SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
COMMISSION FILE NUMBER 333-31931
NORTH ATLANTIC TRADING COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3961898
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
257 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10010-7304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 253-8185
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy materials or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 28, 1998, the only class of voting or non-voting common equity
issued and outstanding is the Registrant's Voting Common Stock, par value $.01
per share, 100% of which is owned by 33 record holders, 29 of whom are
affiliates or employees of the Registrant. There is no trading market for the
Voting Common Stock.
As of February 28, 1998, 528,241 shares of the Registrant's Voting Common Stock,
par value $.01 per share, and no shares of the Registrant's Non-Voting Common
Stock, par value $.01 per share, were outstanding.
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NORTH ATLANTIC TRADING COMPANY, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART I
Item 1. BUSINESS.................................................... 2
Item 2. PROPERTIES.................................................. 12
Item 3. LEGAL PROCEEDINGS........................................... 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.......................................... 13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................... 14
Item 6. SELECTED FINANCIAL DATA..................................... 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 21
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................... 21
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT............................................ 22
Item 11. EXECUTIVE COMPENSATION...................................... 25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 35
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................................. 37
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K................................... 38
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PART I
Item 1. Business
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OVERVIEW
North Atlantic Trading Company, Inc. (the "Company") is a holding
company which was organized under the laws of the State of Delaware. The Company
has two significant wholly-owned subsidiaries, National Tobacco Company, L.P.
("National Tobacco") and North Atlantic Operating Company, Inc. ("NAOC").
National Tobacco is the third largest manufacturer and marketer of loose leaf
chewing tobacco in the United States, selling its products under the brand names
BEECH-NUT REGULAR, BEECH-NUT WINTERGREEN, BEECH-NUT SPEARMINT, TROPHY and HAVANA
BLOSSOM. NAOC is the largest importer and distributor in the United States of
roll-your-own ("RYO") cigarette papers and other tobacco-related products, which
are sold under the ZIG-ZAG brand name pursuant to an exclusive distribution
agreement. NAOC imports and distributes RYO cigarette paper and related products
which are manufactured and distributed pursuant to a long-term agreement with
Bollore Technologies, S.A. ("Bollore").
EVOLUTION OF THE COMPANY
The Company was formed in 1997 to facilitate a corporate reorganization
and related financings in connection with the simultaneous acquisition of NATC
Holdings USA, Inc. ("NATC") and its ZIG-ZAG RYO cigarette paper business (the
"Acquisition"). Prior to the Acquisition, National Tobacco and its corporate
general partner, National Tobacco Finance Corporation ("NTFC"), were
wholly-owned subsidiaries of NTC Holding, LLC, a Delaware limited liability
company ("LLC"). All of the outstanding interests in LLC, together with certain
subordinated debt obligations, were acquired by the Company in connection with
the Acquisition. LLC transferred all of its assets to the Company, including the
limited and general partnership interests in National Tobacco, and was
subsequently dissolved.
National Tobacco was originally formed in 1988 by the Company's
Chairman and Chief Executive Officer, Mr. Thomas F. Helms, Jr., and an investor
group led by Lehman Brothers to acquire the smokeless tobacco division of
Lorillard, which had introduced the popular BEECH-NUT brand in 1897. Together
with the management team he assembled in connection with this initial buyout,
Mr. Helms participated in two subsequent leveraged buyouts prior to 1997.
Following the Acquisition, the Company's management team increased their equity
interest in the business from 48% to 72.9% of the Company's Common Stock
(assuming the exercise in full of certain outstanding warrants).
Upon consummation of the Acquisition, NATC and its operating subsidiary
were merged into NAOC. NATC was originally formed by an investor group to
acquire certain assets from UST, Inc. ("UST") in March 1993, including the
exclusive rights to market and distribute ZIG-ZAG RYO cigarette papers in the
United States, Canada and other international markets. UST obtained North
American distribution rights for the ZIG-ZAG brands in 1938 from Bollore, a
major French manufacturer of high-quality and fine papers. The ZIG-ZAG brand was
introduced in France in 1869.
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The Company's principal executive offices are located in New York, New
York at 257 Park Avenue South, 7th Floor, New York, New York 10010, and its
telephone number is (212) 253-8185.
BUSINESS STRATEGY
The Company's business strategy is to (i) cultivate sales, marketing
and distribution synergies through the merger of the Company's two sales forces,
which was accomplished in late 1997; (ii) capitalize on the brand-name identity
of its BEECH-NUT, TROPHY and ZIG-ZAG products; and (iii) increase operating
efficiencies.
INDUSTRY AND MARKETS
The Company believes that the smokeless tobacco market, including loose
leaf chewing tobacco, and the RYO cigarette paper industry are each
characterized by non-cyclical demand, brand loyalty, significant barriers to
entry, minimal capital expenditure requirements, high profit margins, strong
wholesale prices and the ability to generate strong and consistent free cash
flows. Smokeless tobacco products, including chewing tobacco, have a long,
established tradition of use in the United States dating back to colonial times.
Loose leaf chewing tobacco has generally been most popular in the Southeast,
Southwest, rural Northeast and North Central regions of the United States. An
estimated 7 million Americans are regular users of smokeless tobacco products,
according to the Smokeless Tobacco Council.
Smokeless Tobacco
The smokeless tobacco industry is comprised of the five product
categories listed below. The Company believes that many consumers of smokeless
tobacco use products in more than one of the following categories. In addition
to the Company, other manufacturers and marketers of smokeless tobacco include:
UST, Pinkerton Tobacco Co., Conwood Corporation and Swisher International Group
Inc. The Company currently offers only loose leaf chewing tobacco products.
Moist snuff is cured, aged, flavored and finely ground tobacco packaged
in round fiber or plastic cans.
Loose leaf chewing tobacco is typically made from air-cured leaf
tobacco, using both domestic and imported tobaccos, aged, flavored and
packed in foil pouches.
Plug chewing tobacco is made from air-cured leaf tobacco, heavily
flavored and pressed into small bricks or blocks.
Twist chewing tobacco is made of dark, air-cured leaf tobacco, which is
twisted into strands that are dried and packaged like a dry, pliable
rope.
Dry snuff is a powdered tobacco product which is sometimes flavored and
is packaged in a variety of containers.
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According to information provided by the Smokeless Tobacco Council,
manufacturers' sales for smokeless tobacco were $991 million in 1989 and $1.81
billion in 1996, representing a compound annual growth rate of 9.6%. This
increase is primarily related to the increase in manufacturers' sales of moist
snuff which have grown from $608 million in 1989 to $1.39 billion in 1996,
representing a compound annual growth rate of 12.5%. Manufacturers' sales of
loose leaf chewing tobacco were $280 million in 1989 and $329 million in 1996,
representing a compound annual growth rate of 2.3% during the same period.
Loose Leaf Chewing Tobacco
Loose leaf chewing tobacco products are typically sold through the
following retail distribution channels (in order of importance): food stores,
mass merchandisers, convenience stores, discount tobacco stores, chain and
independent drug stores. Discount tobacco retailers are an increasingly
important distribution channel for all tobacco products, including loose leaf
chewing tobacco. Certain retailers purchase loose leaf chewing tobacco direct
from manufacturers, although most purchase through wholesale distributors.
RYO Cigarette Paper
RYO cigarette papers are typically sold through the following retail
distribution channels (in order of importance): convenience stores, chain and
independent drug stores, mass merchandisers, food stores and discount tobacco
stores. Certain retailers purchase RYO cigarette papers direct from
manufacturers, although most purchase through wholesale distributors.
PRODUCTS
The Company manufactures and markets loose leaf chewing tobacco and
imports and distributes RYO cigarette papers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
net sales of the Company's principal products.
Loose Leaf Chewing Tobacco
Loose leaf chewing tobacco products can be broadly characterized as
either full-flavored or mild, each accounting for approximately one half of
industry volume. Loose leaf chewing tobacco is made from aged, air-cured tobacco
which is processed and flavored and then packaged in foil pouches. The BEECH-NUT
brands are available in three flavors: Regular, Wintergreen and Spearmint.
BEECH-NUT REGULAR is a full-flavored product and ranks second in sales in the
full-flavored loose leaf chewing tobacco category, and third overall. BEECH-NUT
WINTERGREEN and BEECH-NUT SPEARMINT were introduced by National Tobacco in 1979
and 1989, respectively. National Tobacco introduced its TROPHY brand into the
mild product category of the loose leaf chewing tobacco business in 1992. In
addition to the BEECH-NUT brands and TROPHY, National Tobacco also produces a
regional brand, HAVANA BLOSSOM, sold primarily in West Virginia, Pennsylvania
and Ohio.
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RYO Cigarette Papers
RYO cigarette papers are sold in a variety of different widths and
styles, primarily standard width ZIG-ZAG White, ZIG-ZAG 1 1/4 width French
Orange and ZIG-ZAG Kutcorners, which is designed for easier hand-rolling.
Additionally, in 1989, a waterproof paper brand was developed for sale in
Canada. Other products sold under the ZIG-ZAG name are 1 1/2 RYO cigarette
papers, Gold Standard tobacco for roll-your-own-cigarettes and ZIG-ZAG cigarette
rollers, cigarette tubes and tube injectors.
SALES AND MARKETING
Following the Acquisition and as part of the integration of the
National Tobacco and NAOC businesses, the two existing sales organizations were
merged, resulting in National Tobacco having a 110-person sales organization
nationwide. National Tobacco and NAOC have entered into a Sales Representation
Agreement, effective as of January 1, 1998, pursuant to which National Tobacco
has agreed to market NAOC's products.
Historically, NAOC's sales force focused on wholesalers in the large
chain convenience store, drug store and mass merchandising channels without
calling on retail outlets, while National Tobacco's larger sales force called on
both wholesalers and retail merchants in these channels as well as the food
store and discount tobacco store channels. The Company believes that the
resources and longstanding relationships of its combined sales force will enable
the Company to move each of its product lines into geographical markets and
retail channels where they previously had been underrepresented.
National Tobacco's loose leaf chewing tobacco has historically been
distributed through approximately 1,500 wholesale tobacco and food distributors.
BEECH-NUT REGULAR and TROPHY represent 59% and 27% of National Tobacco's loose
leaf chewing tobacco sales. At the retail level, National Tobacco's loose leaf
chewing tobacco products are promoted through in-store volume and price-discount
programs and the use of innovative, high visibility point-of-purchase floor and
shelf displays, banners and posters. National Tobacco is not reliant upon and
does not conduct any print or media consumer advertising.
NAOC's RYO cigarette papers have historically been distributed through
approximately 950 wholesale distributors. Sales by NAOC of its ZIG-ZAG White and
ZIG-ZAG French Orange RYO cigarette papers are the most important in terms of
volume, accounting for in excess of 85% of NAOC's sales.
The Company's largest customer is McLane Corporation ("McLane"), which
accounted for approximately 16.4% and 12.4% of its loose leaf chewing tobacco
and RYO cigarette paper revenues in fiscal 1997, respectively. No other customer
represents more than 10% of the Company's revenues, and the Company believes
that the loss of any other customer or distributor account would not have a
material impact on the financial condition or operations of the Company.
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TRADEMARKS AND TRADE SECRETS
National Tobacco has numerous registered trademarks relating to its
loose leaf chewing tobacco products, including the trademarks for its BEECH-NUT
and TROPHY products. These trademarks, which are significant to National
Tobacco's business, expire periodically and are renewable for additional 20-year
terms upon expiration. Flavor formulas relating to National Tobacco's loose leaf
chewing tobacco products, which are key assets of its business, are maintained
under strict secrecy. The ZIG-ZAG trade name and trademark are owned by Bollore
and have been licensed to NAOC; however, NAOC does own the ZIG-ZAG trademark
with respect to certain tobacco products.
RAW MATERIALS, PRODUCT SUPPLY AND INVENTORY MANAGEMENT
Loose Leaf Chewing Tobacco
National Tobacco's loose leaf chewing tobacco is produced from
air-cured leaf tobacco. National Tobacco utilizes tobaccos grown domestically in
Pennsylvania and Wisconsin and imported from many countries, including, but not
limited to, Argentina, Brazil, Columbia, France, Germany, Indonesia, Italy,
Mexico and the Philippines. Management does not believe that it is dependent on
any single country source for tobacco. Pursuant to an agreement with Lancaster
Leaf Tobacco Company of Pennsylvania ("Lancaster"), Lancaster (i) under
instructions from National Tobacco, purchases and processes tobacco on an
exclusive basis, (ii) stores tobacco inventory purchased on behalf of National
Tobacco and (iii) generally maintains a 15- to 24-month supply of National
Tobacco's various tobacco types at its facilities. National Tobacco generally
maintains a one- to two-month operating supply of tobacco in its Louisville
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources."
Other than raw tobacco, the ingredients used in National Tobacco's
finished loose leaf chewing tobacco products include food grade flavorings
approved by the FDA and other federal agencies. National Tobacco is not
dependent upon any one supplier for those raw materials or for the supply of its
products' packaging.
RYO Cigarette Paper
Under normal conditions, pursuant to the Distribution Agreements (as
defined), NAOC must purchase its RYO cigarette papers from Bollore. See
"Distribution Agreements." To maintain a steady supply of product: (i) NAOC may
seek third-party suppliers and continue use of the ZIG-ZAG trademark if Bollore
is unable or unwilling to perform under the Distribution Agreement; and (ii)
Bollore is required to maintain in a public warehouse in the United States a
two-month supply of emergency inventory at Bollore's expense.
The Distribution Agreements establish the purchase price through 2004,
subject to certain annual adjustments to reflect increases or decreases in the
U.S. and Canadian Consumer Price Index. Export duties, insurance and shipping
costs are the responsibility of Bollore and import duties and excise taxes are
the responsibility of NAOC. Bollore's terms of sale are 45 days after the bill
of lading date and its invoices are payable in French francs. The Distribution
Agreements reduce catastrophic foreign exchange risk by providing that Bollore
will bear certain exchange rate risks at levels fixed through 2004. The exchange
rate risk allocations set forth in the Distribution Agreements
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will be renegotiated in 2004 along with the prices to be paid by NAOC to Bollore
for the RYO cigarette papers.
NAOC seeks to maintain an adequate supply of product in addition to the
immediately available, two-month emergency inventory on hand at the expense of
Bollore. NAOC also builds inventory outside promotional periods in order to have
adequate inventory to meet increased demand during promotional periods. NAOC's
inventory is maintained at the Company's manufacturing facility in Louisville,
Kentucky and in bonded public warehouses located in Reno, Nevada and Pittsburgh,
Pennsylvania. See "Distribution Agreements."
MANUFACTURING
National Tobacco manufactures its loose leaf chewing tobacco products
and contracts for the manufacture of its RYO cigarette papers. The Company
believes that National Tobacco's production, quality control, research and
development, facilities and equipment are vital to maintaining the high-quality
brand image and operating efficiency of its loose leaf tobacco products.
Production and Quality Control
National Tobacco's production process utilizes proprietary techniques
and is subject to strict quality control. During each production day, National
Tobacco's quality control department periodically tests the quality of the
tobacco, casings (flavorings in syrup form), application of casings and
packaging. National Tobacco utilizes sophisticated quality control and pilot
plant production equipment to test and closely monitor the quality of its
products. The quality of National Tobacco's products is largely the result of
using high grade, air-cured tobacco leaf, food grade flavorings and ongoing
analysis of tobacco cut, flavorings and moisture content.
Research and Development
National Tobacco has a research and development department that
reformulates existing products in an effort to maintain a high level of product
consistency and to facilitate the use of less costly raw materials without
sacrificing product quality. The Company believes that it will be able to
continue to develop cost effective blends of tobacco and flavorings which reduce
overall costs without compromising the high product quality.
National Tobacco spent approximately $318,000, $345,000 and $376,500 on
research and development for fiscal years 1995, 1996 and 1997, respectively.
NAOC did not spend any amount for research and development during this period.
Facilities and Equipment
The Louisville, Kentucky plant, which is owned by National Tobacco, was
formerly used by Lorillard for the manufacture of cigarettes, cigars and chewing
tobacco. This approximately 600,000 square foot facility sits on a 26 acre urban
site near downtown Louisville. The majority of the facility's structures sit on
half of the total acres. The facilities are in good condition and have received
regular maintenance and capital improvement. About two-thirds of the plant is
currently utilized, resulting in substantial excess manufacturing and storage
capacity. The existing structures would provide ample space to accommodate any
expansion of the Company's products.
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COMPETITION
National Tobacco is a leading manufacturer and marketer of loose leaf
chewing tobacco, and NAOC is the largest importer and distributor in North
America of RYO cigarette papers, with respective market shares of 20.8% and 49%.
The other three principal competitors for loose leaf chewing tobacco sales,
which, together with National Tobacco, generate more than 95% of such sales, are
Pinkerton Tobacco Co., Conwood Corporation and Swisher International Group Inc.
NAOC's two major competitors for RYO cigarette paper sales, which, together with
NAOC, generate 95% of such sales, are Republic Tobacco Co. S.A. and House of
Rizla. Certain competitors of the Company are better capitalized than the
Company and have greater financial and other resources than those available to
the Company. The Company believes that its strong market positions in each of
its principal product lines is due to the high brand recognition and perceived
quality of each of its products, its manufacturing and operating efficiencies,
and its significant sales, marketing and distribution strengths.
EMPLOYEES
As of February 28, 1998, the Company employed a total of 285 full-time
persons. All of the Company's operations are non-union, with the exception of
115 manufacturing employees, who are covered by three collective bargaining
agreements expiring in 1998. Two of these agreements covering 112 employees,
were each extended for one year pending final resolution of the proposed
national settlement of tobacco liability claims.
REGULATION
The tobacco industry, particularly with respect to cigarettes, has been
under public scrutiny for over thirty years. Industry critics include special
interest groups, the Surgeon General and many legislators at the state and
federal levels. Although the smokeless tobacco companies have come under such
scrutiny, much of the focus has been directed at the cigarette industry due to
its large size relative to the smokeless tobacco industry.
Smokeless tobacco manufacturers, like other producers of tobacco
products, are subject to regulation in the United States at federal, state and
local levels. Together with changing public attitudes towards smoking, a
constant expansion of smoking regulations since the early 1970s has been a major
cause of the overall decline in consumption of tobacco products. Moreover, the
trend is toward increasing regulation of the tobacco industry.
Federal law has recently required states, in order to receive full
funding for federal substance abuse block grants, to establish the minimum age
of 18 years for the sale of tobacco products together with an appropriate
enforcement program. In recent years, a variety of bills relating to tobacco
issues have been introduced in the United States Congress, including bills that
would (i) prohibit the advertising and promotion of all tobacco products and/or
restrict or eliminate the deductibility of such advertising expenses; (ii)
increase labelling requirements on tobacco products to include, among other
things, additional warnings and lists of additives and toxins; (iii) modify
federal preemption of state laws to allow state courts to hold tobacco
manufacturers liable under common law or state statutes; (iv) shift regulatory
control of tobacco products and advertisements from the Federal Trade Commission
to the Food and Drug Administration ("FDA"); (v) increase tobacco excise taxes;
and (vi) require tobacco companies to pay for health care costs incurred by the
federal government in connection with tobacco related diseases. Hearings have
been held on certain of these proposals;
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however, to date, none of such proposals have been enacted by Congress. Future
enactment of such proposals or similar bills depending upon their content could
have a material adverse effect on the sales, operations or financial condition
of the Company.
In August 1995, the FDA published proposed rules for regulation of
tobacco and tobacco products, including smokeless tobacco. Following a year of
comment and revision, in August 1996 the FDA promulgated final rules which were
scheduled to take effect in August 1997, except for a portion of the rules
prohibiting the sale of tobacco to persons under 18, which have become effective
already. The FDA's regulations restrict access to tobacco and tobacco products,
regulate tobacco labeling, and limit promotion and advertising of tobacco.
On April 25, 1997, a federal court in Greensboro, North Carolina ruled
that the FDA has statutory authority to regulate tobacco products. The court
upheld the FDA's rules restricting access to tobacco products and regulating
tobacco labeling. However, the court ruled that the FDA does not have authority
to regulate promotion and advertising of tobacco products. The judge certified
the case for interlocutory appeal to the United States Fourth Circuit Court of
Appeals and the appeal is still pending.
The FDA regulations prohibit self-service displays of tobacco,
including smokeless tobacco, and require that a retailer sell cigarettes and
smokeless tobacco only in a direct, face to face exchange between the retailer
and the consumer. Historically, smokeless tobacco has been sold primarily by
allowing customers direct access to the product. Accordingly, there can be no
assurance that prohibiting such direct access would not have an adverse effect
on sales.
In 1996, Massachusetts enacted a statute which requires tobacco
companies, including smokeless tobacco companies, to disclose information
regarding the ingredients and nicotine content of their products, which
information will, subject to certain conditions, be made publicly available. The
ingredients of National Tobacco's products are proprietary and such disclosure
could result in the manufacture and sale of imitations, which could have a
material adverse effect on its smokeless tobacco business. On December 10, 1997,
U.S. District Judge O'Toole (D. Mass.) entered a preliminary injunction on
behalf of 5 smokeless tobacco companies (including National Tobacco) against the
Attorney General of Massachusetts and the Commissioner of Public Health. The
order bars the officials from taking any steps to enforce the
ingredient-reporting requirements of the Massachusetts statute pending a trial
on the merits. The tobacco companies did not seek an injunction against the
nicotine reporting requirements of the Massachusetts statute.
The district court has set a schedule for the receipt and disposition
of cross motions for summary judgement. The parties filed these motions on
February 13, 1998. After further briefing, the court will hear oral argument on
April 8, 1998. The Massachusetts defendants appealed the preliminary injunction
order to the U.S. Court of Appeals for the First Circuit. That court has not set
a briefing schedule.
While there is no current regulation materially and adversely affecting
the sale of RYO cigarette papers, there can be no assurance that federal, state
or local regulations will not be enacted which seek to regulate RYO cigarette
papers. In the event such regulations are enacted, depending upon their
parameters, they could have an adverse effect on the business of National
Tobacco and the financial condition of the Company. Similarly, there can also be
no assurance that the FDA will not attempt to regulate the sale of RYO cigarette
papers.
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POSSIBLE NATIONAL SETTLEMENT OF TOBACCO LIABILITY CLAIMS
There has been widespread publicity and speculation recently about a
possible national settlement of tobacco liability claims. Although the proposed
settlement has neither been enacted by the Congress nor has its
constitutionality been tested in the courts, its terms were made public on June
21, 1997. If enacted in its present form, the proposed settlement would expand
the FDA's authority to regulate the manufacture, marketing and distribution of
nicotine-containing tobacco products (e.g., advertising, warning labels,
manufacture, display and sale of tobacco products) and to require disclosure of
previously non-public or confidential tobacco industry files. If enacted in its
present form, the settlement would also create and finance public health
programs and education campaigns as well as establish goals for reduction of
underage tobacco use and provide a mandatory surcharge on tobacco businesses if
such goals are not met. Standards would also be developed to minimize
involuntary exposure to second-hand smoke.
The total face value of the 25-year settlement program would be $368.5
billion, to be borne by the tobacco industry as a deductible, ordinary business
expense. The legislation, if enacted in its present form, would also settle
certain types of existing lawsuits, including attorney general or similar
government actions and class actions. Punitive damages claims arising from
conduct preceding enactment of the legislation would be prohibited, no class
actions or other devices to resolve cases other than on an individual basis
would be permitted without the defendant's consent. An annual aggregate cap
would be placed on damages companies would pay. Where such cap is exceeded,
settlements and amounts of individual judgements exceeding $1 million would be
payable over time, with no more than $1 million to be paid over in any one year
in which the aggregate cap would be exceeded. All of the above limitations,
except for the limitation of punitive damages, would also apply to suits
claiming the occurrence of injury after the effective date of legislation.
Since the introduction of the settlement on June 21, 1997, there has
been extensive public debate over the advisability of the Congress adopting
legislation to implement the proposed settlement, including whether payments
made pursuant to the settlement should be deductible for tax purposes. It is
impossible to predict whether, and in what form, the proposed legislation will
be enacted. Assuming some form is enacted, it is unclear what effect, if any,
such legislation would have upon the Company or the smokeless tobacco industry.
EXCISE TAXES
Smokeless tobacco products and RYO cigarette papers have long been
subject to federal, state and local excise taxes, and such taxes have frequently
been increased or proposed to be increased, in some cases significantly, to fund
various legislative initiatives. Since 1986, smokeless tobacco (including dry
and moist snuff and chewing tobacco) has been subject to federal excise tax.
Smokeless tobacco is taxed by weight (in pounds or fractional parts thereof)
manufactured or imported. From July 1, 1986 through December 31, 1990, the
excise tax on chewing tobacco was $0.08 per pound. Effective January 1, 1991 the
federal excise tax on chewing tobacco was increased to $0.10 per pound, and
again increased to $0.12 per pound effective January 1, 1993.
The excise tax on RYO cigarette paper is $.0075 per fifty papers.
Future enactment of increases in excise taxes could have a material adverse
effect on the business of National Tobacco. The Company is unable to predict the
likelihood of the passage or the enactment of future increases in excise taxes.
Tobacco products and RYO cigarette papers are also subject to certain state and
local taxes. Budget deficit concerns at the state level continue to exert
pressure to increase tobacco excise
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taxes. From time to time, the imposition of state and local taxes has had
limited impact on the National Tobacco's sales regionally. Any enactment of new
state excise taxes or increase in existing excise taxes is likely to have an
increasingly adverse effect on regional sales.
ENVIRONMENTAL REGULATIONS
The Company believes that it is currently in substantial compliance
with all material environmental regulations and pollution control laws.
DISTRIBUTION AGREEMENTS
As part of the acquisition of the ZIG-ZAG RYO cigarette paper business,
NAOC entered into three long-term distribution and licensing agreements with
Bollore with respect to sales of RYO cigarette papers in the United States,
Canada and Hong Kong, Singapore, Dubai, Qatar, Oman and Jordan (respectively,
the "U.S. Distribution Agreement," the "Canada Distribution Agreement" and the
"Other Countries Distribution Agreement," and, collectively, the "Distribution
Agreements"). Under the Distribution Agreements, Bollore has granted NAOC the
exclusive right to purchase RYO cigarette papers bearing the ZIG-ZAG brand name
from Bollore for resale in the countries noted above. NAOC has the sole right to
determine the price and other terms upon which NAOC may resell any products
purchased from Bollore, including the right to determine the distributors of
such products within the countries noted above.
The Distribution Agreements establish the purchase price through 2004,
subject to certain annual adjustments to reflect increases or decreases in the
U.S. and Canadian Consumer Price Index. Export duties, insurance and shipping
costs are the responsibility of Bollore and import duties and excise taxes are
the responsibility of NAOC. Bollore's terms of sale are 45 days after the bill
of lading date and its invoices are payable in French francs. The Distribution
Agreements reduce catastrophic foreign exchange risk by providing that Bollore
will bear certain exchange rate risks at levels fixed through 2004. The exchange
rate risk allocations set forth in the Distribution Agreements will be
renegotiated in 2004 along with the prices to be paid by NAOC to Bollore for the
RYO cigarette papers.
According to NAOC's Distribution Agreements with Bollore, NAOC, under
normal conditions, must purchase the finished product only from Bollore.
Conversely, Bollore is required by such agreements to provide NAOC the
quantities and quality of the products that it desires. The Distribution
Agreements provide NAOC with safeguards in order for NAOC to maintain a steady
supply of product. Such safeguards include (i) granting NAOC the right to seek
third party suppliers with continued use of the ZIG-ZAG trademark if Bollore is
unable or unwilling to perform its obligations under the Distribution Agreements
and (ii) maintaining a two month supply of emergency inventory in the United
States at Bollore's expense.
Under the Distribution Agreements, NAOC has agreed for the term of the
Distribution Agreements and for a period of five years after termination of such
Distribution Agreements not to engage, directly or indirectly, in the
manufacturing, selling, distributing, marketing or otherwise promoting in the
countries identified above RYO cigarette paper or RYO cigarette paper booklets
of a competitor without Bollore's consent, except for certain de minimis
acquisitions of debt or equity securities of such competitor and certain
activities with respect to an alternative supplier used by NAOC as permitted
under the Distribution Agreements.
11
<PAGE>
Each of the Distribution Agreements became effective on November 30,
1992. Each of the U.S. Distribution Agreement and the Canada Distribution
Agreement was for an initial term of twenty years commencing from the effective
date of such agreement and will be renewed automatically for successive twenty
year terms unless sooner terminated in accordance with the provisions of such
agreement. The Other Countries Distribution Agreement was for an initial term of
ten years commencing from the effective date of such agreement and will be
renewed automatically for successive ten year terms unless sooner terminated in
accordance with the provisions of such agreement. Each of the Distribution
Agreements permits Bollore to terminate such agreement (i) if certain minimum
purchases (which were exceeded in 1997 by a factor of 3.6 times in the U.S.;
such minimum purchases are not applicable with respect to the Other Countries
Distribution Agreement until the last three years of the initial term of such
agreement) of RYO cigarette paper booklets have not been made by the Company for
resale in the jurisdiction covered by such agreement within a calendar year,
(ii) if the Company assigns such agreement without the consent of Bollore (other
than certain permissible assignments to wholly owned subsidiaries of the
Company), (iii) upon a change of control of the NAOC or any parent of NAOC
without the consent of Bollore, (iv) upon certain acquisitions of equity
securities of NAOC or any parent of NAOC by a competitor of NAOC or certain
investments by significant stockholders of the Company in a competitor of NAOC
and (v) certain material breaches, including NAOC's agreement not to promote,
directly or indirectly, RYO cigarette paper or RYO cigarette paper booklets of a
competitor. Additionally, each of the Canada Distribution Agreement and the
Other Countries Distribution Agreement is terminable by either NAOC or Bollore
upon the termination of the U.S. Distribution Agreement.
Item 2. Properties
----------
As of December 31, 1997, the Company operated manufacturing,
distribution, office and warehouse space in the United States with a total floor
area of approximately 610,351 square feet. Of this footage, approximately 10,351
square feet are leased and approximately 600,000 are owned.
To provide a cost-efficient supply of products to its customers, the
Company maintains centralized management of nationwide manufacturing and
distribution facilities. National Tobacco has one manufacturing and distribution
facility located in Louisville, Kentucky and five other public warehouse
distribution facilities in other locations throughout the United States. The
Company's management will evaluate the potential closure of additional space
acquired pursuant to the Acquisition.
The following table describes the principal properties of the Company
(other than sales service centers, sales office space or temporary warehouse
space) as of December 31, 1997.
Owned or
Location Principal Use Square Feet Leased
-------- ------------- ----------- ---------
New York, NY Corporate headquarters 10,351 Leased
Louisville, KY Loose leaf chewing tobacco 600,000 Owned (1)
manufacturing and R&D
- --------------------
(1) Encumbered by a mortgage securing all obligations and liabilities under
the New Senior Secured Facilities.
12
<PAGE>
Item 3. Legal Proceedings
-----------------
National Tobacco was named as a defendant in a purported class action
filed on June 30, 1997 in the 33rd Judicial District Court in the State of
Louisiana, Parish of Allen, entitled Doyle v. United States Tobacco Company, et
al. The petition, which named as additional defendants three other manufacturers
of smokeless tobacco products and a subsidiary of one of the manufacturers,
sought an order certifying the proposed class, and the establishment of a
medical monitoring fund to monitor the health of the plaintiffs and class
members for those diseases and health risks associated with the use of smokeless
tobacco products as well as recovery of costs associated with seeking mental
health counseling and/or psychiatric care to assist in breaking the nicotine
addiction. On January 26, 1998, the plaintiff stipulated to a dismissal of the
case without prejudice. On January 28, 1998, the court entered an order
voluntarily dismissing the action without prejudice. For a description of other
industry litigation in which the Company is a party, see Part I, Item 1.
"Business--Regulation."
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
By written consent dated October 16, 1997, Helms Management Corp., as
majority stockholder, elected Jack Africk, Kim S. Fennebresque, Jeffrey S. Hay
and Jay Martin to the Company's Board of Directors.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
--------------------------------------------------------------------
There is no trading market for the Company's Voting Common Stock, par
value $.01 per share (the "Common Stock"), and, as of February 28, 1998, such
stock was held by 33 stockholders of records, 29 of whom are affiliates or
employees of the Company.
There have been no dividends declared on the Company's Common Stock.
The current policy of the Company's Board of Directors is to retain any future
earnings to provide funds for the operation and expansion of the Company's
business; however, the Board of Directors will review the dividend policy
periodically to determine whether the declaration of dividends is appropriate.
In addition, the payment of dividends by the Company is subject to certain
restrictions contained in (i) the Company's senior secured credit facility and
(ii) the indenture and certificate of designation, respectively, in respect of
the Company's outstanding senior notes and preferred stock.
On June 25, 1997, the Company sold $155,000,000 aggregate principal
amount of its 11% Senior Notes due 2004, Series A (the "Notes"), as well as
1,360 units (the "Units") consisting of 1,360,000 shares of 12% Senior
Payment-In-Kind Preferred Stock, liquidation preference $25 per share (the
"Preferred Stock"), and warrants to purchase 44,440 shares of Common Stock. The
Company issued warrants to purchase 19,050 shares of Common Stock in addition to
those included in the Units. Each warrant entitles the holder upon exercise to
receive 32.6765 shares of Common Stock for nominal consideration. During fiscal
1997, options to purchase 46,894 shares of the Company's Common Stock (with an
exercise price of $18.19 per share) were issued to executives of the Company.
The Notes and Units were sold for aggregate cash consideration of
$149,962,500 and $32,800,000, respectively, in a private transaction to NatWest
Capital Markets Limited and, in the case of the Notes only, to CIBC Wood Gundy
Securities Corp. The Company issued 528,241 shares of Common Stock,
substantially all of which was issued in exchange for ownership interests in
LLC. The balance of the Common Stock was sold for aggregate cash consideration
of approximately $700,000 to a group substantially comprised of a limited number
of employees and directors of the Company. The sale of the Units and Preferred
Stock was exempt from registration under the Securities Act of 1933, as amended,
pursuant to Regulation D promulgated thereunder and Section 4(2) thereof.
On September 19, 1997, the Company commenced an offer to exchange (the
"Exchange Offer") all of the outstanding Notes and Preferred Stock for the
Company's 11% Senior Notes due 2004, Series B (the "New Notes") and 12% Senior
Exchange Payment-In-Kind Preferred Stock (the "New Preferred Stock"), which was
registered under the Securities Act of 1933, as amended, and otherwise is the
same in all material respects as the Notes and Preferred Stock. The Exchange
Offer expired on November 3, 1997, and all of the Notes and Preferred Stock were
exchanged for New Notes and New Preferred Stock.
14
<PAGE>
Item 6. Selected Financial Data
-----------------------
CONSOLIDATED SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
The following table sets forth the consolidated selected statement of
operations, other and balance sheet data for the Company and its predecessor for
the periods indicated. The selected data is derived from the audited
consolidated financial statements of the Company and its predecessor for such
years. As described in the consolidated financial statements, the Company
completed an acquisition of NATC and a recapitalization of the Company on June
25, 1997. Additionally, as described in the notes to the consolidated financial
statements, the Company's predecessor was recapitalized on May 17, 1996 in
connection with the formation of the Company. As such, the selected data of the
Company and its predecessor are not comparable in certain respects due to the
purchase accounting effect of this acquisition and these recapitalizations. This
selected data should be read in conjunction with, and is qualified by reference
to, the consolidated financial statements of the Company and its predecessor,
and the related notes thereto, and the Management Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
The Company The Predecessor
-------------------------- ---------------------------------------------
Year
Ended Period from Period from
December 31, 5/17/96 to 1/1/96 to Year Ended December 31,
1997(1) 12/31/96 5/17/96 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................ $ 84,430 $ 36,126 $19,810 $ 52,630 $ 51,376 $ 52,312
Income (loss) from continuing
operations (net of preferred
stock dividends of $2,268 in 1997)
applicable to common shares(2)..... 5,146 383 1,132 2,628 5,812 (1,465)
Net income (loss) applicable
to common shares(2)................ (1,975) 383 1,132 2,505 5,812 (1,465)
Income from continuing operations
attributable to common shares
per common share:
Basic................................ 9.75 -- -- -- -- --
Diluted.............................. 8.42 -- -- -- -- --
Net income (loss) attributable to
common shares per common share:
Basic................................ (3.73) -- -- -- -- --
Diluted.............................. (3.23) -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets......................... 273,239 96,553 81,887 80,517 82,136 85,615
Total debt, including current
maturities......................... 230,000 70,696 48,388 48,782 54,888 62,200
Mandatorily redeemable preferred
stock.............................. 34,581 -- -- -- -- --
OTHER DATA:
Adjusted EBITDA(3)................... 32,668 10,885 4,810 13,939 10,489 11,715
</TABLE>
- ----------------------
(1) The selected data for the year ended December 31, 1997 includes the results
of operations of NAOC since its acquisition on June 25, 1997.
15
<PAGE>
(2) Net income (loss) attributable to common shares for the year ended December
31, 1997 includes an extraordinary loss of $7,121 (net of income tax
benefit of $4,365) related to the write-off of debt discounts and deferred
financing costs upon the occurrence of the recapitalization of the Company
on June 25, 1997. Income (loss) from continuing operations and net income
(loss) applicable to common shares for the periods prior to June 25, 1997
does not include income tax expense because the Company and the Predecessor
were a limited liability company and a partnership, respectively, prior to
June 25, 1997, and did not incur any federal or state income taxes for such
periods. Income (loss) from continuing operations and net income (loss)
applicable to common shares for the year ended 1995 includes a one-time
charge of $1,561 for abandoned debt issuance costs. Income (loss) from
continuing operations and net income (loss) applicable to common shares for
the year ended December 31, 1994 includes a one-time charge of $352 for
abandoned debt issuance costs and one-time benefits of $812 and $2,267 to
adjust the reserves for asbestos removal and postretirement benefits,
respectively.
(3) Adjusted EBITDA represents operating income plus depreciation, amortization
and certain non-cash charges. Adjusted EBITDA is presented because
management believes that Adjusted EBITDA is useful as an indicator of the
Company's historical cash flow available to service its debt. Adjusted
EBITDA should not be considered as an alternative to, or more meaningful
than, net income (as determined in accordance with generally accepted
accounting principles (GAAP)) as a measure of the Company's operating
results or cash flows (as determined in accordance with GAAP) as a measure
of the Company's liquidity.
