<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ST. JOE PAPER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LETTERHEAD OF ST. JOE PAPER COMPANY]
April 11, 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of the Stockholders
of St. Joe Paper Company (the "Company") to be held at 10:00 a.m. local time on
April 24, 1996 in the Admiralty Room at the Radisson Riverwalk Hotel at St.
John's Place, 1515 Prudential Drive, Jacksonville, Florida. Notice of the
Special Meeting and the Proxy Statement covering the formal business of the
meeting are enclosed.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the sale by the Company of those assets of St. Joe Forest
Products Company ("SJFP") that are related to its paper mill business to PSJ
Paper Company L.L.C. ("JV") (a joint venture organized by Four M Corporation
("FMC") and Stone Container Corporation) and of St. Joe Container Company
("SJCC") that are related to its container business to FMC pursuant to an Asset
Purchase Agreement dated as of November 1, 1995, as amended (the "Sale
Transaction"), among the Company, SJFP, and SJCC on one hand, and FMC and JV on
the other hand (the "Agreement"). Details of the Sale Transaction and the
Agreement are set forth in the enclosed Proxy Statement, which you are urged to
read carefully.
Your Board of Directors believes that the Sale Transaction is in the best
interests of the Company and its stockholders. In arriving at its decision to
recommend the Sale Transaction, the Board carefully reviewed and considered the
terms and conditions of the Sale Transaction and the factors described in the
enclosed Proxy Statement.
Approval of the Sale Transaction requires the affirmative vote of a
majority of the holders of the Company's issued and outstanding shares of common
stock, no par value per share (the "Common Stock"). YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE SALE TRANSACTION AND RECOMMENDS THAT HOLDERS OF COMMON
STOCK VOTE FOR APPROVAL OF THE SALE TRANSACTION. Director H.L. Brainin, who had
previously advised the Company that he had accepted employment with FMC whether
or not the Board selected FMC's bid, did not attend the portion of the Board
meeting at which the Sale Transaction was approved. See "The Sale
Transaction -- Conflicts of Interest."
The Alfred I. duPont Testamentary Trust, which has the sole right to vote
approximately 70% of the Common Stock, has advised the Company that it intends
to vote its shares in favor of the Sale Transaction, subject to certain
conditions. Assuming these conditions are satisfied, approval of the Sale
Transaction by the holders of a majority of the shares of Common Stock will be
assured.
If you are a holder of the Common Stock, whether or not you plan to attend
the meeting, please fill in the appropriate box, sign and date the enclosed
proxy card and return it in the envelope provided for that purpose. If you
attend the meeting and wish to vote in person, you may do so by withdrawing your
proxy prior to the meeting. Under Florida law, if you abstain from voting, your
abstention will be treated as a "no" vote for purposes of determining whether
approval of the Sale Transaction has been obtained.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ W. L. THORNTON
W. L. Thornton
Chairman and Chief Executive Officer
<PAGE> 3
ST. JOE PAPER COMPANY
DUPONT CENTER SUITE 400
1650 PRUDENTIAL DRIVE
JACKSONVILLE, FLORIDA 32207
------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 1996
------------------------------------------
Notice is hereby given that a Special Meeting of the stockholders of St.
Joe Paper Company, a Florida corporation (the "Company") will be held on April
24, 1996, at 10:00 a.m. local time in the Admiralty Room at the Radisson
Riverwalk Hotel at St. John's Place, 1515 Prudential Drive, Jacksonville,
Florida, for the purpose of considering and voting upon the following:
1. A proposal to approve the sale by the Company of those assets of
St. Joe Forest Products Company ("SJFP") that are related to its paper mill
business to PSJ Paper Company L.L.C. ("JV") (a joint venture organized by
Four M Corporation ("FMC") and Stone Container Corporation) and of St. Joe
Container Company ("SJCC") that are related to its container business to
FMC pursuant to an Asset Purchase Agreement dated as of November 1, 1995,
as amended, among the Company, SJFP, and SJCC on one hand, and FMC and JV
on the other hand.
2. Such other business as may properly come before the Special Meeting
and any adjournment thereof.
Holders of record of the Company's common stock, no par value per share
(the "Common Stock"), at the close of business on March 8, 1996 are entitled to
notice of, and to vote at, the Special Meeting and any adjournment thereof.
If you are a holder of Common Stock, please fill in the appropriate box,
sign, date and return the enclosed proxy card, whether or not you plan to attend
the Special Meeting. If you attend the meeting and wish to vote in person, you
may do so by withdrawing your proxy prior to the Special Meeting.
By order of the Board of Directors
/s/ RONALD A. ANDERSON
Ronald A. Anderson
Secretary
April 11, 1996
<PAGE> 4
ST. JOE PAPER COMPANY
DUPONT CENTER SUITE 400
1650 PRUDENTIAL DRIVE
JACKSONVILLE, FL 32207
------------------------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 1996
------------------------------------------
This Proxy Statement is being furnished to the holders of record as of the
close of business on March 8, 1996 of the common stock, no par value (the
"Common Stock"), of St. Joe Paper Company, a Florida corporation (the
"Company"), in connection with the solicitation of proxies by the Company's
Board of Directors (the "Board" or "Board of Directors") for use at a special
meeting of stockholders of the Company (the "Special Meeting") to be held on
April 24, 1996 at 10:00 a.m. local time in the Admiralty Room at the Radisson
Riverwalk Hotel at St. John's Place, 1515 Prudential Drive, Jacksonville,
Florida, and at any adjournment thereof. This Proxy Statement and the
accompanying proxy card are first being mailed to stockholders of the Company on
or about April 11, 1996.
At the Special Meeting, holders of the Common Stock will be asked to
consider and vote upon (i) a proposal to approve the sale by the Company of
those assets of St. Joe Forest Products Company ("SJFP") that are related to its
paper mill business to PSJ Paper Company L.L.C. ("JV") (a joint venture
organized by Four M Corporation ("FMC") and Stone Container Corporation) and of
St. Joe Container Company ("SJCC") that are related to its container business to
FMC pursuant to an Asset Purchase Agreement dated as of November 1, 1995, as
amended (the "Sale Transaction"), among the Company, SJFP, and SJCC on one hand,
and FMC and JV on the other hand (the "Agreement"); and (ii) such other business
as may properly come before the Special Meeting and any adjournment thereof. The
Sale Transaction and the Agreement are described more thoroughly in this Proxy
Statement and in the documents attached hereto which the stockholders are urged
to read carefully.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE
TRANSACTION AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE SALE TRANSACTION.
Director H.L. Brainin, who had previously advised the Company that he had
accepted employment with FMC whether or not the Board selected FMC's bid, did
not attend the portion of the Board meeting at which the Sale Transaction was
approved. See "The Sale Transaction -- Conflicts of Interest."
The Alfred I. duPont Testamentary Trust, which has the sole right to vote
approximately 70% of the Common Stock, has advised the Company that it intends
to vote its shares in favor of the Sale Transaction, subject to certain
conditions. Assuming these conditions are satisfied, approval of the Sale
Transaction by the holders of a majority of the shares of Common Stock will be
assured. See "The Special Meeting -- Intention of Majority Stockholder to Vote
in Favor of the Sale Transaction."
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON. ALL INFORMATION PERTAINING TO THE BUYER AND
ITS AFFILIATES CONTAINED IN THIS PROXY STATEMENT HAS BEEN SUPPLIED BY THE BUYER.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE SPECIAL MEETING................................................................... 2
Time, Date and Place............................................................. 2
Matters to be Considered at the Special Meeting.................................. 2
Record Date, Voting Securities and Quorum........................................ 2
Vote Required.................................................................... 2
Intention of Majority Stockholder to Vote in Favor of the Sale Transaction....... 2
No Appraisal Rights.............................................................. 3
Proxies.......................................................................... 3
THE SALE TRANSACTION.................................................................. 4
The Company...................................................................... 4
The Buyer........................................................................ 4
Background and Reasons........................................................... 4
Opinion of Financial Advisor..................................................... 8
Recommendation of the Board of Directors......................................... 10
Conflicts of Interest............................................................ 11
Use of Proceeds; Effect on the Company's Stockholders............................ 11
Other Transactions; Plans for Future Operations Following the Sale Transaction... 13
Regulatory Approvals............................................................. 14
Accounting Treatment............................................................. 15
Certain Federal Income Tax Consequences.......................................... 15
THE ASSET PURCHASE AGREEMENT.......................................................... 16
Purchase Price; Purchase Price Adjustment........................................ 16
Buyer Financing.................................................................. 17
Acquired Assets and Assumed Liabilities.......................................... 17
Excluded Assets and Retained Liabilities......................................... 18
The Closing...................................................................... 19
Non-Competition.................................................................. 19
Employee Matters................................................................. 19
Representations and Warranties................................................... 20
Conduct of Business of Seller Prior to Sale Transaction.......................... 20
Conduct of Business of Buyer Prior to Sale Transaction........................... 21
Conditions to Closing............................................................ 21
Termination...................................................................... 22
Non-Solicitation of Transactions................................................. 22
Termination Fee.................................................................. 22
Survival and Indemnification..................................................... 23
Environmental Indemnification.................................................... 23
Wood Fiber Supply Agreement...................................................... 24
Consignment Agreement............................................................ 24
MARKET PRICE DATA AND RELATED MATTERS................................................. 25
Common Stock Information......................................................... 25
Dividends........................................................................ 25
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.............................. 25
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SELECTED CONSOLIDATED FINANCIAL DATA.................................................. 30
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 32
Overview......................................................................... 32
Continuing Operations............................................................ 34
Discontinued Operations.......................................................... 36
Financial Position............................................................... 37
ADDITIONAL INFORMATION ABOUT THE COMPANY.............................................. 39
The Company's Business........................................................... 39
Employees........................................................................ 46
Properties....................................................................... 47
Legal Proceedings................................................................ 50
Security Ownership............................................................... 51
STOCKHOLDER PROPOSALS................................................................. 52
OTHER MATTERS......................................................................... 53
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 53
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES....................... 54
AUDITED CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
EXHIBIT A -- OPINION OF DILLON, READ & CO. INC.
EXHIBIT B -- ASSET PURCHASE AGREEMENT
</TABLE>
<PAGE> 7
THE SPECIAL MEETING
TIME, DATE AND PLACE
This Proxy Statement is being furnished to the holders of record as of the
close of business on March 8, 1996 of the Common Stock in connection with the
solicitation of proxies by the Board of Directors for use at the Special Meeting
to be held on April 24, 1996 at 10:00 a.m. local time in the Admiralty Room at
the Radisson Riverwalk Hotel at St. John's Place, 1515 Prudential Drive,
Jacksonville, Florida, and at any adjournment thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the holders of the Common Stock will be asked to
consider and vote upon (i) approval of the Sale Transaction and (ii) such other
business as may properly come before the meeting and any adjournment thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE TRANSACTION AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE SALE TRANSACTION. Director H.L.
