrable Securities, or any amendment thereof or supplement thereto, or in
any document incorporated by reference therein, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
such untrue statement of a material fact is contained in, or such material fact
is omitted from, information relating to such Selling Holder furnished in
writing to the Company by or on behalf of such Selling Holder expressly for use
in the preparation of such registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document or a document incorporated by reference in any of the foregoing. The
foregoing indemnity is in addition to any liability which such Selling Holder
may otherwise have to the Company, or any of its directors, officers or
controlling persons. In no event shall the liability of a Selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by it upon the sale of the Registrable Securities pursuant to such
offering.
(c) Each party indemnified under paragraph (a) or (b) of this Section
10 shall, promptly after receipt of notice of any claim or the commencement of
any action against such indemnified party in respect of which indemnity may be
sought, notify the indemnifying party in writing of the claim or the
commencement thereof; provided that the failure of the indemnified party to
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to an indemnified party on account of the indemnity
agreement contained in paragraph (a) or (b) of this Section 10, unless the
indemnifying party was materially prejudiced by such failure, and in no event
shall relieve the indemnifying party from any other liability which it may have
to such indemnified party. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party,
to assume the defense thereof with counsel satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable (except to the extent the proviso to this sentence is
applicable, in which event it will be so liable) to the indemnified party under
this Section 10 for any legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation; provided that each indemnified party shall have the right to
employ separate counsel to represent it and assume its defense (in which case,
the indemnifying party shall not represent it) if, in the reasonable judgment
of such indemnified party, (i) upon the advice of counsel, the representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, or (ii) in the event the
indemnifying party has not assumed the defense thereof within 10 days of
receipt of notice of such claim or commencement of action, and in which case
the fees and expenses of one such separate counsel shall be paid by the
Company. The indemnifying party shall not be responsible for providing
indemnification with respect to any settlement agreement which is not approved
by it prior to its execution, such approval not to be unreasonably withheld. If
the indemnifying party so assumes the defense thereof, it may not agree to any
settlement of any such claim or action (i) as the result of which any remedy or
relief, other than monetary damages for which the indemnifying party shall be
responsible hereunder, shall be applied to or against the indemnified party, or
(ii) unless such settlement includes an unconditional release of liability in
favor of the indemnified party, in each case without the prior written consent
of the indemnified party. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel satisfactory to the
indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof.
(d) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to an indemnified party in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in
respect thereof, in such proportion as shall be appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted
in such loss, claim, damage or liability, or action in respect thereof, as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in the Company. In no event, however, shall a Selling Holder be
required to contribute in excess of the amount of the net proceeds received by
such Selling Holder in connection with the sale of Registrable Securities in
the offering which is the subject of such loss, claim, damage or liability. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph shall be deemed to include, for purposes of this paragraph, any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 11. Rule 144. The Company shall take such measures and file
such information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 and Rule 144A (or any successor
provisions).
SECTION 12. Miscellaneous. (a) Injunctions. Irreparable damage would
occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached.
Therefore, the parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction,
such remedy being in addition to any other remedy to which they may be entitled
at law or in equity.
(b) Severability. If any term or provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
(c) Further Assurances. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term or provision.
(d) Waivers, Etc. No failure or delay on the part of any party hereto
(or the intended third party beneficiaries referred to herein) in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No
modification or waiver of any provision of this Agreement nor consent to any
departure therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Any waiver agreed to by
MSLEF II shall be binding upon the Morgan Holders.
(e) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. The
section headings contained in this Agreement are solely for the purpose of
reference, and shall not in any way affect the meaning or interpretation of
this Agreement. This Agreement shall not be amended or modified except by
written instrument executed by the parties hereto; provided that the Company
and MSLEF II may amend this Agreement (A) without the consent of the other
parties hereto (other than SIBV) and (B) without the consent of SIBV (in its
capacity as a party to this Agreement, as opposed to any ability it may have to
direct the Company) so long as (i) such amendment does not directly or
indirectly adversely affect the rights or obligations of SIBV hereunder or SIBV
other than in its capacity as a stockholder of the Company or (ii) SIBV owns
less than 5% of the outstanding voting securities of the Company; provided,
further that the Company and SIBV may amend this Agreement (A) without the
consent of the other parties hereto (other than MSLEF II) and (B) without the
consent of MSLEF II (in its capacity as a party to this Agreement, as opposed
to any ability it may have to direct the Company) so long as such amendment
does not directly or indirectly adversely affect the rights or obligations of
any Morgan Holder or its Affiliates hereunder or any Morgan Holder and its
Affiliates other than in their capacities as stockholders of the Company. Any
amendment agreed to by MSLEF II shall be binding upon the Morgan Holders.
(f) Counterparts. For the convenience of the parties, this Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original but all of which together shall be one and the same instrument.
(g) Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein shall be validly given, made or
served, if in writing and delivered personally, by facsimile or sent by
registered mail, postage prepaid as follows:
(i)if to MSLEF II or any Morgan Holder, to:
Morgan Stanley Leveraged Equity Fund II, Inc.
c/o Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
Attention: Alan E. Goldberg
Fax No.: (212) 762-6466
with a copy to:
Morgan Stanley Capital Partners
1221 Avenue of the Americas
New York, New York 10020
Attention: Peter R. Vogelsang
Fax No.: (212) 762-6466
(ii)if to SIBV or any SIBV Holder, to:
Smurfit International B.V.
Strawinskylaan 2001
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services B.V.
Fax No.: 010-3120-626-4435
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
William Fry
Fitzwilton House,
Wilton Place
Dublin 2, Ireland
Attention: Houghton Fry, Esq.
Fax: 353-1-639-5333
(iii)if to the Company, to:
Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Michael E. Tierney, Esq.,
Vice President and General Counsel
Fax No.: (314) 746-1184
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John R. Ettinger, Esq.
Fax No.: (212) 450-4800
or such other address as any party may, from time to time, designate in a
written notice in a like manner; provided that notices of a change of address
shall be effective only upon receipt thereof. Notice given by facsimile shall
be deemed delivered five calendar days after the date the same is mailed.
(h) WAIVER OF JURY TRIAL, ETC. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE PARTIES AGREE, SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF, AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE FEDERAL OR STATE
COURTS LOCATED IN, THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF
PROCESS IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
EFFECTIVE IF DELIVERED OR SENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION
12(G) HEREOF.
(i) Assignment. Except as provided herein, the parties may not assign
their rights under this Agreement; provided that (x) any Morgan Holder may
assign and delegate its rights and obligations under this Agreement to any
other Morgan Holder and (y) First Plaza Group Trust and Leeway & Co. shall have
the right to assign this Agreement to one or more successor trustees, plans or
nominees for, or successors by reorganization of, a qualified pension trust.
The Company may not delegate its obligations under this Agreement. Any action
required or permitted to be taken by the Morgan Holders pursuant to this
Agreement shall be taken by MSLEF II. Subject to Section 12(e), any Morgan
Holder or SIBV Holder that is not a party hereto shall be a third party
beneficiary of the rights granted under this Agreement (provided that the
ability of such Person to exercise the registration rights set forth herein
shall be subject to the obligations imposed on such Person under this
Agreement) as of and after the time, if any, as may be provided in any
agreement between MSLEF II and such Morgan Holder or SIBV Holder, as the case
may be.
SECTION 13. Representations and Warranties. (a) SIBV represents to the
other parties hereto that it is duly incorporated and validly existing as a
corporation under the laws of The Netherlands; that it has the power and
authority under its articles of incorporation or similar charter document to
enter into and perform this Agreement; that the execution of this Agreement by
it has been duly authorized by all required corporation actions; that the
consummation of the transactions contemplated hereunder will not result in a
breach or violation of, or a default under, its certificate of incorporation
(or similar charter document) or by-laws, or any material agreement by which it
is subject, nor require the obtaining of any consent, approval, permit or
license from or filing with, any governmental authority or other Person by it
in connection with the execution, delivery and performance by it of this
Agreement, except for violations which would not, or consents or filings which,
if not obtained or made, would not, in the aggregate, affect materially and
adversely the business, financial condition or results of operation of SIBV and
its subsidiaries, taken as a whole; that this Agreement constitutes (assuming
its due authorization and execution by the other parties hereto) its legal,
valid and binding obligation; and that, as of the date hereof, it and its
Affiliates beneficially own, in the aggregate, the number of shares of Common
Stock of the Company set forth opposite its name on Schedule I attached hereto.
(b) Each of The MSLEF II Fund and Equity Investors represents to the
other parties hereto that it is a limited partnership duly organized and validly
existing under the laws of its jurisdiction of organization; that it has the
power and authority under its agreement of limited partnership to enter into and
perform this Agreement; that the execution of this Agreement by it has been duly
authorized by all required partnership action; that the consummation of the
transactions contemplated hereunder will not result in a breach or violation or,
or a default under, its agreement of limited partnership or under any agreement
of partnership of the general partner, or any material agreement by which it or
any of its properties or any of its general partner's properties is bound or any
statute, rule, regulation, order or other law to which it is subject, nor
require the obtaining of any consent, approval, permit or license from or filing
with, any governmental authority or other Person by MSLEF II or Equity
Investors, respectively, in connection with the execution, delivery and
performance by it of this Agreement, except for violations which would not, or
consents or filing which, if not obtained or made, would not, in the aggregate,
affect materially and adversely the business, financial condition or results of
operation of MSLEF II and its subsidiaries, taken as a whole, respectively; that
this Agreement constitutes (assuming its due authorization and execution by the
other parties hereto) its legal, valid and binding obligation; and that, as of
the date hereof, it beneficially owns the number of shares of Common Stock of
the Company set forth opposite its name on Schedule I attached hereto.
(c) Each of MSLEF II and Equity Investors Inc. represents to the
other parties hereto that it is duly incorporated and validly existing as a
corporation under the laws of the state of its incorporation, and is in good
standing therein; that it has the power and authority under its certificate of
incorporation to enter into and perform this Agreement; that the execution of
this Agreement by it has been duly authorized by all required corporate
actions; that the consummation of the transactions contemplated hereunder will
not result in a breach or violation of, or a default under, its certificate of
incorporation, its by-laws, or any material agreement by which it or any of its
properties is bound or any statute, rule, regulation, order or other law to
which it is subject, nor require the obtaining of any consent, approval, permit
or license from, or filing with, any governmental authority or other Person by
MSLEF II, Inc. or Equity Investors Inc., respectively, in connection with the
execution, delivery and performance by it of this Agreement, except for
violations which would not, or consents or filings which, if not obtained or
made, would not, in the aggregate, affect materially and adversely the
business, financial condition or results of operation of MSLEF II, Inc. and its
subsidiaries, taken as a whole, or Equity Investors Inc. and its subsidiaries,
taken as a whole, respectively; that this Agreement constitutes (assuming its
due authorization and execution by the other parties hereto) its legal, valid
and binding obligation; and that, as of the date hereof, it beneficially owns
the number of shares of Common Stock of the Company set forth opposite its name
Schedule I attached hereto.
(d) The Company represents to the other parties hereto that it is duly
incorporated and validly existing as a corporation under the laws of the state
of Delaware, and is in good standing therein; that it has the power and
authority under its certificate of incorporation to enter into and perform this
Agreement; that the execution of this Agreement by it has been duly authorized
by all required corporate actions; that the consummation of the transactions
contemplated hereunder will not result in a breach or violation of, or a default
under, its certificate or incorporation, its by-laws, or any material agreement
by which it or any of its properties is bound or any statute, rule, regulation,
order or other law to which it is subject, nor require the obtaining of any
consent, approval, permit or license from, or filing with, any governmental
authority or other Person by the Company in connection with the execution,
delivery and performance by it of this Agreement, except for violations which
would not, or consents or filings which, if not obtained or made, would not, in
the aggregate, affect materially and adversely the business, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole;
that this Agreement constitutes (assuming its due authorization and execution by
the other parties hereto) its legal, valid and binding obligation.
(e) First Plaza represents and warrants to the other parties hereto
that it has the full power and authority to execute and deliver this Agreement;
that this Agreement has been duly authorized, executed and delivered by First
Plaza and constitutes (assuming its due authorization and execution by the other
parties hereto) its legal, valid and binding obligation; and that, as of the
date hereof, it beneficially owns the number of shares of Common Stock of the
Company set forth opposite its name on Schedule I attached hereto.
(f) Leeway represents and warrants to the other parties hereto that it
has the full power and authority to execute and deliver this Agreement; that
this Agreement has been duly authorized, executed and delivered by Leeway and
constitutes (assuming its due authorization and execution by the other parties
hereto) its legal, valid and binding obligation; and that, as of the date
hereof, it beneficially owns the number of shares of Common Stock of the Company
set forth opposite its name on Schedule I attached hereto (except that Leeway
acts as nominee for State Street Bank and Trust Company and Trust Company as
Trustee for The Long Term Investment Trust).
SECTION 14. Ireland Listing. Notwithstanding anything herein to the
contrary, without the prior written consent of SIBV, neither MSLEF II nor any
underwriter may require the Company to, and the Company shall not, effect the
listing of any Registrable Securities on the Irish Stock Exchange.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SMURFIT INTERNATIONAL B.V.
By: /s/ Houghton Fry
-------------------------------
Name: Houghton Fry
Title: Attorney-in-Fact
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: Morgan Stanley Leveraged Equity
Fund II, Inc. (general partner)
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
By: /s/ Michael M. Janson
-------------------------------
Name: Michael M. Janson
Title: Managing Director
SIBV/MS EQUITY INVESTORS, L.P.
By: Morgan Stanley Equity
Investors Inc.
(general partner)
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
MORGAN STANLEY EQUITY
INVESTORS, INC.
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
MORGAN STANLEY LEVERAGED
EQUITY HOLDINGS, INC.
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
FIRST PLAZA GROUP TRUST
By: Mellon Bank, N.A., solely in its
capacity as trustee for First Plaza
Group Trust (as directed by General
Motors Investment Management
Corporation) and not in its individual
capacity
By: /s/ Berndette A. Rist
-------------------------------
Name: Bernadette A. Rist
Title: Authorized Signatory
LEEWAY & CO.