Following is a reconciliation of net income to Adjusted EBITDA:
<TABLE>
<CAPTION>
The Company The Predecessor
-------------------------- ---------------------------------------------
Year
Ended Period from Period from
December 31, 5/17/96 to 1/1/96 to Year Ended December 31,
1997(1) 12/31/96 5/17/96 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)...................... $ 293 $ 383 $ 1,132 $ 2,505 $ 5,812 $ (1,465)
Interest expense, net............... 18,361 6,398 2,453 7,239 6,834 6,896
Income tax expense.................. 852 -- -- -- -- --
Depreciation........................ 1,619 1,034 454 1,073 1,038 1,007
Amortization........................ 3,213 504 365 973 1,038 1,040
Other (income) expense.............. (34) (117) (5) 1,336 (2,875) (27)
Financial advisory fee expense...... -- -- 114 300 300 300
LIFO adjustment..................... (129) 2,619 187 (53) 609 3,964
Stock option compensation expense... 900 -- -- -- -- --
Postretirement expense (benefit).... 472 64 110 443 (2,267) --
Cumulative effect of accounting
change........................... -- -- -- 123 -- --
Extraordinary loss, net of income
tax benefit...................... 7,121 -- -- -- -- --
-------- -------- ------- -------- -------- --------
Adjusted EBITDA........................ $ 32,668 $ 10,885 $ 4,810 $ 13,939 $ 10,489 $ 11,715
======== ======== ======= ======== ======== ========
</TABLE>
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
The discussion set forth below relates to the consolidated results of
operations and financial condition of the Company for the years ended December
31, 1997, 1996 and 1995. The following table sets forth certain statement of
operations data and the related percentage of net sales (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 (1) 1995
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. $84,430 100.0% $ 55,936 100.0% $ 52,630 100.0%
Cost of sales.............................. 27,665 32.8 23,254 41.6 20,491 38.9
------- ----- -------- ----- -------- -----
Gross profit............................... 56,765 67.2 32,682 58.4 32,139 61.1
Selling, general and
administrative expenses.................. 26,959 31.9 21,569 38.6 19,963 38.0
Amortization of intangible assets.......... 3,213 3.8 869 1.5 973 1.8
--------- ------ --------- ------ --------- ------
Operating income........................... 26,593 31.5 10,244 18.3 11,203 21.3
Interest expense & financing costs, net.... 18,361 21.7 8,851 15.8 7,239 13.8
Other expense (income)..................... (34) -- (122) (.2) 1,336 2.5
------- --- -------- ---- -------- ----
Income before income tax expense,
cumulative effect of accounting change
and extraordinary loss................... 8,266 9.8 1,515 2.7 2,628 5.0
Income tax expense......................... 852 1.0 -- -- -- --
------- ---- -------- --- -------- ----
Income before cumulative effect
of accounting change
and extraordinary loss................... 7,414 8.8 1,515 2.7 2,628 5.0
Cumulative effect of
accounting change........................ -- -- -- -- 123 .2
Extraordinary loss......................... (7,121) 8.4 -- -- -- --
------- ---- -------- --- -------- ---
Net income................................. $ 293 .4% $ 1,515 2.7% $ 2,505 4.8%
======= ===== ======== ====== ======== ======
</TABLE>
(1) The results of operations for the year ended December 31, 1996, include
the Company's results from May 17, 1996 through December 31, 1996 and its
predecessor's results from January 1, 1996 through May 17, 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Net Sales. For the year ended December 31, 1997, consolidated sales
were $84.4 million, an increase of 50.9%, or $28.5 million, from the prior year
period. On June 25, 1997, the Company acquired NAOC and its operating results
have been included thereafter. Sales of NAOC since June 25, 1997 were 36.3% of
the Company's consolidated sales or $30.6 million. Sales of smokeless tobacco
products for the year ended December 31, 1997 decreased 3.8% or $2.1 million,
reflecting a volume decrease of 5.0% which was partially offset by a
manufacturers' price increase of 3.6% which occurred in July, 1997.
Gross Profits. Gross profit and gross profit percentage for the year
ended December 31, 1997 increased to $56.8 million or 67.2% of net sales
compared to $32.7 million or 58.4% of net sales for the prior year. Gross profit
of NAOC since June 25, 1997 was 37.3% of the Company's consolidated gross profit
or $21.2 million. Gross profit of smokeless tobacco products for the year ended
December 31, 1997 increased 8.9%, or $2.9 million, of which $3.2 million was due
to LIFO inventory adjustments. Disregarding LIFO adjustments, gross profit of
smokeless tobacco products decreased 1.0%.
17
<PAGE>
Currency. Currency movements and price increases are the primary
adjustment factors for changes in costs of goods sold for NAOC. NAOC purchases
cigarette papers from Bollore, on terms of net 45 days in French francs. Thus,
NAOC bears certain foreign exchange risks in its inventory purchases. To hedge
this risk, NAOC utilizes the short-term forward currency contracts, through
which NAOC secures French francs in order to provide payment for its monthly
purchases of inventory. In addition, Bollore provides a contractual hedge
against substantial currency fluctuation in its agreement with NAOC. For the
year ended December 31, 1997, currency rates were favorable due to the strength
of the U.S. dollar against the French franc and the Company was able to hedge
its currency risk by utilizing short-term forward currency contracts through
which NAOC purchases French francs. In the event that the strength of the French
franc increases against the U.S. dollar, the Company may have to reassess its
currency strategy.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 increased 25.0% to
$27.0 million from last year's $21.6 million. This increase was due to the
addition of three new members of senior management, an increase in legal fees,
costs associated with the relocation of the Company's executive offices and
expenses associated with the Company's membership in the Smokeless Tobacco
Council. In addition, selling, general and administrative expenses of NAOC since
June 25, 1997 were $1.8 million, or 8.4% of the increase.
Amortization of Intangible Assets. Amortization of intangible assets
for the year ended December 31, 1997 was $3.2 million compared to $0.9 million
for the prior year. This increase was due to the increase in intangible assets
as a result of the Acquisition.
Interest Expense and Financing Costs. Interest expense and financing
costs increased to $18.4 million for the year ended December 31, 1997 from $8.9
million for the prior year. This increase was the result of additional
indebtedness incurred in connection with the Acquisition and related
recapitalization.
Income Tax Expense. LLC and National Tobacco were a limited liability
company and a partnership, respectively, for federal and state income tax
purposes through June 25, 1997 and, accordingly, did not incur any income taxes
prior to such date. The income tax provision of $0.8 million for the year ended
December 31, 1997 includes a current provision of $4.4 million, and an income
tax benefit for the initial set-up of deferred income taxes of $3.6 million. The
initial set-up of deferred income taxes was necessary to record the Company's
deferred income tax assets and liabilities as of June 25, 1997 which had not
been previously recorded due to its non-taxable status.
Extraordinary Loss. The Company recorded an extraordinary loss of $7.1
million (net of income tax benefit of $4.4 million) related to the write-off of
deferred financing costs and the debt discount due to the recapitalization of
the Company on June 25, 1997.
Net Income. Due to the factors described above, there was net income of
$0.3 million for the year ended December 31, 1997 compared to net income for the
prior year of $1.5 million.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 were $55.9
million compared to $52.6 million for the year ended December 31, 1995, an
increase of 6.3%. This increase in net sales was primarily attributable to the
continued growth of TROPHY, and the implementation of a 6.2%
18
<PAGE>
manufacturers' price increase in June 1996, which partially offset the
year-to-year decline in net unit volume of 2.6%.
Gross Profit. Gross profit for the year ended December 31, 1996 was
$32.7 million, or 58.4% of net sales, compared to $32.1 million, or 61.1% of net
sales, for the year ended December 31, 1995. The increased net sales were
partially offset by the non-cash LIFO charge of $2.8 million in 1996. Excluding
such LIFO adjustments, the gross profit margin would have been 63.4% in 1996
compared to 61.0% in 1995. This increase in gross profit margin was primarily
attributable to the aforementioned increase in net sales combined with stable
variable costs on a per pound basis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $21.6 million,
or 38.6% of net sales, an increase from $20.0 million, or 38.0% of net sales,
for the same period in 1995. This increase of $1.6 million was primarily due to
increased promotional activity for TROPHY and BEECH-NUT REGULAR.
Amortization of Intangible Assets. Amortization of intangible assets
for the year ended December 31, 1996 was $0.9 million, a decrease from $1.0
million for the same period in 1995. This decrease reflects the write-off of
certain intangible assets related to the May 17, 1996 recapitalization,
partially offset by the increase in related goodwill.
Interest Expense and Financing Costs. Interest expense and financing
costs for the year ended December 31, 1996 increased $1.6 million, or 22.3%,
from $7.2 million for the year ended December 31, 1995 to $8.9 million. This
increase was a result of the additional indebtedness incurred in the May 17,
1996 recapitalization.
Other Expense (Income). Other income in 1996 was $0.1 million and other
expense in 1995 was $1.3 million. Other expense in 1995 included $1.5 million of
abandoned debt issuance costs associated with a proposed refinancing.
LIQUIDITY AND CAPITAL REQUIREMENTS
At December 31, 1997, working capital was $49.2 million compared to
$25.3 million at December 31, 1996. The Company will fund its seasonal working
capital requirements through its operating cash flows, and, if needed, bank
borrowings. The Company has an undrawn availability of $24 million under its
committed $25 million revolving credit facility.
The tobacco for loose leaf chewing tobacco requires aging of
approximately two years before being processed into finished products. The
Company believes that National Tobacco maintains sufficient tobacco inventories
to ensure proper aging as well as an adequate supply based on its historical
sales activity. The Company also believes that NAOC maintains adequate
inventories and that the supply of such inventory will remain stable for the
foreseeable future.
The Company believes that any effect of inflation at current levels
will be minimal. Historically, the Company has been able to increase prices at a
rate greater than that of inflation and believes that it will be able to do so
in the foreseeable future. In addition, the Company has been able to maintain a
stable variable cost structure for its smokeless tobacco products due in part to
its procurement and reformulation activities.
19
<PAGE>
For 1997, the Company spent $704,000 in capital expenditures of which
approximately $341,000 related to the relocation of the Company's headquarters.
Given its current operation, the Company believes that its annual capital
expenditure requirements for 1998 will be in the $400,000 to $500,000 range.
The Company believes that its operating cash flows, together with its
revolving credit facility, should be adequate to satisfy its reasonably
foreseeable capital requirements. The financing of any significant future
products, business or property acquisitions may require additional debt or
equity financing.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," was issued in June 1997 and is effective for
fiscal years beginning after December 15, 1997. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
statements does not require a specific format for that financial statement but
requires that an entity display an amount representing total comprehensive
income for the period in that financial statement. This statement requires that
an entity classify items of other comprehensive income by their nature in a
financial statement. For example, other comprehensive income may include foreign
currency items, minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. In addition, the
accumulated balance of other comprehensive income must be displayed separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. Reclassification of financial statements for
earlier periods, provided for comparative purposes, is required. Based on
current accounting standards, this new accounting standard is not expected to
have a material impact on the Company's consolidated financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
enterprise's Executive Committee in deciding how to allocate resources and in
assessing performance. This statement requires reporting segment profit or loss,
certain specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
amounts reported in the consolidated financial statements. Restatement of
comparative information for earlier periods presented is required in the initial
year of application. Interim information is not required until the second year
of application, at which time comparative information is required. This
statement's requirements are disclosure oriented and, therefore, will not have
an impact on the Company's financial position, results of operations or
liquidity.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward- looking statements. The forward-looking statements
contained in this Form 10-K are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
20
<PAGE>
factors that could affect the Company's actual results and could cause results
to differ from those anticipated in the forward-looking statements contained
herein is the Company's ability to implement its business strategy successfully,
which will be dependent on business, financial, and other factors beyond the
Company's control, including, among others, competitive pressures, prevailing
changes in consumer preferences, consumer acceptance of new product
introductions and other marketing initiatives, access to sufficient quantities
of raw material or inventory, wholesale ordering patterns, product liability
litigation and changes in tobacco products regulation.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, with respect thereto, referred to in
the Index to Consolidated Financial Statements and Financial Statement Schedules
of the Company contained in Item 14(a), appear on pages F-1 through F-30 of this
Form 10-K and are incorporated herein by reference thereto. Information required
by schedules called for under Regulation S-X is either not applicable or is
included in the Consolidated Financial Statements or Notes thereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
21
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, position with the Company and
age of each member of the Board of Directors and each executive officer of the
Company. See "Election of Directors."
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas F. Helms, Jr.............. 57 Chief Executive Officer and Chairman of the Board
Jack Africk...................... 69 President, Chief Operating Officer and Director
David I. Brunson................. 47 Executive Vice President--Finance and Administration, Chief
................................. Financial Officer and Director
Jeffrey S. Hay................... 37 Executive Vice President, General Counsel and Director
Jay Martin....................... 63 Executive Vice President--Governmental Relations and Trade
Development and Director
Kim S. Fennebresque.............. 48 Director
Maurice R. Langston.............. 68 Director and Vice-Chairman of the Board
Alan R. Minsterketter............ 45 Director
Arnold Sheiffer.................. 65 Director
</TABLE>
Thomas F. Helms, Jr. Thomas F. Helms, Jr. has been Chief Executive
Officer, Chairman of the Board and the sole member of the Administration
Committee of the Company since June 1997 and a member of the Company's Executive
Committee since December 1997. He served as President of the Company and its
subsidiaries (other than International Flavors and Technology, Inc. ("IFT"))
until January 1, 1998; and he currently serves as Chairman of the Board of each
of the Company's corporate subsidiaries. He has been Chief Executive Officer of
National Tobacco and NTFC since 1988 and has held the same office with NAOC and
IFT since October 1997. Mr. Helms also served as President and Chief Executive
Officer of Culbro Corporation's smokeless tobacco division from 1983 until
shortly prior to its sale to American Maize-Products Company in March 1986. From
1979 to 1982, Mr. Helms was General Manager of the Etherea Cosmetics and
Designer Fragrances Division of Revlon, Inc. Prior to that time, Mr. Helms was
employed in marketing and sales positions in various divisions of Revlon
Consumer Products Corporation.
Jack Africk. Jack Africk has been a Director and a member of the
Executive Committee of the Company since October and December 1997,
respectively, and President and Chief Operating Officer of the Company and each
of its subsidiaries (other than IFT) since January 1998. In February 1998, Mr.
Africk became a Director of each of the Company's corporate subsidiaries.
Beginning in 1996 and until the consummation of the Acquisition, he was Chief
Executive Officer of NATC. Prior to that time, from 1993 to 1996, Mr. Africk was
a consultant and Director of NATC. Mr. Africk is a former Vice Chairman of UST.
From 1979 until 1993, Mr. Africk held various positions with UST, including Vice
Chairman and Executive Vice President, as well as positions with subsidiary
organizations including President of an international division, and President
and Chief Executive Officer of United States Tobacco Company.
David I. Brunson. David I. Brunson has been Executive Vice
President--Finance and Administration, Chief Financial Officer and a Director of
the Company since June 1997 and a
22
<PAGE>
member of the Company's Executive Committee since December 1997. He has held the
same offices with National Tobacco and NTFC (since April 1997), NAOC (since
October and June 1997, respectively) and IFT (since October 1997). In addition,
he currently holds the offices of Treasurer and Assistant Secretary with each of
the Company's subsidiaries (other than IFT). Mr. Brunson has also served as a
member of the Board of the Directors of each of the Company's corporate
subsidiaries since October 1997 (or, in the case of NAOC, since June 1997).
Prior to joining the Company, from November 1992 until April 1997, he was
employed as a Managing Director at Societe Generale and established and was
President of Societe Generale Investment Corporation. From July 1979 until
November 1992, he was employed at The First National Bank of Chicago, lastly as
a Managing Director in the Investment Banking Division.
Jeffrey S. Hay. Jeffrey S. Hay has been a Director of the Company and
each of its corporate subsidiaries since October 1997 and a member of the
Company's Executive Committee since December 1997. In July 1997, he became
Executive Vice President and General Counsel of the Company, and has held the
same offices with the Company's subsidiaries since October 1997. Mr. Hay has
also served as Secretary of the Company and its subsidiaries since June 1997
(or, in the case of National Tobacco and IFT, since October 1997). From 1993
until July 1997, Mr. Hay was a founding partner of Fennebresque, Clark, Swindell
& Hay, and he is currently of counsel to the firm.
From 1990 until 1993, he was a partner of Moore & Van Allen.
Jay Martin. Jay Martin has been a Director of the Company since June
1997 and Executive Vice President--Governmental Relations and Trade Development
of the Company and its subsidiaries (other than IFT) since January 1998. Prior
to January 1998, Mr. Martin served as Executive Vice President and Chief
Operating Officer of the Company, National Tobacco and NTFC. From 1991 until
December 1996, he was a consultant to National Tobacco. A former owner of a
tobacco and candy wholesale distributor (and customer of National Tobacco), Mr.
Martin has 40 years experience in the tobacco industry. Mr. Martin also served
for five years as a consultant to R.J. Reynolds Tobacco Co. ("RJR") in the area
of wholesale distribution.
Kim S. Fennebresque. Kim S. Fennebresque has been a Director of the
Company since October 1997. He has also served as Chairman of the Audit and
Compensation Committees of the Board of Directors since November and December
1997, respectively. From July 1994 to January 1998, Mr. Fennebresque was a
Managing Director of UBS Securities LLC, and prior to that, a partner of Lazard
Freres & Co.
Maurice R. Langston. Maurice R. Langston has been a Director of the
Company since June 1997 and Vice Chairman of the Board since January 1998. From
June 1997 until October 1997, he served as Executive Vice President--Sales of
the Company. From April 1988 until October 1997 he held the same office with
National Tobacco. Mr. Langston, who has worked in the smokeless tobacco industry
for 46 years, was also a Vice President of Sales of Culbro Corporation's
smokeless tobacco division prior to its sale to American Maize-Products Company
in March 1986.
Alan R. Minsterketter. Alan R. Minsterketter has been a Director of the
Company since June 1997. From June 1997 until October 1997, he served as Senior
Vice President--Purchasing, Distribution and Operations of the Company. He has
held the same office with National Tobacco since April 1997 and NAOC since
October 1997. From 1988 until April 1997, he was Vice President--Finance and
Chief Financial Officer of National Tobacco and NTFC. Prior to that, Mr.
Minsterketter held various accounting-related positions with Lorillard.
23
<PAGE>
Arnold Sheiffer. Arnold Sheiffer has served as a Director of the
Company since June 1997. He has also served as a member of the Audit and
Compensation Committees of the Board of Directors since November and December
1997, respectively. Mr. Scheiffer has been a Director of Spanish Broadcasting
System, Inc. since 1994 and a Managing Director of Shenkman Capital Management,
Inc. since 1995. From 1990 to 1994, he was President and Chief Operating Officer
of Katz Media Corp., and prior to that, Managing Partner of A. Sheiffer and
Company, Certified Public Accountants.
ELECTION OF DIRECTORS
Pursuant to the terms of an Exchange and Stockholders' Agreement, dated
as of June 25, 1997, among the Company and certain of the stockholders of the
Company (the "Stockholders' Agreement"), Mr. Helms has the ability to elect all
of the directors of the Company unless dividends are not paid in cash to the
holders of the Company's Senior Preferred Stock when such dividends are required
to be paid in cash, in which event such holders have the right to elect two
directors. Messrs. Helms and Brunson have served as directors of the Company
since June 17, 1997 following the formation of the Company. Messrs. Langston,
Minsterketter and Sheiffer have served as directors since June 25, 1997, the
date the Acquisition was consummated. The other four members of the Board of
Directors have served as directors since October 1997. Each director is to serve
until the next annual meeting of shareholders (or written consent in lieu
thereof) and until his successor is elected and duly qualified.
None of the present directors is a director of any company with a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or subject to the requirements of Section 15(d) of that Act or any
company registered as an investment company under the Investment Company Act of
1940, except as indicated above. No family relationships exist between any
director or executive officer of the Company.
24
<PAGE>
Item 11. Executive Compensation
----------------------
The following table summarizes the compensation paid by the Company and
its subsidiaries, as well as certain other compensation paid or accrued, to the
Chief Executive Officer of the Company and the other four most highly
compensated executive officers of the Company who earned in excess of $100,000
for the Company's (or its subsidiaries') fiscal years ended December 31, 1996
and 1997 (each person appearing in the table is referred to as a "Named
Executive"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation All Other
NAME AND PRINCIPAL POSITION Year Salary ($) Bonus ($) Compensation ($)
- --------------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Thomas F. Helms, Jr. 1996 $297,462 $134,820 $50,274 (1)
Chief Executive Officer . . . . . . . . . . . . . 1997 343,172 79,372 37,901 (2)
David I. Brunson. . . . . . . . . . . . . . . . . . 1996 N/A N/A N/A
Executive Vice President-Finance and 1997 200,099 -- 62,253 (3)
Administration and Chief Financial Officer
Maurice R. Langston(4) . . . . . . . . . . . . . . . . 1996 167,974 38,802 --
Vice-Chairman 1997 179,890 22,880 2,850 (4)
Jay Martin. . . . . . . . . . . . . . . . . . . . . 1996 N/A N/A N/A
Executive Vice President-Governmental 1997 195,995 -- --
Relations and Trade Development
Clifford D. Ray. . . . . . . . .. . . . . . . . . .
Senior Vice President-Marketing 1996 153,077 35,961 15,766
1997 163,148 20,800 13,533 (5)
</TABLE>
- --------------------
(1) Includes insurance premiums of $41,738 paid by the Company with respect to
term life insurance and contributions by the Company of $8,536 to a
defined contribution plan.
(2) Includes insurance premiums of $33,151 paid by the Company with respect to
term life insurance and contributions by the Company of $4,750 to a
defined contribution plan.
(3) Includes insurance premiums of $9,180 paid by the Company with respect to
term life insurance and a payment of $37,333 pursuant to a relocation
package.
(4) During 1996 and 1997 Mr. Langston held the position of Executive Vice
President-Sales. Includes contributions by the Company of $2,850 to a
defined contribution plan.
(5) Includes insurance premiums of $8,753 paid by the Company with respect to
term life insurance, contributions of $4,750 to a defined contribution
plan.
25
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to the Named Executives during the Company's last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Shares of % of Total
Common Stock Options Grant Date
Underlying Granted to Exercise Fair Value of Grant Date
Options Employees in Price Common Stock Expiration Present Value(2)
Name Granted(1) Fiscal Year ($/Sh) ($/Sh) Date ($)
- ---- ---------- ----------- ------ ---------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
David I. Brunson 30,928 65.6 18.19 40 4/23/2012 819,901
Jeffrey S. Hay 15,966 34.4 18.19 40 7/28/2012 423,259
</TABLE>
- ----------------------
(1) See "Employment and Consulting Agreements--David I. Brunson" and
"--Jeffrey S. Hay" for a description of tax reimbursement provisions
contained in the stock option agreements pursuant to which Messrs.
Brunson and Hay's options were granted.
(2) The grant date present value was determined as the difference between
the grant date fair value of the common stock and the present value of
the exercise price over the expected life, assumed to be five years, at
a risk free interest rate of 6.0% with no assumed dividend yield.
COMMITTEES OF THE BOARD
The Board of Directors has appointed four committees: an Executive
Committee, an Audit Committee, a Compensation Committee and an Administration
Committee. The members of the Executive Committee for fiscal 1997 were Messrs.
Helms, Africk, Brunson and Hay. The members of the Audit and Compensation
Committees for fiscal 1997 were Messrs. Fennebresque and Sheiffer. The sole
member of the Administration Committee, which administers the Company's 1997
Share Incentive Plan, was Thomas F. Helms, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Thomas F. Helms, Jr. is the sole member of the Company's Administration
Committee and was, until October 1997, the sole director of the Board of
Directors of NTFC. As such, he performed the equivalent function of a
compensation committee for these entities. Mr. Helms's relationship with NTFC,
National Tobacco and the Company is set forth under "Board of Directors and
Executive Officers." On April 26, 1988 and December 15, 1988, Thomas F. Helms,
Jr., President and Chief Executive Officer of the Company, borrowed $75,000 and
$45,000, respectively in connection with the purchase of a portion of his
partnership interests in National Tobacco and executed a note payable to the
Company. The note bears interest in kind at a rate of 3% over the prime rate. As
of December 31, 1997, amounts outstanding under this note were approximately
$241,000.
26
<PAGE>
From July 1994 to January 1998, Kim S. Fennebresque, the current
Chairman of the Company's Compensation Committee, was a Managing Director of UBS
Securities LLC, and prior to that, a partner of Lazard Freres & Co. Mr.
Fennebresque's relationship with the Company is set forth under "Board of
Directors and Executive Officers." UBS Securities LLC ("UBS") has served as a
financial advisor to the Company in connection with the Acquisition and related
transactions. In connection therewith, in 1997 UBS received a fee of $1.56
million and the reimbursement of certain out-of-pocket expenses.
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers, employees or
consultants of the Company or any of its affiliates will be paid an annual
retainer fee of $25,000, plus reasonable out-of-pocket expenses, for their
services on the Board and its committees. Kim S. Fennebresque receives
additional compensation of $25,000 in his capacity as Chairman of the Company's
Audit and Compensation Committees.
EMPLOYMENT AND CONSULTING AGREEMENTS
THOMAS F. HELMS, JR.
Thomas F. Helms, Jr., Chief Executive Officer of the Company, has an
employment agreement with the Company (the "Helms Employment Agreement")
pursuant to which Mr. Helms will receive an annual base salary of $350,000 to be
reviewed annually, plus a bonus in accordance with the Company's Bonus Program
(as defined). The Helms Employment Agreement provides for a three-year term,
renewable annually, and is terminable at will except with respect to severance.
In addition, Mr. Helms will receive various other benefits, including life
insurance and health, hospitalization, disability and pension benefits and other
perquisites. The Helms Employment Agreement includes a non-compete provision
extending twelve months following the termination of Mr. Helms's employment for
any period during which severance is paid to Mr. Helms. Mr. Helms is entitled to
twelve months' severance and a continuation of benefits following a termination
of his employment by the Company without cause, except that the bonus received
shall be only for the year in which the termination occurred and shall be
prorated.
DAVID I. BRUNSON
David I. Brunson, Executive Vice President--Finance and Administration
and Chief Financial Officer of the Company, has an employment agreement with the
Company (the "Brunson Employment Agreement") pursuant to which Mr. Brunson will
receive an annual base salary of $300,000 to be reviewed annually, plus a bonus
in accordance with the Company's Bonus Program. The Brunson Employment Agreement
provides for a two-year term, renewable annually, and is terminable at will
except with respect to severance. In addition, Mr. Brunson will receive various
other benefits, including life insurance and medical, disability, pension
benefits, club memberships, stock options and reimbursements of certain
expenses. The Brunson Employment Agreement includes a non-compete provision
extending twelve months following the termination of Mr. Brunson's employment
for any period during which severance is paid to Mr. Brunson. Mr. Brunson is
entitled to twelve months' severance and a continuation of benefits following a
termination of his employment by the Company without cause, except that the
bonus received shall be only for the year in which the termination occurred, and
shall be prorated. In connection with his employment, Mr. Brunson also has
reached an agreement with the Company pursuant to which he is entitled
27
<PAGE>
to receive options to purchase 30,928 shares of Common Stock of the Company.
One-third of these options were vested as of the closing of the Acquisition and
one-third of these options will vest on each of the first two anniversaries of
the date of his employment, April 23, 1997. In connection with the exercise of
such options and subject to certain limitations, including a requirement that
Mr. Brunson shall not leave, resign or be terminated for cause, the Company has
agreed to pay Mr. Brunson an amount equal to the sum of (i) the difference
between ordinary income and long-term capital gain tax liability for reportable
income resulting from any exercise of the options, plus (ii) a "gross-up" to
compensate for the additional ordinary income tax liability resulting from the
payment of such amount.
In connection with his employment, Mr. Brunson has also reached an
agreement with Mr. Helms regarding payment of additional compensation. This
agreement provides for payment to Mr. Brunson upon the occurrence of certain
events, provided he is either an employee at the time payment is due or has been
terminated other than for cause no more than eighteen months prior to the time
such payment is due. In the event of a sale (a "Sale") of substantially all of
the outstanding equity or all or substantially all of the assets of the Company
prior to a Termination Event (as defined below), Mr. Helms has agreed to pay Mr.
Brunson an amount equal to 1.78% of the value of the common equity of the
Company (subject to dilution) less $445,000. A Termination Event is the earlier
of a refinancing of the Company's indebtedness (other than in connection with
the acquisition of NATC) or May 1, 2001. No payment will be required in the
event of: (a) a prior occurrence of an Adverse Condition (as defined in the
operating agreement of NTC Holding LLC); (b) a Sale in which Mr. Helms receives
proceeds of less than $25 million; or (c) a merger or consolidation of the
Company in which management receives a significant equity stake in the surviving
company and Mr. Brunson receives employment terms comparable to his present
terms. In addition, if the Company is recapitalized twice, the first
recapitalization occurring after the NATC transaction and prior to May 17, 2001,
and the second recapitalization resulting in payments to the equity holders of
the Company of equal to or greater than $25 million, then Mr. Helms will
increase Mr. Brunson's equity ownership in the Company by 1%.
JEFFREY S. HAY
Jeffrey S. Hay, Executive Vice President, General Counsel and Secretary
of the Company, has an employment agreement with the Company (the "Hay
Employment Agreement") pursuant to which Mr. Hay will receive an annual base
salary of $250,000 to be reviewed annually, plus a bonus in accordance with the
Company's Bonus Program. The Hay Employment Agreement provides for a two-year
term, renewable annually, and is terminable at will except with respect to
severance. In addition, Mr. Hay will receive various other benefits, including
life insurance and medical, disability, pension benefits, stock options and
reimbursements of certain expenses. The Hay Employment Agreement includes a
non-compete provision extending twelve months following the termination of Mr.
Hay's employment for any period during which severance is paid to Mr. Hay. Mr.
Hay is entitled to twelve months' severance and a continuation of benefits
following a termination of his employment by the Company without cause, except
that the bonus received shall be only for the year in which the termination
occurred, and shall be prorated. In connection with his employment, Mr. Hay also
has reached an agreement with the Company pursuant to which he is entitled to
receive options to purchase 15,966 shares of Common Stock of the Company.
One-third of these options were vested as of July 28, 1997 and one-fifth of the
remaining options will vest on each of the first five anniversaries of the date
of his employment, July 28, 1997. In connection with the exercise of such
options and subject to certain limitations, including a requirement that Mr. Hay
shall not leave, resign or be terminated for cause, the Company has agreed to
pay Mr. Hay an amount equal to the sum of (i) the
28
<PAGE>
difference between ordinary income and long-term capital gain tax liability for
reportable income resulting from any exercise of the options, plus (ii) a
"gross-up" to compensate for the additional ordinary income tax liability
resulting from the payment of such amount.
JACK AFRICK
Jack Africk, President and Chief Operating Officer of the Company, has
an employment agreement with the Company (the "Africk Employment Agreement")
pursuant to which Mr. Africk will receive an annual base salary of $325,000 to
be reviewed annually, plus a bonus in accordance with the Company's Bonus
Program. The term of the Employment Agreement commenced January 1, 1998 and is
terminable at will. In addition, Mr. Africk will receive various other benefits,
including pension benefits and reimbursements of certain expenses. The Africk
Employment Agreement includes a non-compete provision effective during the term
of employment and for a period of five years thereafter. Mr. Africk is not
entitled to severance or continuation of benefits following a termination of his
employment with or without cause, subject to the possible reinstatement of his
consulting agreement with the Company in the manner described below. In
connection with his employment, Mr. Africk also has reached an agreement with
the Company pursuant to which he is entitled to receive options to purchase
14,962 shares of Common Stock of the Company. One-fourth of these options vest
on March 31, 1998 and one-fourth of these options will vest at the end of each
of the remaining fiscal quarters of 1998. In connection with the exercise of
such options and subject to certain limitations, including a requirement that
Mr. Africk shall not leave, resign or be terminated for cause, the Company has
agreed to pay Mr. Africk an amount equal to the sum of (i) the difference
between ordinary income and long-term capital gain tax liability for reportable
income resulting from any exercise of the options, plus (ii) a "gross-up" to
compensate for the additional ordinary income tax liability resulting from the
payment of such amount.
In June 1997, Mr. Africk entered into a consulting agreement with the
Company (the "Africk Consulting Agreement"), pursuant to which Mr. Africk would
be entitled to receive an annual consulting fee of $300,000 plus a minimum bonus
of $75,000 per annum in accordance with the Company's existing Bonus Program if
certain financial targets were met. Pursuant to the Africk Employment Agreement,
all rights and obligations under the Africk Consulting Agreement are suspended
and, effectively, terminated, unless Mr. Africk's employment is terminated by
the Company without cause or by Mr. Africk for good reason (in which case the
Africk Consulting Agreement will be reinstated in accordance with its terms from
the date of such termination until the later of June 30, 1999 or ninety days
following the effective date of such termination).
JAY MARTIN
Jay Martin, Executive Vice President and Chief Operating Officer of the
Company, has an employment agreement with the Company (the "Martin Employment
Agreement"), pursuant to which Mr. Martin will receive an annual base salary of
$200,000 plus a bonus in accordance with the Company's Bonus Program. The Martin
Employment Agreement provides for a one year term, renewable annually, and is
terminable at will except with respect to severance. In addition, Mr. Martin
will receive various other benefits, including insurance, retirement and
hospitalization benefits. The Martin Employment Agreement also includes
confidentiality and non-compete provisions extending twelve months from and
after the termination of Mr. Martin's employment. Mr. Martin is entitled to
severance in an amount equal to his then current salary for the greater of the
remaining term of the Martin Employment Agreement or sixty
29
<PAGE>
days. Any bonus to be paid during the year of his termination shall be computed
on the basis of the Company's net income from the beginning of the relevant
fiscal year to the date of termination.
RETIREMENT PLAN
The table below illustrates the approximate amounts of annual normal
retirement benefits payable under the Company's Retirement Plan (as defined
herein).
<TABLE>
<CAPTION>
Annual Benefits at Retirement with
Average Years of Credited Service(a)
Compensation 10 15 20 25 30 35
------------ --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
150,000 18,000 27,000 36,000 45,000 54,000 63,000
175,000 21,000 31,500 42,000 52,500 63,000 73,500
200,000 24,000 36,000 48,000 60,000 72,000 84,000
225,000 27,000 40,500 54,000 67,500 81,000 94,500
250,000 30,000 45,000 60,000 75,000 90,000 105,000
300,000 36,000 54,000 72,000 90,000 108,000 126,000
400,000 48,000 72,000 96,000 120,000 144,000 168,000
450,000 54,000 81,000 108,000 135,000 162,000 189,000
500,000 60,000 90,000 120,000 150,000 180,000 210,000
</TABLE>
- --------------------
(a) Actual amounts paid under the Retirement Plan may be less than the amounts
set forth on the table due to IRC limitations.
The Company has a noncontributory, defined benefit retirement plan (the
"Retirement Plan"), which covers all full-time employees, including officers,
upon completing one year of service.
A participant in the Retirement Plan becomes fully vested prior to
normal retirement at age 65 upon the completion of five years of service.
Benefits are also provided under the Retirement Plan in the event of early
retirement at or after age 55 and the completion of at least ten years of
service (or special early retirement after completion of 30 years of service)
and in the event of retirement for disability after completion of five years of
service. The amount of the contribution, payment or accrual with respect to a
specified person is not and cannot readily be separately or individually
calculated by the actuaries for the Retirement Plan. Benefits under the
Retirement Plan are based upon application of a formula to the specified average
compensation and years of credited service at normal retirement age.
Compensation covered by the Retirement Plan consists of the average annual
salary during any five consecutive calendar years in the last ten years of an
employee's service which affords the highest salary, or, if employed for less
than five years, the average annual salary for the years employed. The benefits
are not subject to any deduction for social security payments. Estimated
credited years of service under the Retirement Plan for the individuals named in
the Summary Compensation Table are as follows: Thomas F. Helms, Jr., 10 years;
David I. Brunson, 0 years; Jay Martin, 0 years; Maurice R. Langston, 10 years;
and Clifford D. Ray, 16 years.
30
<PAGE>
BONUS PROGRAM
The National Tobacco Company Management Bonus Program ("Bonus Program")
provides executive officers and other participants designated by National
Tobacco's Management Committee with an opportunity to receive bonus pay, based
primarily on annual EBITDA performance.
1997 SHARE INCENTIVE PLAN
The Board of Directors of the Company has adopted, and the Company's
stockholders have approved, the North Atlantic Trading Company, Inc. 1997 Share
Incentive Plan (the "Incentive Plan").
The Incentive Plan is intended to provide incentives which will attract
and retain highly competent persons as key employees of the Company and its
subsidiaries, by providing them opportunities to acquire shares of stock or to
receive monetary payments based on the value of such shares pursuant to the
Benefits (as defined) described herein.
Awards
The Company has granted options to purchase 30,928, 15,966 and 14,962
shares of Common Stock to David I. Brunson, Jeffrey S. Hay and Jack Africk,
respectively. One-third of the options granted to Mr. Brunson vested as of the
closing of the Acquisition and one third of these options will vest on each of
the first two anniversaries of the date of his employment, April 23, 1997.
One-third of the options granted to Mr. Hay vested as of July 28, 1997, and one
fifth of the remaining options will vest on each of the first five anniversaries
of the date of his employment, July 28, 1997. One-fourth of the options granted
to Mr. Africk will vest on March 31, 1998, and one-fourth of the remaining
options will vest at the end of each of the remaining fiscal quarters of 1998.
Shares Available
The Incentive Plan makes available for Benefits an aggregate amount of
61,856 shares of Common Stock (all of which have been granted as described
above), subject to certain adjustments. Any shares of Common Stock subject to a
stock option or stock appreciation right which for any reason is cancelled or
terminated without having been exercised, and subject to limited exceptions, any
shares subject to stock awards, performance awards or stock units which are
forfeited, any shares subject to performance awards settled in cash or any
shares delivered to the Company as part of full payment for the exercise of a
stock option or stock appreciation right shall again be available for Benefits
under the Incentive Plan.
Administration
The Incentive Plan provides for administration by a committee (the
"Administration Committee") appointed by the Board of Directors from among its
members. Currently, the sole member of the Administration Committee is Thomas F.
Helms, Jr. The Administration Committee is authorized, subject to the provisions
of the Incentive Plan, to establish such rules and regulations as it deems
necessary for the proper administration of the Incentive Plan and to make such
determinations and interpretations and to take such action in connection with
the Incentive Plan and any Benefits granted as it deems necessary or advisable.
Thus, among the Administration Committee's powers are the authority to select
officers and
31
<PAGE>
other key employees of the Company and its subsidiaries to receive Benefits, and
determine the form, amount and other terms and conditions of Benefits. The
Administration Committee also has the power to modify or waive restrictions on
Benefits, to amend Benefits and to grant extensions and accelerations of
Benefits.
Eligibility for Participation
Key employees of the Company or any of its subsidiaries are eligible to
participate in the Incentive Plan. The selection of participants from eligible
key employees is within the discretion of the Administration Committee. All
employees are currently eligible to participate in the Incentive Plan. The
Incentive Plan provides for the grant of any or all of the following types of
benefits: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights; (3) stock awards, including
restricted stock; (4) performance awards; and (5) stock units (collectively, the
"Benefits"). Benefits may be granted singly, in combination, or in tandem as
determined by the Administration Committee. Stock awards, performance awards and
stock units may, as determined by the Administration Committee in its
discretion, constitute Performance-Based Awards, as described below.
Stock Options
Under the Incentive Plan, the Administration Committee may grant awards
in the form of options to purchase shares of Common Stock. Options may be either
incentive stock options, qualifying for special tax treatment, or non-qualified
stock options. The exercise price may be paid in cash or, in the discretion of
the Administration Committee, by the delivery of shares of Common Stock of the
Company then owned by the participant, by the withholding of shares of Common
Stock for which a stock option is exercisable, or by a combination of these
methods. In the discretion of the Administration Committee, payment may also be
made by delivering a properly executed exercise notice to the Company together
with a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the exercise price. The
Administration Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose of
the Incentive Plan. In determining which methods a participant may utilize to
pay the exercise price, the Administration Committee may consider such factors
as it determines are appropriate.
Stock Appreciation Rights (SARs)
The Incentive Plan authorizes the Administration Committee to grant an
SAR either in tandem with a stock option or independent of a stock option. An
SAR is a right to receive a payment, in cash or Common Stock, equal to the
excess of (x) the fair market value, or other specified valuation (which shall
not be greater than the fair market value), of a specified number of shares of
Common Stock on the date the right is exercised over (y) the fair market value,
or other specified valuation (which shall not be less than fair market value),
of such shares of Common Stock on the date the right is granted, all as
determined by the Administration Committee. Each SAR shall be subject to such
terms and conditions as the Administration Committee shall impose from time to
time.
32
<PAGE>
Stock Awards
The Incentive Plan authorizes the Administration Committee to grant
awards in the form of restricted or unrestricted shares of Common Stock ("Stock
Awards"), which includes mandatory stock bonus incentive compensation and which
may constitute Performance-Based Awards. Such awards will be subject to such
terms, conditions, restrictions, and/or limitations, if any, as the
Administration Committee deems appropriate including, but not by way of
limitation, restrictions on transferability, continued employment and
performance goals established by the Administration Committee over a designated
period of time.