Brainin, who had previously advised the Company that he had accepted employment
with FMC whether or not the Board selected FMC's bid, did not attend the portion
of the Board meeting at which the Sale Transaction was approved. See "The Sale
Transaction -- Conflicts of Interest."
RECORD DATE, VOTING SECURITIES AND QUORUM
The Board of Directors has fixed the close of business on March 8, 1996, as
the record date (the "Record Date") for determining holders of Common Stock of
record entitled to receive notice of and to vote at the Special Meeting.
Accordingly, only holders of record of Common Stock as of the Record Date will
be entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were 30,498,650 shares of Common Stock outstanding and entitled to
vote.
Each holder of record of Common Stock on the Record Date is entitled to
cast one vote per share, exercisable in person or by a properly executed proxy,
with respect to the approval of the Sale Transaction and any other matter to be
submitted to a vote of stockholders at the Special Meeting.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding on the Record Date will
constitute a quorum at the Special Meeting. Votes cast by proxy or in person at
the Special Meeting will be counted by the persons appointed by the Company to
act as the inspectors for the meeting. Shares represented by proxies that
reflect abstentions or include "broker non-votes" will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum.
VOTE REQUIRED
The affirmative vote of a majority of the holders of the Common Stock
issued and outstanding on the Record Date is required to approve the Sale
Transaction. Abstentions and "broker non-votes" will not be counted in the
calculation for purposes of determining whether the Sale Transaction has been
approved and will have the effect of votes against approval of the Sale
Transaction.
INTENTION OF MAJORITY STOCKHOLDER TO VOTE IN FAVOR OF THE
SALE TRANSACTION
The Board of Directors of the Company has been advised by the Alfred I.
duPont Testamentary Trust (the "Trust"), which beneficially owns and has the
sole right to vote approximately 70% percent of the Common Stock, that the Trust
intends to vote its shares in favor of the Sale Transaction on the conditions
that there shall be no material amendment to the Agreement, there shall be no
waiver of certain of the conditions to closing contained in the Agreement, the
Board shall recommend approval of the Sale Transaction, and Dillon, Read & Co.
Inc.'s opinion as to the fairness of the Sale Transaction shall not be
materially modified.
2
<PAGE> 8
Assuming these conditions are satisfied, approval of the Sale Transaction by the
holders of a majority of the shares of Common Stock will be assured. A majority
of the trustees of the Trust have the right to vote all of the Common Stock of
the Trust. Although two directors of the Company, J.C. Belin and W.L. Thornton,
are trustees of the Trust, they abstained from voting with respect to the
Trust's intentions as to voting the shares of Common Stock in favor of the Sale
Transaction. The remaining trustees voted unanimously with respect to such
intentions. See "Additional Information About the Company -- Security
Ownership."
NO APPRAISAL RIGHTS
Stockholders of the Company are not entitled to appraisal rights with
respect to the Sale Transaction under Florida law.
PROXIES
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received at or prior to the taking of the vote at the
Special Meeting, and not duly and timely revoked, will be voted at the Special
Meeting in accordance with the choices marked thereon by the stockholders.
Unless a contrary choice is marked, the shares will be voted FOR approval of the
Sale Transaction.
The Board of Directors is not aware that any other matters not referred to
herein are to be presented for action at the Special Meeting. If any other
matters properly come before the Special Meeting, the persons designated in the
proxy intend to vote the shares represented thereby in accordance with their
best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company at or before the taking of the vote of the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Special Meeting or (iii) attending the Special Meeting and voting in
person (although attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy).
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
beneficial owners of shares of Common Stock held of record by such brokers,
custodians, nominees and fiduciaries, and the Company may reimburse such
brokers, custodians, nominees and fiduciaries for their reasonable expenses
incurred in connection therewith. Directors and employees of the Company may
also solicit proxies in person or by telephone without receiving any
compensation in addition to their regular compensation as directors and
employees.
3
<PAGE> 9
THE SALE TRANSACTION
THE COMPANY
The Company was incorporated in 1936 under the laws of the State of
Florida. The Company is at present primarily engaged in the following
businesses: (i) the growing and harvesting of timber; (ii) the manufacturing,
distribution and sale of forest products; (iii) transportation of goods by rail;
(iv) growing and processing of sugar cane into raw sugar; (v) telephone
communications; and (vi) real estate. The Company is in the process of selling
its communications business, as well as its paper mill and box plants; these
operations, which accounted for 55% of the Company's total revenues in 1995,
have been reclassified as discontinued operations.
The Company is also exploring the sale of its sugar business. The Company's
54% owned subsidiary, Florida East Coast Industries, Inc. ("FECI"), is
considering the sale of its wholly owned subsidiary, Florida East Coast Railway
("FEC"). In conjunction therewith, FECI is also considering the sale of its
wholly owned subsidiary, Gran Central Corporation ("GCC"), to the Company.
Assuming the sale of the sugar business by the Company and the railroad by FECI
and the acquisition of GCC by the Company, the Company's operations will
thereafter be focused primarily on real estate operations from the point of view
of the growing and harvesting of timber and the development of commercial and
residential real estate. See "Other Transactions; Plans for Future Operations
Following the Sale Transaction."
The principal executive offices of the Company are located at Suite 400,
duPont Center, 1650 Prudential Drive, Jacksonville, Florida 32207, and the
Company's telephone number is (904) 396-6600.
THE BUYER
Four M Corporation ("FMC"), known as Box USA, a Maryland corporation
incorporated in 1966, would acquire SJCC's container plants located in the
eastern part of the United States under the Agreement. FMC currently operates
approximately 14 corrugated box and sheet manufacturing plants located across
the country. The principal executive offices of FMC are located at 115 Stevens
Avenue, Valhalla, New York 10595, and FMC's telephone number is (914) 747-2600.
PSJ Paper Company L.L.C. ("JV"), a Delaware corporation incorporated in
1996 and organized as a joint venture between FMC and Stone Container
Corporation ("SCC"), would acquire SJFP's paper mill in Port St. Joe, Florida
which produces mottled white and unbleached kraft linerboard. SCC is a major
producer of paperboard, paper packaging and other paper products, including the
production of container board and corrugated containers at approximately 16
mills and over 100 plants throughout the country. The principal executive
offices of JV are located at 115 Stevens Avenue, Valhalla, New York 10595, and
JV's telephone number is (914) 747-2600.
There are no affiliations among the Buyer and the Buyer's affiliates, on
the one hand, and the Company and the Company's affiliates, on the other hand,
except that the Company's director, H.L. Brainin, advised the Company prior to
the Board's approval of the Sale Transaction that he had accepted a position of
employment with FMC whether or not the Board approved the Sale Transaction. See
"Conflicts of Interest."
BACKGROUND AND REASONS
In February, 1995, the Company received a request from the Trust, which
owns approximately 70% of the Common Stock, that the Company consider the
advisability of disposing of its paper mill and box plants, its communications
businesses and its sugar business. Also, the Company received an unsolicited
letter dated February 24, 1995, from an unrelated third party which stated that
it was an offer to purchase the paper products division of the Company. Since
the chief executive officer of the Company was also the Chairman of the Trustees
of the Trust and several members of the Board of Directors of the Company were
also employees of the Company involved in the businesses identified by the
Trust, the Board on February 28, 1995 established a special committee of
non-employee and non-Trustee related directors (the "Special Committee") to
consider the request from the Trust. Members of the Board appointed to the
Special Committee were R.H. Dent, R.B. Newton, Jr., W.L. Revell and J.D. Uible.
The Special Committee then engaged Dillon, Read & Co. Inc. ("Dillon Read") to
act as financial adviser to the Special Committee and to assist the
4
<PAGE> 10
Special Committee in studying the advisability of the disposition of the paper
mill and box plants, the communications business and the sugar business.
Between February 28, 1995 and April 6, 1995, the Special Committee held
seven meetings, one of which, on March 31 and April 1, consisted of a joint
meeting with the Trustees of the Trust to explore the Trust's objectives, ideas
and suggestions. No conclusions or agreements were reached at this meeting. The
purpose of the joint meeting was to enable the Special Committee to gather more
information as to the background of the Trustees' requests to enable the Special
Committee to make recommendations to the Board that best served the interests of
all of the Company's stockholders and other constituencies as provided by
Florida law.
Of the remaining six meetings, two were held to consider the selection of
the financial adviser to the Special Committee, one was an initial organization
meeting with the financial adviser and the remainder included discussions with
Dillon Read with respect to the Company's mill and box plant businesses, its
telecommunications business and its sugar business including the historical
performance of the businesses, current market conditions of the businesses and
their future prospects as well as the prospects for the sale thereof.
On April 1, 1995, the Special Committee met, and based in part on Dillon
Read's recommendation, unanimously decided to recommend to the Board of
Directors of the Company that the Company solicit offers for the paper mill and
box plant businesses, the telecommunications business and the sugar business. In
reaching its recommendation with respect to the paper mill and box plants, the
Special Committee considered, among other things, the amount of capital
investment involved in the paper mill and container operations, the return on
investment associated with the businesses, and the fact that the business cycle
was at historically high levels. Dillon Read discussed a variety of structures
that could be utilized to divest these businesses and looked at a variety of
uses of the net proceeds from them. The Special Committee also unanimously
decided to recommend to the Board that Dillon Read also consider the best
application of the proceeds from any sale. On April 6, 1995, the Board received
and unanimously accepted the recommendations of the Special Committee and
authorized the officers of the Company to offer the paper mill and box plant
businesses, as well as the telecommunications business, for sale through an
auction process of interested parties to be conducted by Dillon Read. At the
April 6, 1995 meeting, the Board also directed the Special Committee to consider
and advise the Board as to what should be done with the proceeds of any such
sales.
Thereafter, Dillon Read initiated contact with 69 parties selected on the
basis that they were already in either or both of the paper mill and box plant
businesses or financially capable and potentially interested in entering either
or both of such businesses. As a result of such contacts, upon signing
confidentiality agreements, 23 parties were provided a confidential information
memorandum on the businesses. In addition to the confidential memorandum,
prospective purchasers received a cover letter which set forth bidding
procedures and which included a deadline for submission of non-binding
indications of interest to Dillon Read. Seven parties then provided Dillon Read
with non-binding indications of interest. Five of these parties were then
permitted to engage in an extensive due diligence process by touring the plant
sites, reviewing in a data room relevant books and records pertaining to the
businesses, attending management presentations on the businesses and making
supplemental inquiries.