By: State Street Bank and Trust Company,
a partner
By: /s/ Kimberly A. Moynihan
-------------------------------
Name: Kimberly A. Moynihan
Title: Assistant Secretary
JEFFERSON SMURFIT CORPORATION
By: /s/ Patrick J. Moore
-------------------------------
Name: Patrick J. Moore
Title: Vice President and Chief
Financial Officer
THE MORGAN STANLEY LEVERAGED
EQUITY FUND, INC.
By: /s/ Alan E. Goldberg
-------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
SCHEDULE I
Stockholder Name Shares
- ---------------------------------------------------------- ----------
Smurfit International B.V. and subsidiaries 51,638,462
The Morgan Stanley Leveraged Equity Fund II, L.P. 30,527,880
Morgan Stanley Leveraged Equity Fund II, Inc. 1,046,660
SIBV/MS Equity Investors, L.P. 225,460
First Plaza Group Trust 5,000,000
Leeway & Co. 3,000,000
EXHIBIT 10(f)
Amended and Restated
VOTING AGREEMENT
Dated as of October 2, 1998
among
SMURFIT INTERNATIONAL B.V.,
MORGAN STANLEY LEVERAGED EQUITY FUND II, INC.
and
MR. ROGER W. STONE
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
VOTING AND RELATED AGREEMENTS
SECTION 1.01. Definitions.....................................................2
SECTION 1.02. Election of Directors...........................................2
SECTION 1.03. Removal of Directors............................................2
SECTION 1.04. Replacement of the MSLEF Director...............................3
SECTION 1.05. Charter or Bylaw Amendments.....................................3
SECTION 1.06. Written Consents................................................3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Organization....................................................3
SECTION 2.02. Authority.......................................................4
SECTION 2.03. No Violation....................................................4
ARTICLE 3
TERMINATION
SECTION 3.01. Termination.....................................................4
SECTION 3.02. Effect of Termination...........................................5
SECTION 3.03. MSLEF Withdrawal................................................5
ARTICLE 4
MISCELLANEOUS
SECTION 4.01. Notices.........................................................6
SECTION 4.02. Entire Agreement................................................7
SECTION 4.03. Successors and Assigns..........................................7
SECTION 4.04. Amendments and Waivers..........................................8
SECTION 4.05. Governing Law...................................................8
SECTION 4.06. WAIVER OF JURY TRIAL, ETC.......................................8
SECTION 4.07. Counterparts....................................................9
SECTION 4.08. Captions........................................................9
SECTION 4.09. Specific Performance............................................9
SECTION 4.10. Beneficial Ownership............................................9
SECTION 4.11. Reclassifications, etc..........................................9
Amended and Restated
VOTING AGREEMENT
Amended and Restated VOTING AGREEMENT dated as of October 2, 1998
(this "Agreement") among Smurfit International B.V., a corporation
organized under the laws of the Netherlands ("SIBV"), Morgan Stanley
Leveraged Equity Fund II, Inc., a Delaware corporation ("MSLEF"), and Mr.
Roger W. Stone ("Mr. Stone").
W I T N E S S E T H
WHEREAS, the parties hereto have heretofore entered into the Voting
Agreement dated as of May 10, 1998 (the "Original Agreement") concurrently with
the execution by Jefferson Smurfit Corporation, a Delaware corporation ("JSC"),
and Stone Container Corporation, a Delaware corporation ("Stone"), of an
Agreement and Plan of Merger dated as of May 10, 1998 as amended on October 2,
1998 (the "Merger Agreement"), providing for the merger (the "Merger") of
Stone with JSC Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of JSC ("Merger Sub");
WHEREAS, following the consummation of the Merger, SIBV, MSLEF and Mr.
Stone (each, a "Shareholder" and, together, the "Shareholders") will
beneficially own (as defined in Section 4.10) shares of common stock, par value
$0.01 per share ("Common Stock"), of JSC; and
WHEREAS, in connection with the Merger, the name of JSC is being
changed to Smurfit-Stone Container Corporation ("SSCC") and the Certificate of
Incorporation of JSC (the "SSCC Charter") and the Bylaws of JSC (the "SSCC
Bylaws") are being amended and restated to reflect certain agreements reached by
the parties to the Merger Agreement with respect to certain corporate governance
matters; and
WHEREAS, the parties hereto wish to enter into this Agreement to amend
and restate the Original Agreement as provided herein in order to implement
fully such SSCC Charter and SSCC Bylaws provisions and certain other corporate
governance matters;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
VOTING AND RELATED AGREEMENTS
SECTION 1.01. Definitions. Capitalized terms contained herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
SSCC Bylaws.
SECTION 1.02. Election of Directors. (a) Each Shareholder agrees that,
at any meeting of SSCC stockholders at which directors are to be elected, such
Shareholder will vote or cause to be voted all shares of Common Stock
beneficially owned by such Shareholder or its subsidiaries entitled to vote
thereon, in favor of (i) the persons designated for nomination by the Nominating
Committees pursuant to the SSCC Bylaws and (ii) subject to paragraph (b) below,
if Mr. Stone has not been designated for nomination by any of the Nominating
Committees, Mr Stone.
(b) The obligation of the Shareholders to vote in favor of the
election of Mr. Stone as a director pursuant to clause (ii) of paragraph (a)
above, shall (i) be subject to the right of the Shareholders to vote for the
removal of Mr. Stone for Cause (pursuant to Section 1.03(a) hereof), (ii) be
limited to voting for Mr. Stone as an individual and shall not confer on any
person or entity (other than as provided in the SSCC Bylaws) the right to
designate any replacement for Mr. Stone if he ceases to serve on the Board for
any reason and (iii) terminate and be of no further force or effect if Mr. Stone
is removed as CEO for Cause or if Mr.
Stone has reached the age of 72.
SECTION 1.03. Removal of Directors. (a) Subject to paragraph (b) below,
each Shareholder agrees that it will not vote (or will cause not to be voted)
any shares of Common Stock beneficially owned by such Shareholder or its
subsidiaries in favor of the removal from the SSCC Board of Directors (the
"Board") of any director designated for nomination or appointed to the Board by
any of the Nominating Committees or designated for nomination by MSLEF pursuant
to Section 1.04 hereof, unless such removal is for Cause.
(b) Notwithstanding paragraph (a) above, if at any time MSLEF
beneficially owns less than the MSLEF Threshold Amount of Shares and if at such
time there is a MSLEF Director, each Shareholder agrees that, at the request of
either of the other Shareholders, it will vote (or will cause to be voted) all
shares of Common Stock beneficially owned by such Shareholder or its
subsidiaries in favor of (i) calling a Special Meeting for the purpose of
removing the MSLEF Director and (ii) removing the MSLEF Director from the Board
at such Special Meeting.
SECTION 1.04. Replacement of the MSLEF Director. Provided that 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 Board, then each
Shareholder agrees that it will vote (or will cause to be voted) all shares of
Common Stock beneficially owned by such Shareholder or its subsidiaries in favor
of:
(i) calling a Special Meeting for the purposes 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 to serve as the MSLEF Director on the Board; and
(ii) at such Special Meeting (x) removing such Unaffiliated
Director (if any), (y) electing to the Board the person designated by
MSLEF and (z) designating such person as the "MSLEF Director" on the
Board.
SECTION 1.05. Charter or Bylaw Amendments. No party hereto shall vote
in favor of any resolution by any stockholder which seeks to alter, amend,
repeal, in whole or in part, or adopt any provision inconsistent with either (i)
the provisions set forth in Article 5 of the SSCC Bylaws or (ii) the provisions
set forth in the SSCC Charter requiring the affirmative vote of stockholders
holding at least 75% of the voting power of SSCC's outstanding capital stock.
SECTION 1.06. Written Consents. The provisions of Sections 1.01 through
1.05 shall apply, mutatis mutandis, in the event that any stockholder action is
taken by written consent in lieu of a stockholder meeting.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each party hereto represents (as to itself only) to the other parties
hereto as follows:
SECTION 2.01. Organization. Each of SIBV and MSLEF is a corporation
duly organized, validly existing and, in the case of MSLEF, in good standing
under the laws of its jurisdiction of incorporation.
SECTION 2.02. Authority. Such party has all power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by such
party of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action (corporate, partnership
or otherwise) on the part of such party. No other action on the part of such
party (or its stockholders or partners, if applicable) is necessary to authorize
the execution and delivery of this Agreement by such party or the performance by
such party of its obligations hereunder. This Agreement has been duly executed
and delivered by such party and constitutes a legal, valid and binding agreement
of such party, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 2.03. No Violation. The execution and delivery of this
Agreement by such party, and the performance by such party of its obligations
hereunder and the consummation of the transactions contemplated hereby, will
not: (a) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to such party, (b) require
the consent, waiver, approval, license or authorization or any filing by such
party with any governmental authority other than any filings required under the
Exchange Act or (c) assuming compliance with the matters referred to in clause
(b), violate, result (with or without notice or the passage of time, or both) in
a breach of or give rise to the right to accelerate, terminate or cancel any
obligation under or constitute (with or without notice or the passage of time,
or both) a default under, any of the terms or provisions of any charter,
partnership agreement or other governing document, bylaw, agreement, note,
indenture, mortgage, contract, order, judgment, ordinance, regulation or decree
to which such party is subject or by which such party is bound and which would
have an adverse effect on the ability of such party to perform its obligations
under this Agreement.
ARTICLE 3
TERMINATION
SECTION 3.01. Termination. (a) This Agreement may be terminated by
mutual written agreement of the Shareholders.
(b) The obligations of the parties hereto set forth in Article 1 shall
terminate on the Article 5 Termination Date, provided that the obligations of
the parties hereto (i) which relate to MSLEF, the MSLEF Director or the MSLEF
Committee (including, but not limited to, the obligations set forth in Sections
1.02, 1.03, and 1.04 as they relate to the MSLEF Committee or the MSLEF
Director) shall survive for so long as MSLEF owns at least the MSLEF Threshold
Amount of Shares and (ii) pursuant to Section 1.02(a)(ii) and Section 1.02(b),
shall survive until the earlier of Mr. Stone's death or Mr. Stone reaching the
age of 72.
(c) The obligation of any Shareholder to vote or cause to be voted
shares of Common Stock in favor of a person designated by MSLEF or the MSLEF
Committee and against the removal of any MSLEF Director may be terminated with
respect to such Shareholder by mutual written agreement of such Shareholder and
MSLEF.
(d) The obligation of any Shareholder to vote or cause to be voted
shares of Common Stock, in favor of a person designated for nomination by the
JSC Committee and against the removal of any JSC Director may be terminated with
respect to such Shareholder by mutual written agreement of such Shareholder and
SIBV.
(e) The obligation of any Shareholder to vote or cause to be voted
shares of Common Stock in favor of, or against the removal of, Mr. Stone as a
director may be terminated with respect to such Shareholder by mutual written
agreement of such Shareholder and Mr. Stone.
SECTION 3.02. Effect of Termination. If this Agreement is terminated in
whole or in part (i) pursuant to Section 3.01(a) or (b), all further obligations
of the parties hereto under this Agreement shall terminate without further
liability or obligation of any party to any other party, including liability for
damages or (ii) pursuant to Sections 3.01(c), 3.01(d), 3.01(e) or 3.03 of this
Agreement, such obligations as are specified in such sections shall so
terminate; provided that any such termination shall not relieve any party hereto
from liability for breach of this Agreement.
SECTION 3.03. MSLEF Withdrawal. MSLEF shall have the right, upon at
least two days' notice to the other parties hereto, to terminate all of its
rights and obligations under this Agreement, provided that at such time, (i)
MSLEF beneficially owns less than three percent of the voting power of the
capital stock of SSCC issued and outstanding and entitled to vote and (ii) the
MSLEF Committee, by resolution, permanently waives its right to designate a
director to serve on the Compensation Committee.
ARTICLE 4
MISCELLANEOUS
SECTION 4.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to SIBV to:
Smurfit International B.V.
Strawinskylaan 2001
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services B.V.
Fax: 31-20-546-0717
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Steven A. Rosenblum, Esq.
Fax: (212) 403-2000
William Fry
Fitzwilton House,
Wilton Place,
Dublin 2, Ireland
Attention: Houghton Fry, Esq.
Fax: 353-1-639-5333
if to MSLEF, to:
Morgan Stanley Leveraged Equity Fund II, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Alan C. Goldberg
Fax: (212) 762-6466
with a copy to:
Morgan Stanley Capital Partners
1221 Avenue of the Americas
New York, New York 10020
Attention: Peter R. Vogelsang, Esq.
Fax: (212) 762-6466
if to Mr. Stone, to:
Mr. Roger W. Stone
Stone Container Corporation
150 North Michigan Avenue
Chicago, IL 60601
Fax: (312) 580-4625
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
233 South Wacker
Chicago, Illinois 60606
Attention: Paul J. Miller, Esq.
Fax: (312) 876-7934
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 4.02. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement including, without limitation, the Original Agreement.
SECTION 4.03. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto. Without limiting the foregoing,
in the event SIBV or any of its subsidiaries transfers any shares of Common
Stock to Jefferson Smurfit Group plc ("JSG") or any other subsidiary of JSG
(other than SIBV and its subsidiaries), it shall cause JSG or such other
subsidiary to agree to be bound as a Shareholder by all provisions of this
Agreement including this sentence with respect to subsequent transfers of shares
to JSG or any subsidiary of JSG. For purposes of this Agreement, "subsidiary"
means, with respect to any person or entity (a "Person"), any corporation or
other organization, whether incorporated or unincorporated, (i) of which
directly or indirectly a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions with respect to such corporation
or other organization is directly or indirectly owned or controlled by such
Person or by any one or more of its subsidiaries, or by such Person and one or
more of its subsidiaries or (ii) as to which such Person directly or indirectly
has the power to elect or designate such majority of the Board of Directors or
such other persons performing such functions.
SECTION 4.04. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by all Shareholders, or
in the case of a waiver, by the party as to whose rights the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 4.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of law rules of the State of New York.
SECTION 4.06. WAIVER OF JURY TRIAL, ETC. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. THE PARTIES AGREE, SOLELY IN RESPECT OF THE INTERPRETATION
AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF, AND TO WAIVE ANY OBJECTION AS TO VENUE IN, THE FEDERAL OR STATE
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. SERVICE OF PROCESS
IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF
DELIVERED OR SENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.01 HEREOF.