Performance Awards
The Incentive Plan allows for the grant of performance awards which may
take the form of shares of Common Stock or stock units, or any combination
thereof and which may constitute Performance-Based Awards. Such awards will be
contingent upon the attainment over a period to be determined by the
Administration Committee of certain performance goals. The length of the
performance period, the performance goals to be achieved and the measure of
whether and to what degree such goals have been achieved will be determined by
the Administration Committee. Payment of earned performance awards will be made
in accordance with terms and conditions prescribed or authorized by the
Administration Committee. The participant may elect to defer, or the
Administration Committee may require the deferral of, the receipt of performance
awards upon such terms as the Administration Committee deems appropriate.
Stock Units
The Administration Committee may, in its discretion, grant Stock Units
to participants, which may constitute Performance-Based Awards. A "Stock Unit"
means a notational account representing one share of Common Stock. The
Administration Committee determines the criteria for the vesting of Stock Units
and whether a participant granted a Stock Unit shall be entitled to Dividend
Equivalent Rights (as defined in the Incentive Plan). Upon vesting of a Stock
Unit, unless the Administration Committee has determined to defer payment with
respect to such unit or a participant has elected to defer payment, shares of
Common Stock representing the Stock Units will be distributed to the participant
unless the Administration Committee, with the consent of the participant,
provides for the payment of the Stock Units in cash, or partly in cash and
partly in shares of Common Stock, equal to the value of the shares of Common
Stock which would otherwise be distributed to the participant.
Other Terms of Benefits
The Incentive Plan provides that Benefits shall not be transferable
other than by will or the laws of descent and distribution. The Administration
Committee shall determine the treatment to be afforded to a participant in the
event of termination of employment for any reason including death, disability or
retirement. Notwithstanding the foregoing, other than with respect to incentive
stock options, the Administration Committee may permit the transferability of an
award by a participant to members of the participant's immediate family or
trusts for the benefit of such person or family partnerships. Upon the grant of
any Benefit under the Incentive Plan, the Administration Committee may, by way
of an agreement with the participant, establish such other terms, conditions,
restrictions and/or limitations covering the grant of the Benefit as are not
inconsistent with the Incentive Plan. No Benefit shall be granted under the
Incentive Plan after June 25, 2007. The Board of Directors reserves the right to
amend, suspend or
33
<PAGE>
terminate the Incentive Plan at any time, subject to the rights of participants
with respect to any outstanding Benefits.
The Incentive Plan contains provisions for equitable adjustment of
Benefits in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spinoff, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution (other than normal cash
dividends) to stockholders of the Company.
34
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management
--------------------------------
The table below sets forth certain information regarding the beneficial
ownership of Common Stock by (i) each person or entity who beneficially owns
five percent or more of the Common Stock, (ii) each Director and Named
Executives of the Company and (iii) all Directors and executive officers of the
Company as a group. Unless otherwise indicated, each beneficial owner's address
is c/o North Atlantic Trading Company, Inc., 257 Park Avenue South, 7th Floor,
New York, New York 10010-7304.
<TABLE>
<CAPTION>
Percent Owned(a)
------------------------------------
Before Exercise After Exercise
Beneficial Owner Number of Shares of Warrants of Warrants
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Thomas F. Helms, Jr. (b)(c)................. 465,136 88.1% 78.6%
Helms Management Corp.
David I. Brunson(d)......................... 286,609 53.2 47.6
Jeffrey S. Hay(e)........................... 282,748 53.0 47.4
Maurice R. Langston(b)...................... 47,138 8.9 8.0
Langston Enterprises, Inc.
Alan R. Minsterketter(b).................... 27,613 5.2 4.7
Alan M. Inc.
Kim S. Fennebresque......................... 20,000 3.8 3.4
Ivory Capital
Clifford D. Ray(b).......................... 17,728 3.4 3.0
C.D. Ray, Inc.
Jay Martin(b)............................... 12,137 2.3 2.1
J. Martin Associates, Inc.
Jack Africk................................. 9,991 1.9 1.7
Arnold Sheiffer............................. 8,725 1.7 1.5
Chris Kounnas(b)............................ 8,377 1.6 1.4
CNK Enterprises, Inc.
Herbert Morris(b)........................... 37,900 7.2 6.4
Flowing Velvet Productions, Inc.
3 Points of View
Warwick, New York 10990
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (11 PERSONS)(C)(F)................ 514,359 94.6% 84.7%
</TABLE>
- --------------------------
(a) The percentages assume, in the column entitled "Before Exercise of
Warrants," that none of the outstanding warrants to purchase an aggregate
of 63,490 shares at an exercise price of $.01 per share is exercised and,
in the column entitled "After Exercise of Warrants," that all of such
warrants will be exercised.
(b) Reflects shares held by the corporation listed below the name of such
natural person. Such natural person owns all of the issued and outstanding
shares of capital stock of the corporation listed below the name of such
natural person.
(c) Helms Management Corp. owns 276,300 shares of voting Common Stock, which
represents approximately 52.3% of the outstanding shares assuming that none
of the outstanding warrants are exercised, or 46.7% of the outstanding
shares that all such warrants are exercised. Helms Management Corp. is
subject to a voting trust agreement pursuant to which Mr. Helms exercises
certain voting powers and which may result in his being deemed a beneficial
owner of such additional shares. Because of his ability to vote an
additional 188,836 shares of Common Stock held by members of the
35
<PAGE>
Company's management in respect of the election of the Company's directors
pursuant to the Stockholders' Agreement, he may be deemed to be the
beneficial owner of such additional shares.
(d) Includes 10,309 shares subject to currently exercisable stock options and
276,300 shares owned by Helms Management Corp. which are subject to a
voting trust agreement pursuant to which Mr. Brunson exercises certain
voting powers and which may result in his being deemed a beneficial owner
of such additional shares. See "Voting Trust Agreement."
(e) Includes 5,322 shares subject to currently exercisable stock options, 1,126
shares over which Mr. Hay has voting power and 276,300 shares owned by
Helms Management Corp. which are subject to a voting trust agreement
pursuant to which Mr. Hay exercises certain voting powers and which may
result in his being deemed a beneficial owner of such additional shares.
See "Voting Trust Agreement."
(f) Executive officers, as a group, beneficially own 485,634 shares, including
31,603 shares which are legally owned by other, non-executive members of
management. Accordingly, members of management beneficially own a total of
485,634 shares, representing approximately 88.5% of the outstanding shares
assuming that none of the outstanding warrants are exercised, or 79.3% of
the outstanding shares assuming that all such warrants are exercised.
STOCKHOLDER AGREEMENT
The Company and certain stockholders of the Company are parties to the
Stockholders' Agreement, setting forth among other things, the manner in which
directors of the Company are to be selected. See "Management--Election of
Directors." The Stockholders' Agreement also sets forth certain restrictions on
the transfer of shares of Common Stock by existing stockholders and on the
acquisition by existing stockholders of investments in competitors of Bollore.
In addition, the Stockholders' Agreement provides the existing stockholders with
certain "tag-along" rights to participate ratably in sales of Common Stock to
third parties and requires existing stockholders to participate ratably in
certain sales of Common Stock to third parties. Subject to the terms of all
applicable debt agreements of the Company and its subsidiaries and to the rights
of holders of the Company's preferred stock, the Stockholders' Agreement
provides that the Company may maintain insurance on the lives of the members of
its management officers and, in the event of the death of any such person, for
the mandatory repurchase by the Company of all of such person's Common Stock at
the fair market value thereof (which will be determined by an independent
investment banking firm if the parties cannot otherwise agree upon such value)
to the extent of available insurance proceeds, and the optional repurchase of
additional shares of such person's Common Stock at such fair market value to the
extent of available cash. Subject to the terms of all applicable debt agreements
of the Company and its subsidiaries, and to the rights of holders of the
Company's preferred stock, the Company also has the right to repurchase the
shares of Common Stock held by members of management if their employment
terminates, in the event of certain bankruptcy proceedings relating to such
persons or upon an involuntary transfer of their shares by court order or
otherwise in each case at the fair market value of such shares.
VOTING TRUST AGREEMENT
Thomas F. Helms, Jr., David I. Brunson and Jeffrey Hay are voting
trustees under a Voting Trust Agreement with Helms Management Corp. ("HMC"). HMC
owns 276,300 shares of Common Stock in the Company, all of which are subject to
the Voting Trust Agreement. Pursuant to the Voting Trust Agreement, the voting
trustees have the power to vote the shares owned by HMC in connection with the
election of directors and any other matters. The holder of the voting trust
certificate may remove at any time any of the voting trustees and replace any of
them with a successor. As voting trustees under the
36
<PAGE>
Voting Trust Agreement Messrs. Helms, Brunson and Hay are entitled to three
votes, one vote and one vote, respectively. Unless terminated by the certificate
holder, the Voting Trust Agreement will terminate on December 17, 2012.
VOTING AGREEMENT
HMC and Flowing Velvet Products, Inc. ("Flowing Velvet") are parties to
a voting agreement, setting forth among other things the agreement by Flowing
Velvet to vote in all matters submitted to a vote of Stockholders in such manner
as Flowing Velvet may be directed by Thomas F. Helms, Jr., the President of HMC.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
On April 14, 1992, Clifford D. Ray, Senior Vice President--Marketing of
National Tobacco, borrowed $40,000 in connection with the purchase of a portion
of his partnership interests in National Tobacco and executed a note payable to
the Company. The note bears interest at a rate of 2% over the prime rate. As of
December 31, 1997, amounts outstanding under this note was approximately
$62,000.
Jeffrey S. Hay was, until July 1997, a founding partner of
Fennebresque, Clark, Swindell & Hay and is currently of counsel to the firm. The
firm provides legal consultation services to the Company and its subsidiaries
and received a total of $171,884 in legal fees and expenses in fiscal 1997 for
its representation of the Company.
See "Compensation Committee Interlocks and Insider Participation."
37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
---------------------------------------
(a) 1. Financial Statements:
The following consolidated financial statements of
North Atlantic Trading Company, Inc. and subsidiaries are filed as part of this
Form 10-K and are incorporated by reference in Item 8:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTH ATLANTIC TRADING COMPANY, INC. PAGE
- ----------------------------------- ----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants................................................ F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996..................... F-2
Consolidated Statements of Operations for the
year ended December 31, 1997, the periods May 17, 1996 to December 31, 1996
and January 1, 1996 to May 17, 1996,
and the year ended December 31, 1995.......................................... F-3
Consolidated Statements of Cash Flows for the year ended December 31, 1997, the
periods May 17, 1996 to December 31, 1996 and January 1, 1996 to May 17,
1996,
and the year ended December 31, 1995.......................................... F-5
Consolidated Statements of Changes in Equity for the
year ended December 31, 1997, the periods May 17, 1996 to December 31, 1996
and January 1, 1996 to May 17, 1996,
and the year ended December 31, 1995.......................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
2. Financial Statement Schedules:
All other schedules for which provision is made in
the applicable accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. See the accompanying Index to Exhibits which precedes
the Exhibits filed with this Form 10-K.
38
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 (a)(i) -- Restated Certificate of Incorporation of North
Atlantic Trading Company, Inc., filed February 19, 1998.
3.1 (b)(i) -- Certificate of Incorporation of North Atlantic Operating
Company, Inc., filed June 9, 1997.**
3.1 (b)(ii)-- Certificate of Amendment of Certificate of Incorporation of
North Atlantic Operating Company, Inc., filed June 17, 1997.**
3.1 (c) -- Restated Certificate of Incorporation of National Tobacco
Finance Corporation, filed April 24, 1996.**
3.1 (d) -- Amended and Restated Certificate of Limited Partnership of
National Tobacco Company, L.P., filed May 17, 1996.**
3.1 (e)(i) -- Certificate of Incorporation of International Flavors and
Technology, Inc., filed August 7, 1997.
3.1 (e)(ii)-- Certificate of Amendment of Certificate of Incorporation of
International Flavors and Technology, Inc., filed February 19,
1998.
3.2 (a) -- Bylaws of North Atlantic Trading Company, Inc.*
3.2 (b) -- Bylaws of North Atlantic Operating Company, Inc.*
3.2 (c) -- Bylaws of National Tobacco Finance Corporation.*
3.2 (d)(i) -- Third Amended and Restated Agreement of Limited Partnership of
National Tobacco Company, L.P., effective May 17, 1996.**
3.2 (d)(ii)-- Amendment No. 1 to Third Amended and Restated Agreement of
Limited Partnership of National Tobacco Company, L.P.,
effective June 25, 1997.**
3.2 (e) -- Bylaws of International Flavors and Technology, Inc.
3.3 (a) -- Certificate of Designation of 12% Senior Payment-In-Kind
Preferred Stock of North Atlantic Trading Company, Inc., filed
June 25, 1997.**
3.3 (b) -- Certificate of Designation of 12% Senior Exchange
Payment-In-Kind Preferred Stock of North Atlantic Trading
Company, Inc., filed July 22, 1997.**
39
<PAGE>
4.1 -- Indenture, dated as of June 25, 1997, among North Atlantic
Trading Company, Inc., as issuer, National Tobacco Company,
L.P., North Atlantic Operating Company, Inc. and National
Tobacco Finance Corporation, as guarantors, and United States
Trust Company of New York, as trustee.**
4.2 -- Form of Notes (included in Exhibit 4.1).**
4.3 -- First Supplemental Indenture, dated as of February 26, 1998,
among North Atlantic Trading Company, Inc., National Tobacco
Company, L.P., National Tobacco Finance Corporation,
International Flavors and Technology, Inc. and The United
States Trust Company of New York.
9.1 -- Exchange and Stockholders' Agreement, dated as of June 25,
1997, by and between North Atlantic Trading Company, Inc. and
those stockholders signatory thereto.****
9.2 -- Voting Trust Agreement, dated as of December 17, 1997, among
Thomas F. Helms, Jr., David I. Brunson and Jeffrey S. Hay, as
voting trustees, and Helms Management Corp.
10.1 -- Third Amended and Restated Purchasing and Processing Agreement,
dated as of June 25, 1997, between National Tobacco Company,
L.P. and Lancaster Leaf Tobacco Company of Pennsylvania.**
10.2 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[United States].+***
10.3 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[Asia]+***
10.4 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[Canada].+***
10.5 -- Restated Amendment, dated as of June 25, 1997, between Bollore
Technologies, S.A. and North Atlantic Operating Company,
Inc.+***
10.6 -- Registration Rights Agreement, dated as of June 25, 1997, by
and among North Atlantic Trading Company, Inc., the subsidiary
guarantors named therein and NatWest Capital Markets Limited
and CIBC Wood Gundy Securities Corp.**
40
<PAGE>
10.7 -- Preferred Stock Registration Rights Agreement, dated as of June
25, 1997, among North Atlantic Trading Company, Inc. and
NatWest Capital Markets Limited.**
10.8 -- Common Stock Registration Rights and Stockholders' Agreement,
dated as of June 25, 1997, among North Atlantic Trading
Company, Inc. and NatWest Capital Markets Limited.**
10.9 -- Purchase Agreement, dated as of June 18, 1997, among North
Atlantic Trading Company, Inc., certain of its subsidiaries, as
guarantors, and NatWest Capital Markets Limited and CIBC Wood
Gundy Securities Corp., as initial purchasers. **
10.10 -- Purchase Agreement, dated as of June 18, 1997, between North
Atlantic Trading Company, Inc. and NatWest Capital Markets
Limited, as initial purchaser.**
10.11 -- Unit Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and United States Trust Company
of New York, as unit agent.**
10.12 -- Warrant Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and United States Trust Company
of New York, as warrant agent.**
10.13 -- Stock Purchase Agreement, dated as of March 17, 1997, between
NATC Holding Company, Ltd. and NTC Holding, LLC.**
10.14 -- Assignment and Assumption, dated as of June 25, 1997, between
NTC Holding, LLC and North Atlantic Trading Company, Inc.**
10.15 -- Assignment and Assumption of Stock Purchase Agreement, dated as
of June 25, 1997, between North Atlantic Trading Company, Inc.
and North Atlantic Operating Company, Inc.**
10.16 -- 1997 Share Incentive Plan of North Atlantic Trading Company,
Inc.++**
10.17 -- Employment Agreement, dated May 17, 1996, between North
Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.++**
10.18 (a) -- Employment Agreement, dated April 14, 1997, between National
Tobacco Company, Inc. and David I. Brunson.++**
10.18 (b) -- Letter Agreement, dated April 23, 1997, between Thomas F.
Helms, Jr. and David I. Brunson.++**
10.18 (c) -- Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++**
41
<PAGE>
10.18 (d) -- Amendment No. 1, dated and effective September 2, 1997, to the
Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++**
10.18 (e) -- Amendment No. 2, dated as of December 31, 1997, to the
Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++
10.19 -- Employment Agreement, dated January 1, 1997, between North
Atlantic Trading Company, Inc. and Jay Martin.++**
10.20 -- Consulting Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and Jack Africk.++**
10.21 -- Credit Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc., the various lending
institutions referenced therein, Gleacher NatWest, Inc., as
arranging agent, and National Westminster Bank plc, as
administrative agent.**
10.22 -- Subsidiary Guaranty, dated as of June 25, 1997, made by North
Atlantic Operating Company, Inc., National Tobacco Finance
Corporation, and National Tobacco Company, L.P. in favor of
National Westminster Bank plc, as administrative agent for
certain lending institutions.**
10.23 -- Security Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc., North Atlantic Operating
Company, Inc., National Tobacco Finance Corporation, National
Tobacco Company, L.P., and National Westminster Bank plc, as
collateral agent for certain secured creditors.**
10.24 -- Pledge Agreement, dated as of June 25, 1997, made by North
Atlantic Trading Company, Inc., North Atlantic Operating
Company, Inc., National Tobacco Finance Corporation, and
National Tobacco Company, L.P., in favor of National
Westminster Bank plc, as collateral agent for certain secured
creditors.**
10.25 -- National Tobacco Company Management Bonus Program.++**
10.26 -- Amended and Restated Nonqualified Stock Option Agreement, dated
as of December 31, 1997, between North Atlantic Trading
Company, Inc. and Jeffrey S. Hay.++
10.27 -- Employment Agreement, dated as of July 28, 1997, between North
Atlantic Trading Company, Inc. and Jeffrey S. Hay.++
10.28 -- Amended and Restated Nonqualified Stock Option Agreement, dated
as of January 12, 1998, between North Atlantic Trading Company,
Inc. and Jack Africk.++
42
<PAGE>
10.29 -- Employment Agreement, dated as of December 15, 1997, between
North Atlantic Trading Company, Inc. and Jack Africk.++
10.30 -- Assignment and Assumption, dated as of January 1, 1998, between
National Tobacco Company, L.P. and North Atlantic Trading
Company, Inc.++
10.31 -- Amendment, dated October 27, 1997, to Amended and Restated
Distribution and License Agreements, between Bollore and North
Atlantic Operating Company, Inc.+
10.32 -- Sales Representative Agreement, effective as of January 1,
1998, between National Tobacco Company, L.P. and North Atlantic
Operating Company, Inc.
10.33 -- Separation Agreement, dated as of October 29, 1997, among
National Tobacco Company, L.P., North Atlantic Trading Company,
Inc. and Maurice Langston.++
10.34 -- First Amendment to Separation Agreement, dated as of January
30, 1998, among National Tobacco Company, L.P., North Atlantic
Trading Company, Inc. and Maurice Langston.++
10.35 -- Consulting Agreement, dated as of October 29, 1997, between
National Tobacco Company, L.P. and Maurice Langston.++
10.36 -- Release Agreement, dated as of October 29, 1997, among National
Tobacco Company, L.P., North Atlantic Trading Company, Inc. and
Maurice Langston.++
10.37 -- North Atlantic Trading Company, Inc. 1998 Executive Committee
Bonus Plan++
10.38 -- North Atlantic Trading Company, Inc. 1998 Management Bonus
Plan++
16 -- Letter re change in accounting principles.
21 -- Subsidiaries of North Atlantic Trading Company, Inc.
27 -- Financial Data Schedules.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE SECURITIES EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT.
Subsequent to the filing of this Report, copies thereof will be sent to
the holders of the Registrant's senior notes and preferred stock. No proxy
material will be sent to the Company's security holders.
43
<PAGE>
- ----------------------------
+ Portions of this agreement have been omitted pursuant to Rule 406 under
the Securities Act of 1933, as amended, and have been filed
confidentially with the Securities and Exchange Commission.
++ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of the rules governing the
preparation of this Report.
* Incorporated by reference to the identically numbered exhibit contained
in the Registration Statement (Reg. No. 333-31931) on Form S-4 filed
with the Securities Exchange Commission on July 23, 1997.
** Incorporated by reference to the identically numbered exhibit contained
in Amendment No. 1 to the Registration Statement (Reg. No. 333-31931)
on Form S-4 filed with the Securities and Exchange Commission on
September 3, 1997.
*** Incorporated by reference to the identically numbered exhibit contained
in Amendment No. 2 to the Registration Statement (Reg. No. 333-31931)
on Form S-4 filed with the Securities and Exchange Commission on
September 17, 1997.
**** Incorporated by reference to Exhibit 9 contained in Amendment No. 1 to
the Registration Statement (Reg. No. 333-31931) on Form S-4 filed with
the Securities and Exchange Commission on September 17, 1997.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 1998 NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
--------------------------------------
Thomas F. Helms, Jr.
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Helms, Jr. Chairman of the Board March 25, 1998
- --------------------------------------
Thomas F. Helms, Jr. and Chief Executive Officer
(Principal Executive Officer)
/s/ David I. Brunson Director, Executive Vice President March 25, 1998
- --------------------------------------
David I. Brunson Finance and Administration, Chief
Financial Officer (Principal Financial
and Accounting Officer)
/s/ Jack Africk Director March 25, 1998
- ---------------------------------------
Jack Africk
/s/ Kim S. Fennebresque Director March 25, 1998
- --------------------------------------
Kim S. Fennebresque
/s/ Jeffrey S. Hay Director March 25, 1998
- --------------------------------------
Jeffrey S. Hay
45
<PAGE>
/s/ Maurice R. Langston Director March 25, 1998
- ---------------------------------------
Maurice R. Langston
/s/ Jay Martin Director March 25, 1998
Jay Martin
/s/ Alan R. Minsterketter Director March 25, 1998
- ---------------------------------------
Alan R. Minsterketter
/s/ Arnold Sheiffer Director March 25, 1998
- ---------------------------------------
Arnold Sheiffer
</TABLE>
46
NYFS10...:\80\64980\0003\1948\FRM1128P.09L
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
North Atlantic Trading Company, Inc.
We have audited the accompanying consolidated balance sheets of North Atlantic
Trading Company, Inc. and Subsidiaries (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in equity,
and cash flows for the year ended December 31, 1997 and the period from May 17,
1996 to December 31, 1996. Additionally, we have audited the accompanying
statements of operations, changes in equity, and cash flows of National Tobacco
Company, L.P. (the Predecessor) for the period from January 1, 1996 to May 17,
1996 and for the year ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's and the Predecessor's
management.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit of the consolidated financial statements also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1997 and 1996, and the results of operations and cash flows of the
Company for the year ended December 31, 1997 and the period from May 17, 1996 to
December 31, 1996 and the Predecessor for the period from January 1, 1996 to May
17, 1996 and for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
As explained in Note 19, effective January 1, 1995, the Predecessor adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand, L.L.P.
Louisville, Kentucky
February 6, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except par value)
ASSETS DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
<S> <C> <C>
Current assets:
Cash $ 4,087 $ 2,208
Accounts receivable 4,633 3,533
Inventories 56,110 42,020
Income taxes receivable 5,326 -
Other current assets 1,718 3,412
------------------- -------------------
Total current assets 71,874 51,173
------------------- -------------------
Property, plant and equipment, at cost 10,904 10,040
Less accumulated depreciation and amortization 2,653 1,034
------------------- -------------------
8,251 9,006
------------------- -------------------
Deferred income taxes 34,091 -
Deferred financing costs 13,506 4,926
Goodwill, net 145,517 31,448
------------------- -------------------
Total assets $ 273,239 $ 96,553
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 659 $ 449
Accrued expenses 5,873 3,754
Deferred income taxes 6,721 -
Current portion of notes payable and long-term debt 9,375 21,720
------------------- -------------------
Total current liabilities 22,628 25,923
Notes payable and long-term debt 220,625 48,976
Other long-term liabilities 7,486 5,846
------------------- -------------------
Total liabilities 250,739 80,745
------------------- -------------------
Preferred stock, net of discount of $1,600, mandatory redemption value of 34,581 -
$36,000
Preferred interests - 2,738
Holding Company warrants - 8,195
------------------- -------------------
Stockholders' equity (deficit):
Common stock, voting, $.01 par value; authorized shares, 750,000;
issued and outstanding shares, 528,241 at December 31, 1997 5 -
Common stock, nonvoting, $.01 par value; authorized shares, 750,000;
issued and outstanding shares, -0- at December 31, 1997 - -
Contributed equity - 4,492
Warrants 2,410 -
Additional paid-in capital 5,906 -
Retained earnings (accumulated deficit) (20,402) 383
------------------- -------------------
(11,895)
Total stockholders' equity (deficit) (12,081) 4,875
------------------- -------------------
Total liabilities and stockholders' equity $ 273,239 $ 96,553
=================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
THE COMPANY THE PREDECESSOR
------------------------------------- -----------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, MAY 17 TO JANUARY 1 TO DECEMBER 31,
1997 DECEMBER 31, 1996 MAY 17, 1996 1995
--------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 84,430 $ 36,126 $ 19,810 $ 52,630
Cost of sales 27,665 15,407 7,847 20,491
--------------- -------------------- ---------------- ----------------
Gross profit 56,765 20,719 11,963 32,139
Selling, general and
administrative expenses 26,959 13,551 8,018 19,963
Amortization of intangible assets 3,213 504 365 973
--------------- -------------------- ---------------- ----------------
Operating income 26,593 6,664 3,580 11,203
Interest expense and financing costs 18,361 6,398 2,453 7,239
Other income (expense) 34 117 5 (1,336)
--------------- -------------------- ---------------- ----------------
Income before income tax
expense, cumulative
effect
of accounting change
and extraordinary 8,266 383 1,132 2,628
loss
Income tax expense 852 - - -
--------------- -------------------- ---------------- ----------------
Income before cumulative
effect of accounting
change
and extraordinary 7,414 383 1,132 2,628
loss
Cumulative effect of accounting change - - - 123
Extraordinary loss, net of income
tax benefit of $4,365 7,121 - - -
--------------- -------------------- ---------------- ----------------
383
Net income (1) 293 $ 383 $ 1,132 $ 2,505
==================== ================ ================
Preferred stock dividends 2,268
---------------
Net loss applicable to
common shares $ (1,975)
===============
Basic earnings per common share:
Income before extraordinary loss $ 9.75
Extraordinary loss (13.48)
---------------
Net loss $ (3.73)
===============
Diluted earnings per common share:
Income before extraordinary loss $ 8.42
Extraordinary loss (11.65)
---------------
Net loss $ (3.23)
===============
Weighted average common shares outstanding:
Basic 528,241
Diluted 610,911
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
(dollars in thousands, except per share amounts)
THE COMPANY THE PREDECESSOR
----------------------------------- -------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, MAY 17 TO JANUARY 1 TO DECEMBER 31,
1997 DECEMBER 31, 1996 MAY 17, 1996 1995
-------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Supplemental unaudited financial data:
Historical income before income taxes,
cumulative effect of accounting change
and extraordinary loss $ 8,266 $ 383 $ 1,132 $ 2,628
Pro forma income tax expense (2) 730 153 453 1,051
-------------- ------------------ -------------- --------------
Pro forma income before cumulative effect of
accounting change and extraordinary 7,536 230 679 1,577
loss
Historic cumulative effect of accounting
change - - - 74
Extraordinary loss 7,121 - - -
-------------- ------------------ -------------- --------------
Pro forma net income 415 230 679 1,503
Preferred stock dividends 2,268 - - -
-------------- ------------------ -------------- --------------
Pro forma net income (loss) applicable
to common shares $ (1,853) $ 230 $ 679 $ 1,503
============== ================== ============== ==============
Pro forma basic earnings per common share:
Income before extraordinary loss $ 9.97
Extraordinary loss (13.48)
--------------
Pro forma net loss $ (3.51)
==============
Pro forma diluted earnings per common share:
Income before extraordinary loss $ 8.62
Extraordinary loss (11.65)
--------------
Pro forma net loss $ (3.03)
==============
</TABLE>
(1) The Company and the Predecessor were a limited liability company and
partnership, respectively, for federal and state tax purposes through June
25, 1997 and, accordingly, did not incur any federal or state income taxes
prior to such date.
(2) Pro forma income taxes have been calculated using an effective tax rate of
40% (34% federal and 6% state). The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
THE COMPANY THE PREDECESSOR
-------------------------------------- -------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, MAY 17 TO JANUARY 1 TO DECEMBER 31,
1997 DECEMBER 31, 1996 MAY 17, 1996 1995
------------------ ------------------ --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 293 $ 383 $ 1,132 $ 2,505
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Extraordinary loss, net of income tax
benefit $3,224
of $4,365 7,121 - - -
Depreciation 1,619 1,034 454 1,073
Amortization of intangible assets 3,213 504 365 973
Amortization of deferred financing costs
and debt discount 2,104 1,139 258 909
Deferred interest - 555 - 682
Preferred interest - 237 - -
Accrued transaction costs - - - 881
Change in accrued pension liabilities 167 128 - 14
Change in accrued postretirement 472 64 110 443
liabilities
Change in accrued asbestos removal costs - - - (169)
Compensation expense 900 - - -
Deferred income taxes (922) - - -
Changes in operating assets and
liabilities:
Accounts receivable (264) 27 (335) 673
Inventories (1,135) 3,167 (898) (1,810)
Other assets 3,504 116 (647) 52
Income tax receivable 1,144 - - -
Accounts payable 896 (1,388) 1,262 42
Borrowings under inventory financing 6,565 5,286 2,797 10,077
agreement
Payments on borrowings under inventory
financing agreement (10,622) (4,400) (2,285) (7,940)
Accrued expenses and other (2,543) (180) (741) 308
------------------ ------------------ --------------- --------------
Net cash provided by (used in)
operating activities 12,512 6,672 1,472 8,713
------------------ ------------------ --------------- --------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired
of $597
and $2,602, respectively (156,818) (72,145) - -
Capital expenditures, net (704) (156) (144) (239)
------------------ ------------------ --------------- --------------
Net cash used in investing (157,522) (72,301) (144) (239)
activities
------------------ ------------------ --------------- --------------
Cash flows from financing activities:
Payments on senior term loans (50,750) - - -
Proceeds from term loans 85,000 - - -
Proceeds from senior notes 155,000 - - -
Proceeds from debt associated with the
acquisition,
net of amount allocated to warrants of - 57,556 - -
$7,895
Payments on revolving loans (1,550) (450) - -
Proceeds from revolving loans 1,550 - - -
Payments on term loans - (4,250) - -
Payments on subordinated notes payable - (205) - -
Proceeds from working capital loan - - 20,056 53,066
Payments on working capital loan - - (19,022) (53,545)
Proceeds from subordinated notes payable 576 - 41 164
Payments on subordinated notes payable (21,082) - - -
Payments on inventory financing agreements (12,904) - - -
Payments of deferred financing costs (13,917) - - -
Payment on capital lease (9) - - -
Payments on other notes payable and - (2,011) (8,732)
long-term debt
Proceeds from issuance of preferred stock
and
warrants 34,000 - - -
Proceeds from preferred interest - 2,500 - -
Proceeds from warrants - 8,195 - -
Redemption of warrants (27,000) - - -
Increase in preferred interest 198 - - -
Redemption of preferred interest (2,935) - - -
Capital contributions 712 4,492 - -
Increase in intangible assets - - (341) -
------------------ ------------------ --------------- --------------
Net cash provided by (used in)
financing activities 146,889 67,838 (1,277) (9,047)
------------------ ------------------ --------------- --------------
Net increase (decrease) in cash 1,879 2,209 51 (573)
Cash, beginning of period 2,208 - 128 701
------------------ ------------------ --------------- --------------
4,087
Cash, end of period $ 4,087 $ 2,209 $ 179 $ 128
================== ================== =============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 16,730 $ 3,140 $ 2,013 $ 5,604
================== ================== =============== ==============
Cash paid during the period for income taxes $ 193 - - -
================== ================== =============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(dollars in thousands)
RETAINED AMOUNT RELATED
COMMON COMMON ADDITIONAL EARNINGS TO MINIMUM
STOCK, STOCK, PAID-IN CONTRIBUTED (ACCUMULATED PENSION TOTAL
VOTING NONVOTING WARRANTS CAPITAL EQUITY DEFICIT) LIABILITY EQUITY
--------- ----------- ----------- ------------------------- ------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Predecessor:
Beginning balance, January 1, 1995 - - $ 684 - $ 10,955 $ 6,577 $ (510) $ 17,706
Net income - - - - - 2,505 - 2,505
Change in amount related to
minimum pension liability - - - - - - 259 259
-------- ---------- --------- ----------- ---------- ------------ ------------ -----------
Ending balance,
December 31, 1995 - - 684 - 10,955 9,082 (251) 20,470
Net income - - - - - 1,132 - 1,132
-------- ---------- --------- ----------- ---------- ------------ ------------ -----------
Ending balance, May 17, 1996 - - $ 684 - $ 10,955 $ 10,214 $ (251) $ 21,602
======== ========== ========= =========== ========== ============ ============ ===========
The Company:
Beginning balance, May 17, 1996
(inception) - - - - - - - -
Equity contributions - - - - $ 4,492 - - $ 4,492
Net income - - - - - $ 383 - 383
--------- ---------- --------- ----------- ---------- ------------ ------------ ----------
Ending balance,
December 31, 1996 - - - - 4,492 383 - 4,875
Distribution to warrant holders - - - - - (18,810) - (18,810)
Issuance of common stock in
exchange
for membership interest $ 5 - - $ 4,492 (4,492) - - 5
Issuance of common stock - - - 712 - - - 712
Issuance of warrants - - $ 2,410 - - - - 2,410
Compensation expense - - - 702 - - - 702
Net loss - - - - - (1,975) - (1,975)
--------- ---------- --------- ----------- ---------- ------------ ------------ ----------
Ending balance, December 31, 1997 $ 5 - $ 2,410 $ 5,906 - $ (20,402) - $ (12,081)
========= ========== ========= =========== ========== ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION:
National Tobacco Company, L.P. (a limited partnership) was formed and
acquired the smokeless tobacco division of Lorillard, Inc. in 1988. On
April 14, 1992, the general partner and majority owner and certain
limited partners sold their partnership interest to a new general
partner. Accordingly, the April 1992 transaction was accounted for as
the formation of a new entity, National Tobacco Company, L.P. (the
Predecessor).
Certain members of management of the Predecessor formed NTC Holding, LLC
(the Holding Company), a limited liability company with a finite life
expiring December 31, 2100, and caused the Holding Company to form
National Tobacco Finance Corporation (the Finance Corporation), a
wholly-owned subsidiary of the Holding Company. As described below, on
May 17, 1996, National Tobacco Company, L.P. (the Partnership) was
recapitalized and the Holding Company acquired a 99% limited partnership
interest in the Partnership and the Finance Corporation became the sole
general partner and owner of the remaining 1% interest of the
Partnership. The Finance Corporation had no operations, assets or
liabilities, other than its 1% investment in the Partnership, which
amounted to approximately $598,000 and $311,000 as of December 31, 1997
and 1996, respectively.
On May 17, 1996, the Partnership obtained new long-term debt financing,
as more fully described in Note 10, the proceeds of which were used to
recapitalize the Partnership. Under this recapitalization, substantially
all of the existing long-term debt was paid in full and the partnership
interests of the general partner and certain limited partners were
acquired. Additionally, the interests of the remaining limited partners
were acquired, the proceeds of which were used to purchase a portion of
the membership interests in the Holding Company. The Holding Company then
contributed the proceeds from the sale of membership interests to the
Partnership in exchange for partnership interests in the Partnership.
Additionally, the proceeds from the subordinated debt and the sale of
warrants and preferred interests by the Holding Company, as more fully
described in Notes 10, 14 and 16, were also contributed to the
Partnership in exchange for limited partnership interests in the
Partnership, which proceeds were used by the Partnership to repay
existing long-term debt and increase working capital. The Holding Company
then contributed capital in an amount equal to 1% of the aggregate
partnership interests in the Partnership to the Finance Corporation in
exchange for all of the capital stock of the Finance Corporation. The
Finance Corporation then immediately contributed such capital to the
Partnership in exchange for a 1% general partnership interest. As a
result, the Partnership was wholly-owned by the Holding Company.
Accordingly, this transaction was accounted for as the formation of a new
entity under the purchase method of accounting.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION, CONTINUED:
The following is information related to the transaction:
<TABLE>
<CAPTION>
FAIR VALUE OF ASSETS REDUCTION TO
ACQUIRED AND HISTORICAL BASIS FOR CARRYING VALUE
LIABILITIES ASSUMED THE FORMER PARTNERS OF ASSETS AND
AND INCURRED ON CONTINUING IN THE LIABILITIES AT
MAY 17, 1996 HOLDING COMPANY MAY 17, 1996
------------------- -------------------- ----------------
<S> <C> <C> <C>
Net assets acquired:
Cash $ 597,010 $ 597,010
Accounts receivable 3,559,976 3,559,976
Inventories 48,020,000 $ (2,919,359) 45,100,641
Other current assets 3,613,896 3,613,896
Property, plant and equipment 11,080,000 (1,195,793) 9,884,207
Goodwill 31,952,125 31,952,125
Loan costs 5,700,000 5,700,000
Accounts payable (1,837,229) (1,837,229)
Accrued liabilities (3,167,508) (3,167,508)
Other long-term liabilities (5,654,954) (5,654,954)
Borrowings under inventory
financing agreement (16,772,377) (16,772,377)
Subordinated note payable to
former general partner (204,772) (204,772)
Capital leases (28,668) (28,668)
------------------- -------------------- ----------------
Net assets acquired 76,857,499 (4,115,152) 72,742,347
------------------- -------------------- ----------------
Proceeds from term loans, including
amount allocated to warrants
of $1,250,828 45,000,000 45,000,000
Proceeds from revolving loans 450,000 450,000
Proceeds from subordinated notes,
including amount allocated to
warrants of $6,644,416 20,000,000 20,000,000
Proceeds from warrants 300,000 300,000
Proceeds from preferred interest 2,500,000 2,500,000
------------------- -------------------- ----------------
Total proceeds 68,250,000 - 68,250,000
------------------- -------------------- ----------------
Management's rollover and
new interests 8,607,499 (4,115,152) 4,492,347
------------------- -------------------- ----------------
Total equity $ 8,607,499 $ (4,115,152) $ 4,492,347
=================== ==================== ================
</TABLE>
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND NATURE OF BUSINESS AND BASIS OF PRESENTATION, CONTINUED:
On May 19, 1997, certain members of management and holders of membership
interests in the Holding Company formed a corporation named North
Atlantic Trading Company, Inc. (the Corporation). On June 25, 1997, the
Corporation acquired the membership interests in the Holding Company and
the Holding Company transferred all of its assets, including its limited
partnership interest in the Partnership, all of the capital stock of the
Finance Corporation, and its rights under the Stock Purchase Agreement
described in Note 2. The Corporation then formed North Atlantic Operating
Company, Inc. (NAOC), a Delaware Corporation and wholly-owned subsidiary
of the Corporation, to which the Corporation transferred its rights under
the Stock Purchase Agreement. NAOC then exercised its rights under the
Stock Purchase Agreement, acquiring all of the outstanding capital stock
of NATC Holdings USA, Inc. (NATC), a holding company. NATC and its
wholly-owned subsidiary were then merged into NAOC.