On April 21 and May 2, 1995, the Special Committee met by conference call
to receive an update of the status of the bidding process for the sale of the
paper mill and box plants and the telecommunications business. On May 8, 1995,
the Special Committee met to consider the possible uses of the proceeds from any
sales. At the meeting representatives of Dillon Read discussed with the members
of the Special Committee possible uses of proceeds including analyzing further
investment in FECI. During the presentation various approaches were reviewed and
discussed with respect to disposing of assets of the Company and directing
investment of the proceeds. Dillon Read advised the Board that its preliminary
conclusion was that it did not appear in the Company's interest for the Company
to make additional investments in FECI. The Special Committee requested Dillon
Read to analyze in more detail the use of proceeds from the sales process,
including a possible further investment in FECI. On May 24, 1995, the Special
Committee met again with
5
<PAGE> 11
Dillon Read to consider various possible transactions available to the Company.
Dillon Read again expressed the view that it did not appear advisable for the
Company to make a substantial investment in FECI.
On June 24, 1995, the Special Committee met with the trustees of the Trust
for the purpose of providing information about the sales process with respect to
the paper mill and box plants and the telecommunications businesses. No actions
were taken at this meeting.
At a meeting of the Special Committee on August 7, 1995, representatives of
Dillon Read reviewed with the members the status of the efforts to sell the
paper mill and box plants. Dillon Read reviewed with the Special Committee the
indications of interest and the status of continuing interest as well as the
efforts Dillon Read had undertaken at the Special Committee's request to create
further interest by contacting nine of the original number of parties contacted
and offering the timberlands in conjunction with the sale of the paper mill and
box plants. In response to an inquiry by the Committee, Dillon Read advised the
Special Committee that contact had been made with all reasonable potential
bidders and that the response to the Company's marketing efforts reflected all
of the likely parties who would be interested in purchasing the mill and box
plants and/or the timberlands. The Special Committee then considered what action
it should take with respect to recommending to the Board of Directors the use of
the proceeds from the proposed assets sales. The Special Committee concluded to
recommend that investing these proceeds in the remaining businesses and
properties of the Company was not necessary to promote the best interests of the
Company and that the proceeds be distributed to stockholders of the Company
subject to review of the facts and circumstances existing at the time the asset
sales are finalized and the proceeds are received. The Committee also
recommended that the Committee be expanded to include the two new directors who
are not employees of the Company or Trustees of the Trust and that the Committee
continue in existence to review and monitor proposed actions with respect to the
Company's remaining assets. At a meeting of the Board on August 8, 1995, the
Board accepted and approved the recommendations of the Special Committee, except
that the Board deferred action with respect to the recommended use of the
proceeds from the sale of the assets. As a result, J.J. Quindlen and F.S. Shaw,
Jr. became members of the Special Committee.
On August 11, 1995, Dillon Read sent a bid package to approximately 4
parties remaining interested in a potential purchase.
On September 22, 1995, at a meeting of the Special Committee,
representatives of Dillon Read updated the members of the Special Committee with
respect to the efforts to sell the mill and box plants, including a review of
the auction process and an explanation of possible reasons why certain
interested parties declined to bid. Dillon Read then reviewed in general a
comparison of the value of the final bids which the Company had received, and
legal counsel compared the bids from the standpoint of significant legal issues.
Dillon Read also advised the Special Committee as to the feasibility of the FMC
proposal in light of the fact that the proposal and consummation of a sale
transaction were subject to the ability of FMC to obtain third party financing.
Dillon Read advised the Special Committee that it recommended the FMC bid. After
a lengthy discussion of two bids, the Special Committee asked Dillon Read to
immediately contact the bidder which was not FMC, to advise it that the Special
Committee was going to approve exclusive negotiations with a different bidder
and to determine if the other bidder would be willing to improve certain
financial terms of its offer. When the meeting reconvened, Dillon Read advised
the Special Committee that the other bidder declined to change its offer. After
further discussion, the Special Committee unanimously decided to recommend to
the Board that the Company sell the paper mill and box plants in accordance with
the FMC proposal upon the terms outlined to the Special Committee and that the
Company give FMC an exclusive negotiating period in an effort to finalize an
agreement. At a meeting of the Board after the meeting of the Special Committee,
the Board unanimously accepted and approved the recommendations of the Special
Committee based in part on Dillon Read's advice that it would be prepared to
give a fairness opinion. Mr. H.L. Brainin, who had previously advised the
Company that he had accepted employment with FMC whether or not the Board
selected FMC's bid, did not attend this portion of the Board meeting.
The Company's Chairman, W.L. Thornton, and President, R.E. Nedley, were,
along with the Company's legal counsel, Fulbright & Jaworski L.L.P., and Dillon
Read, the principal negotiators on behalf of the Company. FMC's Chairman, Dennis
Mehiel, and SCC's Chairman, Roger Stone, along with each company's
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General Counsel and the law firm of Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel and Bear Stearns & Co., Inc. ("Bear Stearns") were the principal
negotiators on behalf of the Buyer. In the course of the negotiations, the Buyer
advised the Company that a condition of entering the agreement would be
obtaining the agreement of the Trust to vote its shares in favor of the Sale
Transaction at a meeting of the Company's stockholders. As a result, on
Wednesday, October 11, 1995, representatives of Dillon Read and the Company's
legal counsel attended a meeting of the Trust to update the Trust on the status
of the negotiations and to convey the Buyer's position on obtaining the Trust's
approval of the Sale Transaction. No action was taken by the Trust at that time.
Following a period of intensive negotiations, on October 27, 1995, the
Special Committee met to consider the terms of the asset purchase agreement
relating to the sale of the paper mill and box plants. Copies of the draft of
the asset purchase agreement had previously been provided to each member. Legal
counsel reviewed the principal terms. Dillon Read then discussed with the
Special Committee various valuations relating to the paper mill and box plants.
The Special Committee asked Dillon Read what it believed the market was
expecting as a price for the paper mill and box plants, and Dillon Read
indicated that the expectations could be in excess of $400 million and that
there might be some disappointment at the bid price of $390 million in cash
offered by FMC and a to-be-formed joint venture between FMC and SCC. However,
Dillon Read also stated its belief that the auction process had been thorough
and that there were no other buyers at the price offered by FMC and the
to-be-formed joint venture between FMC and SCC. Dillon Read advised the Special
Committee that the terms of the proposed sale were fair, from a financial point
of view, to the stockholders of the Company. Dillon Read then advised the
Special Committee on the likelihood of the buyers obtaining necessary financing.
After discussion, the Special Committee unanimously decided to recommend to the
Board that the Board approve the sale of the paper mill and box plants to FMC
and a joint venture to be formed between FMC and SCC on substantially the terms
set forth in the draft asset purchase agreement. At a meeting of the Board
immediately following the meeting of the Special Committee, the Board
unanimously accepted and approved the Special Committee's recommendations and
delegated to the Company's Executive Committee any final changes thereto. Mr.
H.L. Brainin did not attend this portion of the Board meeting for the reasons
previously indicated. At a meeting of the Trust that same day, at which
representatives of Dillon Read and the Company's legal counsel were present in
part, the Trust agreed to issue a letter to the Company as to its intentions to
vote in favor of the Sale Transaction. See "The Special Meeting -- Intention of
Majority Stockholder to Vote in Favor of the Sale Transaction."
Following a meeting of the Executive Committee on November 1, 1995 at which
final changes were unanimously approved, the Agreement was executed on November
1, 1995. Dillon Read issued its written fairness opinion as of that same date.
Thereafter, FMC and SCC requested certain extensions of deadlines in connection
with efforts to obtain financing for the transaction. During this period, FMC
and SCC requested on January 2, 1996 that negotiations be reopened on certain
issues. The parties met and discussed these issues on Saturday, January 6, 1996.
On January 9, 1996, the Special Committee met to consider possible changes
to the Agreement resulting from the January 6 meeting. Mr. Thornton reviewed
with the Special Committee an outline of issues raised by the prospective
purchasers and advised the members of the proposed resolutions of most of the
issues. Mr. Thornton advised the Special Committee of the status of the
remaining open issues. After discussions, the Special Committee recommended that
the Board approve the sale of the paper mill and box plants on the terms
originally approved as modified by the proposed changes and give Mr. Thornton
the authority to negotiate the best terms with respect to the remaining open
issues. At a meeting immediately thereafter, the Board unanimously approved the
recommendations of the Special Committee based in part on Dillon Read's
reaffirmation of its opinion that the Sale Transaction is fair, from a financial
point of view, to the Company's stockholders. Mr. H.L. Brainin did not attend
this portion of the Board meeting. The parties thereafter resolved the remaining
issues and executed an amendment to the Agreement on January 12, 1996, at which
time Dillon Read reconfirmed in writing its opinion that the Sale Transaction is
fair, from a financial point of view, to the Company's stockholders. The Trust
also reconfirmed to the Company its intention to vote in favor of the Sale
Transaction. See "The Special Meeting -- Intention of Majority Stockholder to
Vote in Favor of the Sale Transaction."
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<PAGE> 13
OPINION OF FINANCIAL ADVISOR
As described above, the Board of Directors received Dillon Read's opinion
that the consideration to be paid by the Buyer in connection with the Sale
Transaction is fair to the Company's stockholders from a financial point of
view. The full text of Dillon Read's written opinion dated January 12, 1996 is
attached hereto as Exhibit A and should be read in its entirety for a
description of the procedures followed, matters considered, assumptions made and
the methods employed by Dillon Read in arriving at its opinion. The October 27,
1995, November 1, 1995 and January 9, 1996 opinions of Dillon Read referred to
above under "Background and Reasons" are substantially identical to the opinion
attached hereto.
Dillon Read's opinion is directed only to the consideration to be received
in the Sale Transaction and does not constitute a recommendation to any
stockholder as to how such stockholder should vote at the Special Meeting. The
full text of Dillon Read's opinion dated January 12, 1996, which describes the
assumptions made, matters considered and limits on the review undertaken, is
attached hereto as Exhibit A and is incorporated herein by reference.