SECTION 4.07. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
SECTION 4.08. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 4.09. Specific Performance. The parties hereto acknowledge
that, in view of the uniqueness of the parties hereto and the transactions
contemplated hereby, the parties hereto would not have an adequate remedy at law
for money damages in the event that this Agreement were not performed in
accordance with its terms, and therefore agree that the parties shall be
entitled to specific enforcement of the terms hereof in addition to any other
remedy to which the parties hereto may be entitled at law or in equity.
SECTION 4.10. Beneficial Ownership. For purposes of this Agreement, the
phrase "beneficially own" (or any similar phrase) shall have the meaning set
forth in Rule 13d-3 under the Exchange Act. An entity shall not be deemed to
beneficially own securities held in a pension trust or non-profit foundation or
trust controlled by such entity.
SECTION 4.11. Reclassifications, etc.. The provisions of this Agreement
applicable to shares of Common Stock shall also apply, mutatis mutandis, to all
voting securities of SSCC from time-to-time beneficially owned by any
Shareholder, whether as a result of a reclassification, recapitalization,
dividend or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SMURFIT INTERNATIONAL B.V.
By: Rokin Corporate Services B.V.,
its Managing Director
By: /s/ Muus de Boer
-------------------------------------
Name: Muus de Boer
Title: Managing Director
MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.
By: /s/ Alan E. Goldberg
-------------------------------------
Name: Alan E. Goldberg
Title: Vice Chairman
/s/ Roger W. Stone
-------------------------------------
Mr. Roger W. Stone
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this ___ day of
July, 1998, between JEFFERSON SMURFIT CORPORATION (U.S.), a Delaware corporation
(the "Company"), and __________ (the "Executive");
WITNESSETH THAT:
WHEREAS, Executive is employed by the Company, and the Company desires
to provide protection to Executive in connection with any change in control of
the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties, for
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon Employment Termination After a Change in
Control. If within two (2) years after a Change in Control (all
capitalized terms as defined below) or during the Period Pending a
Change in Control, (i) Executive's employment with the Company and
its Affiliates is terminated without Cause and for a reason other
than death or Disability, or (ii) Executive voluntarily terminates
such employment with Good Reason, the Company will, within 30 days
(except as otherwise expressly provided) of Executive's Date of
Termination, make the payments and provide the benefits described
below.
(a) Cash Payment. The Company will make a lump sum cash payment
to Executive equal to two times the Executive's Annual
Compensation.
(b) Welfare Benefit Plans. With respect to each Welfare Benefit
Plan, for the period beginning on Executive's Date of
Termination and ending on the earlier of (i) two years
following Executive's Date of Termination, or (ii) the date
Executive becomes covered by a welfare benefit plan or
program maintained by an entity other than the Company or an
Affiliate that provides coverage or benefits at least equal,
in all respects, to such Welfare Benefit Plan, Executive will
continue to participate in such Welfare Benefit Plan on the
same basis and at the same cost to Executive as was the case
immediately prior to the Change in Control (or, if more
favorable to Executive, as was the case at any time
thereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable
law or contractual provisions, the Company will provide
Executive with substantially similar benefits and coverage
for such period. The Company and Executive intend that the
continued group health benefit plan coverage period provided
under Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code") (so-called "COBRA coverage") will be
concurrent with the continued coverage period provided for in
the preceding sentence. Executive shall report to the Company
any coverage or benefits actually received by Executive.
(c) Stock Option Plans. All stock options granted under the
Jefferson Smurfit Corporation Amended and Restated 1992 Stock
Option Plan and any similar or successor stock plan or
program, will immediately become fully vested and exercisable
upon the Change in Control.
(d) Retirement Plan Benefits. In addition to the retirement
benefits to which Executive is entitled under each of the
Company's Retirement Plans, the Company shall pay Executive a
lump sum amount, in cash, equal to the excess of: (i) the
actuarial equivalent of the aggregate retirement benefit
(taking into account any early retirement subsidies
associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than
the third anniversary of the Date of Termination) as of which
the actuarial equivalent of such annuity is greatest) that
Executive would have accrued under the terms of all
Retirement Plans (without regard to any amendment to any
Retirement Plan made subsequent to a Change in Control, which
amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if Executive
were fully vested thereunder and had accumulated (after the
Date of Termination) twenty-four (24) additional months of
service credit thereunder and had been credited under each
Retirement Plan during such period with compensation at the
higher of (x) Executive's compensation (as defined in such
Retirement Plan) during the twelve (12) months immediately
preceding the Date of Termination or (y) Executive's
compensation (as defined in such Retirement Plan) during the
twelve (12) months immediately preceding the Change in
Control, over (ii) the actuarial equivalent of the aggregate
retirement benefit (taking into account any early retirement
subsidies associated therewith and determined as a straight
life annuity commencing at the date (but in no event earlier
than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) that Executive had
accrued pursuant to the provisions of the Retirement Plans as
of the Date of Termination. For purposes of this Section, it
"actuarial equivalent" will be determined using the same
assumptions utilized under the Company's Salaried Employees
Retirement Plan immediately prior to the Date of Termination.
(e) Retiree Medical and Life Benefits. The Company will add two
years to the Executive's age and years of benefit service for
purposes of determining Executive's eligibility for and
benefits under the Company's retiree medical and life
insurance plan.
(f) Perquisites and Other Benefits. The Company will provide
Executive with the following executive perquisites on the
same basis on which Executive was receiving such perquisites
prior to the Change in Control: (i) reimbursement for club
dues for 24 months following Executive's Date of Termination;
and (ii) reimbursement of expenses relating to financial
planning services and tax return preparation through December
31 of the calendar year that includes the second anniversary
of Executive's Date of Termination. The Company will bear the
cost of such perquisites, at the same level in effect
immediately prior to the Change in Control. Perquisites
otherwise receivable by the Executive pursuant to this
paragraph shall be reduced to the extent comparable
perquisites are actually received by or made available to
Executive without cost during the 36 month period following
Executive's Date of Termination. Executive shall report to
the Company any such perquisites actually received by or made
available to Executive.
2. Incentive Plans. The Company will make a lump sum cash payment to
Executive within 30 days of the end of the year of a Change in Control
with respect to any incentive plan whose performance period has not
ended as of the Change in Control. The Change in Control will be
treated as the end of any performance period that has not ended as of
the Change in Control.
(a) With respect to the Management Incentive Plan or any similar
or successor plan (the "MIP"), the Company will pay to
Executive an amount determined by pro rating the financial,
strategic and performance objectives applicable to Executive
under the MIP, based on the number of days in the year prior
to the Change in Control.
(b) With respect to any long-term incentive plan maintained by
the Company (the "LTIP") the Company will pay to Executive an
amount determined by pro rating the financial, strategic
and/or performance objectives applicable to Executive under
the LTIP, based on the number of days in the performance
period prior to the Change in Control.
3. Change in Control. A "Change in Control" of the Company will be deemed
to occur as of the first day that any one or more of the following
condition is satisfied:
(a) The "beneficial ownership" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of securities representing more than 20
percent (20%) of the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Company Voting
Securities") is accumulated, held or acquired by a Person
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or an affiliate thereof, any corporation owned,
directly or indirectly, by the Company's stockholders in
substantially the same proportions as their ownership of
stock of the Company); provided, however that any acquisition
from the Company or any acquisition pursuant to a transaction
that complies with clauses (i), (ii) and (iii) of paragraph
(c) of this Section will not be a Change in Control under
this paragraph (a); or
(b) Individuals who, as of the date of the Agreement, constitute
the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors; or
(c) Consummation by the Company of a reorganization, merger or
consolidation, or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of another entity (a "Business
Combination"), in each case, unless immediately following
such Business Combination: (i) more than 60% of the combined
voting power of then outstanding voting securities entitled
to vote generally in the election of directors of (x) the
corporation resulting from such Business Combination (the
"Surviving Corporation"), or (y) if applicable, a corporation
that as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries (the "Parent
Corporation"), is represented, directly or indirectly by
Company Voting Securities outstanding immediately prior to
such Business Combination (or, if applicable, is represented
by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially
the same proportions as their ownership, immediately prior to
such Business Combination, of the Company Voting Securities,
(ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of the combined voting power of
the then outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) except to the
extent that such ownership of the Company existed prior to
the Business Combination and (iii) at least a majority of the
members of the board of directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving
Corporation) were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
However, in no event will a Change in Control be deemed to have
occurred, with respect to Executive, if Executive is part of a
purchasing group that consummates the Change in Control transaction.
Executive will be deemed "part of a purchasing group" for purposes of
the preceding sentence if Executive is an equity participant in the
purchasing company or group (except: (i) passive ownership of less
than two percent (2%) of the stock of the purchasing company; or (ii)
ownership of equity participation in the purchasing company or group
that is otherwise not significant, as determined prior to the Change
in Control by a majority of the nonemployee continuing Directors).
Notwithstanding anything in this Section to the contrary, the closing
of the transaction contemplated in the Agreement and Plan of Merger
Among Jefferson Smurfit Corporation, JSC Acquisition Corporation and
Stone Container Corporation, dated as of May 10, 1998, will constitute
a Change in Control under this Agreement.
4. Other Definitions. For purposes of this Agreement:
(a) "Affiliate" shall mean any entity that is a member of a
controlled group of corporations or a group of trades or
businesses under common control (each as defined in Code
Section 1563), which includes the Company.
(b) "Amount Payable Under Any Bonus Plans" shall mean the average
of the gross amounts earned by Executive for the three
complete fiscal years prior to Executive's Date of
Termination (or, if greater, in prior to the Change in
Control) under the MIP, or any similar bonus plan in which
Executive participates before or after the date of this
Agreement (but not including any amounts paid or payable
pursuant to the Jefferson Smurfit Corporation (U.S.) 1994
Long-Term Incentive Plan). For purposes of the preceding
sentence, if Executive's number of full fiscal years of
participation in the MIP prior to the Change in Control is
less than three, the amount under this paragraph shall be
calculated as the average of the gross annual amounts earned
by Executive over the number of full fiscal years of
Executive's participation in the MIP prior to the Change in
Control, or the number of full fiscal years of Executive's
participation in the MIP prior to Executive's Date of
Termination, whichever produces a higher average annual
amount.
(c) "Annual Compensation" shall mean the sum of: (i) Executive's
salary at the greater of Executive's salary rate in effect on
the date of (A) the Change in Control, or (B) Executive's
Date of Termination; and (ii) the Amount Payable Under Any
Bonus Plans in which Executive participates.
(d) "Employment Termination" shall mean the effective date of (i)
Executive's voluntary termination of employment with the
Company or any Affiliate with Good Reason; or (ii) the
termination of Executive's employment by the Company or any
Affiliate without Cause.
(e) "Cause" shall mean: (i) Executive's fraud or criminal
misconduct that materially injures the financial condition or
business reputation of the Company or any Affiliate; or (ii)
Executive's willful and continued failure to substantially
perform Executive's duties with the Company or any Affiliate
(other than any such failure resulting from Executive's
incapacity due to physical or mental injury or illness or any
such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 8(a) hereof) after the Company's Board of
Directors delivers a written demand for substantial
performance to Executive, which demand specifically
identifies the manner in which the Board believes that
Executive has not substantially performed Executive's duties.
For purposes of clauses (i) and (ii) of this definition: (x)
no act, or failure to act, on Executive's part shall be
deemed "willful" unless done, or omitted to be done, by
Executive not in good faith and without reasonable belief
that Executive's act, or failure to act, was in the best
interest of the Company; and (y) in the event of a dispute
concerning the application of this provision, no claim by the
Company that Cause exists shall be given effect unless the
Company establishes to the Board by clear and convincing
evidence that Cause exists.
(f) "Disability" shall be deemed the reason for the termination
by the Company of Executive's employment, if, as a result of
Executive's incapacity due to physical or mental illness,
Executive has been absent from the full-time performance of
Executive's duties with the Company for a period of six (6)
consecutive months, the Company has given Executive a Notice
of Termination for Disability, and, within thirty (30) days
after the Company gives such Notice of Termination, Executive
has not have returned to the full-time performance of
Executive's duties.
(g) "Good Reason" shall exist if, without Executive's express
written consent:
(i) Executive's assigned duties and responsibilities are
significantly diminished from the level or extent of
such duties and responsibilities prior to the Change
in Control including, without limitation, any
material diminution of the powers associated with
such position, or Executive's reporting
responsibilities, titles or offices, as in effect
immediately prior to the Change in Control, are
diminished; provided that, the Executive must
deliver written notice to the Company specifying the
diminution in assigned duties, responsibilities,
titles, or offices that Executive believes
constitutes Good Reason, and the Company or
Affiliate must fail to reverse the same or to take
all reasonable steps to that end within 30 days of
receiving such notice;
(ii) Executive's Annual Compensation is reduced below
that in effect as of the date of this Agreement (or
as of the Change in Control, if greater);
(iii) The relocation of Executive's principal place of
employment to a location more than 50 miles from
Executive's principal place of employment
immediately prior to the Change in Control or the
Company's requiring Executive to be based anywhere
other than such principal place of employment (or
permitted relocation thereof) except for required
travel on the Company's business to an extent
substantially consistent with Executive's business
travel obligations immediately prior to the Change
in Control; or
(iv) The Company fails to continue in effect any cash or
stock- based incentive or bonus plan, Retirement
Plan, welfare benefit plan, or other benefit plan,
program or arrangement, unless the aggregate value
(as computed by an independent employee benefits
consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs
and arrangements provided to Executive is not
materially less than their aggregate value as of the
date of this Agreement (or as of the Change in
Control, if greater).
(h) "Period Pending a Change in Control" will be deemed to have
begun if the event set forth in any one of the following has
occurred:
(i) the Company's stockholders have approved any
transaction described in paragraph 3(c) or (d)
above;
(ii) the Company enters into an agreement, the
consummation of which would result in the occurrence
of a Change in Control;
(iii) the Company or any Person publicly announces an
intention to take or to consider taking actions
that, if consummated, would constitute a Change in
Control; or
(iv) the Board adopts a resolution to the effect that,
for purposes of this Agreement, the Period Pending a
Change in Control has begun.
Notwithstanding anything in this paragraph to the contrary, a
Period Pending a Change in Control will be deemed to have
begun as of the entering into the Agreement and Plan of
Merger Among Jefferson Smurfit Corporation, JSC Acquisition
Corporation and Stone Container Corporation, on May 10, 1998.
(i) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof.