As described in Notes 2 and 10, on June 25, 1997, the Corporation
obtained new financing in the form of $155.0 million in 11% Senior Notes
due 2004, $34.0 million in 12% Senior PIK Preferred Stock, and $85.8
million under a new credit agreement. The proceeds of such financing were
used to repay all of the outstanding debt of the Holding Company and the
Partnership, finance the acquisition described in Note 10, repay
outstanding debt and other assumed liabilities of NATC and its
subsidiaries, and pay the transaction costs associated with the financing
and acquisition.
The Partnership manufactures and distributes chewing tobacco products
under the brand names Beech-Nut, Beech-Nut Wintergreen, Beech-Nut
Spearmint, Havana Blossom and Trophy. NAOC is an importer and distributor
in the United States of cigarette rolling papers, which are sold under
the Zig-Zag brand name pursuant to an exclusive distribution agreement.
The Corporation and the Finance Corporation have no operations.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITION:
On April 17, 1997, the Holding Company entered into an agreement to
purchase all of the outstanding capital stock of NATC (the Stock Purchase
Agreement), subsequently transferring its rights thereunder to the
Corporation which transferred such rights to NAOC. On June 25, 1997, NAOC
exercised its rights under the Stock Purchase Agreement, acquiring all of
the outstanding capital stock of NATC for a preliminary purchase price of
approximately $162.6 million, including the following: $91.1 million for
the purchase of NATC stock and stock options, $63.0 million for the
payment of debt and certain other liabilities of NATC, and $8.5 million
in transaction fees and expenses. This acquisition was accounted for
using the purchase method of accounting under which the purchase price
has been allocated to tangible assets with a fair value of $49.7 million
and assumed liabilities of $167.0 million, with the excess of $117.3
million recorded as goodwill which is being amortized over 25 years. The
results of operations of NAOC have been included in the Company's
consolidated statement of operations since the date of acquisition.
Following is the allocation of the purchase price to the fair value of
the net assets acquired (in thousands):
Cash $ 2,602
Accounts receivable 836
Inventory 12,956
Other current assets 74
Income tax receivable 6,475
Deferred income tax assets 26,457
Fixed assets 131
Other assets 248
Accounts payable (312)
Accrued expenses (4,256)
Deferred income tax liabilities (3,052)
Debt assumed (159,421)
--------------
Amount allocated to goodwill (117,262)
$=============
.
This purchase price allocation differs from the preliminary purchase
price allocation recorded in the Company's Registration Statement filed
with the Securities and Exchange Commission on September 19, 1997 and the
Company's September 30, 1997 10-Q due principally to the final
determination of the income tax treatment of certain payments made
related to the acquisition. The changes in these estimates resulted in a
reduction of goodwill of $1,818 and the related amortization expense of
$38.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITION, CONTINUED:
Following are the unaudited pro forma results of operations as if the
June 25, 1997 transaction had occurred on January 1, 1996 (in
thousands, except per share and share amounts):
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Net sales $ 101,936 $ 102,075
================ ================
Income before extraordinary loss $ 2,701 $ 3,459
Extraordinary loss (7,121) (7,121)
---------------- ----------------
Net loss (4,420) (3,662)
Preferred stock dividends 4,513 4,513
---------------- ----------------
Net loss applicable to common shares $ (8,933) $ (8,175)
================ ================
Basic and diluted earnings per common share:
Income before extraordinary loss per common share $ (3.43) $ (2.00)
Extraordinary loss, net, per common share (13.48) (13.48)
---------------- ----------------
Net loss per common share $ (16.91) $ (15.48)
================ ================
Weighted average common shares outstanding:
Basic and diluted 528,241 528,241
</TABLE>
This unaudited pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the
transaction been consummated as of January 1, 1996, nor is it necessarily
indicative of future operating results.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION: The consolidated financial statements of North Atlantic
Trading Company, Inc. and its subsidiaries, herein referred to as the
Company, include the consolidated accounts of the Corporation, the
Finance Corporation, the Partnership and NAOC. All intercompany accounts
have been eliminated.
REVENUE RECOGNITION: The Company recognizes revenues and the related
costs upon shipment of product to the customer.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost
is determined on the last-in, first-out (LIFO) method.
Leaf tobacco is included in current assets in accordance with standard
industry practice, notwithstanding the fact that such tobaccos are
carried longer than one year for the purpose of curing.
FIXED ASSETS: Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets (4 to 7 years for
machinery, equipment and furniture and 25 years for buildings).
Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized and
depreciated over their estimated useful lives. Upon disposition of fixed
assets, the costs and related accumulated depreciation amounts are
relieved and any resulting gain or loss is reflected in operations during
the period of disposition.
GOODWILL: The excess of purchase price over fair value of net assets
acquired is amortized using the straight-line method over 40 years and 25
years for the Partnership and NAOC, respectively.
The Company periodically reviews the appropriateness of the remaining
life of its intangible assets considering whether any events have
occurred or conditions have developed which may indicate that the
remaining life or the amortization method requires adjustment. After
reviewing the appropriateness of the remaining life and the pattern of
usage of the intangible assets, the Company then assesses the overall
recoverability of intangible assets by determining if the unamortized
balance can be recovered through undiscounted future operating cash
flows.
DEFERRED FINANCING COSTS: Deferred financing costs are amortized over the
terms of the related debt obligations using the interest method.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES: Prior to June 25, 1997, the Holding Company and the
Predecessor were a limited liability company and a partnership,
respectively; therefore, no provision for income taxes was recorded since
earnings or losses were reported by the partners or members on their
individual income tax returns.
As described in Note 1, on June 25, 1997, the Company was reorganized as
a corporation subject to federal and state income taxes. Accordingly, on
June 25, 1997 the Company began recording the effects of income taxes
under the liability method in which deferred income tax assets and
liabilities are recognized based on the difference between the financial
and tax basis of assets and liabilities using the enacted tax rates in
effect for the years in which the differences are expected to reverse.
ADVERTISING AND PROMOTION: Advertising and promotion costs are expensed
as incurred.
STOCK-BASED COMPENSATION: The Company accounts for compensation expense
related to the stock options described in Note 17 under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation."
In the fourth quarter of 1997 the Company changed its method for
measuring stock compensation costs from the intrinsic value based method
which is permitted under SFAS No. 123 to the fair value based method
which is the preferred method under SFAS No. 123. Under the intrinsic
method, compensation cost for stock options is measured as the excess, if
any, of the market value of the Company's stock at the measurement date
over the exercise price. The fair value based method requires
compensation cost for stock options to be recognized based on the fair
value of stock options granted. This change did not have a material
effect on the Company's results of operations for 1997 or the results of
operations for any interim quarter during 1997.
COMPUTATION OF NET LOSS PER COMMON SHARE: Basic net loss per common share
has been computed by dividing the net loss applicable to common shares by
the weighted average number of common shares outstanding during the
period.
Diluted net loss per share has been computed by dividing the net loss
applicable to common shares by the weighted average number of common and
common equivalent shares (warrants and stock options) outstanding during
the period.
RISKS AND UNCERTAINTIES: Smokeless tobacco companies, like other
manufacturers and sellers of tobacco products, are subject to regulation
at the federal, state and local levels. Such regulations include labeling
requirements, limitations on advertising, and prohibition of sales to
minors. The trend in recent years has been toward increased regulation of
the tobacco industry. There can be no assurance as to the ultimate
content, timing or effect of any regulation of tobacco products by any
federal, state or local legislative or regulatory body, nor can there be
any assurance that any such legislation or regulation would not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RISKS AND UNCERTAINTIES, CONTINUED: The tobacco industry has experienced
and is experiencing significant product liability litigation. Most
tobacco liability lawsuits have been brought against manufacturers and
sellers of cigarettes for injuries allegedly caused by smoking or by
exposure to smoke. However, several lawsuits have been brought against
manufacturers and sellers of smokeless tobacco for injuries to health
allegedly caused by use of smokeless tobacco. Typically, such claims
assert that use of smokeless tobacco is addictive and causes oral cancer.
As discussed in Note 23, the Partnership was named as a defendant in such
a lawsuit. There can be no assurance that the Company will not sustain
losses in connection with such lawsuits and that such losses will not
have a material adverse effect on the Company's financial position,
results of operations or cash flows.
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, disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Significant estimates made by the Company include accrued pension costs
and accrued postretirement benefits. Accrued pension costs and
postretirement benefits involve the use of actuarial assumptions,
including the selection of discount rates (see Notes 18 and 19). It is
reasonably possible that the Company's estimates for such items could
change in the near term.
CONCENTRATION OF CREDIT RISK: At December 31, 1997 and 1996, the Company
had bank deposits in excess of federally insured limits of approximately
$4.6 million and $2.5 million, respectively.
The Company sells its products to distributors and retail establishments
throughout the United States. The Company performs periodic credit
evaluations of its customers and generally does not require collateral on
trade receivables. Historically, the Company has not experienced
significant credit losses.
4. EXTRAORDINARY LOSS:
Upon the repayment of the Company's debt on June 25, 1997 as described in
Note 1, the Company recorded an extraordinary loss of $7.1 million (net
of tax benefit of $4.4 million) for the write-off of deferred financing
costs of $4.4 million and debt discount of $7.1 million.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. INVENTORIES:
The reduction of LIFO inventory quantities (decreased) increased net
income of the Company by approximately $(0.2 million), $1.5 million and
$0.1 million for the year ended December 31, 1997, the period May 17,
1996 to December 31, 1996 and the year ended December 31, 1995,
respectively.
The components of inventories at December 31 are as follows (in
thousands):
1997 1996
-------------- --------------
Raw materials and work in process $ 1,492 $ 1,510
Leaf tobacco 36,675 36,825
Finished goods - tobacco 5,444 3,439
Finished goods - cigarette papers 12,241 -
Other 258 246
-------------- --------------
$ 56,110 $ 42,020
============== ==============
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31 consist of (in thousands):
1997 1996
--------------- ---------------
Land $ 654 $ 654
Buildings and improvements 3,211 3,054
Machinery and equipment 5,319 5,149
Furniture and fixtures 1,720 1,183
--------------- ---------------
$ 10,904 $ 10,040
================ ===============
7. GOODWILL:
Goodwill at December 31 consists of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Partnership goodwill, net of accumulated amortization of $1,307
and $504 at December 31, 1997 and 1996, respectively $ 30,645 $ 31,448
NAOC goodwill, net of accumulated amortization of $2,390
at December 31, 1997 114,872 -
---------------- ---------------
$ 145,517 $ 31,448
================ ===============
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. DEFERRED FINANCING COSTS:
Deferred financing costs at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Deferred financing costs, net of accumulated amortization
of $1,134 and $773 at December 31, 1997 and 1996,
respectively $ 13,506 $ 4,926
================ ===============
</TABLE>
9. ACCRUED EXPENSES:
Accrued expenses at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Accrued compensation and benefits $ 1,876 $ 1,406
Accrued interest 982 1,315
Current unfunded pension liability (see Note 18) 521 650
Other accrued expenses 2,494 383
---------------- ---------------
$ 5,873 $ 3,754
================ ===============
</TABLE>
10.NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at December 31, 1997 consist of (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Senior notes $ 155,000
Borrowings under credit agreement:
Term 75,000
Revolver -
---------------
230,000
Less current portion 9,375
---------------
$ 220,625
===============
</TABLE>
On June 25, 1997, the Company issued $155.0 million of 11% Senior Notes
due 2004 (the Notes). The Notes are unsecured senior obligations of the
Company which mature on June 15, 2004. The Notes bear interest at 11% per
annum, payable semiannually on June 15 and December 15, to holders of
record at the close of business on the June 1 or December 1 immediately
preceding the interest payment date.
The Notes have no mandatory redemption requirements; however, they are
redeemable at the option of the Company at a redemption price of 105.5%,
102.75%, or 100.0%, plus accrued interest, on or after June 15, 2001,
2002, and 2003 and thereafter, respectively. In addition, in the event of
a change in control of the Company, as defined, the holders have the
right to require the Company to repurchase the Notes at a purchase price
of 101.0% plus accrued interest.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:
On June 25, 1997, the Company entered into a credit agreement (the New
Credit Agreement) with a lender which provided borrowings of $85.0
million under a term facility and a revolver with available credit of up
to $25 million, including a letter of credit sublimit of $10.0 million.
The borrowings under the term facility are subject to quarterly principal
payments over the five-year period through the maturity date of June 25,
2002, while the revolver may be repaid and reborrowed as necessary, with
any unpaid amounts due and payable upon its termination date of June 25,
2002.
Borrowings under the term facility and revolver bear interest per annum
at variable rates based on prime, federal funds or LIBOR rates at the
Company's option. The interest rate on borrowings under the term facility
ranged from 8.8% to 8.9% at December 31, 1997. In addition, the Company
must pay a quarterly commitment fee of 0.5% per annum of the unused
portion of the revolver.
The Notes and the New Credit Agreement include cross default provisions
and covenants which require the Company to meet certain financial tests,
including minimum interest coverage, maximum leverage ratio, fixed
charges coverage and minimum earnings before interest, taxes,
depreciation and amortization, and limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, prepayments of indebtedness, liens and
encumbrances, and other matters.
Scheduled maturities (exclusive of future mandatory prepayments, if any)
of the Company's notes payable and long-term debt are as follows
(in thousands):
Through December 31, 1998 $ 9,375
Through December 31, 1999 14,063
Through December 31, 2000 16,406
Through December 31, 2001 21,094
Through December 31, 2002 14,062
Thereafter 155,000
------------------
$ 230,000
==================
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:
The Corporation is a holding company with no operations and no assets
other than its investments in its subsidiaries, income tax receivables,
deferred income tax assets related to the differences between the book
and tax basis of its investment in the Partnership, and deferred
financing costs related to its debt.
All of the Corporation's subsidiaries are wholly-owned and guarantee the
debt of the Corporation on a full, unconditional, and joint and several
basis. In management's opinion, separate financial statements of the
subsidiaries are not meaningful to investors and have not been included
in these financial statements.
Following is unaudited parent-only summarized financial information of
the Corporation:
<TABLE>
<CAPTION>
<S> <C>
As of December 31, 1997:
Current assets $ -
Noncurrent assets 258,031
Current liabilities 14,325
Noncurrent liabilities 220,625
Redeemable preferred stock 34,581
From inception on June 25, 1997 through December 31, 1997:
Equity in earnings of subsidiaries 20,598
Income before extraordinary loss and preferred stock dividends 7,396
Notes payable and long-term debt at December 31, 1996 consisted of (in
thousands):
Tranche A term loans $ 26,250
Tranche B term loan, net of unamortized discount of $1,120 13,380
Borrowings under inventory financing agreement 16,912
Deferred interest notes under inventory financing agreement 49
Subordinated notes payable, net of unamortized discount of $6,409 14,096
Capital leases 9
------------------
70,696
Less current portion 21,720
------------------
$ 48,976
==================
</TABLE>
The Partnership had a credit agreement (the Credit Agreement) with a
group of lenders for the Tranche A term loans in the original face amount
of $30 million, Tranche B term loan in the original face amount of $15
million and revolving loan commitments in the amount of $8 million (there
were no revolving loans outstanding at December 31, 1996). The Holding
Company and the Finance Corporation were guarantors of this Credit
Agreement.
The Tranche A and B term loans bore interest at variable interest rates
(8.5% and 9.0%, respectively, at December 31, 1996), payable quarterly
beginning on June 30, 1996. Principal repayments were required in varying
quarterly installments beginning on September 30, 1996 and ending on May
17, 2001.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:
The Partnership had an inventory financing agreement with a supplier that
purchased, stored and processed raw leaf tobacco for the Partnership.
Amounts borrowed under this agreement were repayable as the supplier
shipped the leaf tobacco that collateralized the loans to the
Partnership. Borrowings under the inventory financing agreement bore
interest at the prime rate plus 2% (10.25% at December 31, 1996), payable
quarterly beginning on or about June 30, 1996. Of the quarterly interest
payments, interest of 1% was payable in kind by issuing separate deferred
interest notes to the supplier. The deferred interest notes bore interest
at prime plus 1% and all interest was payable quarterly either in cash or
in kind by issuing additional deferred notes, at the Partnership's
discretion. Deferred interest notes of $49,472 under this agreement were
included in notes payable and long-term debt as of December 31, 1996.
The Holding Company had a subordinated credit agreement with certain
lenders for subordinated notes in the original face amount of $20
million. The subordinated notes bore interest at 13.5%. Interest of 8.2%
was payable in cash quarterly beginning October 31, 1996. Interest in
excess of 8.2% was payable in kind by issuing separate deferred interest
notes to the subordinated note holders, quarterly, beginning October 31,
1996. The deferred interest notes bore interest at the same rates as the
subordinated notes; however, all interest was payable quarterly in kind
by the issuance of additional deferred notes rather than in cash.
Deferred interest notes of $0.5 million were included in the subordinated
notes payable balance in the Holding Company's balance sheet as of
December 31, 1996.
Certain notes and credit agreements contained covenants which required
maintenance of specified financial ratios and equity levels and
limitations on certain items such as the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, prepayments of indebtedness, liens and
encumbrances, and other matters.
11.OTHER LONG-TERM LIABILITIES:
Other long-term liabilities at December 31 consist of (in thousands):
1997 1996
---------- ---------
Postretirement benefits (see Note 19) $ 5,126 $ 4,654
Noncurrent unfunded pension liability (see Note 18) 1,329 1,162
Other liabilities 1,031 30
---------- ---------
$ 7,486 $ 5,846
========== =========
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES:
The Company and the Predecessor were a limited liability company and a
partnership, respectively, for federal and state income tax purposes
through June 25, 1997 and, accordingly, did not incur any income taxes
prior to such date. Upon the occurrence of the transactions on June 25,
1997 as described in Note 1, the Company became a taxable corporation and
recorded a one-time income tax benefit of $3.6 million in the statement
of operations for the six-month period ended June 30, 1997. This
provision was necessary to record the Company's deferred tax assets and
liabilities of $5.7 million and $2.1 million, respectively, which had not
previously been recorded due to its nontaxable status. This amount
differs from the $5.0 million estimated provision for income taxes
recorded and disclosed in the unaudited interim financial statements
included in the Company's Registration Statement filed with the
Securities and Exchange Commission on September 19, 1997 and the
Company's September 30, 1997 10-Q due to the final determination of the
income tax treatment of certain payments made related to the
recapitalization which occurred in the second quarter of 1997.
The provision for income taxes for the year ended December 31, 1997
consists of the following components (in thousands):
Current:
Federal -
State and local $ 300
----------------
300
----------------
Deferred:
Federal 3,675
State and local 432
----------------
4,107
----------------
Initial setup of deferred taxes:
Federal (3,181)
State and local (374)
----------------
(3,555)
----------------
$ 852
================
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. INCOME TAXES, CONTINUED:
Deferred tax assets and liabilities at December 31, 1997 consist of (in
thousands).
<TABLE>
<CAPTION>
ASSETS LIABILITIES
--------------- ----------------
<S> <C> <C>
Inventory - $ 6,721
Property, plant and equipment $ 440 -
Goodwill 27,213 -
Accrued pension and postretirement costs 2,387 -
NOL carryforward 3,594 -
Other 457 -
--------------- ----------------
34,091 6,721
Valuation allowance - -
--------------- ----------------
Net deferred taxes $ 34,091 $ 6,721
=============== ================
</TABLE>
At December 31, 1997, the Company has NOL carryforwards of $9,459 which
expire in 2012.
The Company has determined that at December 31, 1997 its ability to
realize future benefits of net deferred tax assets meets the "more likely
than not" criteria in SFAS No. 109, "Accounting for Income Taxes,"
therefore, no valuation allowance has been recorded.
Reconciliation of the federal statutory rate and the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal statutory rate 35.0 %
State taxes 2.3
Initial setup of deferred taxes (43.0)
Goodwill amortization 10.2
Other 5.8
-------------------
Effective income tax rate 10.3 %
===================
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. MANDATORILY REDEEMABLE PREFERRED STOCK:
On June 25, 1997, the Company authorized 12 million shares and issued
1.36 million shares of 12% Senior Payment-In-Kind Preferred Stock (the
Preferred Stock). On December 31, 1997, 12 million shares of Preferred
Stock were authorized and 1.44 million were issued and outstanding. Each
share of Preferred Stock has a par value of $.01 and a liquidation
preference of $25, for a total liquidation value of $36.0 million. Prior
to June 2002, holders of the Preferred Stock are entitled to receive
dividends at an annual rate of 12% of the liquidation preference, payable
quarterly in cash or by the issuance of additional shares of Preferred
Stock having an aggregate liquidation preference equal to the amount of
the dividends, at the Company's option. Following June 15, 2002,
dividends must be paid in cash. Dividends, including the discount
accretion described below, for the period from June 25, 1997 through
December 31, 1997 were $2.4 million (of which $2.1 million has been paid
through the issuance of additional shares), which has been recorded as an
increase in the carrying value of the Preferred Stock.
As described in Note 15, holders of the Preferred Stock were also issued
warrants with a fair value of $1.7 million which has been recorded as a
discount of the carrying value of the Preferred Stock. This discount is
being accreted under the interest method over the 10-year term of the
Preferred Stock as a part of the annual dividend requirement. Accretion
of the discount was $0.1 million for the period from June 25, 1997
through December 31, 1997 and has been recorded as an increase in the
carrying value of the Preferred Stock.
Prior to June 15, 2000, the Company may, subject to certain restrictions,
redeem up to 35% of the Preferred Stock out of the net cash proceeds from
any one or more public equity offerings of the Company, for 112% of the
liquidation preference plus all accumulated and unpaid dividends. The
Preferred Stock is not redeemable from June 16, 2001 to June 15, 2002.
The Preferred Stock is then redeemable, at the Company's option, on or
after the following dates at the indicated redemption prices (expressed
as a percentage of the liquidation preference) plus all accumulated and
unpaid dividends: June 15, 2002 - 106%; June 15, 2003 - 104%; June 15,
2004 - 102%; and June 15, 2005 - 100%. The Preferred Stock is mandatorily
redeemable on June 15, 2007 at a price equal to the liquidation
preference plus all accumulated and unpaid dividends. The Preferred Stock
is also redeemable, at the option of the holders, upon a change in
control of the Company, as defined, at a price equal to 101% of the
liquidation preference plus all accumulated and unpaid dividends.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. PREFERRED INTERESTS:
On May 17, 1996, the Holding Company issued mandatory redeemable
preferred interests in the Holding Company to the subordinated lenders
for $2.5 million. The preferred interest compounded, on a quarterly
basis, at an annual rate of 14.5%, such return to be paid in the form of
an increase in the preferred interest accounts. The preferred interest
account balance of $2.7 million at December 31, 1996 was classified as a
non-equity item in the balance sheet and the accrual of preferred
interest of $0.2 million from May 17, 1996 to December 31, 1996 was
recorded as interest expense in the statement of operations.
15. WARRANTS:
On June 25, 1997, the holders of the Preferred Stock were issued
warrants, with an original fair value of $1.7 million, to purchase 44,440
shares of common stock of the Company for $0.01 per share, exercisable
immediately. The original fair value of these warrants has been recorded
in equity, with a corresponding amount recorded as a discount on the
carrying value of the Preferred Stock described in Note 13.
Persons affiliated with the initial purchases of the Preferred Stock were
also issued warrants, with an original fair value of $0.7 million, to
purchase 19,050 shares of common stock of the Company for $0.01 per
share, exercisable immediately. The original fair value of these warrants
has been recorded in equity, with a corresponding amount capitalized and
included in deferred financing costs.
16. HOLDING COMPANY WARRANTS:
Prior to June 25, 1997, certain lenders held warrants with an original
fair value of $6.9 million, including $0.3 million allocated to warrants
purchased with cash, to purchase a 38.86% Class A membership interest in
the equity of the Holding Company for $0.39. These warrants were
exercisable immediately and had weighted average anti-dilution
protection. The remaining balance of this interest at December 31, 1996
of $6.7 million, less $0.3 million allocated to warrants purchased with
cash, was reflected in the Holding Company's statement of financial
position as a loan discount which was being amortized over the life of
the subordinated notes under the interest method. The lenders also
received redeemable warrants to purchase an additional 5% Class A
membership interest in the equity of the Holding Company for $0.05, which
had limited rights. These warrants were exercisable at any time after May
17, 2001 and had weighted average anti-dilution protection.
Prior to June 25, 1997, the lender of the Tranche B term loan held
detachable warrants with an original fair value of $1.3 million to
purchase a 7% Class B membership interest in the equity of the Holding
Company for $100. The unamortized balance of this interest at December
31, 1996 of $1.1 million was reflected in the Partnership's balance sheet
as a loan discount which was being amortized over the life of the Tranche
B term loan under the interest method.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. HOLDING COMPANY WARRANTS, CONTINUED:
All of the warrants held prior to June 25, 1997 had put rights which
could be exercised under certain conditions, including a change in
control, an asset sale, a reorganization of the Holding Company as a "C"
corporation, the filing of a registration statement under the Securities
Act of 1933, the repayment or refinancing of the debt of the Holding
Company and the Partnership, the occurrence of an event of default, or
upon May 17, 2002. Under the put rights, the warrant holders could
require the Holding Company to purchase all or a portion of the warrant
interests at their market value as defined in the warrant agreement.
Accordingly, such warrants were classified as a non-equity item in the
December 31, 1996 balance sheet.
17. SHARE INCENTIVE PLAN:
On June 25, 1997, the Company implemented a share incentive plan covering
certain key employees which provides for the grant options to purchase
common stock of the Company and other stock related benefits. As of
December 31, 1997, no benefits other than the stock options described
below had been granted. The total number of shares available for granting
under the plan is 61,856. Stock option activity is summarized below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR VALUE
SHARES PRICE OF OPTIONS
--------------- --------------- ---------------
<S> <C> <C> <C>
Outstanding December 31, 1996 - - -
Granted 46,894 $ 18.19 $ 26.51
Exercised - - -
Forfeited - - -
-------------- --------------- ---------------
Outstanding December 31, 1997 46,894 $ ` 18.19 $ 26.51
============== =============== ===============
</TABLE>
Of the stock options outstanding on December 31, 1997, 15,631 were
exercisable, with 30,928 vesting one-third on the date of grant and
one-third each year for the next two years and 15,966 vesting one-third
on the date of grant and one-fifth of the remainder each year over the
next five years. All stock options expire 15 years from the grant date.
The Company estimates that all of the stock options granted will be
exercised and that the expected life of all stock options is five years
from the date of grant. The weighted average fair value of the options
was determined as the difference between the fair value of the common
stock on the grant date and the present value of the exercise price over
the expected life of five years at a risk free interest rate of 6%, with
no assumed dividend yield.
All of the stock options described above include a provision under which
the Company will reimburse the employee for the difference between their
ordinary income tax liability and the liability computed using the
capital gains rate in effect upon exercise of the options. The effect of
this provision is accounted for as a variable portion of the option plan.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. SHARE INCENTIVE PLAN, CONTINUED:
The Company has recorded compensation expense related to the options
based on the provisions of SFAS No. 123 under which the fixed portion of
such expense is determined as fair value of the options on the date of
grant and amortized over the vesting period. The variable portion of the
compensation expense is remeasured on each reporting date with the
expense amount adjusted for changes in the fair value of the company
stock on that date. Compensation expense of $900,000 ($558,000 net of
deferred income tax benefit) has been recognized in the statement of
operations for the year ended December 31, 1997.
18. PENSION PLANS:
The Company has defined benefit pension plans covering substantially all
of its employees. Benefits for the hourly employees' plan are based on a
stated benefit per year of service, reduced by amounts earned in a
previous plan. Benefits for salaried employees are based on years of
service and the employees' final compensation.
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheets and statements of operations
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,148 and $5,472 in 1997 and
1996, respectively $ 6,358 $ 5,661
================ ================
Projected benefit obligation $ 7,478 $ 6,754
Plan assets 6,739 5,219
---------------- ----------------
Projected benefit obligation in excess of plan assets 739 1,535
Unrecognized net loss from past experience different
than assumed 1,121 276
Unrecognized prior service cost (11) -
Amounts to be funded within one year (included in accrued
expenses) (520) (649)
---------------- ----------------
Noncurrent unfunded pension liability (included in other
long-term liabilities) $ 1,329 $ 1,162
================ ================
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. PENSION PLANS, CONTINUED:
Net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------------ ----------------------------------
PERIOD FROM
YEAR ENDED MAY 17 TO PERIOD FROM YEAR ENDED
DECEMBER 31, DECEMBER 31, JANUARY 1 TO DECEMBER 31,
1997 1996 MAY 17, 1996 1995
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Service cost $ 544 $ 509 $ 193 $ 515
Interest cost 491 449 140 373
Return on plan assets (1,135) (604) (273) (729)
Net amortization and deferral 733 284 204 545
------------------ ---------------- ---------------- ----------------
Net pension cost $ 633 $ 638 $ 264 $ 704
================== ================ ================ ================
</TABLE>
The average discount rate and expected long-term rate of return on plan
assets was 7.5% for the periods presented. The rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation for the salary plan was 6% for the
periods presented. The Company's funding policy is to contribute annually
amounts equal to or in excess of the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. The plans' assets are
primarily invested in bond and equity mutual funds.
The Company also sponsors a voluntary retirement savings plan (401(k)).
Eligible employees may elect to contribute up to 10% of their annual
earnings subject to certain limitations. The Company matches 50% of each
eligible participant's contribution up to 6% of the participant's
compensation for the plan year. Company matching is subject to a vesting
schedule. Additional discretionary matching contributions by the Company
are determined annually by the Board of Directors. Expense related to
this plan was approximately $0.2 million, $0.1 million, $44,000 and $0.1
million for the year ended December 31, 1997, the periods May 17, 1996 to
December 31, 1996 and January 1, 1996 to May 17, 1996, and the year ended
December 31, 1995, respectively.
19. POSTRETIREMENT BENEFIT PLANS:
The Company sponsors two defined benefit postretirement plans that cover
both salaried and hourly employees. One plan provides medical and dental
benefits, and the other provides life insurance benefits. The
postretirement health care plan is contributory, with retiree
contributions adjusted annually; the life insurance plan is
noncontributory.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. POSTRETIREMENT BENEFIT PLANS, CONTINUED:
The postretirement benefit expense included the following components:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------------ ------------------------------------
PERIOD FROM
YEAR ENDED MAY 17 TO PERIOD FROM YEAR ENDED
DECEMBER 31, DECEMBER 31, JANUARY 1 TO DECEMBER 31,
1997 1996 MAY 17, 1996 1995
----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Service cost of benefits earned $ 269 $ 166 $ 69 $ 167
Interest cost on accumulated
postretirement benefit
obligation 334 194 101 219
Net amortization and deferral - - 44 -
----------------- ----------------- ---------------- ------------------
Postretirement benefit expense $ 603 $ 360 $ 214 $ 386
================= ================= ================ ==================
</TABLE>
The postretirement benefit liability as of December 31 included the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees $ 1,513 $ 1,444
Fully eligible active plan participants 2,102 1,890
Other active plan participants 1,668 1,190
----------------- -----------------
5,283 4,524
Unrecognized net loss 157 130
----------------- -----------------
Accrued postretirement benefit liability $ 5,126 $ 4,654
================= =================
</TABLE>
The assumed discount rate used to determine the accumulated
postretirement benefit obligation as of December 31, 1997 and 1996 was 7%
and 7.5%, respectively. As of December 31, 1997 and 1996, the assumed
health care cost trend rate for participants under age 65 was 9.5%, and
for participants age 65 and over the rate was 8.5%. The health care cost
trend rate was assumed to decline gradually to 5.5% for pre-age 65 costs
to 5% for post-age 65 costs over 27 years. A one-percentage-point
increase in the assumed health care cost trend rate would have increased
the accumulated postretirement benefit obligation as of December 31, 1997
and 1996 by approximately $23,000 and $382,000, respectively, and the
postretirement benefit expense for the year ended December 31, 1997, the
periods May 17, 1996 to December 31, 1996 and January 1, 1996 to May 17,
1996 and the year ended December 31, 1995 by $2,000, $39,000, $18,000 and
$40,000, respectively.
Effective January 1, 1995, the Predecessor adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Under SFAS No. 106, the Predecessor accrues the cost of those benefits
over employees' active service periods. The Predecessor elected to
recognize this change in accounting on the immediate recognition basis.
The adoption of SFAS No. 106 resulted in a one time expense totaling
approximately $123,000.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments," as amended by
SFAS No. 126. The estimated fair value amounts have been determined by
the Company using the methods and assumptions described below. However,
considerable judgment is required to interpret market data to develop
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which
it is practical to estimate that value:
Cash and Cash Equivalents: Cash and cash equivalents are by definition
short-term and the carrying amount is a reasonable estimate of fair
value.
Long-Term Debt: The fair value of long-term debt approximates its
carrying value.
21. INCOME BEFORE EXTRAORDINARY LOSS PER COMMON SHARE RECONCILIATION:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ------------------- ----------------
<S> <C> <C> <C>
Income before extraordinary loss $ 7,414
Less: Preferred stock dividends (2,268)
----------------
Basic:
Income available to common stockholders 5,146 528,241 $ 9.75
================
Effect of Dilutive Securities:
Warrants 63,490
Stock options 19,180
---------------- -------------------
Diluted:
Income available to common stockholders
and assumed conversions $ 5,146 610,911 $ 8.42
================ =================== ================
</TABLE>
22. FOURTH QUARTER ADJUSTMENT:
As described in Note 12, the fourth quarter of 1997 includes an
adjustment of $8.7 million to increase the income tax benefit which
results from the final determination by tax counsel in the fourth quarter
of the income tax treatment of certain payments made related to the
recapitalization which occurred in the second quarter of 1997.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
23. CONTINGENCY:
The Partnership was named as a defendant in a purported class action
filed on June 30, 1997 in the 33rd Judicial District Court in the State
of Louisiana, Parish of Allen, entitled Doyle v. United States Tobacco
Company, et al. The petition named as defendants the Partnership, three
other manufacturers of smokeless tobacco products and a subsidiary of one
of the manufacturers. The action was subsequently removed to the United
States District Court for the Western District of Louisiana, Alexandria
Division.
On January 26, 1998, the plaintiff stipulated to a dismissal of the case
without prejudice. On January 28, 1998 the court entered an order
voluntarily dismissing the action without prejudice.
24. NEW ACCOUNTING STANDARDS:
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997
and is effective for fiscal years beginning after December 15, 1997. This
statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement does not require
a specific format for that financial statement but requires that an
entity display an amount representing total comprehensive income for the
period in that financial statement. This statement requires that an
entity classify items of other comprehensive income by their nature in a
financial statement. For example, other comprehensive income may include
foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. In addition, the accumulated balance of other comprehensive
income must be displayed separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. Reclassification of financial statements for earlier periods,
provided for comparative purposes, is required. Based on current
accounting standards, this new accounting standard is not expected to
have a material impact on the Company's consolidated financial
statements.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
24 NEW ACCOUNTING STANDARDS, CONTINUED:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. Operating segments are defined as components
of an enterprise about which separate financial information is available
that is evaluated regularly by the enterprise's management in deciding
how to allocate resources and in assessing performance. This statement
requires reporting segment profit or loss, certain specific revenue and
expense items and segment assets. It also requires reconciliations of
total segment revenues, total segment profit or loss, total segment
assets, and other amounts disclosed for segments to corresponding amounts
reported in the consolidated financial statements. Restatement of
comparative information for earlier periods presented is required in the
initial year of application. Interim information is not required until
the second year of application, at which time comparative information is
required. This statement's requirements are disclosure oriented and,
therefore, will not have an impact on the Company's financial position,
results of operations or liquidity.
F-30
<PAGE>
EXHIBIT INDEX
TO
NORTH ATLANTIC TRADING COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED December 31, 1997
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 (a)(i) -- Restated Certificate of Incorporation of North
Atlantic Trading Company, Inc., filed February 19, 1998.
3.1 (b)(i) -- Certificate of Incorporation of North Atlantic Operating
Company, Inc., filed June 9, 1997.**
3.1 (b)(ii)-- Certificate of Amendment of Certificate of Incorporation of
North Atlantic Operating Company, Inc., filed June 17, 1997.**
3.1 (c) -- Restated Certificate of Incorporation of National Tobacco
Finance Corporation, filed April 24, 1996.**
3.1 (d) -- Amended and Restated Certificate of Limited Partnership of
National Tobacco Company, L.P., filed May 17, 1996.**
3.1 (e)(i) -- Certificate of Incorporation of International Flavors and
Technology, Inc., filed August 7, 1997.
3.1 (e)(ii)-- Certificate of Amendment of Certificate of Incorporation of
International Flavors and Technology, Inc., filed February 19,
1998.
3.2 (a) -- Bylaws of North Atlantic Trading Company, Inc.*
3.2 (b) -- Bylaws of North Atlantic Operating Company, Inc.*
3.2 (c) -- Bylaws of National Tobacco Finance Corporation.*
3.2 (d)(i) -- Third Amended and Restated Agreement of Limited Partnership of
National Tobacco Company, L.P., effective May 17, 1996.**
3.2 (d)(ii)-- Amendment No. 1 to Third Amended and Restated Agreement of
Limited Partnership of National Tobacco Company, L.P.,
effective June 25, 1997.**
3.2 (e) -- Bylaws of International Flavors and Technology, Inc.
3.3 (a) -- Certificate of Designation of 12% Senior Payment-In-Kind
Preferred Stock of North Atlantic Trading Company, Inc., filed
June 25, 1997.**
<PAGE>
3.3 (b) -- Certificate of Designation of 12% Senior Exchange
Payment-In-Kind Preferred Stock of North Atlantic Trading
Company, Inc., filed July 22, 1997.**
4.1 -- Indenture, dated as of June 25, 1997, among North Atlantic
Trading Company, Inc., as issuer, National Tobacco Company,
L.P., North Atlantic Operating Company, Inc. and National
Tobacco Finance Corporation, as guarantors, and United States
Trust Company of New York, as trustee.**
4.2 -- Form of Notes (included in Exhibit 4.1).**
4.3 -- First Supplemental Indenture, dated as of February 26, 1998,
among North Atlantic Trading Company, Inc., National Tobacco
Company, L.P., National Tobacco Finance Corporation,
International Flavors and Technology, Inc. and The United
States Trust Company of New York.
9.1 -- Exchange and Stockholders' Agreement, dated as of June 25,
1997, by and between North Atlantic Trading Company, Inc. and
those stockholders signatory thereto.****
9.2 -- Voting Trust Agreement, dated as of December 17, 1997, among
Thomas F. Helms, Jr., David I. Brunson and Jeffrey S. Hay, as
voting trustees, and Helms Management Corp.
10.1 -- Third Amended and Restated Purchasing and Processing Agreement,
dated as of June 25, 1997, between National Tobacco Company,
L.P. and Lancaster Leaf Tobacco Company of Pennsylvania.**
10.2 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[United States].+***
10.3 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[Asia]+***
10.4 -- Amended and Restated Distribution and License Agreement, dated
as of November 30, 1992, between Bollore Technologies, S.A. and
North Atlantic Trading Company, Inc., a Delaware corporation
and predecessor to North Atlantic Operating Company, Inc.