In arriving at its opinion, Dillon Read, among other things, (i) reviewed
the Agreement and the exhibits thereto; (ii) reviewed certain publicly available
business and financial information relating to the Company; (iii) reviewed the
reported price and trading activity for the Common Stock of the Company; (iv)
reviewed certain internal financial information and other data provided to
Dillon Read by the Company relating to the business and prospects of the paper
mill and box plant businesses, including financial projections prepared by the
management of the Company and the businesses; (v) conducted discussions with
members of senior management of the Company and the businesses; (vi) reviewed
the financial terms, to the extent publicly available, of certain acquisition
transactions in an industry which Dillon Read considered to be generally
comparable to the Company's industry; (vii) reviewed publicly available
financial and securities market data pertaining to certain publicly-held
companies in lines of business generally comparable to those of the businesses;
(viii) considered the results of the auction of the businesses conducted at the
Company's request by Dillon Read; and (ix) conducted such other financial
studies, analyses and investigations, and considered such other information, as
it deemed necessary and appropriate, but none of which was, individually, or in
the aggregate, material.
In connection with its review, at the Company's direction, Dillon Read did
not assume any financial responsibility for independent verification of any of
the foregoing information and relied on its being complete and accurate in all
material respects. In addition, Dillon Read was not requested to and did not
make any independent evaluation or appraisal of any assets or liabilities
(contingent or otherwise) of the assets in the Sale Transaction, nor was Dillon
Read furnished with any such evaluation or appraisal. Furthermore, Dillon Read
assumed, with the Company's consent, that all of the information, including the
projections, were prepared in good faith and were reasonably prepared on a basis
reflecting the best available estimates at the time and judgements of the
Company's management as to the future financial performance of the businesses,
and were based upon historical performance of the businesses and certain
estimates and assumptions which were reasonable at the time made. Further,
Dillon Read's opinion is based on economic, monetary and market conditions as
they existed and could be evaluated at the time.
In forming its view, Dillon Read considered a variety of valuation methods
which are summarized below:
(i) Comparable Company Trading Analysis. Using publicly available
information, Dillon Read compared, based upon market trading values at the
time, multiples of certain financial criteria (such as earnings before
depreciation, amortization, interest and taxes ("EBITDA"), earnings before
interest and taxes ("EBIT"), net income, and net assets of the paper mill
and container plant businesses to certain other companies which, in Dillon
Read's judgment, were generally comparable to the paper mill and container
plant businesses for purposes of this analysis. The companies used in the
comparison consisted of Gaylord Container, Jefferson Smurfit, SCC and
Longview Fibre.
The range and mean for the equity market value as a multiple of each
of the indicated statistics for the group of comparable companies were as
follows: (i) projected 1995 (median estimates computed by "I/B/E/S") net
income -- 3.3x to 11.0x with a mean of 6.3x. The range and mean for net
market capitalization as a multiple of each of the indicated statistics for
a group of comparable companies were
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<PAGE> 14
as follows: (i) EBITDA for the 12 month period ended June 30 -- 5.2x to
5.7x with a mean of 5.4x; (ii) EBIT for the 12 month period ended June
30 -- 7.3x to 8.8x with a mean of 7.8x; and (iii) book value of net assets
on June 30, 1995 -- 1.1x to 2.0x with a mean of 1.5x. The comparable
company trading analysis is a valuation method used by Dillon Read to
determine whether the paper mill and container plant businesses were
reasonably valued in relation to similar companies.
On January 9, 1996, the date when Dillon Read's opinion was delivered
to the Company's Board in connection with amendment to the Agreement, and
based upon the appropriate financial operating results for the paper mill
and container plant businesses at the time, the proposed transaction value
yielded multiples as follows: (i) projected 1995 net income -- 11.1x; (ii)
EBITDA for the 12 month period ended June 30 -- 5.2x; (iii) EBIT for the 12
month period ended June 30 -- 8.9x; and (iv) book value of net assets as of
June 30, 1995 -- 1.3x. Dillon Read believes that the calculated multiples
supported Dillon Read's view that the consideration to be received by the
Company is fair, from a financial point of view, to the Company's
stockholders, because taken as a whole the ratios described above were
within the range of, or exceeded, selected comparable company multiples.
(ii) Mergers and Acquisitions in Comparable Industry. Using publicly
available information, Dillon Read analyzed a series of merger and
acquisition transactions in an industry comparable to the Company's
industry which included: (a) the acquisition of the assets of Champion by
SCC; (b) the acquisition of the assets of Owens-Illinois by Temple-Inland;
(c) the acquisition of Container Corp. America by Jefferson Smurfit; (d)
the acquisition of Gaylord Container by an investor group; (e) the
acquisition of OL Forest Products by Great Northern Nekoosa; and (f) the
acquisition of Container Products (Fiberboard) by Gaylord Container.
For a variety of reasons Dillon Read determined that these
transactions were not indicative of the value of the paper mill and
container plant businesses and were not relevant for purposes of rendering
its opinion. The factors considered in making the determination include the
fact that such acquisitions occurred in different stock market and economic
environments and occurred at different points in the paper cycle and
involved the disposition of assets different than those included in the
sale transaction and because the conditions of the businesses were
significantly different from the condition of the paper mill and container
plant businesses.
(iii) Replacement Cost Analysis. Using publicly available
information, Dillon Read analyzed a number of recent paper mill
construction projects to determine the replacement cost of the Company's
assets relative to the transaction value. Dillon Read reviewed plant
additions made by International Paper (Mansfield), Weyerhaeuser (Cedar
Rapids), and Georgia-Pacific (Big Island and Toledo), and found an average
cost of construction per daily ton of production of $282,000. Based on this
average, Dillon Read concluded that the Company's mill would cost between
$300 million and $365 million to replace. Using management estimates,
Dillon Read concluded that the Company's container facilities would cost
approximately $15 million to $20 million each to replace, yielding a total
cost of between $240 million and $320 million for all 16 plants. After
accounting for accumulated depreciation, Dillon Read concluded that the net
replacement cost of the Company's assets would be between $270 million and
$342.5 million, not including working capital. Dillon Read believes that
the calculated average cost of construction per daily ton of production
supported Dillon Read's view that the consideration to be received by the
Company is fair, from a financial point of view, to the Company's
stockholders, because taken as a whole, the range of replacement costs
described above, after accounting for accumulated depreciation, were
comparable to or less than the consideration to be received.
Dillon Read believes that its analyses must be considered as a whole and
that selecting portions of its analyses and other factors considered by it,
without considering all factors and analyses, could create a misleading view of
the process underlying its opinion. Dillon Read did not quantify the effect of
each factor upon its opinion. Dillon Read made numerous assumptions with respect
to industry performance, general business and economic conditions and the other
matters discussed herein, many of which are beyond the Company's and Dillon
Read's control; of these assumptions, those of which are material are described
herein. Any estimates contained in Dillon Read's analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimates of the financial value of companies
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<PAGE> 15
do not purport to be appraisals or necessarily reflect the prices at which
companies actually may be sold. In rendering its opinion, Dillon Read did not
render any opinion as to the value of the Company as a whole or make any
recommendation to the stockholders with respect to the advisability of disposing
of or retaining shares held in the Company. In addition, Dillon Read did not
make any recommendation regarding whether or not it is advisable for
stockholders to vote in favor of the Sale Transaction.
Dillon Read is an internationally recognized investment banking firm which,
as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Board selected Dillon
Read on the basis of the firm's expertise and reputation.
Pursuant to an engagement letter between the Company and Dillon Read dated
March 1, 1995, Dillon Read was retained by the Company to act as exclusive agent
providing financial advisory and investment banking services with respect to
possible dispositions of the telecommunications business and the paper mill and
container plants. Upon consummation of each of the communications transaction
and the Sale Transaction, Dillon Read will be entitled to a fee of 0.875% of the
aggregate consideration paid. If the Company so requests, Dillon Read will
provide similar services for the same percentage fee in connection with possible
sale of the sugar business. Dillon Read has also been retained by the Company in
connection with a possible acquisition of GCC. If the Company were to acquire
GCC, Dillon Read would receive $2,300,000.
In addition, Dillon Read has, in the past, performed general financial
advisory services for, and receives compensation from the Company. In the
ordinary course of its business Dillon Read may trade the securities of the
Company for its own account and for the account of its customers, and may at any
time hold a long or short position in such securities.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE SALE TRANSACTION IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE TRANSACTION AND RECOMMENDS TO THE
COMPANY'S STOCKHOLDERS THAT THEY VOTE FOR THE APPROVAL OF THE SALE TRANSACTION.
Director H.L. Brainin, who had previously advised the Company that he had
accepted employment with FMC whether or not the Board selected FMC's bid, did
not attend the portion of the Board meeting at which the Sale Transaction was
approved. See "Conflicts of Interest."
In reaching its conclusion, the Board of Directors considered the following
factors:
(i) information concerning the financial performance, business
operations and prospects of the paper mill and container businesses;
(ii) current industry, economic and market conditions, namely the
facts that linerboard prices at the time of approval of the Sale
Transaction were at levels higher than prior years and interest rates for
financing of the Sale Transaction were at levels lower than prior years,
both of which the Board believed provided an opportunity to optimize the
price at which a sales transaction could be entered;
(iii) the Company's future prospects absent consummation of the Sale
Transaction and the necessity in the absence of the Sale Transaction of
continuing to make substantial capital expenditures in connection with the
paper mill and container operations;
(iv) the proposed structure and terms of the Sale Transaction as
reflected in the Agreement and the proposed terms of the Wood Fiber Supply
Agreement, including the ability of the Company to terminate the Agreement
notwithstanding the non-solicitation provisions contained therein, upon the
occurrence or non-occurrence of certain events;
(v) the effect of the Sale Transaction on the stockholders of the
Company and the anticipated possible negative impact on the market price of
the Common Stock;
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(vi) the opinion of Dillon Read to the Board, dated January 12, 1996,
that, subject to the matters set forth therein, the consideration to be
received by the Company pursuant to the Sale Transaction is fair, from a
financial point of view, to the Company's stockholders;
(vii) the experience and perceived motivation of FMC and SCC to
consummate the Sale Transaction and their ability to obtain the necessary
financing;
(viii) the recommendation of the Special Committee to the Board to
enter into the Sale Transaction; and
(ix) the auction process conducted by Dillon Read which indicated that
it was reasonably unlikely that the Company would receive, in the
foreseeable future, offers to engage in alternative transactions on terms
more favorable to the Company and its stockholders than those offered by
FMC and JV.
The Board did not assign relative weights to the factors discussed above.
CONFLICTS OF INTEREST
Director H.L. Brainin, who had previously advised the Company that he had
accepted employment with FMC whether or not the Board selected FMC's bid, did
not attend the portion of the Board meeting at which the Sale Transaction was
approved. Although the Buyer (as defined in the Agreement) is required to offer
employment to all eligible employees of the Seller, no other director of the
Company has accepted any such employment.