(j) "Retirement Plan" shall mean any tax-qualified,
non-qualified, supplemental or excess benefit pension plan or
deferred compensation plan maintained by the Company and any
other plan or agreement entered into between Executive and
the Company which is designed to provide Executive with
supplemental retirement benefits.
(k) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company or any Affiliate,
including, but not limited to a plan that provides health
(including medical and dental), life, accident or disability
benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in
Control, whichever is applicable.
5. Limitation on Payments and Benefits. Notwithstanding any other
provisions of this Agreement, in the event that any payment or benefit
received or to be received by the Executive in connection with a
Change in Control or Executive's Employment Termination (whether
pursuant to the terms, of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the
Company or such Person) (all such payments and benefits being
hereinafter called "Total Payments") would, be an "excess parachute
payment" pursuant to Code Section 280G or any successor or substitute
provision of the Code, with the effect that Executive would be liable
for the payment of the excise tax described in Code Section 4999 or
any successor or substitute provision of the Code, or any interest or
penalties are incurred by Executive with respect to such Total
Payments (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then, after taking into account any reduction in the Total
Payments provided by reason of Code Section 280G in such other plan,
arrangement or agreement, the cash payments provided in Sections 1 and
2 of this Agreement shall first be reduced, and the noncash payments
and benefits shall thereafter be reduced, to the extent necessary so
that no portion of the Total Payments is subject to the Excise Tax;
provided, however, that Executive may elect (at any time prior to the
payment of any Total Payment under this Agreement) to have the noncash
payments and benefits reduced (or eliminated) prior to any reduction
of the cash payments under this Agreement. Notwithstanding the
foregoing, no payments or benefits under this Agreement will be
reduced unless: (i) the net amount of the Total Payments, as so
reduced (and after subtracting the net amount of federal, state and
local income taxes on such reduced Total Payments) is greater than
(ii) the excess of (A) the net amount of such Total Payments, without
reduction (but after subtracting the net amount of federal, state and
local income taxes on such Total Payments), over (B) the amount of
Excise Tax to which the Executive would be subject in respect of such
unreduced Total Payments.
(a) Subject to the provisions of paragraph (b) below, all
determinations required to be made under this Section, and
the assumptions to be utilized in arriving at such
determinations, shall be made by the public accounting firm
that serves as the Company's auditors (the "Accounting
Firm"), which shall provide detailed supporting calculations
both to the Company and Executive within 15 business days of
the receipt of notice from the Company or Executive that
there have been Total Payments, or such earlier time as is
requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive
shall designate another nationally recognized accounting firm
to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion that failure
to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and
Executive, except as provided in paragraph (b) below.
(b) IRS Claims. As a result of the uncertainty in the application
of Code Section 280G at the time of the initial determination
by the Accounting Firm hereunder, it is possible that the
Internal Revenue Service ("IRS") or other agency will claim
that an Excise Tax, or a greater Excise Tax, is due, and thus
the Company should have made a lesser amount of Total Payment
than that determined pursuant to paragraph (a) above.
Executive shall notify the Company in writing of any claim by
the IRS or other agency that, if successful, would require
Executive to pay an Excise Tax or an additional Excise Tax.
If the IRS or other agency makes a claim that, if successful,
could require Executive to pay an Excise Tax or an additional
Excise Tax, the Company may reduce or further reduce
Executive's payments and benefits in accordance with this
Section 5.
(c) If Executive's cash payments are reduced pursuant to this
Section, and the Welfare Benefits or perquisites of Sections
1(b) or (f) that remain payable after the application of this
Section are thereafter reduced pursuant to the provisions of
Sections 1(b) or (f) because of the receipt or availability
of comparable benefits or perquisites, the Company shall, at
the time of such reduction, pay to Executive the least of:
(i) the amount of the decrease made in the cash payments
pursuant to this Section; (ii) the amount of the subsequent
reduction in the Section 1(b) or (f) benefits or perquisites;
or (iii) the maximum amount that the Company can pay to the
Executive without being, or causing any other payment to be,
nondeductible by reason of Code Section 280G.
6. Executive's Death. If Executive dies after a Change in Control and
Employment Termination, but before the complete payment of any amount
or benefit required under this Agreement, the Company will pay such
amount or, benefit to the Executive's spouse, if living, or to the
Executive's estate.
7. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any
way by reason of any compensation or benefits received (or foregone)
by Executive from sources other than the Company after Executive's
Employment Termination, or any amounts that might have been received
by Executive in other employment had Executive sought such other
employment. Executive's entitlement to benefits and coverage under
this Agreement shall continue after, and shall not be affected by,
Executive's obtaining other employment after the Executive's Date of
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or
coverage by giving written notice of waiver to the Company.
8. Termination Procedures and Compensation During Dispute.
(a) Notice of Termination. After a Change in Control, any
purported termination of Executive's employment shall be
communicated by a written "Notice of Termination" from one
party to the other in accordance with Section 18 hereof. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice that indicates the specific provision in this
Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Company's Board of Directors
(after reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard
before the Board) finding that, in the good faith opinion of
the Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(b) Date of Termination. "Date of Termination," with respect to
any purported termination of Executive's employment after a
Change in Control, win mean (i) if Executive's employment is
terminated for Disability, thirty (30) days after the Company
gives Notice of Termination (provided that Executive has not
returned to the full-time performance of Executive's duties
during such thirty (30) day period), (ii) if Executive's
employment is terminated due to death, the date of
Executive's death, and (iii) if Executive's employment is
terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except
in the case of a termination for Cause) and, in the case of a
termination by Executive, shall not be less than fifteen (15)
days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to
this Section), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until
the earlier of (i) two years from the Notice of Termination
or (ii) the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a
final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided, however, that
the Date of Termination will be extended by a notice of
dispute given by Executive only if such notice is given in
good faith and Executive pursues the resolution of such
dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination
occurs following a Change in Control and the Date of
Termination is extended in accordance with paragraph (c)
above, the Company shall continue to pay Executive the fun
compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and
continue Executive as a participant in all compensation,
benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was
given, until the Date of Termination, as determined in
accordance with paragraph (c). Amounts paid under this
paragraph are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. Settlement of Disputes; Arbitration.
(a) All claims by Executive for payments or benefits under this
Agreement shall be directed to and determined by the
Company's Board of Directors (or such committee to which the
Board delegates authority under this Section) and shall be in
writing. Any denial by the Board (or such committee) of a
claim for benefits under this Agreement shall be delivered to
Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement
relied upon. The Board (or committee) shall afford Executive
a reasonable opportunity for a review of the decision denying
a claim and shall further allow Executive to appeal the
decision within sixty (60) days after the Board (or
committee) gives notice that it has denied Executive's claim.
(b) Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively
by arbitration in either Chicago, Illinois or St. Louis,
Missouri, as specified by Executive, in accordance with the
rules of the American Arbitration Association then in effect;
provided, however, that the evidentiary standards set forth
in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the
contrary, Executive shall be entitled to seek specific
performance of Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
10. Legal Fees and Expenses. The Company shall pay to Executive all legal
fees and expenses incurred by Executive in disputing in good faith any
issue hereunder relating to the termination of Executive's employment,
in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Code
Section 4999 to any payment or benefit provided hereunder. The Company
shall make such payments within fifteen (15) business days after
delivery of Executive's written requests for payment accompanied by
such evidence of fees and expenses incurred as the Company reasonably
may require. The parties hereby agree that a court or arbitrator shall
have the authority to award such reimbursement, in whole or in part,
upon a finding that Executive has proceeded with substantial merit and
good faith.
11. Assignment; Successor. This Agreement may not be assigned by the
Company without the written consent of Executive but the obligations
of the Company under this Agreement shall be the binding legal
obligations of any successor to the Company by merger, consolidation
or otherwise, and in the event of any business combination or
transaction that results in the transfer of substantially all of the
assets or business of the Company, the Company will cause the
transferee to assume the obligations of the Company under this
Agreement. This Agreement may not be assigned by Executive during
Executive's life, and upon Executive's death will inure to the benefit
of Executive's heirs, legatees and legal representatives of
Executive's estate.
12. Interpretation. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Missouri, without regard to the conflict of law principles
thereof. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
13. Withholding. The Company may withhold from any payment that it is
required to make under this Agreement amounts sufficient to satisfy
applicable withholding requirements under any federal, state or local
law.
14. Amendment or Termination. The Company and Executive may amend this
Agreement at any time by written agreement. The Company may terminate
this Agreement by written notice given to Executive at least two years
prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination,
the termination of this Agreement shall not be effective and Executive
shall be entitled to the full benefits of this Agreement. Any such
amendment or termination shall be made pursuant to a resolution of the
Board.
15. Indemnification. Following Executive's Date of Termination, the
Company will: (i) indemnify and hold harmless Executive for all costs,
liability and expenses (including reasonable attorneys' fees) for all
acts and omissions of Executive that relate to Executive's employment
with the Company, to the maximum extent permitted by law; and (ii)
continue Executive's coverage under the directors' and officers'
liability coverage maintained by the Company, as in effect from time
to time, to the same extent as other current or former senior
executive officers and directors of the Company.
16. Financing. Cash payments under this Agreement (not including any
payments made from a qualified plan) are general obligations of the
Company, and Executive shall have only an unsecured right to payment
thereof out of the general assets of the Company. Notwithstanding the
foregoing, the Company may, by agreement with one or more trustees the
Company selects, create a trust on such terms as the Company shall
determine to make payments to Executive in accordance with the terms
of this Agreement.
17. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
18. Notices. Notices given pursuant to this Agreement shall be in writing
and shall be deemed received when personally delivered, or on the date
of written confirmation of receipt by (i) overnight carrier, (ii)
telecopy, (iii) registered or certified mail, return receipt
requested, addressee only, postage prepaid, or (iv) such other method
of delivery that provides a written confirmation of delivery. Notice
to the Company shall be directed to:
Jefferson Smurfit Corporation (U.S.)
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: General Counsel
The Company may change the person and/or address to whom Executive
must give notice under this Section by giving Executive written notice
of such change, in accordance with the procedures described above.
Notices to or with respect to Executive will be directed to Executive,
or the executors, personal representatives or distributees of a
deceased Executive, or the assignees of Executive, at Executive's home
address on the records of the Company.
19. Entire Agreement. This Agreement constitutes the entire understanding
of Executive and the Company with respect to the subject matter hereof
and supersedes any and all prior understandings written or oral.
20. No Waiver. No failure or delay on the part of the Company or Executive
in enforcing or exercising any right or remedy hereunder shall operate
as a waiver thereof.
21. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
JEFFERSON SMURFIT CORPORATION (U.S.)
By:
--------------------------- ---------------------------
Richard W. Graham Executive
Its: President and CEO
--------------------------
Document Number: 325553.3
6-11-98/14:59PM
ADDENDUM
This Addendum dated July 21, 1998 forms a part of the Employment Security
Agreement dated July 21, 1998 between Jefferson Smurfit Corporation (U.S.) (the
"Company") and the executive whose name is set forth below (the "Executive").
The parties agree as follows:
1. This Agreement shall automatically terminate and become void and of no
further force and effect in the event that the Company, or its successors and
the Executive enter into a mutually agreeable employment agreement.
2. Except as expressly amended hereby, the Employment Security Agreement
remains unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
JEFFERSON SMURFIT CORPORATION (U.S.)
By:
--------------------------- ---------------------------
Richard W. Graham Executive
Its: President and CEO
--------------------------
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this ___ day of May
1998, between JEFFERSON SMURFIT CORPORATION (U.S.), a Delaware corporation (the
"Company"), and __________ (the "Executive");
WITNESSETH THAT:
WHEREAS, Executive is employed by the Company, and the Company desires
to provide protection to Executive in connection with any change in control of
the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties, for
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon Employment Termination After a Change in
Control. If within two (2) years after a Change in Control (all
capitalized terms as defined below) or during the Period Pending a
Change in Control, (i) Executive's employment with the Company and its
Affiliates is terminated without Cause and for a reason other than
death or Disability, or (ii) Executive voluntarily terminates such
employment with Good Reason, the Company will, within 30 days (except
as otherwise expressly provided) of Executive's Date of Termination,
make the payments and provide the benefits described below.
(a) Cash Payment. The Company will make a lump sum cash payment to
Executive equal to three times the Executive's Annual
Compensation.
(b) Welfare Benefit Plans. With respect to each Welfare Benefit
Plan, for the period beginning on Executive's Date of
Termination and ending on the earlier of (i) three years
following Executive's Date of Termination, or (ii) the date
Executive becomes covered by a welfare benefit plan or program
maintained by an entity other than the Company or an Affiliate
that provides coverage or benefits at least equal, in all
respects, to such Welfare Benefit Plan, Executive will
continue to participate in such Welfare Benefit Plan on the
same basis and at the same cost to Executive as was the case
immediately prior to the Change in Control (or, if more
favorable to Executive, as was the case at any time
thereafter), or, if any benefit or coverage cannot be provided
under a Welfare Benefit Plan because of applicable law or
contractual provisions, the Company will provide Executive
with substantially similar benefits and coverage for such
period. The Company and Executive intend that the continued
group health benefit plan coverage period provided under
Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code") (so-called "COBRA coverage") will be concurrent
with the continued coverage period provided for in the
preceding sentence. Executive shall report to the Company any
coverage or benefits actually received by Executive.
(c) Stock Option Plans. All stock options granted under the
Jefferson Smurfit Corporation Amended and Restated 1992 Stock
Option Plan and any similar or successor stock plan or
program, will immediately become fully vested and exercisable
upon the Change in Control.