[Canada].+***
10.5 -- Restated Amendment, dated as of June 25, 1997, between Bollore
Technologies, S.A. and North Atlantic Operating Company,
Inc.+***
10.6 -- Registration Rights Agreement, dated as of June 25, 1997, by
and among North Atlantic Trading Company, Inc., the subsidiary
guarantors named therein and NatWest Capital Markets Limited
and CIBC Wood Gundy Securities Corp.**
10.7 -- Preferred Stock Registration Rights Agreement, dated as of June
25, 1997, among North Atlantic Trading Company, Inc. and
NatWest Capital Markets Limited.**
<PAGE>
10.8 -- Common Stock Registration Rights and Stockholders' Agreement,
dated as of June 25, 1997, among North Atlantic Trading
Company, Inc. and NatWest Capital Markets Limited.**
10.9 -- Purchase Agreement, dated as of June 18, 1997, among North
Atlantic Trading Company, Inc., certain of its subsidiaries, as
guarantors, and NatWest Capital Markets Limited and CIBC Wood
Gundy Securities Corp., as initial purchasers. **
10.10 -- Purchase Agreement, dated as of June 18, 1997, between North
Atlantic Trading Company, Inc. and NatWest Capital Markets
Limited, as initial purchaser.**
10.11 -- Unit Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and United States Trust Company
of New York, as unit agent.**
10.12 -- Warrant Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and United States Trust Company
of New York, as warrant agent.**
10.13 -- Stock Purchase Agreement, dated as of March 17, 1997, between
NATC Holding Company, Ltd. and NTC Holding, LLC.**
10.14 -- Assignment and Assumption, dated as of June 25, 1997, between
NTC Holding, LLC and North Atlantic Trading Company, Inc.**
10.15 -- Assignment and Assumption of Stock Purchase Agreement, dated as
of June 25, 1997, between North Atlantic Trading Company, Inc.
and North Atlantic Operating Company, Inc.**
10.16 -- 1997 Share Incentive Plan of North Atlantic Trading Company,
Inc.++**
10.17 -- Employment Agreement, dated May 17, 1996, between North
Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.++**
10.18 (a) -- Employment Agreement, dated April 14, 1997, between National
Tobacco Company, Inc. and David I. Brunson.++**
10.18 (b) -- Letter Agreement, dated April 23, 1997, between Thomas F.
Helms, Jr. and David I. Brunson.++**
10.18 (c) -- Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++**
10.18 (d) -- Amendment No. 1, dated and effective September 2, 1997, to the
Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++**
10.18 (e) -- Amendment No. 2, dated as of December 31, 1997, to the
Nonqualified Stock Option Agreement, dated as of June 25, 1997,
between North Atlantic Trading Company, Inc. and David I.
Brunson.++
10.19 -- Employment Agreement, dated January 1, 1997, between North
Atlantic Trading Company, Inc. and Jay Martin.++**
<PAGE>
10.20 -- Consulting Agreement, dated as of June 25, 1997, between North
Atlantic Trading Company, Inc. and Jack Africk.++**
10.21 -- Credit Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc., the various lending
institutions referenced therein, Gleacher NatWest, Inc., as
arranging agent, and National Westminster Bank plc, as
administrative agent.**
10.22 -- Subsidiary Guaranty, dated as of June 25, 1997, made by North
Atlantic Operating Company, Inc., National Tobacco Finance
Corporation, and National Tobacco Company, L.P. in favor of
National Westminster Bank plc, as administrative agent for
certain lending institutions.**
10.23 -- Security Agreement, dated as of June 25, 1997, among North
Atlantic Trading Company, Inc., North Atlantic Operating
Company, Inc., National Tobacco Finance Corporation, National
Tobacco Company, L.P., and National Westminster Bank plc, as
collateral agent for certain secured creditors.**
10.24 -- Pledge Agreement, dated as of June 25, 1997, made by North
Atlantic Trading Company, Inc., North Atlantic Operating
Company, Inc., National Tobacco Finance Corporation, and
National Tobacco Company, L.P., in favor of National
Westminster Bank plc, as collateral agent for certain secured
creditors.**
10.25 -- National Tobacco Company Management Bonus Program.++**
10.26 -- Amended and Restated Nonqualified Stock Option Agreement, dated
as of December 31, 1997, between North Atlantic Trading
Company, Inc. and Jeffrey S. Hay.++
10.27 -- Employment Agreement, dated as of July 28, 1997, between North
Atlantic Trading Company, Inc. and Jeffrey S. Hay.++
10.28 -- Amended and Restated Nonqualified Stock Option Agreement, dated
as of January 12, 1998, between North Atlantic Trading Company,
Inc. and Jack Africk.++
10.29 -- Employment Agreement, dated as of December 15, 1997, between
North Atlantic Trading Company, Inc. and Jack Africk.++
10.30 -- Assignment and Assumption, dated as of January 1, 1998, between
National Tobacco Company, L.P. and North Atlantic Trading
Company, Inc.++
10.31 -- Amendment, dated October 27, 1997, to Amended and Restated
Distribution and License Agreements, between Bollore and North
Atlantic Operating Company, Inc.+
10.32 -- Sales Representative Agreement, effective as of January 1,
1998, between National Tobacco Company, L.P. and North Atlantic
Operating Company, Inc.
10.33 -- Separation Agreement, dated as of October 29, 1997, among
National Tobacco Company, L.P., North Atlantic Trading Company,
Inc. and Maurice Langston.++
10.34 -- First Amendment to Separation Agreement, dated as of January
30, 1998, among National Tobacco Company, L.P., North Atlantic
Trading Company, Inc. and Maurice Langston.++
<PAGE>
10.35 -- Consulting Agreement, dated as of October 29, 1997, between
National Tobacco Company, L.P. and Maurice Langston.++
10.36 -- Release Agreement, dated as of October 29, 1997, among National
Tobacco Company, L.P., North Atlantic Trading Company, Inc. and
Maurice Langston.++
10.37 -- North Atlantic Trading Company, Inc. 1998 Executive Committee
Bonus Plan++
10.38 -- North Atlantic Trading Company, Inc. 1998 Management Bonus
Plan++
16 -- Letter re change in accounting principles.
21 -- Subsidiaries of North Atlantic Trading Company, Inc.
27 -- Financial Data Schedules.
- ----------------------------
+ Portions of this agreement have been omitted pursuant to Rule 406 under
the Securities Act of 1933, as amended, and have been filed
confidentially with the Securities and Exchange Commission.
++ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of the rules governing the
preparation of this Report.
* Incorporated by reference to the identically numbered exhibit contained
in the Registration Statement (Reg. No. 333-31931) on Form S-4 filed
with the Securities Exchange Commission on July 23, 1997.
** Incorporated by reference to the identically numbered exhibit contained
in Amendment No. 1 to the Registration Statement (Reg. No. 333-31931)
on Form S-4 filed with the Securities and Exchange Commission on
September 3, 1997.
*** Incorporated by reference to the identically numbered exhibit contained
in Amendment No. 2 to the Registration Statement (Reg. No. 333-31931)
on Form S-4 filed with the Securities and Exchange Commission on
September 17, 1997.
**** Incorporated by reference to Exhibit 9 contained in Amendment No. 1 to
the Registration Statement (Reg. No. 333-31931) on Form S-4 filed with
the Securities and Exchange Commission on September 17, 1997.
EXHIBIT 3.1(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTH ATLANTIC TRADING COMPANY, INC.
-----------------
North Atlantic Trading Company, Inc., a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
FIRST: The name of the corporation is North Atlantic Trading
Company, Inc. (the "Corporation"). The Corporation was originally incorporated
under the name "North Atlantic Trading Acquisition Company, Inc." and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on May 19, 1997.
SECOND: This Restated Certificate of Incorporation, which
restates and further amends the provisions of the Certificate of Incorporation,
was duly adopted by written consent of the Board of Directors and a majority of
the stockholders of the Corporation in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
THIRD: The text of the Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE 1.
NAME
The name of the corporation is North Atlantic Trading Company,
Inc. (the "Corporation").
<PAGE>
ARTICLE 2.
REGISTERED OFFICE
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801. The name of the registered agent of the
Corporation in the State of Delaware at such address is The Corporation Trust
Company.
ARTICLE 3.
PURPOSES
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
ARTICLE 4.
CAPITAL STOCK
4.1 Total Authorization. The Corporation shall have authority
to issue Seven Million Five Hundred Thousand (7,500,000) shares of capital stock
which shall be divided into classes of voting common stock, non-voting common
stock and preferred stock as follows:
(a) Seven Hundred Fifty Thousand (750,000) shares of voting
common stock, par value $.01 per share ("Voting Common Stock").
(b) Seven Hundred Fifty Thousand (750,000) shares of
non-voting common stock, par value $.01 per share ("Non-Voting Common Stock";
and together with the Voting Common Stock, the "Common Stock").
(c) Six Million (6,000,000) shares of preferred stock, par
value $.01 per share ("Exchange Preferred Stock").
4.2 General Provisions. Except as otherwise required by law,
and except as provided in this Article 4 as to (i) the voting powers and (ii)
certain rights of conversion and the qualifications or restrictions thereof, all
shares of each class of Common Stock shall be of equal rank and shall be
identical in all respects. Except as otherwise provided by law, the shares of
stock of the Corporation, regardless of class, may be issued by the Corporation
from time to time in such amounts, for such
2
<PAGE>
consideration and for such corporate purposes as the Board of Directors may from
time to time determine.
4.3 Voting Powers.
4.3.1 General. Subject to the provisions of applicable law or
of the By-laws with respect to the closing of the transfer books or the fixing
of a record date for the determination of stockholders entitled to vote, and
except as otherwise provided by law or by the resolution or resolutions
providing for the issue of any series of Exchange Preferred Stock, the holders
of outstanding shares of Voting Common Stock shall exclusively possess the
voting power for the election of directors and for all other purposes, each
holder of record of shares of Voting Common Stock being entitled to one vote for
each share of Voting Common Stock standing in his name on the books of the
Corporation.
4.3.2 Non-Voting Common Stock. The holders of Non-Voting
Common Stock shall not have or be entitled to any voting rights or powers,
either general or special, except as required by law.
4.3.3 Increase in Common Stock. The authorized number of
shares of any class of Common Stock may be increased or decreased (but not below
the number of shares then outstanding) upon the affirmative vote of the holders
of a majority in voting power of the outstanding Voting Common Stock entitled to
vote (irrespective of the provisions of Section 242(b)(2) of the DGCL (or any
successor provision thereto)) without the necessity for any separate class vote
thereon by the holders of any class of Common Stock.
4.3.4 Optional Conversion. Subject to and upon compliance with
the provisions of the second paragraph of this Section 4.3.4, shares of Common
Stock may be converted as follows: (i) upon sixty-one (61) days' prior written
notice to the Corporation, any holder of shares of Non-Voting Common Stock may
convert all or any portion of such shares into an equal number of shares of
Voting Common Stock and (ii) upon ten (10) days' prior written notice to the
Corporation, any holder of shares of Voting Common Stock may convert all or any
portion of such shares into an equal number of shares of Non-Voting Common Stock
(each such conversion pursuant to clause (i) or (ii) above being referred to as,
an "Optional Conversion).
Each Optional Conversion shall be effected by the surrender of
the certificate or certificates representing the shares to be converted
("Surrendered Shares") at the principal office of the Corporation (or such other
office or agency of the Corporation as the Corporation may designate by written
notice to the holders of
3
<PAGE>
Surrendered Shares) at any time during its usual business hours, together with
written notice by the holder of such Surrendered Shares, stating that such
holder desires to convert the Surrendered Shares, and specifying a stated number
of the shares represented by such certificate or certificates as described in
clause (i) or (ii) of the preceding paragraph of this Section 4.3.4 that such
holder desires to convert (for purposes of this Section 4.3.4, such Surrendered
Shares being converted are referred to as, the "Issued Shares"). Such notice
shall also state the name or names (with addresses) and denominations in which
the certificate or certificates for Issued Shares are to be issued and shall
include instructions for the delivery thereof. Promptly after such surrender,
receipt of such written notice and the expiration of the applicable notice
period under clause (i) or (ii) of the preceding paragraph of this Section, the
Corporation will issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates evidencing the Issued Shares
issuable upon such conversion, and the Corporation will deliver to the
converting holder a certificate (which shall contain such legends as were set
forth on the surrendered certificate or certificates) representing any shares
which were represented by the certificate or certificates that were delivered to
the Corporation in connection with such conversion, but which were not
converted. Such conversion, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such notice shall
have been received by the Corporation, and at such time the rights of the holder
of the Surrendered Shares as such holder shall cease and the person or persons
in whose name or names the certificate or certificates representing the Issued
Shares are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the Issued Shares. Upon issuance of shares in
accordance with this Section 4.3.4, such Issued Shares shall be duly authorized,
validly issued, fully paid and non-assessable.
4.3.5 Reservation of Shares. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Voting Common Stock and Non-Voting Common Stock, solely for the purpose of
issuance upon the conversion or re-conversion of shares of Voting Common Stock
and NonVoting Common Stock, such number of shares of such class as are then
issuable upon the conversion of all outstanding shares of Voting Common Stock
and Non-Voting Common Stock.
4.3.6 Stock Splits; Adjustments. If the Corporation shall in
any manner subdivide (by stock split, stock dividend or otherwise) or combine
(by reverse stock split or otherwise) the outstanding shares of any class of
Common Stock, then the outstanding shares of all other classes of Common Stock
shall be subdivided or
4
<PAGE>
combined, as the case may be, to the same extent, share and share alike, and
effective provision shall be made for the protection of the conversion rights
hereunder.
In case of any reorganization, reclassification or change of
shares of any class of Common Stock (other than a change in par value or from
par to no par value as a result of a subdivision or combination), or in case of
any consolidation of the Corporation with one or more corporations or a merger
of the Corporation with another corporation (other than a consolidation or
merger in which the Corporation is the resulting or surviving corporation and
which does not result in any reclassification or change of outstanding shares of
any class of Common Stock), each holder of any shares of any class of Common
Stock shall have the right at any time thereafter, to convert such shares into
the kind and amount of shares of stock and other securities and properties
(including cash) receivable upon such reorganization, reclassification, change,
consolidation or merger by a holder of the number of shares of any class of
Common Stock, as the case may be, which might otherwise have been converted
immediately prior to such reorganization, reclassification, change consolidation
or merger.
4.3.7 No Charge. The issuance of a certificate for shares of
any class of Common Stock upon conversion of shares of any other class of Common
Stock shall be made without charge to the holders of such shares for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Common
Stock; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery to the holder of the Common Stock converted.
4.4 Exchange Preferred Stock. Shares of Exchange Preferred
Stock may be issued from time to time in one or more series of any number of
shares as may be determined from time to time by the Board of Directors,
provided that the aggregate number of shares issued and not cancelled of any and
all such series shall not exceed the total number of shares of Exchange
Preferred Stock authorized by this Certificate of Incorporation.
Each series of Exchange Preferred Stock shall be distinctly
designated. Except in respect of the particulars fixed for series by the Board
of Directors as permitted hereby, all shares shall be alike in every particular,
except that shares of any one series issued at different times may differ as to
the dates from which dividends thereon shall be cumulative. The voting powers,
if any, of each such series and the preferences and relative, participating,
optional and other special rights of each such series and the qualifications,
limitations and restrictions thereof, if any,
5
<PAGE>
may differ from those of any and all other series at any time outstanding; and
the Board of Directors is hereby expressly granted authority to fix, in the
resolution or resolutions providing for the issue of a particular series of
Exchange Preferred Stock, the voting powers, if any, of each such series and the
designations, preferences and relative, participating, optional and other
special rights of each such series and the qualifications, limitations and
restrictions thereof to the full extent now or hereafter permitted by this
Certificate of Incorporation and the laws of the State of Delaware.
ARTICLE 5.
BY-LAWS
In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in this Certificate of
Incorporation, by-laws of the Corporation may be adopted, amended or repealed by
a majority of the Board of Directors of the Corporation, but any by-laws adopted
by the Board of Directors may be amended or repealed by the stockholders
entitled to vote thereon.
ARTICLE 6.
INDEMNIFICATION
6.1 Director's Liability. A director of the Corporation shall
not be personally liable either to the Corporation or to any stockholder for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
or (ii) for acts or omissions which are not in good faith or which involve
intentional misconduct or knowing violation of the law, or (iii) for any matter
in respect of which such director shall be liable under Section 174 of Title 8
of the DGCL or any amendment thereto or successor provision thereto, or (iv) for
any transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this Section 6.1 nor the adoption of
any provision of the Certificate of Incorporation inconsistent with this Section
6.1 shall eliminate or reduce the effect of this Section 6.1 in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Section 5.1, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
6.2 Corporation's Power to Indemnify. The Corporation shall
have the power to indemnify any person who was or is a party or is threatened to
be made a party to, or testifies in, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, by
6
<PAGE>
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, against
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 to the full extent permitted by law, and the
Corporation may adopt By-laws or enter into agreements with any such person for
the purpose of providing for such indemnification.
IN WITNESS WHEREOF, the undersigned has duly executed this
Restated Certificate of Incorporation on this 19th day of February, 1998.
By: /s/ Jeffrey S. Hay
-------------------------
Jeffrey S. Hay
Executive Vice President
of North Atlantic Trading
Company, Inc.
7
NYFS10...:\80\64980\0003\1948\CRT2088U.31C
EXHIBIT 3.1(e)(i)
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL FLAVORS AND TECHNOLOGIES, INC.
THE UNDERSIGNED, being a natural person for the purpose of
organizing a corporation under the General Corporation Law of the State of
Delaware, hereby certifies that:
FIRST: The name of the Corporation is
International Flavors and Technologies, Inc. (the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of the
Corporation in the State of Delaware at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 100, all of which shares shall be
Common Stock having a par value of $0.01.
FIFTH: The name and mailing address of the incorporator are
David E. Zeltner, c/o Weil, Gotshal & Manges, 767 Fifth Avenue, New York,
New York 10153.
SIXTH: In furtherance and not in limitation of the powers
conferred by law, subject to any limitations contained elsewhere in these
articles of incorporation, by-laws of the Corporation may be adopted, amended or
repealed by a majority of the board of directors of the Corporation, but any
by-laws adopted by the board of directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
<PAGE>
SEVENTH: (a) A director of the Corporation shall not be
personally liable either to the Corporation or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, or (ii)
for acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the
General Corporation Law of the State of Delaware or any amendment thereto or
successor provision thereto, or (iv) for any transaction from which the director
shall have derived an improper personal benefit. Neither amendment nor repeal of
this paragraph (a) nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this paragraph (a) shall eliminate or reduce the
effect of this paragraph (a) in respect of any matter occurring, or any cause of
action, suit or claim that, but for this paragraph (a) of this Article, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
(b) The Corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to, or
testifies in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, by reason of
the fact that such person is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, against 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 to the full extent permitted by law, and the Corporation may
adopt by-laws or enter into agreements with any such person for the purpose of
providing for such indemnification.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 7th day of August, 1997, and affirms and
acknowledges, under penalty of perjury, that the statements made herein are true
and correct.
/s/ David E. Zeltner
---------------------------
David E. Zeltner
Sole Incorporator
NYFS10...:\80\64980\0003\5521\CRT7297N.46A
EXHIBIT 3.1(e)(ii)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL FLAVORS AND TECHNOLOGIES, INC.
THE UNDERSIGNED, being Executive Vice President of
International Flavors and Technologies, Inc. (the "Corporation"), hereby
certifies that:
FIRST: The name of the Corporation is International Flavors
and Technologies, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on August 7,
1997.
THIRD: Article First of said Certificate of
Incorporation is hereby deleted in its entirety and replaced with the following:
"FIRST: The name of the Corporation is
International Flavors and Technology, Inc. (the
"Corporation")."
FOURTH: The foregoing amendment herein certified has been duly
adopted in accordance with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Jeffrey S. Hay, Executive Vice President,
has duly executed this Certificate of Amendment this 10th day of February, 1998
and affirms, under the penalties of perjury, that the statements herein are
true.
/s/ Jeffrey S. Hay
--------------------------
Jeffrey S. Hay
Executive Vice President
NYFS10...:\80\64980\0003\1948\CRT2028T.570
EXHIBIT 3.2(e)
BY-LAWS
OF
INTERNATIONAL FLAVORS AND TECHNOLOGIES, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year at such date and
time, within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. Special Meetings. Special meetings of stockholders
for the transaction of such business as may properly come before the meeting may
be called by order of the Board of Directors or by stockholders holding together
at least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.
SECTION 3. Notice of Meetings. Written notice of all meetings
of the stockholders shall be mailed or delivered to each stockholder not less
than 10 nor more than 60 days prior to the meeting. Notice of any special
meeting shall state in general terms the purpose or purposes for which the
meeting is to be held.
SECTION 4. Stockholder Lists. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least 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,
<PAGE>
for any purpose germane to the meeting, 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
during the whole time thereof, and may be inspected by any stockholder who is
present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. Quorum. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. Organization. Meetings of stockholders shall be
presided over by the Chairman, if any, or if none or in the Chairman's absence
the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a Vice- President,
or, if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting shall appoint any person present to act as secretary of the meeting.
2
<PAGE>
SECTION 7. Voting; Proxies; Required Vote. (a) At each meeting
of stockholders, every stockholder shall be entitled to vote in person or by
proxy appointed by instrument in writing, subscribed by such stockholder or by
such stockholder's duly authorized attorney-in-fact (but no such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period), and, unless the Certificate of Incorporation provides
otherwise, shall have one vote for each share of stock entitled to vote
registered in the name of such stockholder on the books of the Corporation on
the applicable record date fixed pursuant to these By-laws. At all elections of
directors the voting may but need not be by ballot and a plurality of the votes
cast there shall elect. Except as otherwise required by law or the Certificate
of Incorporation, any other action shall be authorized by a majority of the
votes cast.
(b) Any action required or permitted to be taken at any
meeting of stockholders may, except as otherwise required by law or the
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of record of the issued and outstanding capital
stock of the Corporation having a majority 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, and the writing or writings are filed with the
permanent records of the Corporation. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
SECTION 8. Inspectors. The Board of Directors, in advance of
any meeting, may, but need not, appoint one or more inspectors of election to
act at the meeting or any adjournment thereof. If an inspector or inspectors are
not so appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if
3
<PAGE>
any, shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence of
a quorum, and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspector or inspectors, if any, shall make a
report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
ARTICLE II
Board of Directors
------------------
SECTION 1. General Powers. The business, property and
affairs of the Corporation shall be managed by, or under the direction of, the
Board of Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be 1, or
such larger number as may be fixed from time to time by action of the
stockholders or Board of Directors, one of whom may be selected by the Board of
Directors to be its Chairman. The use of the phrase "entire Board" herein refers
to the total number of directors which the Corporation would have if there were
no vacancies.
(b) Directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal.
(c) 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 or a stated salary as
director. No
4
<PAGE>
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. Quorum and Manner of Voting. Except as otherwise
provided by law, a majority of the entire Board shall constitute a quorum. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting from time to time to another time and place without notice.
The vote of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of
Directors may be held at any place within or without the State of Delaware, as
may from time to time be fixed by resolution of the Board of Directors, or as
may be specified in the notice of meeting.
SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
SECTION 7. Special Meetings. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board,
President or by a majority of the directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and
time and the purpose or purposes of each special meeting of the Board of
Directors shall be given to each director by mailing the same at least two days
before the special meeting, or by telegraphing or telephoning the same or by
delivering the same personally not later than the day before the day of the
meeting.
5
<PAGE>
SECTION 9. Organization. At all meetings of the Board of
Directors, the Chairman, if any, or if none or in the Chairman's absence or
inability to act the President, or in the President's absence or inability to
act any Vice- President who is a member of the Board of Directors, or in such
Vice-President's absence or inability to act a chairman chosen by the directors,
shall preside. The Secretary of the Corporation shall act as secretary at all
meetings of the Board of Directors when present, and, in the Secretary's
absence, the presiding officer may appoint any person to act as secretary.
SECTION 10. Resignation. Any director may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any or all of the directors may be removed, with or without
cause, by the holders of a majority of the shares of stock outstanding and
entitled to vote for the election of directors.
SECTION 11. Vacancies. Unless otherwise provided in these
By-laws, vacancies on the Board of Directors, whether caused by resignation,
death, disqualification, removal, an increase in the authorized number of
directors or otherwise, may be filled by the affirmative vote of a majority of
the remaining directors, although less than a quorum, or by a sole remaining
director, or at a special meeting of the stockholders, by the holders of shares
entitled to vote for the election of directors.
SECTION 12. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
6
<PAGE>
ARTICLE III
Committees
----------
SECTION 1. Appointment. From time to time the Board of
Directors by a resolution adopted by a majority of the entire Board may appoint
any committee or committees for any purpose or purposes, to the extent lawful,
which shall have powers as shall be determined and specified by the Board of
Directors in the resolution of appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each
committee shall fix its own rules of procedure, and shall meet where and as
provided by such rules or by resolution of the Board of Directors. Except as
otherwise provided by law, the presence of a majority of the then appointed
members of a committee shall constitute a quorum for the transaction of business
by that committee, and in every case where a quorum is present the affirmative
vote of a majority of the members of the committee present shall be the act of
the committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. Term; Termination. In the event any person shall
cease to be a director of the Corporation, such person shall simultaneously
therewith cease to be a member of any committee appointed by the Board of
Directors.
ARTICLE IV
Officers
--------
SECTION 1. Election and Qualifications. The Board of Directors
shall elect the officers of the Corporation, which shall include a Chairman of
the Board, a President and a Secretary, and may include, by election or
appointment, one or more Vice-Presidents (any one or more of whom may be given
an additional designation of rank or function), a Treasurer and such Assistant
Secretaries, such
7
<PAGE>
Assistant Treasurers and such other officers as the Board may from time to time
deem proper. Each officer shall have such powers and duties as may be prescribed
by these By-laws and as may be assigned by the Board of Directors or the
Chairman of the Board. Any two or more offices may be held by the same person
except the offices of Chairman of the Board, President and Secretary.
SECTION 2. Term of Office and Remuneration. The
term of office of all officers shall be one year and until their respective
successors have been elected and qualified, but any officer may be removed from
office, either with or without cause, at any time by the Board of Directors. Any
vacancy in any office arising from any cause may be filled for the unexpired
portion of the term by the Board of Directors. The remuneration of all officers
of the Corporation may be fixed by the Board of Directors or in such manner as
the Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any
time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the President or Secretary, unless otherwise
specified in the resignation. Any officer shall be subject to removal, with or
without cause, at any time by vote of a majority of the entire Board.
SECTION 4. Chairman of the Board and Chief Executive Officer.
The Chairman of the Board of Directors, if there be one, shall be the chief
executive officer of the Corporation and shall have such duties as customarily
pertain to that office. The Chairman of the Board shall have general management
and supervision of the property, business and affairs of the Corporation and
over its other officers; may appoint and remove assistant officers and other
agents and employees; may execute and deliver in the name of the Corporation
powers of attorney, contracts, bonds and other obligations and instruments;
shall preside at all meetings of the Board of Directors; and shall have such
other powers and duties as may from time to time be assigned by the Board of
Directors.
SECTION 5. President and Chief Operating Officer. The
President shall be the chief operating officer of the Corporation, and shall
have such authority as from time to time may be assigned by the Board of
Directors or the Chairman of the Board.
8
<PAGE>
SECTION 6. Vice-President. A Vice-President may execute and
deliver in the name of the Corporation contracts and other obligations and
instruments pertaining to the regular course of the duties of said office, and
shall have such other authority as from time to time may be assigned by the
Board of Directors, the Chairman of the Board or the President.
SECTION 7. Treasurer. The Treasurer shall in general have
all duties incident to the position of Treasurer and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 8. Secretary. The Secretary shall in general have
all the duties incident to the office of Secretary and such other duties as may
be assigned by the Board of Directors or the President.
SECTION 9. Assistant Officers. Any assistant officer shall
have such powers and duties of the officer such assistant officer assists as
such officer or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
-----------------
SECTION 1. Location. The books and records of the Corporation
may be kept at such place or places within or outside the State of Delaware as
the Board of Directors or the respective officers in charge thereof may from
time to time determine. The record books containing the names and addresses of
all stockholders, the number and class of shares of stock held by each and the
dates when they respectively became the owners of record thereof shall be kept
by the Secretary as prescribed in the By-laws and by such officer or agent as
shall be designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and
all other corporate notices may be delivered personally or mailed to each
stockholder at the stock- holder's address as it appears on the records of the
Corporation.
SECTION 3. Fixing Date for Determination of
Stockholders of Record. (a) In order that the Corporation
9
<PAGE>
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. 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.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which date shall not be
more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by this chapter, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the
10
<PAGE>
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall be not more than 60 days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
-------------------------------
SECTION 1. Certificates; Signatures. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors of the Corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertifi- cated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate, signed by or
in the name of the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or Vice-President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Any and all signatures on any such certificate may be facsimiles. 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 were such officer, transfer
agent or registrar at the date of issue. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of
11
<PAGE>
certificates for a like number of shares, properly endorsed, and the payment of
all taxes due thereon.
SECTION 3. Fractional Shares. The Corporation may, but shall
not be required to, issue certificates for fractions of a share where necessary
to effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in place of any certificate,
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Board of Directors may require the owner of any lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
ARTICLE VII
Dividends
---------
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend,
12
<PAGE>
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, thinks 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 such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE VIII
Ratification
------------
Any transaction, questioned in any law suit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or stockholder, non-disclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the stockholders, and
if so ratified shall have the same force and effect as if the questioned
transaction had been originally duly authorized. Such ratification shall be
binding upon the Corporation and its stockholders and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.
ARTICLE IX
Corporate Seal
--------------
The corporate seal shall have inscribed thereon the name of
the Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
13
<PAGE>
ARTICLE X
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed, and shall
be subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE XI
Waiver of Notice
----------------
Whenever notice is required to be given by these By-laws or by
the Certificate of Incorporation or by law, a written waiver thereof, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
-------------------------------------
SECTION 1. Bank Accounts and Drafts. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary financial
officer or any person designated by said primary financial officer, whether or
not an employee of the Corporation, may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. Proxies; Powers of Attorney; Other
Instruments. The Chairman, the President or any other
14
<PAGE>
person designated by either of them shall have the power and authority to
execute and deliver proxies, powers of attorney and other instruments on behalf
of the Corporation in connection with the rights and powers incident to the
ownership of stock by the Corporation. The Chairman, the President or any other
person authorized by proxy or power of attorney executed and delivered by either
of them on behalf of the Corporation may attend and vote at any meeting of
stockholders of any company in which the Corporation may hold stock, and may
exercise on behalf of the Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, or otherwise as
specified in the proxy or power of attorney so authorizing any such person. The
Board of Directors, from time to time, may confer like powers upon any other
person.
SECTION 4. Financial Reports. The Board of Directors may
appoint the primary financial officer or other fiscal officer or any other
officer to cause to be prepared and furnished to stockholders entitled thereto
any special financial notice and/or financial statement, as the case may be,
which may be required by any provision of law.
ARTICLE XIII
Amendments
----------
The Board of Directors shall have power to adopt, amend or
repeal By-laws. By-laws adopted by the Board of Directors may be repealed or
changed, and new By-laws made, by the stockholders, and the stockholders may
prescribe that any By-law made by them shall not be altered, amended or repealed
by the Board of Directors.
15
NYFS10...:\80\64980\0003\5521\AGR7297M.26C
EXHIBIT 4.3
FIRST SUPPLEMENTAL INDENTURE
----------------------------
FIRST SUPPLEMENTAL INDENTURE, dated as of February 26, 1998,
by and among NORTH ATLANTIC TRADING COMPANY, INC., a Delaware corporation f/k/a
North Atlantic Trading Acquisition Company, Inc. (the "Company") as issuer,
NATIONAL TOBACCO COMPANY, L.P., a Delaware limited partnership ("National
Tobacco"), NORTH ATLANTIC OPERATING COMPANY, INC., a Delaware corporation
("NAOC"), NATIONAL TOBACCO FINANCE CORPORATION, a Delaware corporation (together
with National Tobacco and NAOC, the "Initial Guarantors"), INTERNATIONAL FLAVORS
AND TECHNOLOGY, INC., a Delaware corporation, as additional guarantor (the
"Additional Guarantor"), and UNITED STATES TRUST COMPANY OF NEW YORK, a banking
corporation organized under the laws of the State of New York, as trustee (the
"Trustee"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Indenture referred to
below.
W I T N E S S E T H
-------------------
WHEREAS, the Company, the Initial Guarantors and the Trustee
are parties to an Indenture, dated as of June 25, 1997 (the "Indenture");
WHEREAS, Section 9.01(a) of the Indenture permits the Company
and the Trustee to amend and supplement the Indenture or the Securities without
the consent of any Securityholder to cure an inconsistency or to add guarantees
with respect to the Securities;
WHEREAS, the Initial Guarantors and the Additional Guarantor
desire to amend the Indenture pursuant to Section 9.01(a) to cure an
inconsistency therein;
WHEREAS, the Additional Guarantor has become a direct or
indirect Subsidiary of the Company;
WHEREAS, the Additional Guarantor will receive certain
benefits through becoming, and wishes to become, a Guarantor for all purposes
under the Indenture and to unconditionally guarantee the obligations of the
Company under the Securities and the Indenture on the terms set forth under
Article Ten of the Indenture;
<PAGE>
WHEREAS, the Company, the Initial Guarantors and the
Additional Guarantor have requested the Trustee to execute this First
Supplemental Indenture in connection with the foregoing.
NOW, THEREFORE, it is agreed:
1. Section 3.07(b) of the Indenture and Sections 5(b) of Exhibits A and
B to the Indenture are hereby amended by deleting the first sentence thereof and
replacing it in its entirety with the following:
At any time, or from time to time, on or prior to June 15,
2000, the Company may, at its option, redeem up to 35% of the
Securities with the Net Cash Proceeds of one or more Equity
Offerings by the Company so long as there is a Public Market
at the time of such redemption at a redemption price equal to
111.0% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of redemption;
provided, however, that after any such redemption the
aggregate principal amount of the Securities outstanding must
equal at least $100 million.
2. Exhibits A and B to the Indenture are hereby further amended by
adding at the end of the Form of Notation on the Security relating to the
Subsidiary Guarantee the name of the Additional Guarantor and a signature line
therefor.
3. The Additional Guarantor hereby jointly and severally with the
Initial Guarantors irrevocably and unconditionally guarantees, as a primary
obligor and not a surety, to each Securityholder of a Security previously, now
or hereafter authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability of
the Indenture, the Securities or the Obligations of the Company thereunder or
under the Indenture, (a) the due and punctual payment of the principal, premium,
if any, and interest on the Securities, whether at Stated Maturity, Interest
Payment Date or otherwise, or by acceleration, call for redemption or otherwise,
(b) the due and punctual payment of interest (including post-petition interest
in any proceeding under any Bankruptcy Law whether or not an allowed claim in
such proceeding) on the overdue principal, premium, if any, and interest, if
any, on the Securities, to the extent lawful, (c) all other monetary Obligations
payable by the Company under the Indenture (including under Section 7.07 to the
Indenture) and the Securities, when and as the same shall become due and
payable, whether by acceleration thereof, call for redemption or otherwise
(including
2
<PAGE>
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code), all in accordance with the terms of any
such Security and the Indenture (including the limitations set forth in Section
10.04 thereof) and (d) in case of any extension of time of payment or renewal of
any Securities or any of such other Obligations, that the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at Stated Maturity, Interest Payment Date or otherwise, or
by acceleration, call for redemption or otherwise.
The Additional Guarantor hereby acknowledges and agrees that the
Additional Guarantor is subject to the provisions (including, without
limitation, the representations and warranties in Article 10 and Article 11) of
the Indenture as a Guarantor.
4. Without limiting the immediately preceding paragraph 3, each Initial
Guarantor hereby agrees that, for all purposes of the Indenture, each Initial
Guarantor, by its execution of this First Supplemental Indenture, shall remain a
Guarantor under the Indenture, in accordance with the terms and conditions set
forth in the Indenture and agrees to be bound by such terms and conditions.
5. This First Supplemental Indenture is limited as specified and shall
not constitute a modification, acceptance or waiver of any other provision of
the Indenture.
6. This First Supplemental Indenture may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS FIRST SUPPLEMENTAL INDENTURE.
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this First
Supplemental Indenture to be duly executed and delivered as of the date first
above written.
NORTH ATLANTIC TRADING
COMPANY, INC. f/k/a NORTH
ATLANTIC TRADING ACQUISITION
COMPANY, INC.
By: /s/ Jeffrey S. Hay
------------------------
Jeffrey S. Hay
Executive Vice President
NATIONAL TOBACCO COMPANY,
L.P.
By: /s/ Jeffrey S. Hay
------------------------
Jeffrey S. Hay
Executive Vice President
NORTH ATLANTIC OPERATING
COMPANY, INC.
By: /s/ Jeffrey S. Hay
------------------------
Jeffrey S. Hay
Executive Vice President
NATIONAL TOBACCO FINANCE
CORPORATION
By: /s/ Jeffrey S. Hay
------------------------
Jeffrey S. Hay
Executive Vice President
4
<PAGE>
INTERNATIONAL FLAVORS AND
TECHNOLOGY, INC.
By: /s/ Jeffrey S. Hay
-----------------------------
Jeffrey S. Hay
Executive Vice President
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ Christine C. Collins
----------------------------
Christine C. Collins
Assistant Vice President
5
NYFS10...:\80\64980\0003\1948\AGRN107P.13F
EXHIBIT 9.2
VOTING TRUST AGREEMENT
----------------------
THIS VOTING TRUST AGREEMENT (this "Agreement") is made and entered into
as of this 17th day of December, 1997, by and among THOMAS F. HELMS, JR.
("Helms"), DAVID I. BRUNSON ("Brunson") and JEFFREY S. HAY ("Hay"), as voting
trustees (the "Voting Trustees" or, individually, a "Voting Trustee"), and HELMS
MANAGEMENT CORP., a Kentucky corporation and a stockholder (the "Stockholder")
of NORTH ATLANTIC TRADING COMPANY, INC., a Delaware corporation (the "Company").
STATEMENT OF PURPOSE
WHEREAS, the Company has issued 276,300 shares of its Voting Common
Stock, par value $.01 per share (the "Common Stock"), to the Stockholder;
WHEREAS, the Stockholder deems it to be in the best interests of the
Company to secure continuity and stability of policy and management, to promote
the continuous and uninterrupted development of business policies and to vest
voting power of the shares of Common Stock in the Voting Trustees as provided
for herein;
WHEREAS, the Stockholder and each of the Voting Trustees desires to
enter into a voting trust pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE 1
DEFINITIONS
In addition to terms defined elsewhere herein, as used herein, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Agreement" means this Voting Trust Agreement, as amended, supplemented
or otherwise modified from time to time.
"Brunson" shall have the meaning set forth in the preamble hereof.
"Certificate Holder" shall mean the holder of a Voting Trust
Certificate.
"Common Stock" shall have the meaning set forth in the Statement of
Purpose hereof.
"Company" shall mean North Atlantic Trading Company, Inc., a Delaware
corporation, its successors, any surviving corporations into which it may be
merged, or any corporations resulting from its consolidation with any other
corporations and the successors of any such surviving or consolidated
corporations.
"Credit Facilities" shall collectively mean (i) the Credit Agreement
dated as of June 23, 1997 by and among the Company, certain guarantors, Gleacher
Natwest, Inc., National Westminster Bank plc and the financial institutions
named therein; (ii) the Indenture dated as of
<PAGE>
June 25, 1997 by and among the Company, certain guarantors and United States
Trust Company of New York and (iii) the Certificate of Designation relating to
the Company's 12% Senior Payment-In-Kind Preferred Stock.
"Hay" shall have the meaning set forth in the preamble hereof.
"Helms" shall have the meaning set forth in the preamble hereof.
"Securities" shall mean the Shares of the Company and all other forms
of cash, stocks, bonds or other property, if any, of the Stockholder held by the
Voting Trustees under this Agreement.
"Stockholders' Agreement" shall mean that certain Exchange and
Stockholders' Agreement dated as of June 25, 1997 by and among the Company and
the stockholders named therein, and any amendments and supplements thereto.