Directors J.C. Belin and W.L. Thornton are trustees of the Trust. The
Trust, which owns approximately 70% of the Common Stock, has advised the Company
that it intends to vote its shares in favor of the Sale Transaction, subject to
certain conditions. See "The Special Meeting -- Intention of Majority
Stockholder to Vote in Favor of the Sale Transaction." Although Messrs. Belin
and Thornton are trustees of the Trust, they abstained from voting with respect
to the Trust's intentions as to voting the shares of Common Stock in favor of
the Sale Transaction.
For the reasons noted above, Mr. Brainin does have, and Messrs. Belin and
Thornton may have, conflicts of interest in recommending that holders of Common
Stock vote for approval of the Sale Transaction.
USE OF PROCEEDS; EFFECT ON THE COMPANY'S STOCKHOLDERS
If the Sale Transaction is consummated, the stockholders of the Company
will retain their equity interest in the Company. The Sale Transaction will not
result in any changes in the rights of the Company's stockholders. As described
below, the Company expects to distribute pro rata to its stockholders the net
proceeds of the Sale Transaction, as well as other pending or completed
transactions in the Company's communications segment. Consequently, a vote in
favor of the Sale Transaction will in effect constitute a vote in favor of the
use of proceeds of the Sale Transaction in a partial liquidation, as there will
not be a separate vote of stockholders in that regard.
It is anticipated that the sales proceeds from the Sale Transaction will be
distributed by SJFP and SJCC to St. Joe Industries, Inc. ("Industries"), a
wholly owned subsidiary of the Company, under separate plans of complete
liquidation which will be adopted in accordance with Section 332 of the Internal
Revenue Code of 1986, as amended (the "Code"). Pursuant to these plans, SJCC
will distribute its assets to SJFP, retaining only a sufficient amount of cash
necessary to maintain SJCC's legal existence. Subsequently, SJFP will distribute
its assets, including proceeds received by it upon the liquidation of SJCC, to
SJFP's sole shareholder, Industries. SJFP will retain only a sufficient amount
of cash necessary to maintain SJFP's legal existence.
It is anticipated that Industries will adopt a plan of liquidation under
which it will distribute its assets, including the sales proceeds received from
SJFP and SJCC from the Sale Transaction, as well as the sales proceeds received
from Industries' sale of all of the outstanding shares of St. Joe
Communications, Inc. ("SJCI") common stock and the sales proceeds received as a
result of the sale of the cellular partnerships, to its shareholder, the
Company. See "Other Transactions; Plans for Future Operations Following the Sale
Transaction." Industries will retain only a sufficient amount of cash necessary
to maintain its legal existence.
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<PAGE> 17
It is also anticipated that the Company will adopt a plan of partial
liquidation pursuant to which, after all costs or liabilities associated with
the Sale Transaction and partial liquidation (including all federal, state and
local taxes arising from the sales) have been paid or provided for, the Company
will distribute pro rata to its shareholders the net proceeds from the Sale
Transaction, as well as the transactions resulting in disposition of the
Company's communications segment. On a pro forma basis, the amount per share
that may be distributed is approximately $12.31, $9.18 of which would be
attributable to the Sale Transaction. See "Selected Unaudited Pro Forma
Consolidated Financial Data." GIVEN THAT THE SELECTED UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA CONTAIN ESTIMATES ON PROCEEDS OF SALES, STOCKHOLDERS
ARE ADVISED THAT THE ACTUAL AMOUNT OF NET PROCEEDS THAT WILL BE DISTRIBUTED WILL
BE DIFFERENT AND MAY BE SUBSTANTIALLY DIFFERENT. THE ACTUAL AMOUNT OF NET
PROCEEDS TO BE DISTRIBUTED WILL BE DETERMINED AT THE TIME OF DISTRIBUTION AFTER
THE SALES HAVE BEEN COMPLETED AND AFTER PURCHASE PRICE ADJUSTMENTS, FEES AND
EXPENSES OF THE SALES, TAXES PAYABLE AND RELATED AMOUNTS HAVE BEEN FINALLY
DETERMINED.
No shares will be exchanged in the distributions received by the
stockholders. For federal income tax purposes, however, each domestic
noncorporate stockholder will be deemed to have transferred a portion of his or
her shares of Common Stock to the Company in exchange for the amount of the
distribution received by such noncorporate stockholder. The number of shares of
Common Stock considered to be exchanged will be determined by multiplying the
fraction that the share amount distributed per share bears to the value of that
share immediately prior to the distribution by the number of shares of Common
Stock held. For example, if the amount per share distributed were to be $25 and
the per share value were $100, the domestic stockholder would be considered to
have 25% of his or her shares exchanged. The amount of taxable gain or loss will
be measured by the difference between the tax basis of such shares and the
amount received by the stockholder from the Company. The gain or loss will be
capital gain or loss provided the shares are capital assets that have been owned
for more than one year.
The Internal Revenue Service has no published position on whether the
amount of tax basis of the shares considered to be redeemed is determined under
a first-acquired-first-sold basis, the average tax basis of all shares held by
the stockholder, or by some other means. President Clinton's Proposed Fiscal
1997 Budget (the "Proposed Budget") released on March 19, 1996, provides,
however, that the tax basis of the shares of the Common Stock considered to be
exchanged shall be the average tax basis. If enacted, the effective date of the
proposal would be 30 days after the date of enactment. Accordingly, domestic
noncorporate stockholders should consult their tax advisors to determine the tax
basis of the shares considered to be redeemed.
Under current law, a domestic corporate stockholder will be treated as
having received a dividend to the extent of the earnings and profits of the
Company. Because the amount received by such corporate stockholder is part of a
distribution in partial liquidation, the amount that constitutes a dividend will
be treated as an extraordinary dividend without regard to the period during
which the corporate stockholder held shares of Common Stock. Accordingly, the
basis of its shares of Common Stock will be reduced (but not below zero) by the
nontaxed portion of the dividend, and any gain upon the subsequent sale or
exchange of such shares will be increased by the nontaxed portion of the
dividend that did not reduce basis by reason of the limitation on reducing basis
below zero. If the amount distributed by the Company exceeds the Company's
earnings and profits, the excess will be treated first as a return of capital to
the extent of the domestic corporate stockholder's basis in the shares and
thereafter as a capital gain.
The Proposed Budget would change the current law with respect to the
receipt by corporations of extraordinary dividends. The Proposed Budget would
amend the extraordinary dividend rules to provide that, if the nontaxed portion
of the dividend exceeds the corporate shareholder's basis in the Common Stock,
such excess will be recognized as gain from the sale or exchange of the Common
Stock in the year the dividend is received. As described in the preceding
paragraph, under current law any such excess amount would not be recognized as
gain until the subsequent sale of the Common Stock. The Proposed Budget provides
that, if enacted, the change will apply to all extraordinary dividend
distributions after September 13, 1995. The Chairmen of the House Ways and Means
and Senate Finance Committees have jointly announced their intention that the
effective date of new tax proposals in the Proposed Budget will not be earlier
than "the date of appropriate Congressional action." IT IS NOT POSSIBLE TO
PREDICT WHETHER THE PRO-
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POSED AMENDMENT WILL BE ENACTED OR, IF IT IS ENACTED, WHAT THE EFFECTIVE DATE
WOULD BE.
Stockholders who are nonresident aliens are advised to consult their tax
advisors concerning the federal income tax consequences of the distribution. All
stockholders are advised to consult their tax advisors to determine the state
and local tax consequences of the distribution.
THERE CAN BE NO ASSURANCE MADE TO HOLDERS OF THE COMMON STOCK THAT THE
AMOUNT PER SHARE RECEIVED UPON THE PARTIAL LIQUIDATION AND THE PRICE PER SHARE
IMMEDIATELY THEREAFTER WILL EQUAL THE PRICE PER SHARE IMMEDIATELY PRECEDING SUCH
PARTIAL LIQUIDATION. SEE "MARKET PRICE DATA AND RELATED MATTERS."
OTHER TRANSACTIONS; PLANS FOR FUTURE OPERATIONS FOLLOWING THE
SALE TRANSACTION
SJCI sold its interest in three cellular partnerships for an aggregate
sales price of $25,051,600 and has entered into a contract to sell its remaining
cellular partnership interest for an aggregate sales price of $1,607,000. Such
sale is expected to be consummated following the approval of the Federal
Communications Commission expected in the second quarter of 1996. In addition,
as previously announced, Industries has entered into a Stock Purchase Agreement
with TPG Communications, Inc. as of September 1, 1995 to sell all of the
outstanding shares of common stock, par value $1.00 per share, it holds in SJCI
for an aggregate consideration of $115,000,000, subject to purchase price
adjustments. The sales proceeds from the sale of the cellular partnerships and
the remaining cellular partnership interest will be distributed to Industries
prior to closing, which is currently scheduled to occur in April. The waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") has expired, and the Federal Communications Commission,
as well as the Florida and Georgia Public Service Commissions, have issued all
required regulatory approvals in connection therewith. Upon consummation of
these sales, the Company will exit the telephone communications segment of its
business. None of these sales were of such a magnitude to require approval by
holders of the Common Stock. The results of operations of this segment have been
accounted for as discontinued operations beginning in the third quarter of 1995.
See Note 3 to "Notes to Consolidated Financial Statements."
Following the Sale Transaction, the Company plans to scale down and
eliminate non-essential corporate functions. The Company is also undertaking an
executive management search effort to enhance management expertise. Assuming
consummation of the Sales Transaction and the sale of its telephone
communications, the Company will have continuing operations in (i)
transportation of goods by rail; (ii) the growing and harvesting of timber;
(iii) growing sugarcane and processing sugarcane into raw sugar and (iv)
development, construction and management of real estate. See Note 1 to "Notes to
Consolidated Financial Statements." As to its continuing timber operations, see
"The Asset Purchase Agreement -- Wood Fiber Supply Agreement."
In addition, as previously announced on February 28, 1995, the Company has
been exploring the sale of its sugar business and is engaged in discussions with
interested parties. Should such a sale materialize, the Company would also
withdraw from the sugar segment of its business. There can be no assurance when,
if or on what terms such a sale may be made. The Federal Agriculture Improvement
and Reform Act of 1996 (the "Agriculture Act"), which was signed into law by the
President on April 4, 1996, includes provisions for the restoration of the
Everglades ecosystem in South Florida. The Agriculture Act provides significant
funding levels for the acquisition of real property located in the Everglades
where the Company's sugar operations are located. It is currently unknown
whether such funds would be available or utilized if a sale of the sugar segment
materializes in the future.