(d) Retirement Plan Benefit. In addition to the retirement
benefits to which Executive is entitled under each of the
Company's Retirement Plans, the Company shall pay Executive a
lump sum amount, in cash, equal to the excess of: (i) the
actuarial equivalent of the aggregate retirement benefit
(taking into account any early retirement subsidies associated
therewith and determined as a straight life annuity commencing
at the date (but in no event earlier than the third
anniversary of the Date of Termination) as of which the
actuarial equivalent of such annuity is greatest) that
Executive would have accrued under the terms of all Retirement
Plans (without regard to any amendment to any Retirement Plan
made subsequent to a Change in Control, which amendment
adversely affects in any manner the computation of retirement
benefits thereunder), determined as if Executive were fully
vested thereunder and had accumulated (after the Date of
Termination) thirty-six (36) additional months of service
credit thereunder and had been credited under each Retirement
Plan during such period with compensation at the higher of (x)
Executive's compensation (as defined in such Retirement Plan)
during the twelve (12) months immediately preceding the Date
of Termination or (y) Executive's compensation (as defined in
such Retirement Plan) during the twelve (12) months
immediately preceding the Change in Control, over (ii) the
actuarial equivalent of the aggregate retirement benefit
(taking into account any early retirement subsidies associated
therewith and determined as a straight life annuity commencing
at the date (but in no event earlier than the Date of
Termination) as of which the actuarial equivalent of such
annuity is greatest) that Executive had accrued pursuant to
the provisions of the Retirement Plans as of the Date of
Termination. For purposes of this Section, "actuarial
equivalent" will be determined using the same assumptions
utilized under the Company's Salaried Employees Retirement
Plan immediately prior to the Date of Termination.
(e) Retiree Medical and Life Benefit. The Company will add three
years to the Executive's age and years of benefit service for
purposes of determining Executive's eligibility for and
benefits under the Company's retiree medical and life
insurance plan.
(f) Perquisites and Other Benefit. The Company will provide
Executive with the following executive perquisites on the same
basis on which Executive was receiving such perquisites prior
to the Change in Control: (i) reimbursement for club dues for
36 months following Executive's Date of Termination; and (ii)
reimbursement of expenses relating to financial planning
services and tax return preparation through December 31 of the
calendar year that includes the third anniversary of
Executive's Date of Termination. The Company will bear the
cost of such perquisites, at the same level in effect
immediately prior to the Change in Control. Perquisites
otherwise receivable by the Executive pursuant to this
paragraph shall be reduced to the extent comparable
perquisites are actually received by or made available to
Executive without cost during the 36 month period following
Executive's Date of Termination. Executive shall report to the
Company any such perquisites actually received by or made
available to Executive.
2. Incentive Plan. The Company will make a lump sum cash payment to
Executive within 30 days of the end of the year of a Change in Control
with respect to any incentive plan whose performance period has not
ended as of the Change in Control. The Change in Control will be
treated as the end of any performance period that has not ended as of
the Change in Control.
(a) With respect to the Management Incentive Plan or any similar
or successor plan (the "MIP"), the Company will pay to
Executive an amount determined by pro rating the financial,
strategic and performance objectives applicable to Executive
under the MIP, based on the number of days in the year prior
to the Change in Control.
(b) With respect -to- any long-term incentive plan maintained by
the Company (the "LTIP") the Company will pay to Executive an
amount determined by pro rating the financial, strategic
and/or performance objectives applicable to Executive under
the LTIP, based on the number of days in the performance
period prior to the Change in Control.
3. Change in Control. A "Change in Control" of the Company will be deemed
to occur as of the first day that any one or more of the following
condition is satisfied:
(a) The "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of securities representing more than 20 percent (20%)
of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Company Voting Securities") is
accumulated, held or acquired by a Person (other than the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or an affiliate
thereof, any corporation owned, directly or indirectly, by the
Company's stockholders in substantially the same proportions
as their ownership of stock of the Company); provided, however
that any acquisition from the Company or any acquisition
pursuant to a transaction that complies with clauses (i), (ii)
and (iii) of paragraph (c) of this Section will not be a
Change in Control under this paragraph (a); or
(b) Individuals who, as of the date of the Agreement, constitute
the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors; or
(c) Consummation by the Company of a reorganization, merger or
consolidation, or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of another entity (a "Business
Combination"), in each case, unless immediately following such
Business Combination: (i) more than 60% of the combined voting
power of then outstanding voting securities entitled to vote
generally in the election of directors of (x) the corporation
resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, a corporation that as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries (the "Parent Corporation"),
is represented, directly or indirectly by Company Voting
Securities outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into
which such Company Voting Securities were converted pursuant
to such Business Combination), and such voting power among the
holders thereof is in substantially the same proportions as
their ownership, immediately prior to such Business
Combination, of the Company Voting Securities, (ii) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of the combined voting power of the then outstanding
voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) except to the extent that such
ownership of the Company existed prior to the Business
Combination and (iii) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation) were
members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
However, in no event will a Change in Control be deemed to have
occurred, with respect to Executive, if Executive is part of a
purchasing group that consummates the Change in Control transaction.
Executive will be deemed "part of a purchasing group" for purposes of
the preceding sentence if Executive is an equity participant in the
purchasing company or group (except: (i) passive ownership of less than
two percent (2%) of the stock of the purchasing company; or (ii)
ownership of equity participation in the purchasing company or group
that is otherwise not significant, as determined prior to the Change in
Control by a majority of the nonemployee continuing Directors).
Notwithstanding anything in this Section to the contrary, the closing
of the transaction contemplated in the Agreement and Plan of Merger
Among Jefferson Smurfit Corporation, JSC Acquisition Corporation and
Stone Container Corporation, dated as of May 10, 1998, will constitute
a Change in Control under this Agreement.
4. Other Definitions. For purposes of this Agreement:
(a) "Affiliate" shall mean any entity that is a member of a
controlled group of corporations or a group of trades or
businesses under common control (each as defined in Code
Section 1563), which includes the Company.
(b) "Amount Payable Under Any Bonus Plans" shall mean the average
of the gross amounts earned by Executive for the three
complete fiscal years prior to Executive's Date of Termination
(or, if greater, in prior to the Change in Control) under the
MIP, or any similar bonus plan in which Executive participates
before or after the date of this Agreement (but not including
any amounts paid or payable pursuant to the Jefferson Smurfit
Corporation (U.S.) 1994 Long-Term Incentive Plan). For
purposes of the preceding sentence, if Executive's number of
full fiscal years of participation in the MIP prior to the
Change in Control is less than three, the amount under this
paragraph shall be calculated as the average of the gross
annual amounts earned by Executive over the number of full
fiscal years of Executive's participation in the MIP prior to
the Change in Control, or the number of full fiscal years of
Executive's participation in the MIP prior to Executive's Date
of Termination, whichever produces a higher average annual
amount.
(c) "Annual Compensation" shall mean the sum of: (i) Executive's
salary at the greater of Executive's salary rate in effect on
the date of (A) the Change in Control, or (B) Executive's Date
of Termination; and (ii) the Amount Payable Under Any Bonus
Plans in which Executive participates.
(d) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the
Company or any Affiliate with Good Reason; or (ii) the
termination of Executive's employment by the Company or any
Affiliate without Cause.
(e) "Cause" shall mean: (i) Executive's fraud or criminal
misconduct that materially injures the financial condition or
business reputation of the Company or any Affiliate; or (ii)
Executive's willful and continued failure to substantially
perform Executive's duties with the Company or any Affiliate
(other than any such failure resulting from Executive's
incapacity due to physical or mental injury or illness or any
such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 8(a) hereof) after the Company's Board of
Directors delivers a written demand for substantial
performance to Executive, which demand specifically identifies
the manner in which the Board believes that Executive has not
substantially performed Executive's duties. For purposes of
clauses (i) and (ii) of this definition: (x) no act, or
failure to act, on Executive's part shall be deemed "willful"
unless done, or omitted to be done, by Executive not in good
faith and without reasonable belief that Executive's act, or
failure to act, was in the best interest of the Company; and
(y) in the event of a dispute concerning the application of
this provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to the
Board by clear and convincing evidence that Cause exists.
(f) "Disability" shall be deemed the reason for the termination by
the Company of Executive's employment, if, as a result of
Executive's incapacity due to physical or mental illness,
Executive has been absent from the full-time performance of
Executive's duties with the Company for a period of six (6)
consecutive months, the Company has given Executive a Notice
of Termination for Disability, and, within thirty (30) days
after the Company gives such Notice of Termination, Executive
has not have returned to the full-time performance of
Executive's duties.
(g) "Good Reason" shall exist if, without Executive's express
written consent:
(i) Executive's assigned duties and responsibilities are
significantly diminished from the level or extent of
such duties and responsibilities prior to the Change
in Control including, without limitation, any
material diminution of the powers associated with
such position, or Executive's reporting
responsibilities, titles or offices, as in effect
immediately prior to the Change in Control, are
diminished; provided that, the Executive must deliver
written notice to the Company specifying the
diminution in assigned duties, responsibilities,
titles, or offices that Executive believes
constitutes Good Reason, and the Company or Affiliate
must fail to reverse the same or to take all
reasonable steps to that end within 30 days of
receiving such notice;
(ii) Executive's Annual Compensation is reduced below that
in effect as of the date of this Agreement (or as of
the Change in Control, if greater);
(iii) The relocation of Executive's principal place of
employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change in Control or the Company's
requiring Executive to be based anywhere other than
such principal place of employment (or permitted
relocation thereof) except for required travel on the
Company's business to an extent substantially
consistent with Executive's business travel
obligations immediately prior to the Change in
Control; or
(iv) The Company fails to continue in effect any cash or
stock- based incentive or bonus plan, Retirement
Plan, welfare benefit plan, or other benefit plan,
program or arrangement, unless the aggregate value
(as computed by an independent employee benefits
consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs
and arrangements provided to Executive is not
materially less than their aggregate value as of the
date of this Agreement (or as of the Change in
Control, if greater).
(h) "Period Pending a Change in Control" will be deemed to have
begun if the event set forth in any one of the following has
occurred:
(i) the Company's stockholders have approved any
transaction described in paragraph 3(c) or (d) above;
(ii) the Company enters into an agreement, the
consummation of which would result in the occurrence
of a Change in Control;
(iii) the Company or any Person publicly announces an
intention to take or to consider taking actions that,
if consummated, would constitute a Change in Control;
or
(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, the Period Pending a
Change in Control has begun.
Notwithstanding anything in this paragraph to the contrary, a
Period Pending a Change in Control will be deemed to have
begun as of the entering into the Agreement and Plan of Merger
Among Jefferson Smurfit Corporation, JSC Acquisition
Corporation and Stone Container Corporation, on May 10, 1998.
(i) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof
(j) "Retirement Plan" shall mean any tax-qualified, non-qualified,
supplemental or excess benefit pension plan or deferred
compensation plan maintained by the Company and any other plan
or agreement entered into between Executive and the Company
which is designed to provide Executive with supplemental
retirement benefits.
(k) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company or any Affiliate,
including, but not limited to a plan that provides health
(including medical and dental), life, accident or disability
benefits or insurance, or similar coverage, in which Executive
was participating at the time of the Change in Control,
whichever is applicable.
5. Certain Additional Payments by the Company.
(a) Gross-Up. Anything in this Agreement to the contrary
notwithstanding, in the event that any payment, benefit or
distribution by or on behalf of the Company or any Affiliate
to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section) (the
"Payments") is determined to be an "excess parachute payment"
pursuant to Code Section 280G or any successor or substitute
provision of the Code, with the effect that Executive is
liable for the payment of the excise tax described in Code
Section 4999 or any successor or substitute provision of the
Code (the "Excise Tax"), then the Company shall pay to
Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state
and local income and employment taxes and Excise Tax on the
Gross-Up Payment, shall be equal to the Total Payments.
(b) Determination of Gross-Up. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (i) all of the Total
Payments shall be treated as "parachute payments" (within the
meaning of Code Section 280G(b)(2)) unless, in the opinion of
tax counsel ("Tax Counsel") reasonably acceptable to Executive
and selected by the accounting firm that was, immediately
prior to the Change in Control, the Company's independent
auditor (the "Auditor"), such payments or benefits (in whole
or in part) do not constitute parachute payments, including by
reason of Code Section 280G(b)(4)(A), (ii) all "excess
parachute payments" within the meaning of Code Section
280G(b)(1) shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the
meaning of Code Section 280G(b)(4)(B)) in excess of the Base
Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value
of any non-cash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the
principles of Code Sections 280G(d)(3) and (4). For purposes
of determining the amount of the Gross-Up Payment, Executive
shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in
the state and locality of Executive's residence, or if higher,
in the state and locality of Executive's principal place of
employment, on the Date of Termination (or if there is no Date
of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section), net of the maximum
reduction in federal income taxes that could be obtained from
deduction of such state and local income taxes.
(c) Final Determination. In the event that the Excise Tax is
finally determined to be less than the amount taken into
account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the
amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local
income and employment taxes imposed on the Gross-Up Payment
being repaid by Executive to the extent that such repayment
results in a reduction in Excise Tax and/or a federal, state
or local income or employment tax deduction) plus interest on
the amount of such repayment at 120% of the rate provided in
Code Section 1274(b)(2)(B). In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by
reason of any payment the existence or amount of which cannot
be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect
of such excess (plus any interest, penalties or additions
payable by Executive with respect to such excess) at the time
that the amount of such excess is finally determined.
Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability
for Excise Tax with respect to the Total Payments.
6. Executive's Death. If Executive dies after a Change in Control and
Employment Termination, but before the complete payment of any amount
or benefit required under this Agreement, the Company will pay such
amount or benefit to the Executive's spouse, if living, or to the
Executive's estate.
7. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any
way by reason of any compensation or benefits received (or foregone) by
Executive from sources, other than the Company after Executive's
Employment Termination, or any amounts that might have been received by
Executive in other employment had Executive sought such other
employment. Executive's entitlement to benefits and coverage under this
Agreement shall continue after, and shall not be affected by,
Executive's obtaining other employment after the Executive's Date of
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or
coverage by giving written notice of waiver to the Company.
8. Termination Procedures and Compensation During Dispute.
(a) Notice of Termination. After a Change in Control, any
purported termination of Executive's employment shall be
communicated by a written "Notice of Termination" from one
party to the other in accordance with Section 18 hereof. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice that indicates the specific provision in this
Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Company's Board of Directors (after
reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard
before the Board) finding that, in the good faith opinion of
the Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(b) Date of Termination. "Date of Termination," with respect to
any purported termination of Executive's employment after a
Change in Control, will mean (i) if Executive's employment is
terminated for Disability, thirty (30) days after the Company
gives Notice of Termination (provided that Executive has not
returned to the full-time performance of Executive's duties
during such thirty (30) day period), (ii) if Executive's
employment is terminated due to death, the date of Executive's
death, and (iii) if Executive's employment is terminated for
any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause) and, in the case of a
termination by Executive, shall not be less than fifteen (15)
days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to
this Section), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until
the earlier of (i) two years from the Notice of Termination or
(ii) the date on which the dispute is finally resolved, either
by mutual written agreement of the parties or by a final
judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired and
no appeal has been perfected); provided, however, that the
Date of Termination will be extended by a notice of dispute
given by Executive only if such notice is given in good faith
and Executive pursues the resolution of such dispute with
reasonable diligence.