"Shares" or "Shares of the Company" shall mean the 276,300 shares of
Common Stock of the Company and any other shares of the Company owned by the
Stockholder having the right to vote for the election of directors of the
Company.
"Stockholder" shall have the meaning set forth in the preamble hereof.
"Voting Trust Certificate" shall mean a voting trust certificate issued
pursuant to the terms and provisions of this Agreement, as from time to time
amended or supplemented.
"Voting Trustee" or "Voting Trustees" shall have the respective
meanings set forth in the preamble hereof.
ARTICLE 2
DEPOSIT OF SHARES
Concurrently with the Stockholder's execution hereof, the Stockholder
shall deliver or cause to be delivered to the Voting Trustees the stock
certificate(s) representing all of its Shares of the Company, duly assigned to
the Voting Trustees. The Stockholder shall deliver to the Voting Trustees any
additional stock certificates representing Shares of the Company acquired by the
Stockholder at any time after its execution hereof, and shall duly assign said
certificates to the Voting Trustees. The Voting Trustees shall cause all such
Shares to be transferred on the books of the Company into the name of the Voting
Trustees, as Voting Trustees hereunder, and the Voting Trustees shall issue to
the Stockholder a Voting Trust Certificate for the number of Shares transferred
by the Stockholder to the Voting Trustees.
ARTICLE 3
VOTING TRUST CERTIFICATES
3.1 The Voting Trust Certificates to be issued by the Voting Trustees
shall be in the form attached hereto as Exhibit A.
3.2 The Voting Trust Certificates issued by the Voting Trustees may be
transferred on the books of the Voting Trustees upon surrender of such
certificates, properly endorsed by
- 2 -
<PAGE>
the record owner thereof in person, or by its attorney duly authorized, in
accordance with the terms of the Stockholders' Agreement and rules established
by the Voting Trustees. Until so transferred, the Voting Trustees may treat the
record holder of Voting Trust Certificates as the owner thereof for all purposes
whatsoever. The Voting Trustees shall not be required to deliver any Securities
held hereunder without the surrender of the Voting Trust Certificates
representing such Securities. The transfer books for Voting Trust Certificates
may be closed by the Voting Trustees at any time prior to the payment or
distribution of dividends, or for any other purpose, or the Voting Trustees may
fix a record date in lieu of closing the transfer books.
3.3 Subject to Article 4 hereof, no voting right or power with respect
to the Shares of the Company or other Securities held in trust hereunder shall
pass to the Certificate Holder by or under this Agreement or any other
agreement, whether by implication or otherwise, while such Shares of the Company
or other such Securities are held in trust hereunder.
ARTICLE 4
POWERS OF THE VOTING TRUSTEES
4.1 Until the termination of this Agreement as provided in Article 7
and in accordance with Section 4.6 hereof, the Voting Trustees are hereby
irrevocably authorized and empowered to exercise, in their sole discretion, the
following powers with respect to the Shares of the Company or any other
Securities held by them under this Agreement:
(a) To vote or fail to vote for the election of directors;
(b) Acting upon the written direction of the Certificate
Holder, to vote, or fail to vote, for any other act or purpose any and
all the Securities held by them hereunder having voting rights or to
consent, or fail to consent, on behalf of said Securities to any act or
proposal, including, without limitation, the following:
(i) the increase, reduction or change of any Shares
or the issuance of any different Shares or other Securities;
(ii) the waiver of preemptive rights, if any, of the
Stockholders or Voting Trust Certificate holders to subscribe
for additional Shares or Securities;
(iii) the classification or reclassification of
Shares of the Company or other Securities into any preferred,
common or other Shares, with or without par value, or into
other Securities or partly into Shares and partly into other
Securities;
(iv) the modification, elimination or waiver of the
rights, preferences, privileges, priorities or par or stated
value of any class of Shares of the Company or other
Securities;
(v) the amendment of the Certificate of Incorporation
or Bylaws of the Company or any other corporation, including
but not limited to an increase or decrease of authorized
Shares or of stated capital;
- 3 -
<PAGE>
(vi) the sale, mortgage, hypothecation or lease of
all or any part of the assets of the Company or any other
corporation;
(vii) the authorization of indebtedness, secured or
unsecured;
(viii) the authorization of the merger or
consolidation of the Company or any other corporation into or
with other corporations, or of the dissolution, reorganization
or recapitalization of the Company or any other corporation;
and
(ix) the authorization, ratification or approval of
any other corporate act or other act (or nonaction) of any
nature whatsoever as fully as if the Voting Trustees were the
absolute owners of the Securities held hereunder.
(c) To receive dividends or distributions on all Securities
held hereunder.
(d) Acting upon the written direction of the Certificate
Holder, to exchange Securities held hereunder, in whole or in part, for
other Securities, upon such terms as the Voting Trustees in their sole
discretion may deem advisable, including the surrender and exchange of
Securities held hereunder, in a merger, consolidation, reorganization
or recapitalization, or the sale or exchange of all or part of the
assets of the Company for Securities of another corporation, firm,
person, partnership, trust, association or other entity. All Securities
received in any such exchange shall be held by the Voting Trustees in
lieu of the Securities theretofore held hereunder.
(e) Acting upon the written direction of the Certificate
Holder, to sell all or any part of the Shares of the Company or other
Securities held hereunder for such consideration and upon such terms as
the Voting Trustees in their sole discretion may deem advisable.
4.2 The Voting Trustees shall have power to appoint such agents from
time to time with such powers, duties and functions as the Voting Trustees may
deem advisable. All such appointments shall be made by instrument in writing and
shall specify the authority and duties of the agent, and all such appointments
may be revoked by the Voting Trustees at any time by instrument in writing. Such
instruments shall become effective upon filing an executed copy thereof with the
secretary of the Company, and any agent so appointed may resign by filing his
written notice of resignation with the Voting Trustees and a copy thereof with
the secretary of the Company at least 30 days prior to the date of resignation
specified therein.
4.3 The Voting Trustees are authorized and empowered to participate in,
to intervene in, to become a party to or to defend any actions of any character,
suits or legal proceedings relating to or affecting this Agreement, Securities
held hereunder or the rights of the parties hereto.
4.4 (a) Each of the Voting Trustees may at any time resign by
delivering his resignation in writing to the Certificate Holder and the
other Voting Trustees.
- 4 -
<PAGE>
(b) The Certificate Holder shall have the right to remove at
any time any of the Voting Trustees and replace any of them with a
successor Voting Trustee by a written instrument signed by the
Certificate Holder delivered to the Voting Trustees and the Company;
provided, however, that so long as the Company is subject to the
provisions of any of the outstanding Credit Facilities, any Voting
Trustee must be a member of senior management of the Company.
4.5 Each of the successor Voting Trustees appointed in accordance with
the Section 4.4 hereof shall, from the time of such appointment, be deemed one
of the Voting Trustees hereunder, and shall have all the title, rights and
powers of a Voting Trustee hereunder, and all acts and instruments shall be done
or executed which shall be necessary or reasonably requested for the purpose of
effecting such succession and of making each of the successor Voting Trustees
one of the owners of record of the Shares and other Securities held pursuant to
this Agreement.
4.6 For purposes of this Article 4, all instruments, notices or
directions to be provided by the Certificate Holder to the Voting Trustee shall
be in writing and effective at the date and time specified therein. Copies of
all instructions, notices and directions shall also be concurrently delivered to
the secretary of the Company.
4.7 As Voting Trustees hereunder, Helms, Hay and Brunson shall be
entitled to three votes, one vote and one vote, respectively. Any successor
Voting Trustee appointed to take the place of Helms, Hay or Brunson shall be
entitled to only one vote. Except as expressly authorized in this Agreement, all
actions taken by the Voting Trustees shall require the approval or consent of a
majority of the votes of the Voting Trustees.
ARTICLE 5
LIABILITY AND INDEMNIFICATION
5.1 The Voting Trustees shall not be responsible as a trustee, a
stockholder of the Company or otherwise by reason of any matter or thing done or
omitted to be done by him, his agents or attorneys or by the management of the
Company, except for his own willful misconduct. Each of the Voting Trustees
shall under no circumstances incur any liability whatsoever as a result of any
action under this trust agreement authorized, taken or permitted to be taken by
such Voting Trustee in good faith (a) upon advice of counsel or (b) with consent
of the holders of Voting Trust Certificates representing a majority of the
Shares of the Company then held hereunder.
5.2 No agent appointed by the Voting Trustees shall be liable or
responsible for any action taken or permitted to be taken upon and in accordance
with the written instructions or with the written approval of the Voting
Trustees.
ARTICLE 6
DIVIDENDS AND DISTRIBUTIONS
6.1 Within a reasonable time after receipt thereof, the Voting Trustees
shall pay over to the holder of each Voting Trust Certificate the cash
dividends, if any, collected by the Voting Trustees upon the Shares of the
Company or other Securities then held hereunder represented by such Voting Trust
Certificate.
- 5 -
<PAGE>
6.2 In the event that any dividend or other distribution paid in Shares
of the Company shall be received by the Voting Trustees, each holder of a Voting
Trust Certificate shall be entitled to receive an additional Voting Trust
Certificate representing such portion of the Shares so received by the Voting
Trustees as the Shares of the Company represented by his Voting Trust
Certificate or certificates bear to the total number of Shares of the Company in
the voting trust prior to the receipt of such distribution. In the event any
dividend or other distribution other than cash or Shares of the Company is
received by the Voting Trustees, the Voting Trustees shall promptly distribute
the same.
ARTICLE 7
TERMINATION
7.1 Unless terminated earlier as provided in this Article 7, this
Agreement and the irrevocable voting trust hereby created shall terminate upon
the expiration of 15 years following the date of this Agreement.
7.2 The Certificate Holder may (a) terminate this Agreement and the
voting trust hereby created or (b) direct the release from trust of a portion of
the Shares, in either case at any time by giving written notice of the
termination or release to the Voting Trustees; provided, however, that the
Certificate Holder may not terminate this Agreement or direct the release from
trust of any Shares if such termination or release causes or results in a
default under any of the outstanding Credit Facilities.
7.3 Upon termination of this Agreement, the Voting Trustees shall call
upon and require the Certificate Holder to surrender said certificates, and upon
presentation of said certificates, the Certificate Holder shall be entitled to
receive, in exchange therefor, the Securities then held hereunder represented by
said Voting Trust Certificates.
ARTICLE 8
MISCELLANEOUS
8.1 Amendment. This Agreement may be amended in any and all respects by
an agreement in writing signed by all of the Voting Trustees and the Certificate
Holder.
8.2 Agreement Available at Registered Office. A copy of this Agreement
shall be filed at The Corporation Trust Company in Wilmington, Delaware, which
is the registered office of the Company in Delaware, and shall be open to the
inspection of the Certificate Holder or any of the Voting Trustees of the
Company during business hours.
8.3 Consent or Approval. Whenever under the terms of this Agreement the
consent or approval of the Certificate Holder is required or shall be desired to
be obtained, the same may be evidenced by instruments of approval or consent
signed by the Certificate Holder or its attorneys or agents.
8.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
- 6 -
<PAGE>
8.5 Severability. In the event any provision of this Agreement is held
to be illegal, invalid or unenforceable to any extent, the legality, validity
and enforceability of the remainder of this Agreement shall not be affected
thereby and shall remain in full force and effect and shall be enforced to the
greatest extent permitted by law.
8.6 Binding Agreement. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns.
8.7 Headings. The headings of sections of this Agreement are for
convenience only and shall not be considered in construing or interpreting any
of the terms or provisions hereof.
8.8 Word Meanings. The words such as "herein", "hereinafter", "hereof",
and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and vice versa, unless the context
otherwise requires.
8.9 Entire Agreement. This Agreement, as effective on the date hereof,
contains the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior writings or agreements with
respect to such subject matter.
8.10 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. THIS AGREEMENT
SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE COURTS OF NEW YORK
COUNTY, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK, AND AGREE THAT THE PARTIES HERETO MAY, AT THEIR OPTION, ENFORCE
THEIR RESPECTIVE RIGHTS HEREUNDER IN SUCH COURTS.
8.11 Trust. Each of the Voting Trustees hereby accepts the trust herein
created.
[Remainder of page intentionally left blank.]
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto signed this
Agreement as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
TRUSTEES:
By: /s/ Thomas F. Helms, Jr.
---------------------------
Name: Thomas F. Helms, Jr.
By: /s/ David I. Brunson
--------------------------
Name: David I. Brunson
By: /s/ Jeffrey S. Hay
--------------------------
Name: Jeffrey S. Hay
STOCKHOLDER:
HELMS MANAGEMENT CORP.,
a Kentucky corporation
By: /s/ Thomas F. Helms, Jr.
-------------------------
Name: Thomas F. Helms, Jr.
Title: President
- 8 -
<PAGE>
EXHIBIT A
---------
NO. 1
NORTH ATLANTIC TRADING COMPANY, INC.
(A DELAWARE CORPORATION)
VOTING TRUST CERTIFICATE
This is to certify that HELMS MANAGEMENT CORP., a Kentucky corporation
(hereafter referred to as the "Owner" or "Record Holder" of this certificate)
has deposited with the undersigned as Voting Trustees under the Voting Trust
Agreement (as defined below) 276,300 shares of the Voting Common Stock, par
value $.01 per share (the "Shares"), of North Atlantic Trading Company, Inc., a
Delaware corporation (the "Company"), and that the Owner of this certificate, or
his/her assigns, is/are entitled to all the benefits and interests specified in
the Voting Trust Agreement arising from the deposit of the Shares, all as
provided in and subject to the terms of the Voting Trust Agreement, to which
reference is hereby made for a complete statement thereof.
Until the termination of the voting trust as provided in the Voting
Trust Agreement and delivery or deposit of the Securities (as defined in the
Voting Trust Agreement), the Owner of this certificate or its assigns is
entitled to receive its pro rata part of any cash dividends received by the
Voting Trustees upon the Shares represented by this certificate, subject to and
as provided in the Voting Trust Agreement; and the Voting Trustees shall possess
and shall be entitled to exercise the right to vote thereon and to execute
consents with respect thereto for every purpose, and with all those rights and
powers which are more specifically set out in the Voting Trust Agreement, it
being expressly stipulated that no voting right passes to the Owner of this
certificate or his/her assigns by or under Voting Trust Agreement or this
certificate or by or under any agreement, express or implied.
This certificate is issued under and pursuant to, and the rights of the
Owner of this certificate and his/her assigns are subject to and limited by, the
terms and conditions of a Voting Trust Agreement dated as of December , 1997
(the "Voting Trust Agreement"), a copy of which is filed with the Company.
Receipt of a copy of the Voting Trust Agreement is hereby acknowledged by the
Owner of this certificate, and the Owner of this certificate and its assigns
hereby assent to the terms and conditions thereof. This certificate is
transferable on the books of the undersigned Voting Trustees by the record
holder hereof in person, or by attorney or agent, duly authorized according to
the rules established for that purpose by the Voting Trustees, upon surrender of
this certificate properly endorsed, and until so transferred, the Voting
Trustees may treat the record holder as Owner hereof for all purposes
whatsoever, but shall not be required to deliver any Securities hereunder
without the surrender hereof.
A-1
<PAGE>
IN WITNESS WHEREOF, the undersigned Voting Trustees have executed this
certificate this day ___ of December, 1997.
VOTING TRUSTEES:
By: --------------------------
Name: Thomas F. Helms, Jr.
By: --------------------------
Name: David I. Brunson
By: --------------------------
Name: Jeffrey S. Hay
A-1
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ___________________________________________________
hereby sells, assigns and transfers unto ________________________ all its rights
to the shares of common stock of North Atlantic Trading Company, Inc. (the
"Company") represented by this Voting Trust Certificate which shares are held in
the voting trust under the name of the Voting Trustees pursuant to the Voting
Trust Agreement dated as of December , 1997 (a copy of which is filed with the
Company), and does hereby irrevocably constitute and appoint such Voting
Trustees to transfer the same on the records of the voting trust, with full
power of substitution in the premises.
Date _______________ , 199
Signature _____________________________
A-1
EXHIBIT 10.18(e)
AMENDMENT NO. 2 TO THE
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: David I. Brunson
EFFECTIVE DATE OF
ORIGINAL GRANT: April 23, 1997
GRANTED PURSUANT TO: NORTH ATLANTIC TRADING COMPANY
1997 SHARE INCENTIVE PLAN
DATE OF AMENDMENT: December 31, 1997
Amendment No. 2 (the "Amendment"), dated and effective as of December
31, 1997, to the Nonqualified Stock Option Agreement, made and entered into as
of June 25, 1997, between North Atlantic Trading Company, Inc., a Delaware
corporation (the "Company"), and David I. Brunson. Paragraph 9 of the Agreement
is hereby amended to read as follows:
9. (a) The Employee may pay within thirty (30) days following the
exercise of the Option the amount of taxes required to be withheld upon exercise
of the Option by (i) delivering a check made payable to the Company or (ii)
delivering to the Company shares of Common Stock having a Fair Market Value
equal to the amount of such withholding taxes; provided, however, that at the
Employee's election, any amount due to the Company under this Section 9(a) may
be reduced in whole or in part by any amounts the Company owes such Employee
under subparagraph (b) below.
(b) Unless otherwise agreed to by the parties, on or before
April 15 of the calendar year following the year in which the Option is
exercised (the "Payment Date"), the Company shall pay the Employee an amount
(the "Payment") equal to (i) the difference between (A) the amount of taxable
income reportable by the Employee in connection with the exercise of the Option
multiplied by the highest aggregate marginal statutory federal, state and local
income tax rate (determined by taking into account the deductibility of state
and local income taxes for federal income tax purposes) to which such Employee
is subject at the time of exercise (the "Marginal Ordinary Tax Rate") and (B)
the amount of taxable income reportable by the Employee in connection with the
exercise of the Option multiplied by the highest aggregate marginal statutory
federal, state and local income tax rate (determined by taking into account the
deductibility of state and local income taxes for federal income tax purposes)
to which such Employee would be subject at the time of exercise if such taxable
income was characterized as long-term capital gain (the "Marginal Capital Gain
Tax Rate") (such difference referred to as the "Incremental Tax Amount"),
divided by (ii) one minus the Employee's Marginal Ordinary Tax Rate.
<PAGE>
(c) The payment shall not be made pursuant to Section 9(b) in
the event the Option is exercised (i) within 180 days prior to the Employee's
termination of employment described in Section 6(d) of the Agreement or (ii)
following the Employee's termination of employment described in Section 6(d) of
the Agreement. Notwithstanding the foregoing, if the Payment Date falls within
180 days from the date of exercise, the Company shall only make the Payment to
Employee upon the signing of an undertaking, reasonably satisfactory to the
Company, by the Employee to repay the Payment to the Company if Employee
terminates his employment as described in Section 6(d) of the Agreement: within
180 days of the date of the exercise of the Option.
(d) The Company shall treat the amount paid in 9(b) as
compensation payable to the Employee.
The effects of this Amendment is to supersede and replace Amendment No.
1 executed September 2, 1997.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
December 31, 1997.
NORTH ATLANTIC TRADING COMPANY
By: /s/ Thomas F. Helms, Jr.
---------------------------
Thomas F. Helms, Jr.
President
ACCEPTED:
/s/ David I. Brunson
- ---------------------------------
Signature of Employee
David I. Brunson
- ----------------------------------
Name of Employee -- Please Print
- 2 -
EXHIBIT 10.26
AMENDED AND RESTATED
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Jeffrey S. Hay
EFFECTIVE DATE OF July 28, 1997
GRANT:
GRANTED PURSUANT TO: NORTH ATLANTIC TRADING COMPANY 1997
SHARE INCENTIVE PLAN
NUMBER OF UNDERLYING 15,966
SHARES:
EXERCISE PRICE: 18.19 per share
VESTING SCHEDULE: One third commencing on July 28,
1997 and one fifth of
the remaining options on each of the
first five anniversaries thereafter
1. This Amended and Restated Nonqualified Stock Option Agreement is
made and entered into as of December 31, 1997 and amends and restates the
Nonqualified Stock Option Agreement dated as of September 3, 1997 (as so amended
and restated, the "Agreement") between North Atlantic Trading Company, Inc., a
Delaware corporation (the "Company") and Jeffrey S. Hay (the "Employee"). It is
the intent of the Company and the Employee that this Option (as defined in
Paragraph 2 below) will not qualify as an "incentive stock option" under Section
422 of the Internal Revenue Code of 1986, as amended from time to time.
2. The Employee is granted an option to purchase 15,966 shares of the
Common Stock (the "Option"). The Option is granted under the Company's 1997
Share Incentive Plan (the "Plan") and is subject to the terms of the Plan and of
this Agreement. Capitalized terms not defined herein shall have the meanings
ascribed thereto in the Plan.
3. The Option's Exercise Price is $18.19 per share.
4. Subject to Paragraph 5 below, the Option shall become exercisable
according to the vesting schedule set forth below:
5,322 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 1997
2,129 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 1998
2,129 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 1999
2,129 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 2000
2,129 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 2001
2,128 shares of Common Stock shall become exercisable and remain exercisable on
July 28, 2002.
<PAGE>
5. The Option, unless sooner terminated or exercised in full, shall
expire on July 28, 2012 and, notwithstanding anything herein to the contrary, no
portion of the Option may be exercised after such date.
6. (a) In the event of death of the Employee, or if the Employee's
employment is terminated due to disability, each stock option theretofore
granted to him shall be exercisable until July 28, 2012, and then only by the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Option
shall pass by will or the laws of descent or distribution or the disabled
employee or his legal guardian.
(b) In the event the Employee's employment is terminated due
to retirement, the unexercisable portion of the Option held by the Employee on
the date of termination of employment shall immediately be forfeited by the
Employee and the exercisable portion of the Option held by the Employee on the
date of termination of employment shall remain exercisable until the earlier of
(i) 90 days after the Employee's termination of employment or (ii) the date the
Option would otherwise expire.
(c) In the event the Employee's employment is terminated by
the Company without Cause or by the Executive for Good Reason (as defined in the
Executive's Employment Agreement) and not by reason of the Employee's death or
disability, the unexercisable portion of the Option held by the Employee on the
date of termination of employment shall immediately become exercisable and the
entire Option held by the Employee on the date of termination of employment
shall remain exercisable until the date the Option would otherwise expire.
(d) In the event the Employee's employment is terminated by
the Company or any Subsidiary for Cause or is terminated by the Employee for any
reason other than Retirement, Good Reason, death or Disability, the unvested
portion of the Option held by the Employee at the time of termination of
employment shall immediately be forfeited by the Employee. The vested portion of
the Option shall remain exercisable until the earlier of (i) the end of the 90
day period following the Employee's termination of employment or (ii) the date
the Option would otherwise expire.
7. The Employee may exercise the Option regardless of whether any other
option that the Employee has been granted by the Company remains unexercised. In
no event may the Employee exercise the Option for a fraction of a share or for
less than 100 shares.
8. The Option's Exercise Price shall be paid by the Employee on the
date the Option is exercised, in cash, in shares of Common Stock owned by the
Employee or by a combination of the foregoing. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at Fair Market Value.
2
<PAGE>
9. (a) The Employee may pay within thirty (30) days following the
exercise of the Option the amount of taxes required to be withheld upon exercise
of the Option by (i) delivering a check made payable to the Company or (ii)
delivering to the Company shares of Common Stock having a Fair Market Value
equal to the amount of such withholding taxes; provided, however, that at the
Employee's election, any amount due to the Company under this Section 9(a) may
be reduced in whole or part by any amounts the Company owes such Employee under
subparagraph (b) below.
(b) Unless otherwise agreed to by the parties, on or before
April 15 of the calendar year following the year in which the Option is
exercised (the "Payment Date"), the Company shall pay the Employee an amount
(the "Payment") equal to (i) the difference between (A) the amount of taxable
income reportable by the Employee in connection with the exercise of the Option
multiplied by the highest aggregate marginal statutory federal, state and local
income tax rate (determined by taking into account the deductibility of state
and local income taxes for federal income tax purposes) to which such Employee
is subject at the time of exercise (the "Marginal Ordinary Tax Rate") and (B)
the amount of taxable income reportable by the Employee in connection with the
exercise of the Option multiplied by the highest aggregate marginal statutory
federal, state and local income tax rate (determined by taking into account the
deductibility of state and local income taxes for federal income tax purposes)
to which such Employee would be subject at the time of exercise if such taxable
income was characterized as long-term capital gain (the "Marginal Capital Gain
Tax Rate") (such difference referred to as the "Incremental Tax Amount"),
divided by (ii) one minus the Employee's Marginal Ordinary Tax Rate.
(c) The payment shall not be made pursuant to Section 9(b) in
the event the Option is exercised (i) within 180 days prior to the Employee's
termination of employment described in Section 6(d) of the Agreement or (ii)
following the Employee's termination of employment described in Section 6(d) of
the Agreement. Notwithstanding the foregoing, if the Payment Date falls within
180 days from the date of exercise, the Company shall only make the Payment to
Employee upon the signing of an undertaking, reasonably satisfactory to the
Company, by the Employee to repay the Payment to the Company if Employee
terminates his employment as described in Section 6(d) of the Agreement within
180 days of the date of the exercise of the Option.
(d) The Company shall treat the amount paid in 9(b) as
compensation payable to the Employee.
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased.
3
<PAGE>
12. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of this
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
13. The Employee covenants and agrees with the Company that if, at the
time of exercise of this Option, there does not exist a Registration Statement
on an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to this Option,
(i) that he is purchasing the shares for his own account and not with a view to
the resale or distribution thereof, (ii) that any subsequent offer for sale or
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, the Employee shall,
prior to any offer for sale or sale of such shares, obtain a favorable written
opinion from counsel for or approved by the Company as to the applicability of
such exemption and (iii) that the Employee agrees that the certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
14. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
15. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
NORTH ATLANTIC TRADING COMPANY, INC.
By /s/ Thomas F. Helms, Jr.
-------------------------------
Thomas F. Helms, Jr.
President
ACCEPTED:
/s/ Jeffrey S. Hay
- --------------------------------
Signature of Employee
Jeffrey S. Hay
- --------------------------------
Name of Employee - Please Print
Date: December 31, 1997
5
NYFS10...:\80\64980\0003\2475\FRM9037N.440
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of July 2, 1997,
and effective as of July 28, 1997, between NORTH ATLANTIC TRADING COMPANY, INC.
(the "Company") and JEFFREY S. HAY (the "Executive").
AGREEMENT
---------
1. Employment, Duties and Acceptance. (a) The Company shall
---------------------------------
employ the Executive during the Term (as hereinafter defined) as an Executive
Vice President and General Counsel of the Company.
(b) The Executive hereby accepts such employment and agrees to
render his services to the Company on a full-time basis. The Executive further
agrees to accept election and to serve during all or any part of the Term or any
Renewal Term as an officer, director or representative of any subsidiary or
affiliate of the Company, without any compensation therefor other than that
specified in this Agreement. The Executive shall report directly to the Chief
Executive Officer of the Company.
(c) The duties to be performed by the Executive hereunder shall be
performed primarily in New York, New York, subject to reasonable travel
requirements on behalf of the Company. The Executive acknowledges that he may be
required to spend a significant amount of time periodically in the Company's
Louisville facility. The Company agrees that the Executive may reside in
Charlotte, North Carolina and that the Company shall not require the Executive
to relocate outside of Charlotte, North Carolina, without his prior written
consent, which may be withheld in the Executive's discretion. The Executive
shall be reimbursed for his reasonable travel expenses. The Executive shall be
entitled to four (4) weeks of paid vacation time annually.
2. Term of Employment. As used herein, the "Term" means the
------------------
period commencing as of July 28, 1997, and ending on July 31, 1999, and shall
automatically renew thereafter for successive periods of one (1) year (each a
"Renewal Term") unless either party gives written notice of termination of the
Agreement at least ninety (90) days prior to the end of the Term or any Renewal
Term. Unless otherwise specified, further references in this Agreement to the
Term shall include any applicable Renewal Term.
<PAGE>
3. Compensation. (a) During the Term, the Company agrees to pay to the
------------
Executive a salary in cash (the "Salary") as compensation for the services to be
performed by him as provided herein. The Salary shall be paid at the rate of
$250,000 per annum (it being understood that the Salary for 1997 shall be in
proportion to the number of days remaining in the year), less such deductions or
amounts to be withheld as shall be required by applicable law and regulations.
The Salary shall be paid in equal monthly installments or more frequently in
accordance with the Company's salaried payroll payment policy. The Salary shall
be reviewed annually and may be increased at the sole discretion of the
Compensation Committee of the Management Committee; provided, however, that
assuming that the Company has met its EBITDA budget and Executive's performance
is deemed satisfactory by the Company's Chief Executive Officer, The Chief
Executive Officer will propose to the Compensation Committee that the Salary be
increased by not less than 10% on the first anniversary of the date hereof.
(b) In addition to the Salary, the Executive shall also be eligible
throughout the Term to receive cash bonuses (each a "Bonus") as a member of
Group A in accordance with the Company's Bonus Plan (as in effect from time to
time) based on the Company's audited financial statements for the applicable
year and payable after delivery of such financial statements. The Executive's
bonus for 1997 shall be prorated because Executive was not employed for a full
year. In addition, Executive shall be paid a one time payment upon commencement
of the Term in an amount equal to $70,000.00, which payment shall be made on or
before January 10, 1998.
(c) In addition to the foregoing, the Executive shall be entitled to
all rights and benefits for which he shall be eligible under any other incentive
program, retirement, retirement savings, profit-sharing, pension or welfare
plan, life, disability, health, dental, hospitalization and other forms of
insurance and all other so-called "fringe" benefits or perquisites, including
reimbursement of the monthly dues of one club membership, in each case at the
highest level which the Company shall from time to time provide for any of its
senior executives of the same or similar stature. The Executive shall be
entitled to receive stock options for 2.5% of the Company's Common Stock, except
as set forth below, on the same price terms and other conditions provided to
other senior executives of the Company. Such options shall vest one-third on the
effective date of this Agreement and one-fifth of the remaining options shall
vest on each of the first five anniversaries of the effective date of this
Agreement. Such options shall vest automatically on any change of control or
upon the termination of the Executive's employment without Cause or by the
Executive with Good Reason. In addition, to the extent obtainable at reasonable
premiums, the Company shall provide the Executive with a term life insurance
policy in an amount equal to $1,000,000.00, with Executive's estate being the
beneficiary.
2
<PAGE>
4. Termination. (a) If during the Term the Executive shall die, the
-----------
Executive's legal representative shall be entitled to receive in cash an amount
calculated as the sum of (i) any accrued and unpaid Salary to the date of such
death and (ii) any accrued and unpaid Bonus to the date of such death, including
any Bonus for the year in which the termination occurs, calculated by reviewing
the Company's performances for such entire year and prorating any such Bonus for
the number of days elapsed during such year prior to such termination. In
addition, the Executive (or his legal representative) shall be entitled to
receive any insurance proceeds payable pursuant to any insurance provided
pursuant to Section 3(c) hereof.
(b) If during the Term the Executive shall become physically or
mentally disabled, whether totally or partially, so that he is unable
substantially to perform his services hereunder for a period of at least 90 days
out of any twelve consecutive months (which condition is referred to herein as
the Executive becoming "Disabled"), the Company may at any time prior to the
90th day after the last day of such twelfth consecutive month, by written notice
to the Executive, terminate the Executive's employment, in which event the
Executive (or his legal representative) shall be entitled to receive in cash an
amount calculated as the sum of (i) any accrued and unpaid Salary to the date of
such notice and (ii) any accrued and unpaid Bonus to the date of such notice,
including any Bonus for the year in which the termination occurs, calculated by
reviewing the Company's performance for such entire year and prorating any such
Bonus for the number of days elapsed during such year prior to such termination.
In addition, the Executive (or his legal representative) shall be entitled to
receive any disability benefits payable pursuant to any plan referred to in
Section 3(c) hereof. Nothing herein contained shall be deemed to limit or
abrogate any insurance or other similar benefits available to the Executive.
(c) The Executive's employment may be terminated by the Company during
the Term for Cause (as hereinafter defined). If during the Term the Executive's
employment shall be lawfully terminated by the Company for Cause or the
Executive shall voluntarily resign without Good Reason (as hereinafter defined),
the Company's obligation to pay Salary and Bonus for the benefit of the
Executive, and the Executive's obligation to render services hereunder for the
benefit of the Company, shall cease on the date of such termination or
resignation; provided, however, that within 30 days of the date of such
termination or resignation, the Company shall pay the Executive in cash (i) an
amount calculated as the sum of any accrued and unpaid Salary to such date and
(B) any accrued and unpaid Bonus for any year preceding such termination or
resignation and (ii) all business expenses, amounts payable under any benefit
plan or program or other amounts that were accrued or incurred but unpaid or
unreimbursed at such date.
3
<PAGE>
As used herein, the term "Cause" shall mean only (i) a felony
conviction of the Executive (as determined by a court of competent jurisdiction,
not subject to further appeal), (ii) the commission by the Executive of an act
of fraud or embezzlement against the Company or any of its affiliates (as
determined by a court of competent jurisdiction, not subject to further appeal),
(iii) gross misconduct which is demonstrably willful an deliberate on the
Executive's part and which is materially detrimental to the Company or any of
its affiliates, (iv) any material breach by the Executive of any agreement with
the Company or any affiliate thereof not cured within 10 days after receiving
written notice thereof or any material violation of any policies or procedures
of the Company if the Company has given Executive written notice of such
violation and Executive persists in such violation or (v) insubordination
consisting of the Executive's continued failure to take specific action which is
within his individual control and consistent with his status as a senior
executive of the Company and his duties and responsibilities hereunder after
written notice from the Chief Executive Officer of the Company of not less than
10 days; provided, however, Executive shall not be terminated for Cause if the
action required to be taken would constitute a breach of Executive's
responsibilities under the North Carolina State Bar Association's Rules of
Professional Conduct.
As used herein, the term "Good Reason" means any of the following:
(i) the assignment to the Executive of any duties
inconsistent with his status as Executive Vice President and General
Counsel of the Company or a material adverse alteration in the nature
or status of his responsibilities from those provided herein or the
transfer of a significant portion of such responsibilities to one or
more other persons;
(ii) the failure by the Company to pay or provide to the
Executive, within 30 days of a written demand therefor, any amount of
compensation or any benefit which is due, owing and payable pursuant to
the terms hereof or of any applicable plan, program, arrangement or
policy; or
(iii) the breach in any material respect by the Company
of any of its other obligations or agreements set forth herein and the
failure by the Company to cure such breach within 20 days after written
notice thereof from the Executive.
(d) If during the Term the Executive's employment shall be terminated
by the Company without Cause (and other than pursuant to Section 4(b)) or by the
Executive for Good Reason, the Executive shall be entitled to receive in cash
severance pay equal to 12 months of the Executive's then current Salary, payable
in monthly installments. The
4
<PAGE>
Executive shall also receive any benefits under any benefit plan or program of
the Company to which the Executive would otherwise be entitled pursuant to the
terms of such plan or program through the Term, or pursuant to any applicable
state or federal law; provided, that the Executive shall only be entitled to
receive a Bonus for the year in which the termination occurs, prorated and
calculated as provided in Sections 4(a) and (b).
(e) During the term of the Executive's employment with Company and for
twelve months after the date of termination of Executive's employment (the
"Noncompetition Period"), Executive hereby agrees not to Compete with the
Company. For purposes of this section, the term Compete means:
(i) soliciting or counseling, personally or by or on
behalf of any person, firm or corporation, the employment of any
employee of Company, or requesting, inducing or attempting to influence
any employee of the Company to terminate his employment with Company;
or
(ii) directly or indirectly (A) requesting, inducing or
attempting to influence any supplier of goods or services to Company to
curtail or cancel any business it transacts with Company; or (B)
requesting, inducing or attempting to influence any customer of Company
to curtail or cancel any business they may transact with Company; or
(C) engaging in any business that the Company is engaged in as of the
date of such termination (whether as an officer, director, partner,
employee or other owner).
Notwithstanding the foregoing, the provisions of this Section 4(e)
shall be effective only during such period for which the Executive receives
severance pay pursuant to Section 4(d) hereof.
(f) The Company acknowledges and agrees that the Executive shall have
no duty at any time to seek other employment or to mitigate his damages
hereunder. The amounts payable to the Executive under this Agreement shall be
paid regardless of whether the Executive obtains other employment.
5. Expenses. In the event that the Executive institutes any legal
--------
action to enforce his rights under, or to recover damages from breach of, this
Agreement, the Executive, if he is the prevailing party, shall be entitled to
recover from the Company any actual expenses for attorney's fees and
disbursements reasonably incurred by him.
5
<PAGE>
6. Assignment. This Agreement is binding upon and shall inure to the
----------
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, neither party shall assign or transfer any rights
or obligations hereunder, except that the Company may assign or transfer this
Agreement to (a) a successor corporation in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets, of
the Company or (b) an affiliate of the Company; provided that no such assignment
referred to in the foregoing clause (a) or (b) shall relieve the Company from
liability for its obligations hereunder. Any purported assignment, other than as
provided above, shall be null and void.
7. Indemnification. The Company shall indemnify the Executive in
---------------
accordance with its Certificate of Incorporation and Bylaws, copies of which
have been delivered to the Executive, against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being an officer, director or
employee of the Company or of any subsidiary or affiliate of the Company. The
Company's obligations under this Section 7 shall survive any termination of this
Agreement or the Executive's employment hereunder.
8. Notices. All notices, requests, consents and other communications,
-------
required or permitted to be given hereunder, shall be in writing and shall be
delivered personally or sent by prepaid telegram, telex, facsimile transmission,
overnight courier or mailed, first-class, postage prepaid by registered or
certified mail, as follows:
If to the Company: National Tobacco Company, L.P.
257 Park Avenue South
New York, New York 10016
If to the Executive: Jeffrey S. Hay
1827 Belvedere Ave.
Charlotte, North Carolina 28205
or such other address as either party shall designate by notice in writing to
the other in accordance herewith. Any such notice shall be deemed given when so
delivered personally, by telex, facsimile transmission or telegram, or if sent
by overnight courier, one day after delivery to such courier by the sender or if
mailed, five days after deposit by the sender in the U.S. mails.
6
<PAGE>
9. Waiver. No waiver of any provision of this Agreement or modification
------
or amendment of the same shall be effective, binding or enforceable unless in
writing and signed by the party to be charged therewith.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------------------
Name: Thomas F. Helms, Jr.
Title: President and CEO
/s/ Jeffrey S. Hay
------------------------------------
Jeffrey S. Hay
7
NYFS10...:\80\64980\0003\2475\AGR12982.240
EXHIBIT 10.28
AMENDED AND RESTATED
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Jack Africk
EFFECTIVE DATE OF January 1, 1998
GRANT:
GRANTED PURSUANT TO: NORTH ATLANTIC TRADING COMPANY 1997
SHARE INCENTIVE PLAN
NUMBER OF UNDERLYING 14,962
SHARES:
EXERCISE PRICE: 18.19 per share
VESTING SCHEDULE: One quarter commencing on each of
March 31, 1998, June 30, 1998,
September 30, 1998 and December 31,
1998
1. This Amended and Restated Nonqualified Stock Option Agreement is
made and entered into as of January 12, 1998 and amends and restates the
Nonqualified Stock Option Agreement dated as of January 1, 1998 (as so amended
and restated, the "Agreement") between North Atlantic Trading Company, Inc., a
Delaware corporation (the "Company") and Jack Africk (the "Employee"). It is the
intent of the Company and the Employee that this Option (as defined in Paragraph
2 below) will not qualify as an "incentive stock option" under Section 422 of
the Internal Revenue Code of 1986, as amended from time to time.