As to transportation of goods by rail and real estate, FECI, in which the
Company beneficially owns 54% of the outstanding shares of common stock,
appointed a Special Committee of the Board of Directors (the "FECI Special
Committee") to consider whether its railroad transportation business now owned
by its wholly owned subsidiary, FEC, should be disposed of in a merger or sale
transaction. The FECI Special Committee reached the conclusion that a
disposition should be pursued but only under certain conditions. The Company's
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Board agrees with that conclusion. The FECI Special Committee has advised the
Company that the FECI Special Committee will not pursue a disposition of the
railroad unless the FECI Special Committee has adequate assurance that the
remaining business of FECI, the real estate operations conducted by its wholly
owned subsidiary, GCC, can also be disposed of on acceptable terms. There can be
no assurance when, if and on what terms a disposition of FEC may be made.
The FECI Special Committee has recognized that it might be possible for
FECI to merge with another company with substantial railroad operations in a
transaction in which no gain or loss would be recognized to FECI or its
shareholders. FECI believes that the likelihood of such a merger is
significantly lessened as long as GCC remains a FECI subsidiary. The Company has
indicated to FECI that, if a merger of FECI with another railroad corporation
would be facilitated by an exchange of GCC stock for the FECI stock held by the
Company, the Company would be willing to consider exchanging shares of FECI
stock it owns for all of the shares of GCC stock held by FECI and in that regard
has proposed acquiring all the issued and outstanding shares of common stock per
share, of GCC, in a tax free exchange of its shares in FECI in return for 100%
ownership of GCC stock. GCC is engaged in commercial real estate development in
Florida. Each of the Company and FECI has hired an appraisal firm to assist in
evaluating the property of GCC, and the Company and FECI intend to see if they
can negotiate terms of an exchange that will be acceptable to both parties.
Accordingly, there can be no assurance when, if and on what terms the Company
may acquire GCC from FECI.
The Proposed Budget could have a substantial and adverse effect upon a
merger of FECI with another company subsequent to the acquisition of GCC common
stock by the Company in exchange for FECI common stock. The Proposed Budget
would amend current laws to provide that a merger of FECI with another company
within two years of the exchange of GCC common stock for FECI common stock,
pursuant to which the FECI shareholders would own less than fifty percent of the
voting power, and less than fifty percent of the value, of the stock of the
surviving company, could cause FECI to recognize gain on the exchange of the GCC
common stock. The gain would be measured by the difference between the fair
market value of the GCC common stock and FECI's adjusted tax basis in such
stock. If enacted, the Proposed Budget would be effective for distributions made
after March 19, 1996. The Chairmen of the House Ways and Means and Senate
Finance Committees, however, have jointly announced their intention that the
effective date of new tax proposals in the Proposed Budget will not be earlier
than "the date of appropriate Congressional action." Accordingly, there can be
no assurance when, if, and on what terms a merger of FECI with another
corporation, or sale of FEC or GCC, may be made. Also, there can be no assurance
when, if, and on what terms the Company may acquire GCC from FECI.
Assuming the sale of the sugar segment by the Company and the sale of the
railroad by FECI and the acquisition of GCC by the Company, the Company's
operations will thereafter be primarily focused on real estate operations from
the point of view of the growing and harvesting of timber and the development of
commercial and residential real estate.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), the Sale Transaction may not be consummated until
notification has been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and a waiting period has expired or been terminated. Pursuant to the
HSR Act, notification and report forms were filed on behalf of the Company and
the Buyer with the FTC and the Antitrust Division on February 21, 1996. The
waiting period required by the HSR Act expired on March 22, 1996.
At any time before or after the consummation of any part of the Sale
Transaction, and notwithstanding the expiration of the waiting period under the
HSR Act, federal and state antitrust and other governmental authorities may take
such action under the antitrust laws as they deem necessary or desirable in the
public interest. Such action might include seeking to enjoin the consummation of
the sale or requiring the divestiture by the Buyer of all or part of the assets
acquired by the Buyer pursuant to the Sale Transaction. Private parties also may
seek to take legal action under the antitrust laws under certain circumstances.
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ACCOUNTING TREATMENT
Each component sale included in the Sale Transaction will be accounted for
as a sale of certain assets and a transfer of certain liabilities. Upon the
consummation hereof, the excess of the sum of the consideration received by the
Company and the liabilities assumed by the Buyer over the book value of the
assets sold will be recognized as a gain on the Company's books.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section is a summary of the material federal income tax consequences
to SJFP and SJCC and the stockholders of the Company from the Sale Transaction.
Except where specifically noted, this summary does not apply to state or local
taxes. The summary is based upon the Code, judicial decisions, United States
Treasury Department regulations promulgated thereunder, administrative rulings
of the United States Treasury Department, and other interpretations thereof, any
of which could be changed at any time. No ruling has been or will be requested
from the Internal Revenue Service with respect to any consequences resulting
from the Sale Transaction.
SJFP and SJCC will recognize gain on their respective assets in the Sale
Transaction, but no gain will be recognized to the holders of Common Stock on
the Sale Transaction. The Sale Transaction may also result in state or local
income or franchise tax liabilities in some or all of the states or local taxing
jurisdictions in which SJFP and SJCC file tax returns. For federal tax purposes
the amount of the recognized gain to SJFP and SJCC will be measured by the
difference between the amount received in the Sale Transaction and the adjusted
tax bases of the assets sold.
Gain or loss to noncorporate holders of Common Stock will be recognized
measured by the difference between the amount per share distributed and the tax
basis in the number of shares considered to be surrendered to be exchanged. The
number of shares considered to be exchanged will be determined by multiplying
the fraction that the amount distributed per share bears to the value of that
share immediately prior to the distribution by the number of shares held. The
gain or loss will be capital gain or loss provided the shares are capital assets
that have been owned for more than one year.
A domestic corporate stockholder will be treated as having received a
dividend to the extent of the earnings and profits of the Company. Because the
amount received by such corporate stockholder is part of a distribution in
partial liquidation, the amount that constitutes a dividend will be treated as
an extraordinary dividend without regard to the period during which the
corporate stockholder held shares of Common Stock. Currently, the basis of its
shares of Common Stock will be reduced (but not below zero) by the nontaxed
portion of the dividend, and any gain upon the subsequent sale or exchange of
such shares will be increased by the nontaxed portion of the dividend that did
not reduce basis by reason of the limitation on reducing basis below zero. If
the amount distributed by the Company exceeds the Company's earnings and
profits, the excess will be treated first as a return of capital to the extent
of the domestic corporate stockholder's basis in the shares and thereafter as a
capital gain.
The Proposed Budget would change the current law with respect to the
receipt by corporations of extraordinary dividends. The Proposed Budget would
amend the extraordinary dividend rules to provide that, if the nontaxed portion
of the dividend exceeds the corporate shareholder's basis in the Common Stock,
such excess will be recognized as gain from the sale or exchange of the Common
Stock in the year the dividend is received. As described in the preceding
paragraph, under current law any such excess amount would not be recognized as
gain until the subsequent sale of the Common Stock. The Proposed Budget provides
that, if enacted, the change will apply to all extraordinary dividend
distributions after September 13, 1995. The Chairmen of the House Ways and Means
and Senate Finance Committees have jointly announced their intention that the
effective date of new tax proposals in the Proposed Budget will not be earlier
than "the date of appropriate Congressional action."
IT IS NOT POSSIBLE TO PREDICT WHETHER ANY OF THE PROPOSED AMENDMENTS WILL
BE ENACTED OR, IF ENACTED, WHAT THE EFFECTIVE DATE WOULD BE.
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THE ASSET PURCHASE AGREEMENT
The following is a description of all material elements of the Agreement.
This description is qualified in its entirety by reference to the complete text
of the Agreement, a copy of which is attached as Exhibit B. Terms which are not
otherwise defined in this summary or elsewhere in this Proxy Statement shall
have the meaning set forth in the Agreement. Capitalized terms not otherwise
defined are defined in the Agreement.
The term "Buyer" is defined in the Agreement to mean (i) FMC or one or more
FMC Affiliates solely with respect to all matters under the Agreement relating
to the Container Assets and the Container Business; and (ii) JV solely with
respect to all matters under the Agreement relating to the Mill Assets and the
Mill Business. The term "JV" is defined in the Agreement to mean Port St. Joe
Paper Company (now known as PSJ Paper Company L.L.C.) organized by FMC and SCC
as a joint venture. The term "Seller" is defined in the Agreement to mean (i)
SJCC solely with respect to all matters under the Agreement relating to the
Container Assets and the Container Business; and (ii) SJFP solely with respect
to all matters under the Agreement relating to the Mill Assets and the Mill
Business.
PURCHASE PRICE; PURCHASE PRICE ADJUSTMENT
Upon the terms and subject to the conditions of the Agreement, Buyer will
pay to Seller, on the Closing Date, the aggregate sum of three hundred ninety
million dollars ($390,000,000), subject to reduction in the amount of (i) the
Consigned Inventory Amount and (ii) five million two hundred fifty thousand
dollars ($5,250,000) in the event the Right of First Refusal of third parties to
purchase shares of capital stock in Groveton Paperboard, Inc held by SJCC is
exercised. The "Consigned Inventory Amount" is defined in the Agreement to be
the market value of Consigned Inventory based on the most current Pulp and Paper
Week Price Watch as of the Closing Date. "Consigned Inventory" is defined to be
an amount of completed linerboard stock identified prior to Closing which shall
not exceed the lesser of (i) an amount by which aggregate tons of all such
linerboard stock in SJFP's and SJCC's inventory at the Closing Date exceeds
45,000 tons and (ii) an aggregate tonnage of linerboard having a market value
not to exceed $21,000,000 based on the most current Pulp and Paper Week Price
Watch as of the Closing Date. Seller and FMC will enter into a separate
agreement with respect to the payment to Seller of the Consigned Inventory
Amount. See "Consignment Agreement." The consideration at the Closing Date shall
be paid in cash provided that Buyer may elect to pay up to $10,000,000 by a
senior subordinated note issued by JV payable in 11 years with interest at a
rate one half of one percent higher than the per annum rate of interest on
senior secured notes to be issued by JV in connection with its financing of the
Sale Transaction. In addition, on the Closing Date, Buyer will deliver to Seller
one or more Assignment and Assumption Agreements and other agreements
contemplated by the Agreement to effect the assumption by Buyer of all Assumed
Liabilities, duly executed by Buyer. The purchase price provisions relating to
Consigned Inventory and Buyer's option to pay part of the purchase price with a
ten million dollar ($10,000,000) senior subordinated note were contained in
Amendment Number 3 to the Agreement, dated January 12, 1996, and were adopted in
connection with Buyer's efforts to obtain debt financing commitments in
connection with the Sale Transaction. See "Buyer Financing."