(d) Compensation During Dispute. If a purported termination occurs
following a Change in Control and the Date of Termination is
extended in accordance with paragraph (c) above, the Company
shall continue to pay Executive the full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue Executive
as a participant in all compensation, benefit and insurance
plans in which Executive was participating when the notice
giving rise to the dispute was given, until the Date of
Termination, as determined in accordance with paragraph (c).
Amounts paid under this paragraph are in addition to all other
amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
9. Settlement of Disputes; Arbitration.
(a) All claims by Executive for payments or benefits under this
Agreement shall be directed to and determined by the Company's
Board of Directors (or such committee to which the Board
delegates authority under this Section) and shall be in
writing. Any denial by the Board (or such committee) of a
claim for benefits under this Agreement shall be delivered to
Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement
relied upon. The Board (or committee) shall afford Executive a
reasonable opportunity for a review of the decision denying a
claim and shall further allow Executive to appeal the decision
within sixty (60) days after the Board (or committee) gives
notice that it has denied Executive's claim.
(b) Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration in either Chicago, Illinois or St. Louis,
Missouri, as specified by Executive, in accordance with the
rules of the American Arbitration Association then in effect;
provided, however, that the evidentiary standards set forth in
this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the
contrary, Executive shall be entitled to seek specific
performance of Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
10. Legal Fees and Expenses. The Company shall pay to Executive all legal
fees and expenses incurred by Executive in disputing in good faith any
issue hereunder relating to the termination of Executive's employment,
in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Code
Section 4999 to any payment or benefit provided hereunder. The Company
shall make such payments within fifteen (15) business days after
delivery of Executive's written requests for payment accompanied by
such evidence of fees and expenses incurred as the Company reasonably
may require. The parties hereby agree that a court or arbitrator shall
have the authority to award such reimbursement, in whole or in part,
upon a finding that Executive has proceeded with substantial merit and
good faith.
11. Assignment; Successors. This Agreement may not be assigned by the
Company without the written consent of Executive but the obligations of
the Company under this Agreement shall be the binding legal obligations
of any successor to the Company by merger, consolidation or otherwise,
and in the event of any business combination or transaction that
results in the transfer of substantially all of the assets or business
of the Company, the Company will cause the transferee to assume the
obligations of the Company under this Agreement. This Agreement may not
be assigned by Executive during Executive's life, and upon Executive's
death will inure to the benefit of Executive's heirs, legatees and
legal representatives of Executive's estate.
12. Interpretation. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Missouri, without regard to the conflict of law principles
thereof. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
13. Withholding. The Company may withhold from any payment that it is
required to make under this Agreement amounts sufficient to satisfy
applicable withholding requirements under any federal, state or local
law.
14. Amendment or Termination. The Company and Executive may amend this
Agreement at any time by written agreement. The Company may terminate
this Agreement by written notice given to Executive at least two years
prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination,
the termination of this Agreement shall not be effective and Executive
shall be entitled to the full benefits of this Agreement. Any such
amendment or termination shall be made pursuant to a resolution of the
Board.
15. Indemnification. Following Executive's Date of Termination, the Company
will: (i) indemnify and hold harmless Executive for all costs,
liability and expenses (including reasonable attorneys' fees) for all
acts and omissions of Executive that relate to Executive's employment
with the Company, to the maximum extent permitted by law; and (ii)
continue Executive's coverage under the directors' and officers'
liability coverage maintained by the Company, as in effect from time to
time, to the same extent as other current or former senior executive
officers and directors of the Company.
16. Financing. Cash payments under this Agreement (not including any
payments made from a qualified plan) are general obligations of the
Company, and Executive shall have only an unsecured right to payment
thereof out of the general assets of the Company. Notwithstanding the
foregoing, the Company may, by agreement with one or more trustees the
Company selects, create a trust on such terms as the Company shall
determine to make payments to Executive in accordance with the terms of
this Agreement.
17. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
18. Notice. Notices given pursuant to this Agreement shall be in writing
and shall be deemed received when personally delivered, or on the date
of written confirmation of receipt by (i) overnight carrier, (ii)
telecopy, (iii) registered or certified mail, return receipt requested,
addressee only, postage prepaid, or (iv) such other method of delivery
that provides a written confirmation of delivery. Notice to the Company
shall be directed to:
Jefferson Smurfit Corporation (U.S.)
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: General Counsel
The Company may change the person and/or address to whom Executive must
give notice under this Section by giving Executive written notice of
such change, in accordance with the procedures described above. Notices
to or with respect to Executive will be directed to Executive, or the
executors, personal representatives or distributees of a deceased
Executive, or the assignees of Executive, at Executive's home address
on the records of the Company.
19. Entire Agreement. This Agreement constitutes the entire understanding
of Executive and the Company with respect to the subject matter hereof
and supersedes any and all prior understandings written or oral.
20. No Waiver. No failure or delay on the part of the Company or Executive
in enforcing or exercising any right or remedy hereunder shall operate
as a waiver thereof.
21. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute but one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
JEFFERSON SMURFIT CORPORATION (U.S.)
By:_____________________________
Its: _____________________________ EXECUTIVE
EMPLOYMENT SECURITY AGREEMENT
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this ___ day of May
1998, between JEFFERSON SMURFIT CORPORATION (U.S.), a Delaware corporation (the
"Company"), and __________ (the "Executive");
WITNESSETH THAT:
WHEREAS, Executive is employed by the Company, and the Company desires
to provide protection to Executive in connection with any change in control of
the Company;
NOW, THEREFORE, it is hereby agreed by and between the parties, for
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon Employment Termination After a Change in
Control. If within two (2) years after a Change in Control (all
capitalized terms as defined below) or during the Period Pending a
Change in Control, (i) Executive's employment with the Company and its
Affiliates is terminated without Cause and for a reason other than
death or Disability, or (ii) Executive voluntarily terminates such
employment with Good Reason, the Company will, within 30 days (except
as otherwise expressly provided) of Executive's Date of Termination,
make the payments and provide the benefits described below.
(a) Cash Payment. The Company will make a lump sum cash payment
to Executive equal to three times the Executive's Annual
Compensation.
(b) Welfare Benefit Plans. With respect to each Welfare Benefit
Plan, for the period beginning on Executive's Date of
Termination and ending on the earlier of (i) three years
following Executive's Date of Termination, or (ii) the date
Executive becomes covered by a welfare benefit plan or
program maintained by an entity other than the Company or an
Affiliate that provides coverage or benefits at least equal,
in all respects, to such Welfare Benefit Plan, Executive will
continue to participate in such Welfare Benefit Plan on the
same basis and at the same cost to Executive as was the case
immediately prior to the Change in Control (or, if more
favorable to Executive, as was the case at any time
thereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable
law or contractual provisions, the Company will, provide
Executive with substantially similar benefits and coverage
for such period. The Company and Executive intend that the
continued group health benefit plan coverage period provided
under Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code") (so-called "COBRA coverage") will be
concurrent with the continued coverage period provided for in
the preceding sentence. Executive shall report to the Company
any coverage or benefits actually received by Executive.
(c) Stock Option Plans. All stock options granted under the
Jefferson Smurfit Corporation Amended and Restated 1992 Stock
Option Plan and any similar or successor stock plan or
program, will immediately become fully vested and exercisable
upon the Change in Control.
(d) Retirement Plan Benefit. In addition to the retirement
benefits to which Executive is entitled under each of the
Company's Retirement Plans, the Company shall pay Executive a
lump sum amount, in cash, equal to the excess of (i) the
actuarial equivalent of the aggregate retirement benefit
(taking into account any early retirement subsidies
associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than
the third anniversary of the Date of Termination) as of which
the actuarial equivalent of such annuity is greatest) that
Executive would have accrued under the terms of all
Retirement Plans (without regard to any amendment to any
Retirement Plan made subsequent to a Change in Control, which
amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if Executive
were fully vested thereunder and had accumulated (after the
Date of Termination) thirty-six (36) additional months of
service credit thereunder and had been credited under each
Retirement Plan during such period with compensation at the
higher of (x) Executive's compensation (as defined in such
Retirement Plan) during the twelve (12) months immediately
preceding the Date of Termination or (y) Executive's
compensation (as defined in such Retirement Plan) during the
twelve (12) months immediately preceding the Change in
Control, over (ii) the actuarial equivalent of the aggregate
retirement benefit (taking into account any early retirement
subsidies associated therewith and determined as a straight
life annuity commencing at the date (but in no event earlier
than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) that Executive had
accrued pursuant to the provisions of the Retirement Plans as
of the Date of Termination. For purposes of this Section,
"actuarial equivalent" will be determined using the same
assumptions utilized under the Company's Salaried Employees
Retirement Plan immediately prior to the Date of Termination.
(e) Retiree Medical and Life Benefits. The Company will add three
years to the Executive's age and years of benefit service for
purposes of determining Executive's eligibility for and
benefits under the Company's retiree medical and life
insurance plan.
(f) Perquisites and Other Benefits. The Company will provide
Executive with the following executive perquisites on the
same basis on which Executive was receiving such perquisites
prior to the Change in Control: (i) reimbursement for club
dues for 36 months following Executive's Date of Termination;
and (ii) reimbursement of expenses relating to financial
planning services and tax return preparation through December
31 of the calendar year that includes the third anniversary
of Executive's Date of Termination. The Company will bear the
cost of such perquisites, at the same level in effect
immediately prior to the Change in Control. Perquisites
otherwise receivable by the Executive pursuant to this
paragraph shall be reduced to the extent comparable
perquisites are actually received by or made available to
Executive without cost during the 36 month period following
Executive's Date of Termination. Executive shall report to
the Company any such perquisites actually received by or made
available to Executive.
2. Incentive Plan. The Company will make a lump sum cash payment to
Executive within 30 days of the end of the year of a Change in Control
with respect to any incentive plan whose performance period has not
ended as of the Change in Control. The Change in Control will be
treated as the end of any performance period that has not ended as of
the Change in Control.
(a) With respect to the Management Incentive Plan or any similar
or successor plan (the "MIP"), the Company will pay to
Executive an amount determined by pro rating the financial,
strategic and performance objectives applicable to Executive
under the MIP, based on the number of days in the year prior
to the Change in Control.
(b) With respect to any long-term incentive plan maintained by
the Company (the "LTIP") the Company will pay to Executive an
amount determined by pro rating the financial, strategic
and/or performance objectives applicable to Executive under
the LTIP, based on the number of days in the performance
period prior to the Change in Control.
3. Change in Control. A "Change in Control" of the Company will be deemed
to occur as of the first day that any one or more of the following
condition is satisfied:
(a) The "beneficial ownership" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of securities representing more than 20
percent (20%) of the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Company Voting
Securities") is accumulated, held or acquired by a Person
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or an affiliate thereof, any corporation owned,
directly or indirectly, by the Company's stockholders in
substantially the same proportions as their ownership of
stock of the Company); provided, however that any acquisition
from the Company or any acquisition pursuant to a transaction
that complies with clauses (i), (ii) and (iii) of paragraph
(c) of this Section will not be a Change in Control under
this paragraph (a); or
(b) Individuals who, as of the date of the Agreement, constitute
the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors; or
(c) Consummation by the Company of a reorganization, merger or
consolidation, or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets or stock of another entity (a "Business
Combination"), in each case, unless immediately following
such Business Combination: (i) more than 60% of the combined
voting power of then outstanding voting securities entitled
to vote generally in the election of directors of (x) the
corporation resulting from such Business Combination (the
"Surviving Corporation"), or (y) if applicable, a corporation
that as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries (the "Parent
Corporation"), is represented, directly or indirectly by
Company Voting Securities outstanding immediately prior to
such Business Combination (or, if applicable, is represented
by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially
the same proportions as their ownership, immediately prior to
such Business Combination, of the Company Voting Securities,
(ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of the combined voting power of
the then outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) except to the
extent that such ownership of the Company existed prior to
the Business Combination and (iii) at least a majority of the
members of the board of directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving
Corporation) were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
However, in no event will a Change in Control be deemed to have
occurred, with respect to Executive, if Executive is part of a
purchasing group that consummates the Change in Control transaction.
Executive will be deemed "part of a purchasing group" for purposes of
the preceding sentence if Executive is an equity participant in the
purchasing company or group (except: (i) passive ownership of less
than two percent (2%) of the stock of the purchasing company; or (ii)
ownership of equity participation in the purchasing company or group
that is otherwise not significant, as determined prior to the Change
in Control by a majority of the nonemployee continuing Directors).
Notwithstanding anything in this Section to the contrary, the closing
of the transaction contemplated in the Agreement and Plan of Merger
Among Jefferson Smurfit Corporation, JSC Acquisition Corporation and
Stone Container Corporation, dated as of May 10, 1998, will constitute
a Change in Control under this Agreement.
4. Other Definitions. For purposes of this Agreement:
(a) "Affiliate" shall mean any entity that is a member of a
controlled group of corporations or a group of trades or
businesses under common control (each as defined in Code
Section 1563), which includes the Company.
(b) "Amount Payable Under Any Bonus Plans" shall mean the average
of the gross amounts earned by Executive for the three
complete fiscal years prior to Executive's Date of
Termination (or, if greater, in prior to the Change in
Control) under the MIP, or any similar bonus plan in which
Executive participates before or after the date of this
Agreement (but not including any amounts paid or payable
pursuant to the Jefferson Smurfit Corporation (U.S.) 1994
Long-Term Incentive Plan). For purposes of the preceding
sentence, if Executive's number of full fiscal years of
participation in the MIP prior to the Change in Control is
less than three, the amount under this paragraph shall be
calculated as the average of the gross annual amounts earned
by Executive over the number of full fiscal years of
Executive's participation in the MIP prior to the Change in
Control, or the number of full fiscal years of Executive's
participation in the MIP prior to Executive's Date of
Termination, whichever produces a higher average annual
amount.