2. The Employee is granted an option to purchase 14,962 shares of the
Common Stock (the "Option"). The Option is granted under the Company's 1997
Share Incentive Plan (the "Plan") and is subject to the terms of the Plan and of
this Agreement. Capitalized terms not defined herein shall have the meanings
ascribed thereto in the Plan.
3. The Option's Exercise Price is $18.19 per share.
4. Subject to Paragraph 5 below, the Option shall become exercisable
according to the vesting schedule set forth below:
3,740 shares of Common Stock shall become exercisable and remain exercisable on
March 31, 1998
3,740 shares of Common Stock shall become exercisable and remain exercisable on
June 30, 1998
3,741 shares of Common Stock shall become exercisable and remain exercisable on
September 30, 1998
3,741 shares of Common Stock shall become exercisable and remain exercisable on
December 31, 1998
<PAGE>
5. The Option, unless sooner terminated or exercised in full, shall
expire on July 28, 2012 and, notwithstanding anything herein to the contrary, no
portion of the Option may be exercised after such date.
6. (a) In the event of death of the Employee, or if the Employee's
employment is terminated due to disability, each stock option theretofore
granted to him shall be exercisable until July 28, 2012, and then only by the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Option
shall pass by will or the laws of descent or distribution or the disabled
employee or his legal guardian; provided, however, that in the event the
Employees dies or becomes disabled prior to December 31, 1998, the Company may,
at any time prior to December 31, 1999, repurchase such vested stock options at
a purchase price of $40 per share.
(b) In the event the Employee's employment is terminated by
the Company or any Subsidiary for Cause as defined in his Employment Agreement
dated as of December 15, 1997, or is terminated by the Employee for any reason
other than death, Disability or Good Reason, the unvested portion of the Option
held by the Employee at the time of termination of employment shall immediately
be forfeited by the Employee. The vested portion of the Option shall remain
exercisable until the earlier of (i) the end of the 90 day period following the
Employee's termination of employment or (ii) the date the Option would otherwise
expire; provided, however, that in the event the Employee's employment is
terminated pursuant hereto prior to December 31, 1998, the Company may, at any
time prior to December 31, 1999, repurchase such vested stock options at a
purchase price of $40 per share.
7. The Employee may exercise the Option regardless of whether any other
option that the Employee has been granted by the Company remains unexercised. In
no event may the Employee exercise the Option for a fraction of a share or for
less than 100 shares.
8. The Option's Exercise Price shall be paid by the Employee on the
date the Option is exercised, in cash, in shares of Common Stock owned by the
Employee or by a combination of the foregoing. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at Fair Market Value.
9. (a) The Employee may pay within thirty (30) days following the
exercise of the Option the amount of taxes required to be withheld upon exercise
of the Option by (i) delivering a check made payable to the Company or (ii)
delivering to the Company shares of Common Stock having a Fair Market Value
equal to the amount of such withholding taxes; provided, however, that at the
Employee's election, any amount due to the Company under
2
<PAGE>
this Section 9(a) may be reduced in whole or part by any amounts the Company
owes such Employee under subparagraph (b) below.
(b) Unless otherwise agreed to by the parties, on or before
April 15 of the calendar year following the year in which the Option is
exercised (the "Payment Date"), the Company shall pay the Employee an amount
(the "Payment") equal to (i) the difference between (A) the amount of taxable
income reportable by the Employee in connection with the exercise of the Option
multiplied by the highest aggregate marginal statutory federal, state and local
income tax rate (determined by taking into account the deductibility of state
and local income taxes for federal income tax purposes) to which such Employee
is subject at the time of exercise (the "Marginal Ordinary Tax Rate") and (B)
the amount of taxable income reportable by the Employee in connection with the
exercise of the Option multiplied by the highest aggregate marginal statutory
federal, state and local income tax rate (determined by taking into account the
deductibility of state and local income taxes for federal income tax purposes)
to which such Employee would be subject at the time of exercise if such taxable
income was characterized as long-term capital gain (the "Marginal Capital Gain
Tax Rate") (such difference referred to as the "Incremental Tax Amount"),
divided by (ii) one minus the Employee's Marginal Ordinary Tax Rate.
(c) The payment shall not be made pursuant to Section 9(b) in
the event the Option is exercised (i) within 180 days prior to the Employee's
termination of employment described in Section 6(b) of the Agreement (but only
if such termination occurs prior to June 30, 1998) or (ii) following the
Employee's termination of employment for Cause or (iii) following the
termination of employment by Employee for any reason other than death,
Disability or Good Reason at any time prior to June 30, 1998 (unless such
termination is on mutually agreeable terms in connection with the transition of
the Chief Operating Officer position to a new person). Notwithstanding the
foregoing, if the Payment Date falls within 180 days from the date of exercise,
the Company shall only make the Payment to Employee upon the signing of an
undertaking, reasonably satisfactory to the Company, by the Employee to repay
the Payment to the Company if Employee terminates his employment as described in
Section 6(b) of the Agreement within 180 days of this date of the exercise of
the Option.
(d) The Company shall treat the amount paid in 9(b) as
compensation payable to the Employee.
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
11. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased.
3
<PAGE>
12. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of this
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
13. The Employee covenants and agrees with the Company that if, at the
time of exercise of this Option, there does not exist a Registration Statement
on an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to this Option,
(i) that he is purchasing the shares for his own account and not with a view to
the resale or distribution thereof, (ii) that any subsequent offer for sale or
sale of any such shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, the Employee shall,
prior to any offer for sale or sale of such shares, obtain a favorable written
opinion from counsel for or approved by the Company as to the applicability of
such exemption and (iii) that the Employee agrees that the certificates
evidencing such shares shall bear a legend to the effect of the foregoing.
14. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
15. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
17. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
NORTH ATLANTIC TRADING COMPANY, INC.
By /s/ Thomas F. Helms, Jr.
--------------------------------
Thomas F. Helms, Jr.
Chairman and Chief Executive
Officer
ACCEPTED:
Signature of Employee
/s/ Jack Africk
- --------------------------------
Jack Africk
Name of Employee - Please Print
Date: January 12, 1998
5
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of December 15, 1997,
between NORTH ATLANTIC TRADING COMPANY, INC. (the "Company") and JACK AFRICK
(the "Executive").
STATEMENT OF PURPOSE
--------------------
1. The Executive currently is serving as a consultant to the Company
pursuant to the terms of that certain Consulting Agreement dated as of June 25,
1997 between the Company and the Executive.
2. The Company desires to employ the Executive as its President and
Chief Operating Officer, and the Executive desires to accept employment as the
Company's President and Chief Operating Officer, all on the terms and conditions
set forth herein.
AGREEMENT
---------
1. Employment, Duties and Acceptance. (a) The Company shall employ the
---------------------------------
Executive during the Term (as hereinafter defined) as the President and Chief
Operating Officer of the Company. The Executive shall report directly to the
Chairman of the Board and Chief Executive Officer of the Company, and the
Executive's duties shall include responsibility over the Company's
manufacturing, marketing, sales and other operational activities.
(b) The Executive hereby accepts such employment and agrees to devote
such time as is reasonably required to fulfill his obligations hereunder. The
parties acknowledge that Executive has other professional commitments and agree
that he will be afforded time to manage such commitments so long as they do not
unreasonably interfere with his performance hereunder. The Executive further
agrees to accept election and to serve during all or any part of the Term as an
officer, director or representative of any subsidiary or affiliate of the
Company, without any compensation therefor other than that specified in this
Agreement.
(c) The duties to be performed by the Executive hereunder shall be
performed primarily in New York, New York and Louisville, Kentucky, subject to
reasonable travel requirements on behalf of the Company. The Company
acknowledges that Executive lives in Florida and agrees that it shall reimburse
Executive for all his reasonable travel expenses. The Company shall not require
the Executive to relocate outside of Florida without his prior written consent,
which may be withheld in the Executive's discretion.
<PAGE>
2. Term of Employment; Consulting Agreement. (a) As used herein, the
----------------------------------------
"Term" means the period commencing as of January 1, 1998 and continuing until
terminated by either party by written notice (subject to earlier termination
pursuant to Section 4(c) below).
(b) Effective January 1, 1998, the Company and the Executive
agree that their respective obligations under the Consulting Agreement shall be
suspended and, subject to the following sentence, shall have no further force
and effect. In the event that, either (i) the Company terminates the Executive's
employment under this Agreement without Cause (as defined in Section 4(c)) or
(ii) the Executive terminates this Agreement with Good Reason (as defined in
Section 4(c)), the parties agree that the terms of the Consulting Agreement
shall take effect and become operative effective on the date of such termination
and shall remain in full force and effect in accordance with its terms until the
later of (a) June 30, 1999 or (b) the ninetieth (90th) day following the
effective date of such termination, at which time the Consulting Agreement shall
terminate unless extended in writing on mutually agreeable terms.
3. Compensation. (a) During the Term, the Company agrees to pay to the
------------
Executive a salary in cash (the "Salary") as compensation for the services to be
performed by him as provided herein. The Salary shall be paid at the rate of
$325,000 per annum, less such deductions or amounts to be withheld as shall be
required by applicable law and regulations. The Salary shall be paid in
accordance with the Company's salaried payroll payment policy. The Salary shall
be reviewed annually and may be increased at the sole discretion of the Board of
Directors of the Company.
(b) In addition to the Salary, the Executive shall also be eligible
throughout the Term to receive cash bonuses (each a "Bonus") as a member of
Group A in accordance with the Company's bonus plan, as in effect from time to
time.
(c) In addition to the foregoing, the Executive shall be entitled to
all rights and benefits for which he shall be eligible under any other incentive
program, retirement, retirement savings, profit-sharing, pension or welfare
benefit plan and all other so-called "fringe" benefits or perquisites, in each
case at the highest level which the Company shall from time to time provide for
any of its senior executives of the same or similar stature; provided, however,
that the Executive agrees he will not participate in the Company's health plans.
The Company shall provide the Executive with a secretary in his Florida office
on mutually agreeable terms. In addition, the Executive shall be entitled to the
following benefits:
(i) a car allowance of $1,000.00 per month;
(ii) prompt reimbursement for all reasonable office expenses
incurred by the Executive in connection with maintaining an office in
Florida,
<PAGE>
plus $500.00 per month for the rental of office space; and
(iii) Four weeks of paid vacation.
4. Termination. (a) If during the Term the Executive shall die, the
-----------
Executive's legal representative shall be entitled to receive in cash an amount
calculated as the sum of (i) any accrued and unpaid Salary to the date of such
death and (ii) any accrued and unpaid Bonus to the date of such death, including
any Bonus for the year in which the termination occurs, calculated by reviewing
the Company's performance for such entire year and prorating any such Bonus for
the number of days elapsed during such year prior to such termination.
(b) If during the Term the Executive shall become physically or
mentally disabled, whether totally or partially, so that he is unable
substantially to perform his services hereunder for a period of at least 90
consecutive days (which condition is referred to herein as the Executive
becoming "Disabled"), the Company may at any time, by written notice to the
Executive, terminate the Executive's employment, in which event the Executive
(or his legal representative) shall be entitled to receive in cash an amount
calculated as the sum of (i) any accrued and unpaid Salary to the date of such
notice and (ii) any accrued and unpaid Bonus to the date of such notice,
including any Bonus for the year in which the termination occurs, calculated by
reviewing the Company's performance for such entire year and prorating any such
Bonus for the number of days elapsed during such year prior to such termination.
(c) The Executive's employment may be terminated by the Company during
the Term for Cause (as hereinafter defined). If during the Term the Executive's
employment shall be lawfully terminated by the Company for Cause or the
Executive shall voluntarily resign without Good Reason (as hereinafter defined),
the Company's obligation to pay Salary and Bonus for the benefit of the
Executive, and the Executive's obligation to render services hereunder for the
benefit of the Company, shall cease on the date of such termination or
resignation; provided, however, that within 30 days of the date of such
termination or resignation, the Company shall pay the Executive in cash (i) an
amount calculated as the sum of any accrued and unpaid Salary to such date and
(B) any accrued and unpaid Bonus for any year preceding such termination or
resignation and (ii) all business expenses, amounts payable under any benefit
plan or program or other amounts that were accrued or incurred but unpaid or
unreimbursed at such date.
As used herein, the term "Cause" shall mean only (i) a felony
conviction of the Executive (as determined by a court of competent jurisdiction,
not subject to further appeal), (ii) the commission by the Executive of an act
of fraud or embezzlement against the Company or any of its affiliates (as
determined by a court of competent jurisdiction, not subject to further appeal),
(iii) gross misconduct which is demonstrably willful and deliberate on the
Executive's part and which is materially detrimental to the Company or any of
its
<PAGE>
affiliates, (iv) any material breach by the Executive of any agreement with the
Company or any affiliate thereof not cured within 10 days after receiving
written notice thereof or any material violation of any policies or procedures
of the Company if the Company has given Executive written notice of such
violation and Executive persists in such violation or (v) insubordination
consisting of the Executive's continued failure to take specific action which is
within his individual control and consistent with his status as a senior
executive of the Company and his duties and responsibilities hereunder after
written notice from the Chief Executive Officer of the Company of not less than
10 days.
As used herein, the term "Good Reason" for the Executive means any of
the following:
(i) the assignment to the Executive of any duties inconsistent
with his status as President and Chief Operating Officer of the Company
or a material adverse alteration in the nature or status of his
responsibilities from those provided herein or the transfer of a
significant portion of such responsibilities to one or more other
persons;
(ii) the failure by the Company to pay or provide to the
Executive, within 30 days of a written demand therefor, any amount of
compensation or any benefit which is due, owing and payable pursuant to
the terms hereof or of any applicable plan, program, arrangement or
policy; or
(iii) the breach in any material respect by the Company of any
of its other obligations or agreements set forth herein and the failure
by the Company to cure such breach within 30 days after written notice
thereof from the Executive.
(d) If during the Term the Executive's employment shall be terminated
by the Company without Cause (and other than pursuant to Section 4(b)) or by the
Executive for Good Reason, the Executive shall not be entitled to receive any
severance pay, and Executive's sole remedy for such termination is his right
pursuant to Section 2(b) above.
(e) During the term of the Executive's employment with Company and for
five years after the date of termination of Executive's employment (the
"Non-competition Period"), Executive hereby agrees not to Compete with the
Company. For purposes of this section, the term Compete means:
(i) directly or indirectly soliciting or counseling,
personally or by or on behalf of any person, firm or corporation, the
employment of any employee of Company, or requesting, inducing or
attempting to influence any employee of the Company to terminate his
employment with Company; or
(ii) directly or indirectly (A) requesting, inducing or
attempting to influence
<PAGE>
any supplier of goods or services to Company to curtail or cancel any
business it transacts with Company; or (B) requesting, inducing or
attempting to influence any customer of Company to curtail or cancel
any business they may transact with Company; or (C) engaging in the
manufacturing, marketing or distribution of smokeless tobacco and
cigarette papers in the United States and Canada (other than through
the ownership of five percent (5%) or less of any class of securities
registered under the Securities Act of 1934, as amended).
5. Expenses. In the event that the Executive institutes any legal
--------
action to enforce his rights under, or to recover damages from breach of, this
Agreement, the Executive, if he is the prevailing party, shall be entitled to
recover from the Company any actual expenses for attorneys' fees and
disbursements reasonably incurred by him.
6. Assignment. This Agreement is binding upon and shall inure to the
----------
benefit of the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, neither party shall assign or transfer any rights
or obligations hereunder, except that the Company may assign or transfer this
Agreement to (a) a successor corporation in the event of a merger,
consolidation, or transfer or sale of all or substantially all of the assets, of
the Company or (b) an affiliate of the Company; provided that no such assignment
referred to in the foregoing clause (a) or (b) shall relieve the Company from
liability for its obligations hereunder. Any purported assignment, other than as
provided above, shall be null and void.
7. Indemnification. The Company shall indemnify the Executive in
---------------
accordance with its Certificate of Incorporation and Bylaws against all costs,
charges and expenses incurred or sustained by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being an
officer, director or employee of the Company or of any subsidiary or affiliate
of the Company. The Company agrees to maintain directors and officers liability
insurance coverage during the Term of this Agreement with coverage levels not
less than those in place as of the date hereof. The Company's obligations under
this Section 7 shall survive any termination of this Agreement or the
Executive's employment hereunder.
8. Notices. All notices, requests, consents and other communications,
-------
required or permitted to be given hereunder, shall be in writing and shall be
delivered personally or sent by prepaid telegram, telex, facsimile transmission,
overnight courier or mailed, first-class, postage prepaid by registered or
certified mail, as follows:
If to the Company: North Atlantic Trading Company, Inc.
257 Park Avenue South
New York, New York 10010
Attn: Chief Executive Officer
<PAGE>
Fax Number: (212) 253-8296
If to the Executive: Jack Africk
16680 Echo Hollow Circle
Polo Club
Del Ray, Florida 33484
Fax Number: 561 637-6020
or such other address as either party shall designate by notice in writing to
the other in accordance herewith. Any such notice shall be deemed given when so
delivered personally, by facsimile transmission or telegram, or if sent by
overnight courier, one day after delivery to such courier by the sender or if
mailed, five days after deposit by the sender in the U.S.
mails.
10. Waiver. No waiver of any provision of this Agreement or
------
modification or amendment of the same shall be effective, binding or enforceable
unless in writing and signed by the party to be charged therewith.
11. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NORTH ATLANTIC TRADING COMPANY, INC
By: /s/ Thomas F. Helms, Jr.
----------------------------------------
Thomas F. Helms, Jr.
Chairman of the Board and Chief
Executive Officer
/s/ Jack Africk
----------------------------------------
Jack Africk
EXHIBIT 10.30
ASSIGNMENT AND ASSUMPTION
-------------------------
THIS ASSIGNMENT AND ASSUMPTION made as of this 1st day of
January, 1998, between National Tobacco Company, L.P., a Delaware limited
partnership ("Assignor"), and NORTH ATLANTIC TRADING COMPANY, INC., a Delaware
corporation ("Assignee").
W I T N E S S E T H:
-------------------
WHEREAS, Assignor desires to assign and transfer to Assignee
all of its rights, title and interests in the (i) Employment Agreement, dated
May 17, 1996, between Assignor and Thomas F. Helms, Jr. (the "Helms Agreement")
and (ii) Employment Agreement, dated April 23, 1997, between Assignor and David
I. Brunson ("Brunson Agreement," together with Helms Agreement (each an
"Agreement", collectively the Agreements"); and
WHEREAS, subject to the Assignor remaining liable under each
of the Agreements, Sections 6 of each of the Agreements permits the assignment
of the Agreements to an affiliate of the Assignor; and
WHEREAS, Messrs. Helms and Brunson have as part of this
Assignment and Assumption have consented to the assignment and assumption of
their respective Agreements and released the Assignor from any liability
thereunder; and
<PAGE>
WHEREAS, Assignee desires to accept such assignment, and, in
consideration thereof, Assignee desires to assume all of the obligations of
Assignor of any nature whatsoever, relating to, or arising out of, the
Agreements (the "Obligations");
NOW, THEREFORE, in consideration of the foregoing premises and
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys to
Assignee all of Assignor's right, title and interest in and to the Agreements.
2. Assignee accepts said assignment by Assignor of
all of Assignor's right, title and interest in the Agreements and Assignee
hereby assumes, and agrees to perform, all of the Obligations.
3. Assignor and Assignee hereby agree to take any and
all action as may be necessary and appropriate to more fully effectuate the
assignment of the Agreements and the assumption of the Obligations hereunder.
4. This Assignment and Assumption shall be binding
upon Assignor and Assignee and shall be governed by the laws of the State of New
York without regard to principles of conflict of law thereunder.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Assignment and Assumption as of the date first stated above.
NATIONAL TOBACCO COMPANY, L.P.
By: National Tobacco Finance Corporation,
its general partner
By: /s/ Thomas F. Helms, Jr.
-----------------------------------
Thomas F. Helms, Jr.
President
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
------------------------------------------
Thomas F. Helms, Jr.
3
<PAGE>
The undersigned Thomas F. Helms, Jr. hereby consents to the
above Assignment and Assumption of the Helms Agreement and releases and
discharges Assignor from and against in respect of all claims, actions causes of
actions, covenants, controversies, agreements, promises and demands whatsoever
in law or in equity, which he has ever had, now has or hereafter can, shall or
may have against Assignor under the Helms Agreement.
/s/ Thomas F. Helms, Jr.
------------------------------------
Thomas F. Helms, Jr.
The undersigned David I. Brunson hereby consents to the above
Assignment and Assumption of the Brunson Agreement and releases and discharges
Assignor from and against in respect of all claims, actions causes of actions,
covenants, controversies, agreements, promises and demands whatsoever in law or
in equity, which he has ever had, now has or hereafter can, shall or may have
against Assignor under the Brunson Agreement.
/s/ David I. Brunson
------------------------------------
David I. Brunson
4
NYFS10...:\80\64980\0003\1948\AGR1128Z.490
EXHIBIT 10.31
BOLLORE TECHNOLOGIES S.A.
3750 Avenue Jules Panchot
66004 PERPIGNAN
France
North Atlantic Operating Company, Inc.
257 Park Avenue South
7th floor
NEW YORK
NY 10010
October 22, 1997
Gentlemen,
Reference is made to the three Amended and Restated Distribution and
License Agreements (collectively, the "Distribution Agreements") each dated as
of November 30, 1992 between us relating to the distribution of Zig Zag
cigarette paper booklets in the United States (the "U.S. Agreement"), in Canada
(the "Canadian Agreement") and in Hong Kong and certain other territories (the
"Asian Agreement"), as amended by a Restated Amendment dated June 25, 1997 (the
"Restated Amendment"). This will confirm our agreement to amend the Distribution
Agreements as of January 1, 1998 as follows:
1. The paragraph beneath the caption "INITIAL PRICE FOR ALL PRODUCTS" set
forth on Schedule A to the U.S. Agreement and on Schedule A to the
Asian Agreement (as set forth in Section 10 of the Restated Amendment)
shall be deleted in its entirety and the following shall be inserted in
lieu thereof:
"[**] (subject to the [**] referred to in (ii) below); provided, that
for purposes of the foregoing calculations (and the [**] referred to in
(ii) below), if any booklets are shipped in one calendar year but are
paid for in the next subsequent calendar year, then such booklets shall
be deemed to have been both shipped and paid for in such subsequent
calendar year: provided, further, that for purposes of the foregoing
calculations (and the [**] referred to in (ii) below),
<PAGE>
if any booklets are paid for in one calendar year but are shipped in
the next subsequent calendar year, then such booklets shall be deemed
to have been both shipped and paid for in such subsequent calendar
year. Notwithstanding the foregoing, (i) [**] and for each calendar
year thereafter, [**] of the total number of booklets shipped and paid
for in the immediately preceding calendar year and (b) the Base Amount.
For example, if during a calendar year, [**] the Distributor would be
entitled to receive the [**] for the next subsequent calendar year for
[**] shipped and paid for within such next subsequent calendar year in
excess of the Base Amount. This calculation is based on determining
[**]."
2. The paragraph beneath the caption "INITIAL PRICE FOR ALL PRODUCTS" set
forth on SCHEDULE A to the Canadian Agreement (as set forth in Section
11 of the Restated Amendment) shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"[**] (subject to the [**] referred to in (ii) below); provided, that
for purposes of the foregoing calculations (and the [**] referred to in
(ii) below), if any booklets are shipped in one calendar year but are
paid for in the next subsequent calendar year, then such booklets shall
be deemed to have been both shipped and paid for in one calendar year;
provided, further, that for purposes of the foregoing calculations (and
the [**] referred to in (ii) below), if any booklets are paid for in
one calendar year but are shipped in the next subsequent calendar year,
then such booklets shall be deemed to have been both shipped and paid
for in such subsequent calendar year. Notwithstanding the foregoing (i)
[**] and for each calendar year thereafter, [**] of the total number of
booklets shipped and paid for in the immediately preceding calendar
year and (b) the Base Amount. For example, if during a calendar year,
[**] the Distributor would be entitled to receive the [**] for the next
subsequent calendar year for [**] shipped and paid for within such next
subsequent calendar year in excess of the Base Amount. This calculation
is based on determining [**]."
3. Notwithstanding the above amendments, the parties acknowledge that the
price for all booklets shipped in 1997 (regardless of when paid) shall
be calculated
2
<PAGE>
based on the terms of the Distribution Agreements in
effect prior to this amendment.
4. Each of us represents and warrants to the other that this amendment has
been duly authorized by all necessary corporate action and that any
consents required by either party in connection with this amendment
have been obtained by such party.
5. Except as modified by this amendment, the terms and provisions of each
of the Distribution Agreements shall remain in full force and effect.
If the foregoing accurately reflects our understanding, please
countersign where indicated below.
Very truly yours,
BOLLORE TECHNOLOGIES S.A.
By: /s/ VINCENT BOLLORE
----------------------------
Name: Vincent BOLLORE
Title: President Directeur
General
Agreed:
NORTH ATLANTIC OPERATING COMPANY INC.
By: /s/ THOMAS F. HELMS, JR.
---------------------------------
Name: Thomas F. Helms, Jr.
Title: President and Chief
Executive Officer
3
NYFS10...:\80\64980\0003\1948\LTR3048T.37A
EXHIBIT 10.32
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALES REPRESENTATIVE AGREEMENT
BETWEEN
NORTH ATLANTIC OPERATING COMPANY, INC.
AND
NATIONAL TOBACCO CO., L.P.
January 1, 1998
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. Engagement; License Grant..................................................1
1.1 Engagement of Representative.........................................1
1.2 License Grant........................................................1
2. Solicitation and Acceptance of Orders; Minimum Sales.......................1
2.1 Orders, Prices and Terms of Sale.....................................1
2.2 Acceptance of Orders.................................................2
2.3 Price List...........................................................2
3. Commissions................................................................2
3.1 Commissions Policy...................................................2
3.2 Disputes as to Entitlement to Commissions............................3
3.3 Net Sales Defined....................................................3
3.4 Payment of Commission................................................3
3.5 Full Compensation....................................................3
3.6 Currency.............................................................3
4. General Duties and Obligations of NAOC.....................................3
4.1 Education and Promotion..............................................3
4.2 Quotations and Order Acknowledgments.................................4
4.3 Registration of Trademarks...........................................4
4.4 Indemnification......................................................4
5. General Duties and Obligations of Representative...........................4
5.1 Best Efforts.........................................................4
5.2 Sales Personnel......................................................4
5.3 Conduct of Sales Activity;
Qualification to do Business in the Territory.......................4
5.4 Intellectual Property................................................5
5.5 Confidential Information.............................................6
5.6 Reporting............................................................6
5.7 Maintenance of Insurance Policies....................................6
5.8 Indemnification......................................................6
6. Term of Agreement..........................................................6
6.1 Term and Renewal.....................................................6
6.2 Early Termination....................................................7
7. Default and Termination....................................................7
7.1 Termination Without Notice...........................................7
7.2 Termination With Notice..............................................7
i
<PAGE>
8. Rights and Obligations of Representative on Termination of Agreement.......8
8.1 Returning Materials..................................................8
8.2 Payments on Termination..............................................8
8.3 Quotations...........................................................8
8.4 Covenant not to Compete..............................................8
9. Independent Contractor Relationship........................................9
10. Miscellaneous Provisions..................................................9
10.1 Entire Agreement; Amendment.........................................9
10.2 Severability........................................................9
10.3 Non-Assignability...................................................9
10.4 No Implied Waivers..................................................9
10.5 Governing Law.......................................................9
10.6 Captions...........................................................10
ii
<PAGE>
EXHIBITS
DESCRIPTION EXHIBIT
Products.......................................................................A
Territory......................................................................B
iii
<PAGE>
SALES REPRESENTATIVE AGREEMENT
THIS SALES REPRESENTATIVE AGREEMENT ("Agreement") is entered into and
effective as of January 1, 1998, by and between NORTH ATLANTIC OPERATING
COMPANY, INC., a Delaware corporation ("NAOC"), and NATIONAL TOBACCO CO., L.P.,
a Delaware limited partnership ("Representative").
RECITALS:
A. NAOC is the exclusive distributor of certain roll-your-own cigarette
papers and related products, all as described on Exhibit A attached hereto (the
"Products"), in the geographic territory described on Exhibit B hereto (the
"Territory")
B. Representative desires to serve as NAOC's exclusive sales representative
for the Products, pursuant to terms of this Agreement.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. ENGAGEMENT; LICENSE GRANT.
1.1 ENGAGEMENT OF REPRESENTATIVE. NAOC hereby appoints Representative,
and Representative hereby accepts the appointment, as NAOC's exclusive sales
representative within the Territory to solicit on behalf of NAOC orders for the
Products, upon the terms and subject to the conditions set forth herein. During
the Term, Representative shall not solicit orders for the sale of Products from
customers located outside the Territory. Representative's appointment as NAOC's
exclusive sales representative shall not prohibit NAOC from selling its Products
in the Territory, and Representative shall not be entitled to any commissions
with respect to such sales.
1.2 LICENSE GRANT. In connection with the engagement of Representative
as NAOC's sales representative, NAOC hereby grants to Representative a
non-exclusive and non-transferable right and license to use within the Territory
during the Term the trademarks owned or licensed by NAOC and used in connection
with the promotion and advertising of the Products.
2. SOLICITATION AND ACCEPTANCE OF ORDERS.
2.1 ORDERS, PRICES AND TERMS OF SALE. All of Representative's
solicitations shall be conducted in accordance with such procedures, prices,
terms and conditions as NAOC may specify from time to time during the Term.
Representative shall take all "Orders" (as defined herein) in the name of NAOC
under NAOC's then current terms and conditions and using such forms that NAOC
<PAGE>
may from time to time provide Representative. For the purposes of this
Agreement, an "Order" shall mean any commitment to purchase Products that is
binding on the customer issuing such order, subject only to acceptance by NAOC.
For all Orders secured by Representative as a sales representative, NAOC shall
have the absolute right to establish the prices, charges, terms and conditions
governing the sale of the Products and shall have sole responsibility to invoice
the customer and collect the purchase price therefrom.
2.2 ACCEPTANCE OF ORDERS. All Orders solicited by Representative shall be
subject to acceptance by an authorized representative of NAOC located at NAOC's
headquarters in Louisville, Kentucky. No Order shall be binding on NAOC until so
accepted. Before NAOC may accept an Order, such Order must be complete as to
terms, price, description, shipping and installation instructions. NAOC may
refuse to enter into any transaction for any reason which, in NAOC's sole
judgment, is reasonable grounds for refusal.
2.3 PRICE LIST. The price list furnished to Representative for Orders
solicited by it on behalf of NAOC as its sales representative shall remain
effective for ninety (90) days as to price and thirty (30) days as to delivery.
NAOC agrees to accept any Order under the same terms, conditions and pricing
within that time, except that NAOC shall have the right to place a different
validity period on any price list that it may provide Representative from time
to time during the Term.
3. COMMISSIONS.
3.1 COMMISSIONS POLICY. Subject to the provisions of this Agreement,
NAOC shall pay Representative, as Representative's sole and exclusive
compensation for all services rendered by it under this Agreement, the
percentage of NAOC's "net sales" (as defined in Section 3.3) set forth below in
connection with the sales described below:
(A) SALES IN TERRITORY SOLICITED BY REPRESENTATIVE.
Representative shall be entitled to receive a sales commission equal to 16.7% of
NAOC's net sales to a customer (i) whose Order was solicited by Representative,
(ii) whose address or location of its offices is within the Territory, and (iii)
who took shipment at a location or address within the Territory.
(B) SOLICITING DEFINED. For the purposes of this Agreement, a
Representative shall be deemed to have solicited an order from a customer only
if and to the extent that the Representative had directly and materially
participated in soliciting or obtaining such order for the sale of the Product.
3.2 DISPUTES AS TO ENTITLEMENT TO COMMISSIONS. If any question as to
whether Representative is entitled to any commission or as to the amount of such
commission arises, NAOC, in its sole judgment, shall determine whether
Representative is entitled to any commission and, if entitled to a commission,
the amount to which Representative is entitled.
3.3 NET SALES DEFINED. For purposes of this Agreement, the term "net
sales" shall mean the net invoice sales price for the sale and delivery of the
Products, after deduction for returns, allowances, discounts, freight and
2
<PAGE>
transportation costs, c.o.d. charges, sales taxes, insurance, collection costs
and any other charges against or attributable to the sale and installation of
the Product.
3.4 PAYMENT OF COMMISSION. NAOC shall pay Representative, monthly
within 30 days following the end of the month for which commissions are payable,
the commissions earned by Representative on revenue actually received by NAOC
for such sales during the immediately preceding month. NAOC reserves the right
to charge Representative any cost incurred by NAOC on orders resulting from
errors made by Representative in securing properly detailed information. To the
extent that NAOC is unable to collect any amount from a customer, which amount
represents a portion of NAOC's net sales for which a commission is payable to
Representative, NAOC shall not be liable to pay that portion of the commission
that is attributable to the uncollected amount.
3.5 FULL COMPENSATION. Commissions paid to Representative by NAOC
pursuant to this Section 3 shall constitute full compensation to which
Representative shall be entitled under this Agreement. Representative shall bear
the entire cost and expense of conducting its business operations including
salaries, commissions of its personnel, office and communications costs, travel
and advertising expenses and other similar expenses.
3.6 CURRENCY. The computation of the amount of all commissions earned
by Representative and all payments of such commissions to Representative shall
be made in United States Dollars.
4. GENERAL DUTIES AND OBLIGATIONS OF NAOC.
4.1 EDUCATION AND PROMOTION. During the Term, NAOC shall keep
Representative informed on a timely basis of changes and innovations to the
Products. NAOC shall also provide Representative, without charge, with
sufficient quantities of NAOC's promotional and advertising materials,
literature and catalogues, pricing and sales information, and technical data
related to the Products that NAOC reasonably determines Representative needs to
market the Products in the Territory.
4.2 QUOTATIONS AND ORDER ACKNOWLEDGMENTS. NAOC shall provide
Representative with copies of all quotations, order acknowledgments, purchase
orders, invoices and correspondence relating to Orders for which Representative
is entitled to a commission.
4.3 INDEMNIFICATION. NAOC shall indemnify Representative, its officers,
directors, employees, agents and assigns against, and hold all of them harmless
from, (a) all liabilities, obligations, losses, actual and consequential
damages, judgments, claims, deficiencies, penalties, taxes and other charges
incurred by Representative arising out of or resulting from NAOC's performance
of its obligations under this Agreement or from any default in the performance
by NAOC of its obligations hereunder, (b) any claim by any third party that the
Products infringe any patent, trademark or copyright of such third party, and
(c) all costs and expenses reasonably related to the foregoing, including
attorneys', accountants' and expert witnesses' fees, costs of investigations,
court costs and other litigation expenses.
3
<PAGE>
5. GENERAL DUTIES AND OBLIGATIONS OF REPRESENTATIVE; ADDITIONAL SERVICES. As
NAOC's sales representative, Representative shall perform the following duties
and services during the Term:
5.1 BEST EFFORTS. Representative shall devote its best efforts to promote
and solicit orders for the sale of the Products by NAOC within the Territory.
Representative shall negotiate for the sale of the Products in the Territory
under the NAOC standard terms and conditions and in accordance with instructions
received from NAOC from time to time during the Term. Representative shall also
cooperate generally with NAOC to the fullest extent in implementing the programs
and policies of NAOC regarding the sale of Products. Representative agrees to
(a) respond promptly to any reasonable request by NAOC for market information,
(b) forward promptly to NAOC any inquiry or other communication concerning the
Products, (c) cooperate fully with NAOC in dealing with any customer complaints
concerning the Products and to take such action and results on such complaints
as may be reasonably requested by NAOC, and (d) cooperate fully with NAOC in
connection with all customer support activity in the Territory related to the
Products.
5.2 SALES PERSONNEL. Representative acknowledges that it employs a
substantial number of sales persons to promote and sell Representative's own
products, and agree that such employee shall be employed by Representative with
respect to the promotion and sale of Products. Representative's sales persons
shall attend all training events sponsored by NAOC, and the cost of travel to
such training events shall be pay by Representative.
5.3 CONDUCT OF SALES ACTIVITY; QUALIFICATION TO DO BUSINESS IN THE
TERRITORY. Representative, for itself and its agents, representatives and
employees, shall conduct all sales activity in connection with the Products in a
lawful manner, consistent with the high standards of fair trade, fair
competition and business ethics. Representative shall make such filings and take
such actions as may be required to qualify to do business with all appropriate
governmental agencies located within the Territory under all applicable state
and local laws and rules that are necessary for it to perform its obligations
under this Agreement.
5.4 ADDITIONAL SERVICES.
(A) FINANCIAL AND ACCOUNTING SERVICES. Representative shall, on
behalf of NAOC, invoice customers for payment for Products and receive and
collect payment therefor. Such payments shall be remitted promptly upon receipt
to an account or accounts designated from time to time by NAOC. Additionally,
Representative shall provide NAOC with such accounting services as may be
reasonably requested by NAOC with respect to the sale of Products during the
Term.
(B) INVENTORY AND DISTRIBUTION MANAGEMENT. During the Term,
Representative shall take such steps as may be necessary to manage and control
inventory of Products on behalf of NAOC. Without limiting the generality of the
foregoing, Representative shall coordinate, on behalf of NAOC, receipt of
4
<PAGE>
Products from the manufacturer thereof, and shipment of such Products from the
port of entry to NAOC's warehouses. NAOC and Representative shall cooperate with
one another during the Term to ensure proper inventory management of Products.
5.5 CONFIDENTIAL INFORMATION. During the Term and after its expiration or
early termination, regardless of the reason for such termination. Representative
shall hold in confidence and not to use for any purpose or disclose to any
person except as otherwise reasonably required to perform its obligations
hereunder, any proprietary secret or confidential information relating to NAOC
or the Products, NAOC's marketing activities, processes, products, machinery,
apparatus or trade secrets or any other confidential information given to,
obtained or learned by Representative, its agents or employees in the course of
or as a result of performing its obligations under this Agreement.
5.6 INDEMNIFICATION. Representative shall indemnify NAOC, its officers,
directors, employees, agents and assigns against, and hold all of them harmless
from, all liabilities, obligations, losses, actual and consequential damages,
judgments, claims, deficiencies, penalties, taxes and other charges incurred by
NAOC arising out of or resulting from, directly or indirectly, (a)
Representative's performance of its obligations under this Agreement or from any
default in the performance by Representative of its obligations hereunder, (b)
any claim related to sale, distribution or use of any products manufactured,
sold or distributed by Representative (other than the Products), and (c) all
costs and expenses reasonably related to the foregoing, including attorneys',
accountants' and expert witnesses' fees, costs of investigations, court costs
and other litigation expenses.
6. TERM OF AGREEMENT.
6.1 TERM AND RENEWAL. The term of this Agreement shall commence on the
date hereof and expire on the first anniversary of such date, unless terminated
sooner as provided in this Agreement (the "Initial Term"). This Agreement shall
be renewed automatically for additional one year periods each ("Successive
Terms"), unless either party has terminated this Agreement pursuant to the
provisions of Section 6.2. or unless sooner terminated as provided in this
Agreement. For the purposes of this Agreement, the term "Term" shall mean the
Initial Term and each Successive Term for which this Agreement is renewed.
6.2 EARLY TERMINATION. At any time during the Term, either party may
terminate this Agreement for any reason and without cause by delivering notice
of termination to the other at least ninety (90) days prior to the date of
termination set forth in such notice. Such termination shall be effective as of
the date set forth in the notice.