The Purchase Price shall be adjusted after the Closing Date by the Purchase
Price Adjustment which shall be the net amount obtained (i) by increasing or
decreasing, as the case may be, the Purchase Price by the difference between Net
Working Capital as of the Closing Date, and Net Working Capital as of June 30,
1995, (ii) by increasing the Purchase Price by the excess, if any, of certain
capital expenditures of Seller following June 30, 1995 incurred and paid as of
the Closing Date over certain depreciation of the Business for the period June
30, 1995 through the Closing Date, and (iii) by decreasing the Purchase Price by
the aggregate amount of cash proceeds, plus an amount equal to the value of any
other consideration if such consideration is not included in the Acquired
Assets, realized from the sale of any machinery, equipment and fixtures of the
Business after June 30, 1995 and prior to the Closing Date. For this purpose
"Net Working Capital" is defined to be Receivables and Inventories, minus
certain Accounts Payable plus, for purposes of Net Working Capital as of the
Closing Date, $10,000,000. The Purchase Price Adjustment is subject to a number
of variables. It is currently anticipated that Seller will owe Buyer when the
adjustment is applied in a possible range of $10-25 million on a pre-tax basis.
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BUYER FINANCING
Buyer's obligations to close the Sale Transaction are subject to, among
other things, the obtaining of financing. See "Conditions to Closing." Under the
terms of the Agreement, Buyer was required to provide certain financing
commitments by certain dates or the Seller had the right to terminate the
Agreement. In that regard, SCC confirmed its commitment by letter dated January
15, 1996 to contribute at least $35,000,000 to JV, $10,000,000 of which at the
request of FMC would be made as an investment in FMC. FMC also confirmed its
commitment by letter dated January 16, 1996 to contribute at least $15,000,000
to JV. By letter dated February 2, 1996, Seller was advised that JV had been
duly organized subject only to capitalization thereof.
In addition, Bear Stearns and Indosuez Capital ("Indosuez") advised FMC by
letter dated January 16, 1996 that they were highly confident (the "Highly
Confident Letter") of their ability as placement agents to place $165,000,000 of
First Mortgage Notes due 2006 to be issued by JV and $150,000,000 of Senior
Secured Notes due 2006 to be issued by FMC in connection with the Sale
Transaction subject to satisfaction of certain conditions in their sole
discretion, including without limitation: (i) definitive documentation related
to financing; (ii) the consummation of the Sale Transaction in accordance with
the Agreement, with no amendments or modifications thereto or waivers of any of
the terms or conditions thereof, with respect to which amendment, modification
or waiver they shall not have consented in writing; (iii) the receipt of audited
financial statements satisfactory to them with respect to each of SJCC and SJFP
for the year ended December 31, 1995 and with respect to FMC with respect to the
five months ended December 31, 1995; (iv) no material adverse change in the
business or prospects (financial or otherwise) of FMC, SJCC or SJFP; (v)
satisfactory completion of due diligence; and (vi) no material adverse change in
the market conditions for new issues of high yield securities or in conditions
of the financial and capital markets generally.
Bear Stearns and Indosuez (the "Purchasers") also confirmed their
commitment by letter to FMC dated January 16, 1996 (the "Commitment Letter"),
severally and not jointly, to purchase up to $20,000,000 of preferred stock of
FMC having terms to be agreed or, at the Purchaser's sole option, debt
securities of a direct parent of FMC on terms to be agreed the proceeds of which
would be contributed as common equity to FMC, along with warrants to purchase
shares of common stock of FMC or such parent (the "Commitment"), provided,
however, that the Commitment would be available only upon consummation of the
Sale Transaction and certain financing in connection therewith and only in the
event that (a) FMC has been unable to sell certain preferred stock or debt
securities in an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), or in an offering exempt from registration
pursuant to Section 4(2) or Rule 144A under the Securities Act and (b) SCC
purchases certain preferred stock simultaneously with the purchase of preferred
stock or debt securities by the Purchasers; and provided, further, however, that
neither Purchaser shall be obligated to purchase any preferred stock or debt
securities pursuant to its portion of the Commitment unless, simultaneously
therewith, the other Purchaser is purchasing such preferred stock or debt
securities pursuant to its portion of the Commitment. The Commitment is subject
to certain significant conditions set forth in the Commitment Letter comparable
to those that apply to the debt financings described above.
The Commitment expires on April 30, 1996; however, the Company understands
that Buyer is looking into an extension of the Commitment given the likelihood
that the debt financing referenced in the Highly Confident Letter will not be
funded by April 30, 1996. Prior to such date, the Commitment may be terminated
by (a) FMC at any time upon payment of certain fees and expenses and (b) by
either Purchaser if (i) any breach or default occurs in the performance of
obligations of FMC or (ii) any of the conditions referred to above are not
satisfied.
In the Agreement, Buyer provides a covenant to use its best efforts to
obtain the financing contemplated in the equity commitment letters from FMC and
SCC, the Highly Confident Letter and the Commitment Letter and to use its best
efforts (as defined in the Agreement) to obtain the debt financing required in
order to consummate the transactions contemplated by the Agreement.
ACQUIRED ASSETS AND ASSUMED LIABILITIES
Upon the terms and subject to the conditions of the Agreement, at the
Closing, (i) Seller will sell, transfer, assign and deliver to Buyer all of
Seller's right, title and interest in and to the Acquired Assets, which
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are described below; and (ii) Buyer will assume and shall defend, indemnify and
hold harmless Seller from and against the Assumed Liabilities, which are
described below.
The assets being sold on the Closing Date pursuant to the Agreement include
all of Seller's right, title and interest in and to the assets and properties
used in or necessary for the operation of the paper mill in Port St. Joe,
Florida by SJFP and of the container plants by SJCC including, among other
things, (i) designated real property; (ii) the Realty Rights, consisting of
easements, privileges, rights of way and other interests related to the
designated real property; (iii) certain personal property; (iv) certain Rolling
Stock; (v) certain Inventories, including supplies, spare parts, raw materials,
work in process and material held for resale; (vi) certain accounts receivable
as of the Closing Date, other than inter-company receivables; (vii) rights under
certain agreements, contracts, leases, purchase orders, instruments and
commitments related to the Business; (viii) stock in Groveton Paperboard, Inc.,
if the Right of First Refusal has not been exercised; (ix) all rights, claims,
credits, causes of action or rights of set-off against third persons relating to
the Acquired Assets arising after the Closing Date; (x) certain Permits; (xi)
certain Intellectual Property; (xii) certain Books and Records; (xiii) all other
intangibles including, but not limited to, goodwill associated with the Business
or the Acquired Assets; (xiv) cash related to certain insurance proceeds, if
any; (xv) claims to certain insurance proceeds, if any; (xvi) certain computer
software; and (xvii) cash in the amount of $10,000,000 which cash shall be
repaid to Seller through the application of the Purchase Price Adjustment.
The liabilities being assumed by JV or FMC, as the case may be, pursuant to
the Agreement include the following liabilities and obligations: (i) certain
specified Environmental Liabilities as described below under the heading
"Environmental Indemnification"; (ii) current liabilities or obligations
reflected in the calculation of Closing Net Working Capital; (iii) Assumed Taxes
and all other Taxes relating to, arising from or with respect to the Acquired
Assets or the operation of the Business which are attributable to the
Post-Closing Tax Periods; (iv) all liabilities and obligations to Transferred
Employees and their beneficiaries which are Buyer's responsibility, discussed
below under the heading "Employee Matters"; (v) certain specified Assumed
Charges incurred with respect to the Acquired Assets to the extent allocable to
periods after the Closing Date, including (x) utility charges with respect to
the Real Property, the SJLD Property and the Realty Rights, (y) rental charges
and (z) payments and assessments for waste water treatment; (vi) certain
liabilities and obligations under the terms of the Acquired Agreements or that
relate to the other Acquired Assets relating to periods after the Closing Date;
and (vii) certain liabilities and obligations attributable to the Acquired
Assets or the Business arising out of any action, suit or proceeding based upon
an event occurring, a condition existing or a claim arising after the Closing
Date except as and to the extent that Buyer is entitled to indemnification
pursuant to the Agreement, and except for Environmental Liabilities, which are
treated exclusively under a separate section of the Agreement as discussed below
under the heading "Environmental Indemnification."
EXCLUDED ASSETS AND RETAINED LIABILITIES
The Agreement provides that the following assets shall be retained by
Seller: (i) all cash, cash equivalents and cash investments of Seller, except
$10,000,000 which cash shall be repaid to Seller through the application of the
Purchase Price Adjustment; (ii) all Intercompany Receivables; (iii) all rights
and claims, whether now existing or arising hereafter, for credits or refunds of
any Taxes other than Assumed Taxes or Taxes attributable to Post-Closing Tax
Periods; (iv) all prepaid interest, security deposits and other like assets
relating to any Excluded Asset or Retained Liability; (v) all of Seller
Affiliates' (other than Seller's) right, title and interests in and to all of
their assets and properties which are not dedicated exclusively to the Business
and otherwise are not Acquired Assets; (vi) Seller's interest in the capital
stock of St. Joseph Land and Development Company ("SJLD"), all of the assets and
businesses of SJLD and any applications or licenses granted with respect thereto
other than the SJLD Property and all of Seller's and Seller Affiliates' Real
Property other than the Real Property; (vii) all prepaid rentals, refunds and
dividends on insurance policies and other prepaid expenses relating to the
Business and the Acquired Assets allocable to periods after the Closing Date;
(viii) except as otherwise specifically provided in the Agreement, all rights
and claims and all other assets relating to any Benefit Plan; (ix) certain books
and records; (x) except as otherwise provided in the Agreement, all Trademarks,
trade names, trade dress, logos and any other intangible assets that use or
incorporate the words "St. Joe" and certain other marks; (xi) the Groveton
Paperboard, Inc. Stock, if the Right of First Refusal with respect thereto has
been exercised; (xii) all claims to all types of insurance
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proceeds and condemnation proceeds to the extent related to Excluded Assets and
Retained Liabilities; and (xiii) the Consigned Inventory.