(c) "Annual Compensation" shall mean the sum of: (i) Executive's
salary at the greater of Executive's salary rate in effect on
the date of (A) the Change in Control, or (B) Executive's
Date of Termination; and (ii) the Amount Payable Under Any
Bonus Plans in which Executive participates.
(d) "Employment Termination" shall mean the effective date of:
(i) Executive's voluntary termination of employment with the
Company or any Affiliate with Good Reason; or (ii) the
termination of Executive's employment by the Company or any
Affiliate without Cause.
(e) "Cause" shall mean: (i) Executive's fraud or criminal
misconduct that materially injures the financial condition or
business reputation of the Company or any Affiliate; or (ii)
Executive's willful and continued failure to substantially
perform Executive's duties with the Company or any Affiliate
(other than any such failure resulting from Executive's
incapacity due to physical or mental injury or illness or any
such actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 8(a) hereof) after the Company's Board of
Directors delivers a written demand for substantial
performance to Executive, which demand specifically
identifies the manner in which the Board believes that
Executive has not substantially performed Executive's duties.
For purposes of clauses (i) and (ii) of this definition: (x)
no act, or failure to act, on Executive's part shall be
deemed "willful" unless done, or omitted to be done, by
Executive not in good faith and without reasonable belief
that Executive's act, or failure to act, was in the best
interest of the Company; and (y) in the event of a dispute
concerning the application of this provision, no claim by the
Company that Cause exists shall be given effect unless the
Company establishes to the Board by clear and convincing
evidence that Cause exists.
(f) "Disability" shall be deemed the reason for the termination
by the Company of Executive's employment, if, as a result of
Executive's incapacity due to physical or mental illness,
Executive has been absent from the full-time performance of
Executive's duties with the Company for a period of six (6)
consecutive months, the Company has given Executive a Notice
of Termination for Disability, and, within thirty (30) days
after the Company gives such Notice of Termination, Executive
has not have returned to the full-time performance of
Executive's duties.
(g) "Good Reason" shall exist if, without Executive's express
written consent:
(i) Executive's assigned duties and responsibilities are
significantly diminished from the level or extent of
such duties and responsibilities prior to the Change
in Control including, without limitation, any
material diminution of the powers associated with
such position, or Executive's reporting
responsibilities, titles or offices, as in effect
immediately prior to the Change in Control, are
diminished; provided that, the Executive must
deliver written notice to the Company specifying the
diminution in assigned duties, responsibilities,
titles, or offices that Executive believes
constitutes Good Reason, and the Company or
Affiliate must fail to reverse the same or to take
all reasonable steps to that end within 30 days of
receiving such notice;
(ii) Executive's Annual Compensation is reduced below
that in effect as of the date of this Agreement (or
as of the Change in Control, if greater);
(iii) The relocation of Executive's principal place of
employment to a location more than 50 miles from
Executive's principal place of employment
immediately prior to the Change in Control or the
Company's requiring Executive to be based anywhere
other than such principal place of employment (or
permitted relocation thereof) except for required
travel on the Company's business to an extent
substantially consistent with Executive's business
travel obligations immediately prior to the Change
in Control; or
(iv) The Company fails to continue in effect any cash or
stock- based incentive or bonus plan, Retirement
Plan, welfare benefit plan, or other benefit plan,
program or arrangement, unless the aggregate value
(as computed by an independent employee benefits
consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs
and arrangements provided to Executive is not
materially less than their aggregate value as of the
date of this Agreement (or as of the Change in
Control, if greater).
(h) "Period Pending a Change in Control" will be deemed to have
begun if the event set forth in any one of the following has
occurred:
(i) the Company's stockholders have approved any
transaction described in paragraph 3(c) or (d)
above;
(ii) the Company enters into an agreement, the
consummation of which would result in the occurrence
of a Change in Control;
(iii) the Company or any Person publicly announces an
intention to take or to consider taking actions
that, if consummated, would constitute a Change in
Control; or
(iv) the Board adopts a resolution to the effect that,
for purposes of this Agreement, the Period Pending a
Change in Control has begun.
Notwithstanding anything in this paragraph to the contrary, a
Period Pending a Change in Control will be deemed to have
begun as of the entering into the Agreement and Plan of
Merger Among Jefferson Smurfit Corporation, JSC Acquisition
Corporation and Stone Container Corporation, on May 10, 1998.
(i) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof.
(j) "Retirement Plan" shall mean any tax-qualified,
non-qualified, supplemental or excess benefit pension plan or
deferred compensation plan maintained by the Company and any
other plan or agreement entered into between Executive and
the Company which is designed to provide Executive with
supplemental retirement benefits.
(k) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company or any Affiliate,
including, but not limited to a plan that provides health
(including medical and dental), life, accident or disability
benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in
Control, whichever is applicable.
5. Limitation on Payments and Benefits. Notwithstanding any other
provisions of this Agreement, in the event that any payment or benefit
received or to be received by the Executive in connection with a
Change in Control or Executive's Employment Termination (whether
pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits being hereinafter called
"Total Payments") would be an "excess parachute payment" pursuant to
Code Section 280G or any successor or substitute provision of the
Code, with the effect that Executive would be liable for the payment
of the excise tax described in Code Section 4999 or any successor or
substitute provision of the Code, or any interest or penalties are
incurred by Executive with respect to such Total Payments (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then, after taking into
account any reduction in the Total Payments provided by reason of Code
Section 280G in such other plan, arrangement or agreement, the cash
payments provided in Sections 1 and 2 of this Agreement shall first be
reduced, and the noncash payments and benefits shall thereafter be
reduced, to the extent necessary so that no portion of the Total
Payments is subject to the Excise Tax; provided, however, that
Executive may elect (at any time prior to the payment of any Total
Payment under this Agreement) to have the noncash payments and
benefits reduced (or eliminated) prior to any reduction of the cash
payments under this Agreement. Notwithstanding the foregoing, no
payments or benefits under this Agreement will be reduced unless: (i)
the net amount of the Total Payments, as so reduced (and after
subtracting the net amount of federal, state and local income taxes on
such reduced Total Payments) is greater than (ii) the excess of (A)
the net amount of such Total Payments, without reduction (but after
subtracting the net amount of federal, state and local income taxes on
such Total Payments), over (B) the amount of Excise Tax to which the
Executive would be subject in respect of such unreduced Total
Payments.
(a) Subject to the provisions of paragraph (b) below, all
determinations required to be made under this Section, and
the assumptions to be utilized in arriving at such
determinations, shall be made by the public accounting firm
that serves as the Company's auditors (the "Accounting
Firm"), which shall provide detailed supporting calculations
both to the Company and Executive within 15 business days of
the receipt of notice from the Company or Executive that
there have been Total Payments, or such earlier time as is
requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive
shall designate another nationally recognized accounting firm
to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion that failure
to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and
Executive, except as provided in paragraph (b) below.
(b) IRS Claim. As a result of the uncertainty in the application
of Code Section 280G at the time of the initial determination
by the Accounting Firm hereunder, it is possible that the
Internal Revenue Service ("IRS") or other agency will claim
that an Excise Tax, or a greater Excise Tax, is due, and thus
the Company should have made a lesser amount of Total Payment
than that determined pursuant to paragraph (a) above.
Executive shall notify the Company in writing of any claim by
the IRS or other agency that, if successful, would require
Executive to pay an Excise Tax or an additional Excise Tax.
If the IRS or other agency makes a claim that, if successful,
could require Executive to pay an Excise Tax or an additional
Excise Tax, the Company may reduce or further reduce
Executive's payments and benefits in accordance with this
Section 5.
(c) If Executive's cash payments are reduced pursuant to this
Section, and the Welfare Benefits or perquisites of Sections
1(b) or (f) that remain payable after the application of this
Section are thereafter reduced pursuant to the provisions of
Sections 1(b) or (f) because of the receipt or availability
of comparable benefits or perquisites, the Company shall, at
the time of such reduction, pay to Executive the least of:
(i) the amount of the decrease made in the cash payments
pursuant to this Section; (ii) the amount of the subsequent
reduction in the Section 1(b) or (f) benefits or perquisites;
or (iii) the maximum amount that the Company can pay to the
Executive without being, or causing any other payment to be,
nondeductible by reason of Code Section 280G.
6. Executive's Death. If Executive dies after a Change in Control and
Employment Termination, but before the complete payment of any amount
or benefit required under this Agreement, the Company will pay such
amount or benefit to the Executive's spouse, if living, or to the
Executive's estate.
7. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any
way by reason of any compensation or benefits received (or foregone)
by Executive from sources other than the Company after Executive's
Employment Termination, or any amounts that might have been received
by Executive in other employment had Executive sought such other
employment. Executive's entitlement to benefits and coverage under
this Agreement shall continue after, and shall not be affected by,
Executive's obtaining other employment after the Executive's Date of
Termination, provided that any such benefit or coverage shall not be
furnished if Executive expressly waives the specific benefit or
coverage by giving written notice of waiver to the Company.
8. Termination Procedures and Compensation During Dispute.
(a) Notice of Termination. After a Change in Control, any
purported termination of Executive's employment shall be
communicated by a written "Notice of Termination" from one
party to the other in accordance with Section 18 hereof. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice that indicates the specific provision in this
Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Company's Board of Directors
(after reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard
before the Board) finding that, in the good faith opinion of
the Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars
thereof in detail.
(b) Date of Termination. "Date of Termination," with respect to
any purported termination of Executive's employment after a
Change in Control, win mean (i) if Executive's employment is
terminated for Disability, thirty (30) days after the Company
gives Notice of Termination (provided that Executive has not
returned to the full-time performance of Executive's duties
during such thirty (30) day period), (ii) if Executive's
employment is terminated due to death, the date of
Executive's death, and (iii) if Executive's employment is
terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except
in the case of a termination for Cause) and, in the case of a
termination by Executive, shall not be less than fifteen (15)
days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
(c) Dispute Concerning Termination. If within fifteen (15) days
after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to
this Section), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until
the earlier of (i) two years from the Notice of Termination
or (ii) the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a
final judgment, order or decree of an arbitrator or a court
of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired
and no appeal has been perfected); provided, however, that
the Date of Termination will be extended by a notice of
dispute given by Executive only if such notice is given in
good faith and Executive pursues the resolution of such
dispute with reasonable diligence.
(d) Compensation During Dispute. If a purported termination
occurs following a Change in Control and the Date of
Termination is extended in accordance with paragraph (c)
above, the Company shall continue to pay Executive the full
compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and
continue Executive as a participant in all compensation,
benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was
given, until the Date of Termination, as determined in
accordance with paragraph (c). Amounts paid under this
paragraph are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. Settlement of Disputes, Arbitration.
(a) All claims by Executive for payments or benefits under this
Agreement shall be directed to and determined by the
Company's Board of Directors (or such committee to which the
Board delegates authority under this Section) and shall be in
writing. Any denial by the Board (or such committee) of a
claim for benefits under this Agreement shall be delivered to
Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement
relied upon. The Board (or committee) shall afford Executive
a reasonable opportunity for a review of the decision denying
a claim and shall further allow Executive to appeal the
decision within sixty (60) days after the Board (or
committee) gives notice that it has denied Executive's claim.
(b) Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively
by arbitration in either Chicago, Illinois or St. Louis,
Missouri, as specified by Executive, in accordance with the
rules of the American Arbitration Association then in effect;
provided, however, that the evidentiary standards set forth
in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the
contrary, Executive shall be entitled to seek specific
performance of Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
10. Legal Fees and Expenses. The Company shall pay to Executive all legal
fees and expenses incurred by Executive in disputing in good faith any
issue hereunder relating to the termination of Executive's employment,
in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Code
Section 4999 to any payment or benefit provided hereunder. The Company
shall make such payments within fifteen (15) business days after
delivery of Executive's written requests for payment accompanied by
such evidence of fees and expenses incurred as the Company reasonably
may require. The parties hereby agree that a court or arbitrator shall
have the authority to award such reimbursement, in whole or in part,
upon a finding that Executive has proceeded with substantial merit and
good faith.
11. Assignment; Successors. This Agreement may not be assigned by the
Company without the written consent of Executive but the obligations
of the Company under this Agreement shall be the binding legal
obligations of any successor to the Company by merger, consolidation
or otherwise, and in the event of any business combination or
transaction that results in the transfer of substantially all of the
assets or business of the Company, the Company will cause the
transferee to assume the obligations of the Company under this
Agreement. This Agreement may not be assigned by Executive during
Executive's life, and upon Executive's death will inure to the benefit
of Executive's heirs, legatees and legal representatives of
Executive's estate.
12. Interpretation. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Missouri, without regard to the conflict of law principles
thereof. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
13. Withholding. The Company may withhold from any payment that it is
required to make under this Agreement amounts sufficient to satisfy
applicable withholding requirements under any federal, state or local
law.
14. Amendment or Termination. The Company and Executive may amend this
Agreement at any time by written agreement. The Company may terminate
this Agreement by written notice given to Executive at least two years
prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination,
the termination of this Agreement shall not be effective and Executive
shall be entitled to the full benefits of this Agreement. Any such
amendment or termination shall be made pursuant to a resolution of the
Board.
15. Indemnification. Following Executive's Date of Termination, the
Company will: (i) indemnify and hold harmless Executive for all costs,
liability and expenses (including reasonable attorneys' fees) for all
acts and omissions of Executive that relate to Executive's employment
with the Company, to the maximum extent permitted by law; and (ii)
continue Executive's coverage under the directors' and officers'
liability coverage maintained by the Company, as in effect from time
to time, to the same extent as other current or former senior
executive officers and directors of the Company.
16. Financing. Cash payments under this Agreement (not including any
payments made from a qualified plan) are general obligations of the
Company, and Executive shall have only an unsecured right to payment
thereof out of the general assets of the Company. Notwithstanding the
foregoing, the Company may, by agreement with one or more trustees the
Company selects, create a trust on such terms as the Company shall
determine to make payments to Executive in accordance with the terms
of this Agreement.
17. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
18. Notice. Notices given pursuant to this Agreement shall be in writing
and shall be deemed received when personally delivered, or on the date
of written confirmation of receipt by (i) overnight carrier, (ii)
telecopy, (iii) registered or certified mail, return receipt
requested, addressee only, postage prepaid, or (iv) such other method
of delivery that provides a written confirmation of delivery. Notice
to the Company shall be directed to:
Jefferson Smurfit Corporation (U.S.)