7. DEFAULT AND TERMINATION.
7.1 TERMINATION WITHOUT NOTICE. Representative shall be in default under
this Agreement, and all rights granted Representative herein shall automatically
terminate without notice to Representative, if (a) Representative becomes
insolvent or makes a general assignment for the benefit of creditors, (b) a
petition in bankruptcy is filed by Representative or such a petition is filed
against and consented to by Representative, (c) a bill in equity or other
proceeding for the appointment of a receiver of Representative or any custodian
5
<PAGE>
for Representative's business or assets is filed and consented to by
Representative, (d) a proceeding for the composition with creditors under any
state or federal law should be instituted by or against Representative, (e)
execution is levied against Representative or any of Representative's property,
or a suit to foreclose any lien or mortgage against any of Representative's
premises or equipment is instituted against Representative and not dismissed
within sixty (60) days, or (f) any real or personal property of Representative
shall be sold after levy thereupon by any sheriff, marshall or constable.
7.2 TERMINATION WITH NOTICE. Representative shall be in default and
NAOC may terminate, at its option, this Agreement and all rights granted
Representative hereunder, without affording Representative any opportunity to
cure the default, effective immediately upon delivery of notice by NAOC, upon
the occurrence of any of the following events:
(A) CESSATION OF BUSINESS. If Representative ceases to operate
or otherwise abandons its business;
(B) PURPORTED ASSIGNMENT. If Representative purports to transfer
any rights or obligations under this Agreement without NAOC's prior consent;
(C) BREACH OF OBLIGATION OF CONFIDENCE. If Representative breaches
its obligation of non-disclosure, non-use and confidentiality set forth in
Section 5.5;
(D) MATERIAL MISREPRESENTATION IN REPORTS TO NAOC. If
Representative made or makes any material misrepresentation to NAOC in any
information or report provided NAOC prior to or during the Term; or
(E) BREACH OF OTHER PROVISIONS. If Representative fails to
comply substantially with any other requirements imposed by this Agreement, or
to perform the terms of this Agreement in good faith and fails to remedy such
deficiency within thirty (30) days or such longer period as applicable law may
require, after its receipt from NAOC of a notice, which specifies the
deficiencies and lists the steps that must be taken by Representative to correct
such deficiency.
8. RIGHTS AND OBLIGATIONS OF REPRESENTATIVE ON TERMINATION OF AGREEMENT. Upon
early termination of this Agreement, Representative shall take the following
steps:
8.1 RETURNING MATERIALS. Representative shall return all catalogs,
samples, price lists issued by NAOC and in Representative's possession or under
its control at the time of termination of this Agreement. All other records
pertaining to prices, quotations, specifications and customer lists shall be
treated as if they were confidential property of NAOC and returned to NAOC.
Representative shall bear the cost of shipment for all returned items.
8.2 PAYMENTS ON TERMINATION. Unless NAOC terminated this Agreement pursuant
to Section 7, Representative shall be entitled to continue to receive
commissions on all sales originating from Orders, for which Representative would
have been otherwise entitled to receive a commission pursuant to the provisions
of Section 3 and which were accepted by NAOC prior to the termination date,
provided that such sales are consummated prior to the end of the sixth month
following the date of termination of this Agreement. If NAOC terminates this
6
<PAGE>
Agreement pursuant to Section 7, Representative shall be entitled only to those
commissions earned and payable pursuant to the provision of Section 3.4 as of
the date of termination. All amounts payable by NAOC to Representative upon
termination of this Agreement are subject to the right of offset for all amounts
that NAOC reasonably believes are owed it by Representative. Representative
shall have no right whatever to any compensation for the termination or
non-renewal of this Agreement by NAOC in accordance with its terms, regardless
of the reasons for such termination or non-renewal.
8.3 QUOTATIONS. Within ten (10) days after termination of this
Agreement, Representative shall give to NAOC a list of all outstanding
quotations made by Representative on the Products. If NAOC elects to deliver any
orders which may result from such quotations, Representative shall be entitled
to commissions on such orders that NAOC may fill, provided that NAOC has not
terminated this Agreement pursuant to Section 7, and the customer under such
quotation takes delivery of the Product within six (6) months of the date of
termination of this Agreement.
9. INDEPENDENT CONTRACTOR RELATIONSHIP. Representative agrees that, regarding
all matters relating to this Agreement, it shall be deemed to be an independent
contractor and shall bear all of its own expenses in connection with this
Agreement. Representative shall have no authority, whether express or implied,
to assume or create any obligation on behalf of NAOC nor shall Representative
issue or cause to be issued any quotation or draft any letters or documents over
the name of NAOC, but rather shall use its own name for such purposes. In
dealing with third parties, Representative shall use only the phrases "an
independent sales representative" of NAOC to explain its relationships with
NAOC. Nothing contained in this Agreement shall be construed to (a) give either
party the power to direct and control the day-to-day activities of the other,
(b) constitute the parties as partners, joint venturers, co-owners or otherwise
as participants in a joint or common undertaking, or (c) constitute
Representative, its agents or employees as the agents or employees of NAOC or
grant them any power or authority to act for, bind or otherwise create or assume
any obligation on behalf of NAOC for any purpose whatever.
7
<PAGE>
10. MISCELLANEOUS PROVISIONS.
10.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
understanding between the parties regarding its subject matter. It supersedes
all prior or contemporaneous written or oral negotiations and agreements between
them regarding its subject matter. This Agreement may be amended only in
writing, signed by NAOC and Representative.
10.2 SEVERABILITY. If any provision of this Agreement is determined to
be invalid or unenforceable, the provision held invalid or unenforceable shall
be deemed to be severable from the remainder of the Agreement and shall not
cause the invalidity or unenforceability of the remainder of the Agreement.
10.3 NON-ASSIGNABILITY. Neither party may assign this Agreement or its
rights or obligations hereunder.
10.4 NO IMPLIED WAIVERS. No waiver by either party of any failure of
the other party to keep or perform any provision, covenant or condition of this
Agreement shall be deemed to be a waiver of any preceding or succeeding breach
of the same provision or a waiver of any other provision, covenant or condition.
All rights and remedies granted herein or referred to in this Agreement are
cumulative. If any party resorts to any one remedy, it shall not be precluded
from resorting to any other right or remedy provided it by law.
10.5 GOVERNING LAW. This Agreement, and the parties respective rights
hereunder, shall be governed exclusively by, and construed and enforced in
accordance with, the domestic laws of the Commonwealth of Kentucky (including
without limitation, the Kentucky Uniform Commercial Code).
10.6 CAPTIONS. The captions of the sections of this Agreement are
included for reference only and not intended to be part of the Agreement or in
any way define, limit or describe the scope or intent of the particular
provision in which they refer.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
NORTH ATLANTIC OPERATING COMPANY, INC. NATIONAL TOBACCO CO., L.P.
By: /s/ David I. Brunson By: /s/ David I. Brunson
--------------------------------- -----------------------------
Title: Executive Vice President Title: Executive Vice President
("NAOC") ("Representative")
8
<PAGE>
EXHIBIT A
---------
PRODUCTS
All current Zig-Zag products as per customer price list to include:
- - Zig-Zag White
- - Zig-Zag French/Orange
- - Zig-Zag I 1/2 Size
- - Zig-Zag Kutcorner Slowburn
- - Zig-Zag Kutcorner Freeburn
- - Zig-Zag King Size
- - Zig-Zag Double Wide
- - Zig-Zag Blister Packs
- - Zig-Zag Cigarette Rollers, Tubes, Injector Machines
- - Zig-Zag Vendor Display Systems
- - Zig-Zag Gold Standard Tobacco
- - Zig-Zag Lighter/Paper Displays
- - Zig-Zag Lighter Trays
<PAGE>
EXHIBIT B
---------
Territories
- -----------
United States
Canada
Hong Kong
Singapore
Dubai
Qatar
Oman
Jordan
EXHIBIT 10.33
AGREEMENT
Agreement made as of the 29th day of October, 1997, between National
Tobacco Company, L.P. ("National Tobacco") and North Atlantic Trading Company,
Inc. ("NATC"), each with offices at 257 Park Avenue South, New York, New York
10010; and Maurice Langston, 115592 Highway 107, Winfield, AL. 35594
("Langston").
WHEREAS, National Tobacco has requested that Langston consider
resigning his position as Executive Vice President - Sales of National Tobacco
and accept the position of Vice Chairman of the Board of NATC; and
WHEREAS, Langston has been employed by National Tobacco since April 26,
1988; and
WHEREAS, National Tobacco wishes to retain the services of Langston as
a consultant.
NOW, THEREFORE, in consideration of the mutual premises of this
Agreement, acknowledged by each of the parties, and other good and valuable
consideration, the parties agree as follows:
1. Langston shall resign his position as Executive Vice President -
Sales of National Tobacco and accept the position of Vice Chairman of the Board
of NATC, effective November 1, 1997.
2. Langston shall remain as a full time employee of National Tobacco
until February 28, 1998, at his current salary of $176,000.00.
3. As of March 1, 1998, Langston shall become a consultant to National
Tobacco pursuant to a Consulting Agreement in the form of Exhibit A hereto.
4. National Tobacco agrees during Langston's life to continue to cover
Langston and his wife under the Health Insurance Plan at Langston's expense (at
the same rates applicable to employees and retired employees, as the case may
be) and to provide him life insurance coverage of $280,000 for so long as such
coverage can be obtained at commercially reasonable rates (it being understood
that such coverage currently costs $1,800.00 per year).
5. NATC and Langston are parties to an Exchange and Stockholders'
Agreement dated the 25th day of June, 1997. NATC agrees to exercise its option
on or before December 31, 1998 to purchase 10,000 shares of NATC stock held by
Langston at a purchase price of $40 a share. Upon completion of the purchase,
NATC agrees to waive its option to purchase the remaining shares held by
Langston unless Langston wishes to offer same for sale. In connection with such
waiver, Langston agrees to enter into a right of first refusal agreement with
NATC pursuant to which Mr. Langston will grant NATC a sixty day right of first
refusal on mutually
<PAGE>
agreeable terms.
6. Concurrently with the execution of this Agreement, Mr. Langston
agrees to execute a Release in the form of Exhibit B hereto.
7. NATC agrees to make a loan to Mr. Langston to cover tax liability
resulting from the reorganization of National Tobacco in June 1997. This loan
will be made on or before April 15, 1998 on the same terms and conditions as
loans are made to other executives for the same purpose. Langston acknowledges
that the terms of such loan will require the payment of interest and periodic
payments of principal.
8. This Agreement shall be binding upon each of the parties hereto,
their respective successors, legal representative and assigns.
9. This Agreement may not be cancelled, changed or modified, except in
writing signed by the parties hereto with the same solemnity as the signing of
this Agreement.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed therein.
11. This Agreement, the Consulting Agreement and the Release constitute
the entire agreement between the parties and cannot be changed except by a
writing signed by each of them.
IN WITNESS WHEREOF, the parties have duly executed this Agreement in
New York, New York as of the date first written.
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
---------------------------------------------
NATIONAL TOBACCO COMPANY, L.P.
By: National Tobacco Finance Corporation,
its general partner
By: /s/ Thomas F. Helms, Jr.
---------------------------------------------
/s/ Maurice Langston
-------------------------------------------------
Maurice Langston
2
EXHIBIT 10.34
FIRST AMENDMENT TO THE AGREEMENT
THIS FIRST AMENDMENT TO THE AGREEMENT (this "First Amendment"), is made
and entered into effective as of 30th day of January, 1998, by and among
NATIONAL TOBACCO COMPANY, L.P. ("National Tobacco") and NORTH ATLANTIC TRADING
COMPANY, INC. ("NATC") (collectively, the "Companies"), and MAURICE LANGSTON
("Langston").
STATEMENT OF PURPOSE
The Companies have requested, and Langston has agreed, to amend the
Agreement dated October 29, 1997 (the "Agreement"), among the Companies and
Langston as provided herein, and subject to the terms and conditions hereof.
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to such terms in the Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained herein, the parties hereby agree as follows:
1. EXTENSION OF OPTION PERIOD. Section 5(a) of the Agreement
is hereby amended and restated in its entirety to read as follows:
5. (a) NATC and Langston are parties to an Exchange and
Stockholders' Agreement dated the 25th of June, 1997 (the
"Stockholders' Agreement"). NATC (or its designee(s)) agrees
to exercise its option on or before March 20, 1998 (the
"Exercise Date") to purchase 10,100 shares of NATC stock
held by Langston at a purchase price of $40 a share (the
"NATC Option") for an aggregate purchase price of $404,000
(the "Purchase Price"). NATC (or its designee(s)) shall pay
to Langston an additional amount equal to the fixed rate of
8% per annum of the Purchase Price from the period beginning
February 1, 1998 and ending on the exercise date of the NATC
Option. Subject to the provisions of Section 5(b) below,
upon completion of the purchase, NATC agrees to waive its
option to purchase the remaining shares held by Langston
unless Langston wishes to offer same for sale. In connection
with such waiver, Langston agrees to enter into a right of
first refusal agreement with NATC pursuant to which Mr.
Langston will grant NATC (or its designee(s)) a 60-day right
of first refusal on mutually agreeable terms.
2. APPLICABLE LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
3. COUNTERPARTS. This First Amendment may be executed in any number of
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one agreement.
4. AMENDMENT OR WAIVER. The parties agree that this First Amendment is
entered into in accordance with Section 9 of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed by their duly authorized officers, all as of the date first
above written.
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Name: Thomas F. Helms, Jr.
Title: Chief Executive Officer
NATIONAL TOBACCO COMPANY, L.P.
By: National Tobacco Finance
Corporation,
its general partner
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Name: Thomas F. Helms, Jr.
Title: Chief Executive Officer
/s/ Maurice Langston
------------------------------------
Maurice Langston
- 2 -
EXHIBIT 10.35
CONSULTING AGREEMENT
--------------------
AGREEMENT made as of this 29th day of October, 1997 between
NATIONAL TOBACCO COMPANY, L.P., a Delaware limited partnership with offices at
257 Park Avenue South, New York, New York 10010, (the "COMPANY"), and MAURICE
LANGSTON, who resides at 11592 Highway 107, Winfield, Alabama 35594 (the
"CONSULTANT").
W I T N E S E T H
-----------------
WHEREAS, the Company, its parent, North Atlantic Trading Company,
Inc. ("NATC"), and the Consultant are parties to that certain Agreement dated as
of October 29, 1997 (the "Agreement") pursuant to which the Consultant has
agreed to resign as Executive Vice President - Sales of the Company and become
Vice Chairman of the Board of NATC, and remain a full time employee of the
Company until February 28, 1998, (the "Termination Date"); and
WHEREAS, the Company desires to retain the Consultant to perform
consulting services for the Company after the Termination Date, and the
Consultant desires to render such services to the Company after the Termination
Date, in each case upon the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Retention as Consultant. The Company agrees to retain the
-----------------------
Consultant to perform consulting services after the Termination Date, and the
Consultant agrees to render such services to the Company after the Termination
Date, upon the terms and subject to the conditions hereinafter set forth. The
retention of the Consultant by the Company hereunder shall be effective and
shall commence immediately following the Termination Date until the first
anniversary of the Termination Date (the "INITIAL TERM"), and, thereafter, for
successive periods of 12 months each (each such successive period of 12 months
<PAGE>
being referred to as an "Additional Term") unless either party notifies the
other party in writing at least 60 days prior to the expiration of the Initial
Term or any Additional Term of its or his election not to renew the Consulting
Term, in which event the retention of the Consultant by the Company hereunder
shall terminate as of the conclusion of the Initial Term or such Additional
Term, as the case may be. For purposes hereof, the period of the Consultant's
retention hereunder shall be referred to as the "Consulting Term."
2. Duties and Extent of Services. The Consultant agrees that,
-----------------------------
during the Consulting Term, he shall act as a consultant to the Company under
the direction of the Chief Executive Officer or his designee. The Consultant
shall maintain his contacts with the smokeless tobacco industry and shall attend
related industry functions approved by the Company in advance. In addition, the
Consultant shall have such other or more specific responsibilities with respect
to the business of the Company or any of its affiliates as may be determined and
assigned to the Consultant from time to time by or upon the authority of the
Chief Executive Officer of Company. The Consultant shall serve the Company
faithfully and to the best of his ability in such capacities, devoting such
portion of his business time, attention, knowledge, energy and skills to such
service as shall be reasonable to perform his duties hereunder. The Consultant
shall travel as reasonably required in connection with the performance of his
duties hereunder and shall serve during any part of the Consulting Term as a
director of the Company or any other affiliate of the Company without any
compensation therefor other than as specified in this Agreement.
2
<PAGE>
3. Compensation and Benefits. The Company agrees to pay the
-------------------------
Consultant, as compensation for consulting services to be rendered by the
Consultant under and pursuant to this Agreement, a consulting fee consisting of
the following:
(a) A base fee, payable in accordance with the Company's standard
payroll practices for senior executive employees, at an annual rate of $50,000
during the Consulting Term (THE "CONSULTING FEE").
(b) Prompt reimbursement for all reasonable business-related
expenses incurred by the Consultant in accordance with the policies and
procedures of the Company.
(c) The use of a company car in accordance with the policies and
procedures of the Company.
3
<PAGE>
4. Confidentiality; Non-Competition.
--------------------------------
(a) The Consultant agrees that during the Consulting Term and for
a period of one year commencing upon the termination of the Consulting Term, the
Consultant will not, directly or indirectly, without the prior written consent
of the Company:
(i) disclose (unless required by law or court order or
other judicial or administrative process) or use any confidential
or secret information relating to Company or any of its
subsidiaries; or
(ii) engage in (other than through the ownership of five
percent (5%) or less or any class of securities registered under
the Securities Exchange Act of 1934, as amended), the marketing
and distribution of smokeless tobacco products in the United
States.
4
<PAGE>
(b) The Consultant consents and agrees that if he violates any of
the provisions of Section 4(a), the Company would sustain irreparable harm and,
therefore, in addition to any other remedies which the Company may have under
this Agreement or otherwise, the Company shall be entitled to apply to any court
of competent jurisdiction for an injunction restraining the Consultant from
committing or continuing any such violation of this Agreement, and the
Consultant shall not object to any such application. Nothing in this Agreement
shall be construed as prohibiting the Company from pursuing any other remedy or
remedies including, without limitation, recovery of damages.
5. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be delivered personally
or sent by registered or certified mail, return receipt requested, to the other
5
<PAGE>
party hereto at its address as set forth at the beginning of this Agreement, in
either case with a copy to counsel at the following address: (a) with respect to
the Company, National Tobacco Company, L.P., 257 Park Avenue South, New York, NY
10026 and (b) with respect to the Consultant, Attention: Maurice Langston at the
address set forth in the recital, with a copy to Jerrietta R. Hollinger, Esq.,
Ganz Hollinger & Towe, 1394 Third Avenue, New York, New York 10021. Any party
may change the address to which notices, requests, demands and other
communications hereunder shall be sent by sending written notice of such change
of address to the other parties hereto.
6. Assignability, Binding Effect and Survival. This Agreement
------------------------------------------
shall inure to the benefit of and shall be binding upon the Company, the
Consultant and their respective heirs, successors and assigns. Notwithstanding
the foregoing, the obligations of the Consultant may not be delegated and the
Consultant may not assign, transfer, pledge, encumber, hypothecate or otherwise
dispose of this Agreement, or any of his rights hereunder, and any such
attempted delegation or disposition shall be null and void and without effect;
provided, however, the Company shall be permitted to assign or transfer this
6
<PAGE>
Agreement to Company or any of its subsidiaries so long as the duties and
responsibilities of the Consultant remain substantially similar to those
contained in this Agreement. The provisions of Sections 4 and 5 shall survive
the termination of the Consultant's consulting services pursuant to this
Agreement and, to the extent appropriate to the intention of the parties and the
subject matter of this Agreement, other rights and obligations of the parties
may survive the termination of this Agreement.
7. Complete Understanding; Amendment. This Agreement constitutes
---------------------------------
the complete understanding and agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior negotiations,
representations and agreements made by and between such parties. This Agreement
shall not be altered, modified, amended or terminated except by written
7
<PAGE>
instrument signed by each of the parties hereto. Waiver by either party hereto
of any breach hereunder by the other party shall not operate as a waiver of any
other breach, whether similar to or different from the breach waived.
8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
9. Section Headings. The Section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8
<PAGE>
10. Severability. If any provision of this Agreement or the
------------
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and enforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced for the
maximum period and to the fullest extent permitted by law.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
NATIONAL TOBACCO COMPANY, L.P.
By: National Tobacco Finance Corporation
, its general partner
By: /s/ Thomas F. Helms, Jr.
--------------------------------------
Name: Thomas F. Helms, Jr.
Title: President and Chief Executive Officer
/s/ Maurice Langston
---------------------------------
MAURICE LANGSTON
10
EXHIBIT 10.36
RELEASE AGREEMENT
-----------------
This RELEASE AGREEMENT (AAgreement@) is made and entered into by and
among MAURICE LANGSTON (ALangston@); and NATIONAL TOBACCO COMPANY, L.P.
(ANational Tobacco@ or the ACompany@) and North Atlantic Trading Company, Inc.
("NATC").
RECITALS:
--------
1. Pursuant to the terms of an Agreement (the "Separation Agreement")
dated as of October 29, 1997 among Langston, the Company and NATC, effective
November 1, 1997, Langston will be resigning as National Tobacco's Executive
Vice President of Sales and will assume the position of Vice-Chairman of NATC.
Effective February 28, 1998, Langston's employment with the Company will be
terminated, and he will be assuming a consulting role with the Company pursuant
to a Consulting Agreement dated as of October 29, 1997 (the "Consulting
Agreement").
2. Langston, National Tobacco and NATC are desirous of settling any and
all claims and disputes, known and unknown, that exist or might be claimed to
exist between Langston, National Tobacco and NATC (including the AReleasees@ as
defined in Paragraph 2 of this Agreement), including, but not limited to, claims
of any nature that have been, or could have been, asserted that arise out of or
relate to Langston=s employment, terms and conditions of employment, separation
from that employment or any other event, transaction, or communication between
Langston, National Tobacco, NATC or the other persons or entities named herein.
AGREEMENT:
---------
1. Financial Settlement. In consideration of the promises made by
--------------------
Langston in the remainder of this Agreement, National Tobacco and NATC agree to
enter into the Separation Agreement and to perform their respective obligations
thereunder, including the retention of Langston as a Consultant and the
repurchase of certain shares of NATC common stock Langston currently holds,
which Langston is not otherwise entitled to receive, upon the execution of this
Agreement.
<PAGE>
2. General Release. In consideration of the Separation Agreement,
---------------
Langston hereby settles, waives, releases and discharges any and all claims,
demands, actions or causes of action, known or unknown, which he has or may have
against National Tobacco, NATC, any of their respective subsidiaries,
affiliates, directors, officers, shareholders, agents, attorneys, or current or
former employees, (collectively, the "Releasees"). This Agreement includes, but
is not limited to, the release of claims arising from or during Langston=s
employment with National Tobacco, the terms and conditions of that employment,
his separation from that employment, or any other event, transaction or
communication between Langston and the Releasees. Langston recognizes that by
signing this Agreement, he may be giving up some claim, demand or cause of
action, which he now may have, whether known or unknown.
This Agreement includes, but is not limited to, the release of any and
all claims or charges of discrimination Langston could have filed against
Releasees with the Equal Employment Opportunity Commission ("EEOC"), the United
States Department of Labor, the Kentucky Labor Cabinet, the Kentucky Commission
on Human Rights, or any other state or local civil rights agency; claims under
Title VII of the Civil Rights Act of 1964, 42 U.S.C. ' 2000e et seq.; the Civil
Rights Act of 1991, P.L. 102-166; the Civil Rights Act of 1866, 42 U.S.C. '
1981; the Civil Rights Act of 1871, 42 U.S.C. ' 1983; the Americans with
Disabilities Act, 42 U.S.C. ' 12101 et seq.; the Fair Labor Standards Act of
1938, 29 U.S.C. ' 201 et seq.; the Family and Medical Leave Act of 1993, 29
U.S.C. ' 2601 et seq.; the Employee Retirement Income Security Act of 1974, 29
U.S.C. ' 1001 et seq.; the Federal Rehabilitation Act of 1973, 29 U.S.C. ' 701
et seq.; the Equal Pay Act of 1963, 29 U.S.C. " 206(d) and 216(b); the Uniformed
Services Employment and Reemployment Rights Act of 1994, 38 U.S.C. ' 4301, et
seq.; the Kentucky Civil Rights Act, KRS 344.010 et seq.; the Kentucky Equal
Opportunities Act, KRS 207.140 et seq.; the Kentucky Wages and Hours Act, KRS
337.010 et seq.; KRS 342.197 (Workers' Compensation Retaliation); and any other
claims of employment discrimination, retaliation, infliction of emotional
distress, defamation, invasion of privacy, loss of consortium, tortious
interference with contractual relations, wrongful termination, outrage,
promissory estoppel, claims or demands arising under either express or implied
contract, breach of contract, tort, public policy, the common law, or any
federal, state or local statute, ordinance, regulation or constitutional
provision, or other liabilities, suits, debts, claims for back pay, front pay,
compensatory or punitive damages, actual damages, consequential damages,
emotional distress, damages for humiliation and embarrassment, contractual
damages, injunctive relief, severance pay, costs, reinstatement, attorneys'
fees, business expenses, commissions, bonuses, vacation pay, incentive
compensation plans, pension benefits, or payment or reimbursement under any
health insurance or other employee benefit plan, insurance premiums or other
2
<PAGE>
sums of money, grievances, expenses, demands, controversies of every kind and
description, whether liquidated or unliquidated, known or unknown, contingent or
otherwise and whether specifically mentioned or not, that Langston now has or
has had or which may exist or might be claimed to exist at or prior to the date
of this Agreement against Releasees. Langston specifically waives any claim or
right to assert that any cause of action, alleged cause of action, claim, charge
or demand has been, through oversight or error, intentionally or
unintentionally, omitted from this Agreement.
3. Specific Release Of Age Claims.
------------------------------
(a) Langston agrees that in exchange for the consideration received
from National Tobacco and NATC described in Paragraph 1 of this Agreement (which
Langston agrees constitutes consideration for all commitments made herein in
addition to anything of value to which he is already entitled), that this
Agreement constitutes a knowing and voluntary release and waiver of all rights
or claims he may have against Releasees including, but not limited to, all
rights or claims arising under the Age Discrimination in Employment Act of 1967,
29 U.S.C. " 621-634, as amended by the Older Workers' Benefit Protection Act,
P.L. 101-433 ("ADEA"), including, but not limited to, all claims of age
discrimination in employment and all claims of retaliation in violation of the
ADEA and any state statute or local ordinance barring age discrimination.
(b) Langston and Releasees agree that, by entering into this Agreement,
Langston does not waive rights or claims that may arise after the date this
Agreement is executed.
(c) Langston represents and warrants that Releasees advised him in
writing to consult with an attorney prior to executing this Agreement and that
he in fact did consult with an attorney. Langston further represents and
warrants that Releasees provided him a period of at least twenty-one (21) days
in which to consider this Agreement before executing this Agreement.
(d) Langston and Releasees agree that, for a period of seven (7) days
following the execution of this Agreement, Langston has the right to revoke this
Agreement, and Langston and Releasees further agree that this Agreement shall
not become effective or enforceable until the revocation period of seven (7)
days has expired. Langston agrees that if he revokes this Agreement within such
3
<PAGE>
time period or if he otherwise breaches this Agreement, he will return to
National Tobacco and NATC the full amount of consideration provided to him in
this Agreement, without offset for any reason, at the time of the revocation or
breach, and agrees that the Separation Agreement and all obligations of National
Tobacco and NATC thereunder shall thereupon terminate.
(e) Langston agrees that if he executes this Agreement at any time
prior to the end of the period that Releasees provided him in which to consider
this Agreement, such early execution was a knowing and voluntary waiver of his
right to consider this Agreement for at least twenty-one (21) days, and was due
to his desire to immediately receive consideration provided hereunder and his
belief that he had ample time in which to consider and understand this
Agreement, and in which to review this Agreement with an attorney.
4. Dismissal Of Claims. Langston represents that he has not filed any
-------------------
complaint or charges against the Releasees with any local, state or federal
court, agency or board, based on events occurring prior to and including the
date of the signing of this Agreement.
5. No Reinstatement Or Reapplication. Langston agrees that he will not
---------------------------------
attempt to procure employment or seek reinstatement with National Tobacco or
NATC at any time, now or in the future.
6. Non-participation. Langston specifically represents and agrees that
-----------------
he will not in the future participate in any way in any claims filed by any
other governmental agency(ies), association(s), business(es), organization(s),
entity(ies), or individual(s) in any local, state or federal court or any
actions before any local, state or federal agency or board (except as required
by law, or at the request of National Tobacco or NATC) based upon any events or
facts occurring prior to and including the date of the signing of this
Agreement.
7. Complete Release. It is the specific intent and purpose of this
----------------
Agreement to release and discharge the Releasees from liability for any and all
claims, employment discrimination charges, and causes of action of any kind or
nature whatsoever, whether known or unknown, and whether specifically mentioned
or not, which may exist or might be claimed to exist at or prior to the date
hereof, and Langston specifically waives any claim or right to assert that any
cause of action or alleged cause of action or charge has been, through oversight
or error, intentionally or unintentionally, omitted from this Agreement.
Langston expressly agrees that this Agreement shall extend and apply to all
unknown, unsuspected and unanticipated injuries and damages as well as those
4
<PAGE>
that are now disclosed. Any and all facts, circumstances and events occurring
prior to the signing of this Agreement cannot be used by Langston as part of any
future proceeding against the Releasees.
8. Tax Responsibility. Langston is advised that National Tobacco and
------------------
NATC will be reporting the existence of this Agreement and the Separation
Agreement to the appropriate taxing authorities. Langston agrees to pay all
federal, state and local taxes related to his receipt of any and all income
pursuant to this Agreement and the Separation Agreement (other than the
employer's FICA responsibility while Langston is an employee). Langston further
understands that (other than the employer's FICA responsibility while Langston
is an employee)he will be responsible for all liability, including any
penalties, tax assessments or interest, arising out of payments made pursuant to
this Agreement. Langston also understands and agrees that he will defend and
indemnify National Tobacco and NATC for any tax, interest or penalty assessed
against National Tobacco as a result of payments received by him under this
Agreement, and will solely bear all such costs associated with any assessment.
9. Non-Admission. Langston acknowledges that this Agreement is being
-------------
entered into as a full and final settlement of any disputed claims and is not to
be construed in any manner as an admission of any liability or obligation on the
part of the Releasees.
10. Complete Agreement. This Agreement, the Separation Agreement and
------------------
Consulting Agreement constitute the entire agreement between the parties and
supersede any and all prior contemporaneous, oral or written agreements or
understandings between the parties. No representation, promise, inducement or
statement of intention has been made by the Releasees that is not embodied in
this Agreement, the Separation Agreement or the Consulting Agreement. No party
shall be bound by or liable for any alleged representation, promise, inducement,
or statement of intention not contained in this Agreement. This Agreement cannot
be amended, modified, or supplemented in any respect except by subsequent
written agreement signed by all parties hereto.
11. Indemnification. Langston agrees to indemnify and hold the
---------------
Releasees harmless from and against any and all loss, cost, damage, or expense,
including, but not limited to, reasonable attorneys= fees, incurred by the
Releasees arising out of any breach by Langston of this Agreement.
5
<PAGE>
12. Legal Rights. The Releasees will have all of the rights and
-------------
remedies available at law and equity to enforce their rights under this
Agreement. Should it be held at any time by a court of competent jurisdiction
that any of the obligations, covenants or agreements set forth in this Agreement
are illegal, invalid or unenforceable, the validity of the remaining parts,
terms, or provisions shall not be affected thereby and any illegal, invalid or
unenforceable parts, terms or provisions shall be deemed not to be a part of
this Agreement.
13. Choice Of Law. This Agreement shall be interpreted and enforced in
-------------
accordance with the laws of the Commonwealth of Kentucky. Langston consents to
the exclusive jurisdiction of courts located in Kentucky, agreeing to waive any
argument of lack of personal jurisdiction or forum non-conveniens with respect
to any claim or controversy arising out of or relating to this Agreement,
Langston=s employment with National Tobacco, Langston=s separation from that
employment, and any other event, contact or communication involving Langston and
the Releasees.
PLEASE READ CAREFULLY
---------------------
I, MAURICE LANGSTON, EXPRESSLY ACKNOWLEDGE, REPRESENT AND WARRANT THAT
I HAVE CAREFULLY REVIEWED THIS AGREEMENT; THAT I FULLY UNDERSTAND THE TERMS,
CONDITIONS AND SIGNIFICANCE OF THIS AGREEMENT; THAT I HAVE HAD AMPLE TIME TO
CONSIDER AND NEGOTIATE THIS AGREEMENT; THAT THE COMPANY HAS ADVISED ME IN
WRITING TO CONSULT WITH AN ATTORNEY CONCERNING THIS AGREEMENT; THAT I HAVE HAD A
FULL OPPORTUNITY TO REVIEW THIS AGREEMENT WITH AN ATTORNEY AND HAVE DONE SO OR
HAVE DECLINED TO DO SO; AND THAT I HAVE EXECUTED THIS AGREEMENT KNOWINGLY,
VOLUNTARILY, AND WITH SUCH ADVICE FROM AN ATTORNEY AS I DEEMED APPROPRIATE.
Date: October 29, 1997
/s/ Maurice Langston
------------------------------------
MAURICE LANGSTON
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
Before me, a Notary Public in and for the State and County aforesaid,
personally appeared Maurice Langston. I hereby certify that the foregoing
Release Agreement was subscribed and sworn to before me by the foregoing person,
who acknowledged that the execution thereof was his free act and deed.
In TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this 29th day of October, 1997.
My Commission expires: September 15, 1999
------------------------
/s/ Stephanie Robertson
----------------------------
NOTARY PUBLIC
6
<PAGE>
NATIONAL TOBACCO COMPANY, L.P.
By: NATIONAL TOBACCO FINANCE
CORPORATION
Its:General Partner
By: /s/ Thomas F. Helms, Jr.
--------------------------------
Its: President and
Chief Executive Officer
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
Before me, a Notary Public in and for the State and County
aforesaid, personally appeared Thomas F. Helms, Jr. as President and Chief
Executive Officer of National Tobacco Finance Corporation. I hereby certify that
the foregoing Release Agreement was subscribed and sworn to before me by the
foregoing person, who acknowledged that the execution thereof was his free act
and deed.
In TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this 29th day of October, 1997.
My Commission expires: September 15, 1999
------------------------
/s/ Stephanie Robertson
----------------------------
NOTARY PUBLIC
7
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ Thomas F. Helms, Jr.
-------------------------------
Its: President and
Chief Executive Officer
STATE OF NEW YORK )
)SS:
COUNTY OF NEW YORK )
Before me, a Notary Public in and for the State and County
aforesaid, personally appeared Thomas F. Helms, Jr. as President and Chief
Executive Officer of North Atlantic Trading Company, Inc. I hereby certify that
the foregoing Release Agreement was subscribed and sworn to before me by the
foregoing person, who acknowledged that the execution thereof was his free act
and deed.
In TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this 29th day of October, 1997.
My Commission expires: September 15, 1999
------------------------
/s/ Stephanie Robertson
----------------------------
NOTARY PUBLIC
8
EXHIBIT 10.37
NORTH ATLANTIC TRADING COMPANY, INC.
1998 EXECUTIVE COMMITTEE BONUS PLAN
. The 1998 Executive Committee Bonus Plan (the "Executive Plan") is based on
the Company achieving its budgeted EBITDA, determined on a consolidated
basis in accordance with the Company's 1998 budget. The participants in the
Executive Plan are Thomas F. Helms, Jr., Jack Africk, David I. Brunson and
Jeffrey S. Hay.
. In the event the Company's EBITDA for 1998 equals or exceeds budgeted
EBITDA, the participants in the Executive Plan shall be entitled to receive
bonuses as follows:
Participants Bonus Amount
------------ ------------
Helms 100% of base salary
Africk 50% of base salary
Brunson 50% of base salary
Hay 50% of base salary
. In the event the Company's EBITDA for 1998 is less than the budgeted
EBITDA, the Management Committee, acting with the advice of the
Compensation Committee, shall have the right to make discretionary bonus
payments to one or more of the participants in the Executive Plan.
. If the Management Committee determines that it is highly probable that
bonuses will be earned pursuant to the Executive Plan, it shall have the
right to accelerate the payment of such bonuses if requested by a
participant for tax purposes, subject to receiving a written undertaking to
repay such amounts if in fact no bonus is earned.
. Nothing in this Executive Plan restricts the Management Committee from
approving other bonuses for any participant in the Executive Plan.
EXHIBIT 10.38
NORTH ATLANTIC TRADING COMPANY, INC.
1998 MANAGEMENT BONUS PLAN
. The 1998 Management Bonus Plan (the "Management Plan") is based on (1) the
Company achieving its budgeted EBITDA, determined on a consolidated basis
in accordance with the Company's 1998 budget, and (2) each participant's
individual performance level during 1998. The participants in the
Management Plan are Ronald Beasley, Steve Dickman, Jim Hinely, Chris
Kounnas, Jay Martin, Alan Minsterketter, Ray Orlandi, Cliff Ray and John
Todd.
. In the event the Company's EBITDA for 1998 equals or exceeds budgeted
EBITDA, each participant in the Management Plan shall be eligible to be
considered for a bonus in an amount up to twenty-five percent (25%) of such
participant's base salary, with the amount of each bonus being based on
such participant's level of performance for 1998. Each participant's level
of performance shall be evaluated based on performance criteria established
between such participant and his supervisor.
. In the event the Company's EBITDA for 1998 is less than budgeted EBITDA,
the Executive Committee, acting with the advice of the Compensation
Committee, shall have the right to make discretionary bonus payments to one
or more of the participants in the Management Plan.
. Participants in the Management Plan shall not have the right to participate
in any other bonus plan established by the Company for the 1998 fiscal
year.
EXHIBIT 16
North Atlantic Trading Company, Inc.
257 Park Avenue South
New York, New York 10010-7304
We are providing this letter to you for inclusion as an exhibit to your form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's disclosure of the change in accounting from the
intrinsic value based method for measuring stock compensation cost to the fair
value based method contained in the company's Form 10-K for the year ended
December 31, 1997. Because the fair value based method is designated as the
preferred method by Statement of Financial Accounting Standards (SFAS) No. 123,
we concur that the newly adopted accounting principle described above is
preferable in the Company's circumstances to the method previously applied.
Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 6, 1998
NYFS10...:\80\64980\0003\1948\FRM1128P.09K
EXHIBIT 21
SUBSIDIARIES OF NORTH ATLANTIC TRADING COMPANY, INC.
NAME OF CORPORATION STATE OF INCORPORATION
- ------------------- ----------------------
National Tobacco Finance Corporation Delaware
National Tobacco Company, L.P. Delaware
North Atlantic Operating Company, Inc. Delaware
International Flavors and Technology, Inc. Delaware
NYFS10...:\80\64980\0003\1948\FRM1128P.09K
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from
the financial statements contained in the body of the accompanying
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,087
<SECURITIES> 0
<RECEIVABLES> 4,633
<ALLOWANCES> 0
<INVENTORY> 56,110
<CURRENT-ASSETS> 71,874
<PP&E> 10,904
<DEPRECIATION> 2,653
<TOTAL-ASSETS> 273,239
<CURRENT-LIABILITIES> 22,628
<BONDS> 0
34,581
0
<COMMON> 5
<OTHER-SE> (12,086)
<TOTAL-LIABILITY-AND-EQUITY> 273,239
<SALES> 84,430
<TOTAL-REVENUES> 84,430
<CGS> 27,665
<TOTAL-COSTS> 27,665
<OTHER-EXPENSES> (35)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,361
<INCOME-PRETAX> 8,267
<INCOME-TAX> 852
<INCOME-CONTINUING> 7,414
<DISCONTINUED> 0
<EXTRAORDINARY> (7,121)
<CHANGES> 0
<NET-INCOME> (1,975)
<EPS-PRIMARY> (3.73)
<EPS-DILUTED> (3.23)
</TABLE>