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: General Counsel
The Company may change the person and/or address to whom Executive
must give notice under this Section by giving Executive written notice
of such change, in accordance with the procedures described above.
Notices to or with respect to Executive will be directed to Executive,
or the executors, personal representatives or distributees of a
deceased Executive, or the assignees of Executive, at Executive's home
address on the records of the Company.
19. Entire Agreement. This Agreement constitutes the entire understanding
of Executive and the Company with respect to the subject matter hereof
and supersedes any and all prior understandings written or oral.
20. No Waiver. No failure or delay on the part of the Company or Executive
in enforcing or exercising any right or remedy hereunder shall operate
as a waiver thereof.
21. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute but one
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first written above.
JEFFERSON SMURFIT CORPORATION (U.S.)
By:
--------------------------------
Its: EXECUTIVE
--------------------------------
Document Number: 323244.4
5-27-98/14:53PM
EXHIBIT 23(a)
[Ernst & Young LLP Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption
"Experts" and to the use of our reports dated January 22, 1998 on the
consolidated financial statements and schedule of Jefferson Smurfit Corporation
and JSCE, Inc., incorporated by reference in the Joint Proxy
Statement/Prospectus of Jefferson Smurfit Corporation that is made a part of
this Registration Statement (Form S-4, No. 33-00000) for the registration of
115,798,222 shares of its common stock.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
St. Louis, Missouri
October 8, 1998
EXHIBIT 23(b)
[PricewaterhouseCoopers Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Jefferson Smurfit Corporation of our report dated March 26, 1998
relating to the financial statements of Stone Container Corporation, which
appears in such Joint Proxy Statement/Prospectus. We also consent to the use
of our report on the Financial Statement Schedule, which appears in such Joint
Proxy Statement/Prospectus. We also consent to the reference to us under the
heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
October 8, 1998
EXHIBIT 23(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Jefferson Smurfit Corporation of our report dated January 30, 1998
relating to the financial statements of Abitibi-Consolidated Inc., our report
dated January 30, 1998 relating to the financial information (prepared in
accordance with United States generally accepted accounting principles) of
Abitibi-Consolidated Inc. and of our report dated January 24, 1997 (except for
Note 20 which is as of February 14, 1997) relating to the financial statements
of Stone-Consolidated Corporation, which appear in such Joint Proxy
Statement/Prospectus. We also consent to the reference to us under the
heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers
--------------------------
PricewaterhouseCoopers
Montreal, Quebec, Canada
October 8, 1998
EXHIBIT 23(f)
[Merrill Lynch, Pierce, Fenner & Smith Incorporated Letterhead]
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to (i) the inclusion of our opinion letter
dated May 10, 1998 to the Board of Directors of Jefferson Smurfit Corporation
("JSC") as Annex E to the Joint Proxy Statement/Prospectus constituting part
of the Registration Statement on Form S-4 of JSC relating to the proposed
merger of JSC Acquisition Corporation, a wholly-owned subsidiary of JSC,
with and into Stone Container Corporation and (ii) all references made to
our firm and such opinion in the Joint Proxy Statement/Prospectus. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
/s/ Merrill Lynch, Pierce, Fenner & Smith Incorporated
------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated
New York, New York
October 8, 1998
EXHIBIT 99(c)
[Form of Proxy Card]
JEFFERSON SMURFIT CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 17, 1998
The undersigned hereby appoints Patrick J. Moore and
Michael E. Tierney, each of them with full power of substitution, as
proxies of the undersigned to vote all shares of Common Stock, $.01 par
value per share, of Jefferson Smurfit Corporation ("JSC") held of record by
the undersigned as of the close of business on September 29, 1998, at the
Special Meeting (the "Special Meeting") of stockholders of JSC to be held
on November 17, 1998, and at any adjournments or postponements thereof,
upon all subjects that may properly come before the meeting including
matters described in the Joint Proxy Statement/Prospectus furnished
herewith.
This Proxy, when properly executed, will be voted in the
manner marked herein by the undersigned stockholder. THE BOARD RECOMMENDS
A VOTE FOR EACH OF THE PROPOSALS. TO VOTE IN ACCORDANCE WITH THE BOARD'S
RECOMMENDATIONS, JUST SIGN AND RETURN THIS PROXY; NO BOXES NEED TO BE
CHECKED. IF OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY
WILL BE VOTED ON THOSE MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
NAMED PROXIES, EXCEPT THAT ANY PROXY VOTED AGAINST PROPOSALS 1 AND 2 WILL
NOT BE VOTED IN FAVOR OF ANY PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL
MEETING.
Your vote is important. Failure to sign and return this Proxy,
or attend the Special Meeting and vote by ballot, will have the same effect as a
vote against the merger.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
The Board of Directors of JSC recommends a vote FOR:
1. Approval of the issuance of shares of Common Stock, par value
$.01 per share, of JSC to stockholders of Stone Container
Corporation ("Stone") pursuant to the Agreement and Plan of
Merger (the "Merger Agreement") dated as of May 10, 1998, as
amended, among Stone, a Delaware corporation, JSC and JSC
Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of JSC, and the amendment of JSC's
certificate of incorporation as contemplated by the Merger
Agreement. The Merger Agreement and form of Amended and
Restated Certificate of Incorporation of JSC incorporating the
proposed amendments to the Certificate of Incorporation are
attached to the accompanying Joint Proxy Statement/Prospectus
as Annex A and Annex B, respectively.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Approval of the SSCC 1998 Long Term Incentive Plan (the
"Plan"). The Plan is attached to the accompanying Joint Proxy
Statement/Prospectus as Annex I.
|_| FOR |_| AGAINST |_| ABSTAIN
NOTE THAT APPROVAL OF THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL
(PROPOSAL 2) IS CONDITIONED ON APPROVAL OF THE MERGER PROPOSAL
(PROPOSAL 1), BUT APPROVAL OF THE MERGER PROPOSAL IS NOT CONDITIONED ON
APPROVAL OF THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL.
Please mark, date, sign and return in the enclosed envelope. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian, corporate officer or partner, please give full
title as such. If a corporation, please sign in corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person. This Proxy votes all shares held in all capacities.
The undersigned, hereby acknowledges receipt of a copy of the accompanying
notice of Special Meeting and Joint Proxy Statement/Prospectus and hereby
revokes any proxy or proxies heretofore given.
- ----------------------------------------
(Date)
- ----------------------------------------
(Signature)
- ----------------------------------------
(Title)
- ----------------------------------------
(Signature, if held jointly)
PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY
EXHIBIT 99(d)
[Form of Proxy Card]
STONE CONTAINER CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 17, 1998
The undersigned hereby appoints Thomas Cutilletta and Leslie
T. Lederer, each of them with full power of substitution, as proxies of the
undersigned to vote all shares of Common Stock, par value $.01 per share, of
Stone Container Corporation ("Stone") held of record by the undersigned as of
the close of business on September 29, 1998, at the Special Meeting (the
"Special Meeting") of stockholders of Stone to be held on November 17, 1998,
and at any adjournments or postponements thereof, upon all subjects that may
properly come before the meeting including matters described in the Joint Proxy
Statement/Prospectus furnished herewith.
This Proxy, when properly executed, will be voted in the
manner marked herein by the undersigned stockholder. THE BOARD RECOMMENDS A VOTE
FOR EACH OF THE PROPOSALS. TO VOTE IN ACCORDANCE WITH THE BOARD'S
RECOMMENDATIONS, JUST SIGN AND RETURN THIS PROXY; NO BOXES NEED TO BE CHECKED.
IF OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED
ON THOSE MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE NAMED PROXIES,
EXCEPT THAT ANY PROXY VOTED AGAINST PROPOSALS 1 AND 2 WILL NOT BE VOTED IN
FAVOR OF ANY PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING.
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
The Board of Directors of Stone recommends a vote FOR:
1. Approval and adoption of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 10, 1998, as amended, among Stone,
Jefferson Smurfit Corporation ("JSC"), a Delaware corporation, and JSC
Acquisition Corporation, a Delaware corporation and wholly owned
subsidiary of JSC, and approval of the merger and the amendment to
Stone's restated certificate of incorporation as contemplated by the
Merger Agreement. The Merger Agreement and the proposed amendment are
attached to the accompanying Joint Proxy Statement/Prospectus as Annex
A and Annex D-1, respectively.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Approval of the SSCC 1998 Long Term Incentive Plan (the "Plan"). The
Plan is attached to the accompanying Joint Proxy Statement/Prospectus
as Annex I.
|_| FOR |_| AGAINST |_| ABSTAIN
NOTE THAT APPROVAL OF THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL
(PROPOSAL 2) IS CONDITIONED ON APPROVAL OF THE MERGER PROPOSAL (PROPOSAL
1), BUT APPROVAL OF THE MERGER PROPOSAL IS NOT CONDITIONED ON APPROVAL OF
THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL.
Please mark, date, sign and return in the enclosed envelope. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian, corporate officer or partner, please give full
title as such. If a corporation, please sign in corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person. This Proxy votes all shares held in all capacities.
The undersigned, hereby acknowledges receipt of a copy of the accompanying
notice of Special Meeting and Joint Proxy Statement/Prospectus and hereby
revokes any proxy or proxies heretofore given.
- ----------------------------------------
(Date)
- ----------------------------------------
(Signature)
- ----------------------------------------
(Title)
- ----------------------------------------
(Signature, if held jointly)
PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY
EXHIBIT 99(e)
VOTING INSTRUCTION FORM
STONE CONTAINER CORPORATION
SPECIAL STOCKHOLDERS MEETING - November 17, 1998
The undersigned hereby directs the Trustee to vote, in person
or by proxy, the full and fractional shares of Common Stock of Stone Container
Corporation credited to my account, at the Special Meeting of Stockholders to
be held at the Mid-American Club, 200 East Randolph Drive, 80th Floor,
Chicago, Illinois 60601 on November 17, 1998, at 10:30 (C.D.T.) and at any
adjournment or postponement of such meeting for the purposes identified
below and with discretionary authority as to any other matters that may
properly come before the meeting. Please note that if a proposal to
adjourn the meeting is properly presented, the Trustee will not have
discretion to vote shares voted against Proposals 1 and 2 in favor of the
adjournment proposal.
If this proxy is completed, dated, signed and returned in the
accompanying envelope to the Trustee, the shares of stock represented by this
proxy will be voted in the manner directed herein by the undersigned. Proxies
which are not returned or proxies returned to the Trustee without direction
being given will be voted in the same porportion as voted proxies.
- ------------------------------------------------------------------------------
The Board of Directors of Stone recommends a vote FOR:
1. Approval and adoption of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 10, 1998, as amended, among Stone, Jefferson
Smurfit Corporation ("JSC"), a Delaware corporation, and JSC Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of JSC, and
approval of the merger and the amendment to Stone's restated certificate of
incorporation as contemplated by the Merger Agreement. The Merger
Agreement and the proposed amendment are attached to the accompanying Joint
Proxy Statement/Prospectus as Annex A and Annex D-1, respectively.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approval of the SSCC 1998 Long Term Incentive Plan (the "Plan"). The Plan
is attached to the accompanying Joint Proxy Statement/Prospectus as Annex I.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
NOTE THAT APPROVAL OF THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL
(PROPOSAL 2) IS CONDITIONED ON APPROVAL OF THE MERGER PROPOSAL
(PROPOSAL 1), BUT APPROVAL OF THE MERGER PROPOSAL IS NOT CONDITIONED
ON APPROVAL OF THE 1998 SSCC LONG TERM INCENTIVE PLAN PROPOSAL.
<TABLE>
<CAPTION>
Signature(s)
<S> <C> <C>
________________________ Please sign exactly as name appears Date: ___________________
at the top of this instruction form.
If shares are held jointly or by two
or more persons, each stockholder
should sign.
________________________
</TABLE>
EXHIBIT 99(f)
CONSENT OF RAY M. CURRAN
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Ray M. Curran
------------------------
Ray M. Curran
Date: October 8, 1998
EXHIBIT 99(g)
CONSENT OF DIONISIO GARZA
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Dionisio Garza
------------------------
Dionisio Garza
Date: October 8, 1998
EXHIBIT 99(h)
CONSENT OF RICHARD A. GIESEN
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Richard A. Giesen
------------------------
Richard A. Giesen
Date: October 8, 1998
EXHIBIT 99(i)
CONSENT OF ALAN E. GOLDBERG
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Alan E. Goldberg
------------------------
Alan E. Goldberg
Date: October 8, 1998
EXHIBIT 99(j)
CONSENT OF RICHARD W. GRAHAM
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Richard W. Graham
------------------------
Richard W. Graham
Date: October 8, 1998
EXHIBIT 99(k)
CONSENT OF MATTHEW S. KAPLAN
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Matthew S. Kaplan
------------------------
Matthew S. Kaplan
Date: October 8, 1998
EXHIBIT 99(l)
CONSENT OF JAMES J. O'CONNOR
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ James J. O'Connor
------------------------
James J. O'Connor
Date: October 8, 1998
EXHIBIT 99(m)
CONSENT OF JERRY K. PEARLMAN
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Jerry K. Pearlman
------------------------
Jerry K. Pearlman
Date: October 8, 1998
EXHIBIT 99(n)
CONSENT OF THOMAS A. REYNOLDS, III
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Thomas A. Reynolds, III
---------------------------
Thomas A. Reynolds, III
Date: October 8, 1998
EXHIBIT 99(o)
CONSENT OF DERMOT F. SMURFIT
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Dermot F. Smurfit
------------------------
Dermot F. Smurfit
Date: October 8, 1998
EXHIBIT 99(p)
CONSENT OF MICHAEL W. J. SMURFIT
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Michael W. J. Smurfit
-------------------------
Michael W. J. Smurfit
Date: October 8, 1998
EXHIBIT 99(q)
CONSENT OF ROGER W. STONE
The undersigned hereby consents to the inclusion of his name in
the Joint Proxy Statement/Prospectus constituting a part of this Registration
Statement on Form S-4 as a person to become a director of Smurfit-Stone
Container Corporation upon consummation of the merger of JSC Acquisition
Corporation, a wholly-owned subsidiary of Jefferson Smurfit Corporation, with
and into Stone Container Corporation.
Signature: /s/ Roger W. Stone
------------------------
Roger W. Stone
Date: October 8, 1998