Under the terms of the Agreement, Seller retains all of the following
liabilities and obligations: (i) certain specified Environmental Liabilities as
discussed below under the heading "Environmental Indemnification"; (ii) upon
terms and subject to conditions, all liabilities or obligations for Taxes
relating to, arising from or with respect to the Acquired Assets or the Business
which are incurred in or attributable to the Pre-Closing Tax Periods and a
portion of Taxes allocated or apportioned to Seller for Bridge Tax Periods;
(iii) all Intercompany Payables; (iv) except as specifically assumed by Buyer as
discussed below under the heading "Employee Matters" or imposed by operation of
law, all liabilities and obligations to employees of Seller whether or not
arising under the Benefit Plans; (v) all indebtedness to Secured Parties; (vi)
all liabilities or obligations directly relating to any Excluded Assets; (vii)
fifty percent (50%) of all Transfer Taxes; (viii) all liabilities or obligations
attributable to the Acquired Assets or the Business arising out of any action,
suit or proceeding based upon an event occurring, a condition existing or a
claim arising on or prior to the Closing Date, except for Environmental
Liabilities which are treated exclusively under another section of the
Agreement, as discussed below under the heading "Environmental Indemnification";
and (ix) accounts payable related to capital expenditures with respect to
asbestos removal and transformer replacement as discussed below under the
heading "Environmental Indemnification."
THE CLOSING
It is anticipated that the Closing of the sale and purchase of the Acquired
Assets will take place at the offices of Seller's counsel on or before the
seventh business day following the date on which all conditions to the parties'
respective obligations, as described below under the heading "Conditions To
Closing" have been satisfied, or at such other place, date and time as the
parties may mutually agree.
NON-COMPETITION
Seller and the Company have agreed that, if the Closing occurs, for a
period of three years following the Closing Date, Seller and the Company will
not directly or indirectly engage in any Business which is competitive with the
Mill Business within the United States or Canada or which is competitive with
the Container Business within 300 miles of any of the box plants included in the
Real Property.
EMPLOYEE MATTERS
Buyer agreed to offer employment, subject to consummation of the Closing,
to Eligible Employees, to commence as of the Closing Date. All offers of
employment by Buyer to Eligible Employees shall be at the same or higher
salaries or hourly wage rates and with benefits commencing on the Closing Date
which, in the aggregate, are not less favorable than those in effect under the
Benefit Plan prior to the Closing Date, except that Buyer does not maintain any
stock option, stock bonus, stock purchase, or phantom stock plans for its
employees, and except that Buyer may make available participation in a defined
contribution profit sharing plan and not a defined Benefit Plan aggregate
contributions to which shall be no less than three percent (3%) of the aggregate
covered pay of participants therein. As to each collective bargaining unit
covered under a Collective Bargaining Agreement, if a majority of Eligible
Employees in the unit accept an offer of employment from Buyer, the union
representing such unit of employees of Seller shall be recognized by Buyer as a
collective bargaining agent for such unit of employees of Buyer. The Agreement
provides that, with respect to Buyer Benefit Plans, Buyer will recognize all
service with Seller of the Transferred Employees for purposes of eligibility to
participate and vesting in any employee Benefit Plans of Buyer, and for
determining the period of employment under any vacation, sick leave or other
paid time off plan of Buyer, as well as for determining other entitlements in
terms of employment affected by seniority under Buyer's employment policies,
except to the extent such service with Seller was disregarded for such purposes
under a corresponding plan or policy of Seller.
Except as described below, no assets of any Seller Benefit Plan shall be
transferred to Buyer or to any of Buyer's plans. Accrued benefits or account
balances of Transferred Employees under Seller's Benefit Plans which are funded
employee pension plans shall be fully vested as of the Closing Date. As soon as
practicable after the Closing, Seller will give each Transferred Employee the
following choices with respect to the
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disposition of the employee's account balance under the 401(k) plan: (a) an
immediate payout from the 401K plan, (b) a deferred payout from the 401(k) plan,
or (c) if Buyer maintains a qualified plan (under Section 401(a) of the Code),
direct rollover to the Buyer's plan.
The Agreement also provides that Seller, at JV's request (if made within
six months after the Closing Date), will use its best efforts to establish an
early retirement Incentive Program offering certain retirement pension benefits
on an accelerated basis to Transferred Employees of SJFP, provided however that,
among other things, (a) Seller's obligation shall be limited to fifteen (15)
salaried and thirty-five (35) hourly Transferred Employees, (b) the benefits
provided by Seller will be limited to five hundred thousand dollars ($500,000)
in the case of salaried employees and six hundred thousand dollars ($600,000) in
the case of hourly employees, and (c) group health coverage for any Transferred
Employee who accepts the early retirement offer shall be provided by either
Seller or JV as mutually agreed at the expense of Seller and JV until the
Transferred Employee reaches age 65, provided that Seller's share shall be no
greater than fifty percent (50%) of the total cost and no greater than a total
of four hundred thousand dollars ($400,000). In addition, Seller's obligations
apply only with respect to early retirement incentive offers which are made
within six months after the Closing Date and which are accepted within 12 months
after the Closing Date.
With respect to severance payments, the Agreement provides that Buyer shall
have the sole responsibility for making any applicable severance payments to
Transferred Employees in the event their services are terminated after the
Closing Date. If Buyer terminates or causes the termination of employment of (i)
any Listed Employee at any time within one year after the Closing Date, then
Buyer shall pay to such terminated Listed Employee a lump sum severance payment
in an amount equal to the annual salary of any such Listed Employee at the time
of termination (or, if greater, immediately prior to the Closing Date), and the
prior year's bonus, if any, granted in the ordinary course of business; or (ii)
any Other Employee within six months of the Closing Date, then Buyer shall pay
to such Other Employee a lump sum severance payment in an amount equal to the
gross weekly regular straight time rate of pay of such Other Employee at the
time of termination (or, if greater, immediately prior to the Closing Date),
multiplied by the aggregate number of years (including a fraction of a year) of
such Other Employee's employment with Seller and Buyer, with a minimum severance
payment of four weeks of the foregoing weekly rate of pay, and a pro rata share
of the prior year's bonus, if any, granted in the ordinary course of business.
Such severance payments would not be available to any Transferred Employee
terminated for cause as defined in the Agreement.
REPRESENTATIONS AND WARRANTIES
In the Agreement, each of the parties have made various representations and
warranties. In addition, a condition to Closing under the Agreement is that each
of Buyer's and Seller's representations and warranties in the Agreement shall be
true and correct in all material respects as of the Closing Date. See
"Conditions to Closing -- Buyer's Obligations" and "Conditions to
Closing -- Seller's Obligations." The representations and warranties survive for
a period following the Closing. See "Survival and Indemnification."
CONDUCT OF BUSINESS OF SELLER PRIOR TO SALE TRANSACTION
The Agreement contains certain covenants and agreements of the parties
including the Seller's agreement, among other things, (i) to conduct the
Business in the ordinary course consistent with past practice, including
Seller's agreement that it will not, except in certain circumstances, (v)
acquire a material amount of assets; (w) sell, lease, license or otherwise
dispose of any assets of the Business or any item of equipment or fixtures of
the Business for an amount in excess of ten thousand dollars ($10,000); (x)
cause any of the Acquired Assets to become subject to any Lien other than
Permitted Liens; (y) grant any bonus or any increase in wages or salaries or
enter into, adopt, or make any change in any consulting agreement, employment
agreement or other Benefit Plan, in each case as it may relate to Eligible
Employees; or (z) make capital expenditures (other than certain itemized
expenditures) without prior written approval of the Buyer except as required to
remain in compliance with applicable law; and (ii) to defend, indemnify and hold
Buyer harmless against any and all losses and damages incurred by Buyer.
20
<PAGE> 26
CONDUCT OF BUSINESS OF BUYER PRIOR TO SALE TRANSACTION
Buyer has agreed that, on and prior to the Closing Date, (i) it will pay
and discharge in a timely fashion all lawful taxes, assessments and governmental
charges or levies imposed upon any of its income, profits, property or Business
and promptly pay when due all of its debt which if unpaid might result in the
creation of a Lien upon its property, unless any such tax assessment, charge,
levy or debt is being contested in good faith, accruals have been provided
adequate to pay any such charges or debts that could reasonably be anticipated,
and no proceedings shall have been commenced to accelerate the payment of any
such charges or foreclose on any Lien; (ii) it will do all things necessary to
preserve its corporate existence and its rights, franchises, licenses and
permits necessary to continue its Business, and use its best efforts to comply
with all laws, rules, regulations and orders applicable to its properties or
Business, noncompliance with each could materially adversely affect its
properties, Business, profits or conditions; (iii) it will keep in effect at
existing levels and coverage its property and casualty insurance coverage; (iv)
it will not declare or make or incur a liability to make a distribution in
respect of its capital stock (other than the distribution to Buyer), make any
investments in any Person or property except property to be used in the ordinary
course of Business or current assets arising from the sale of goods and services
in the ordinary course of Business and except for investments in JV and
investments in Buyer or, except for certain specific instances, make any payment
in cash or property to any Buyer Affiliate or Affiliates of Buyer (other than
payments consistent with past practices to Persons solely as director or
officer); and (v) it will not (a) except in certain instances, create, assume or
suffer to exist any Lien upon any of its property, (b) except in certain
instances, create, incur, assume or suffer to exist any debt for borrowed money,
provided however, that nothing in this provision shall inhibit the incurrence of
debt to finance the transactions contemplated by this Agreement or the creation
of Liens in connection therewith, (c) merge or consolidate with any other
corporation other than one or more subsidiaries of Buyer, or sell, lease or
transfer or otherwise dispose of all or any part of its assets, rights or
property other than in the ordinary course of Business, (d) enter into any
arrangement with any lender or investor providing for the leasing by Buyer of
real or personal property in a sale and leaseback arrangement, (e) sell with
recourse, or discount or otherwise sell for less than face value, any of its
notes or accounts receivable except for certain sales without recourse of
accounts receivable the collection of which is doubtful in accordance with GAAP,
or (f) directly or indirectly purchase, acquire or lease any property from or
sell, transfer or lease any property to or otherwise deal with in the ordinary
course of Business or otherwise any Buyer Affiliate or Affiliate of Buyer unless
such transaction or series of transactions is on terms that are no less
favorable than would be available in a comparable transaction with an unrelated
third party.
CONDITIONS TO CLOSING
The obligations of Buyer and Seller to consummate the Closing are subject
to the satisfaction of the following conditions: (i) all required waiting
periods under the HSR Act shall have expired or been terminated; (ii) all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations or terminations of waiting periods imposed by, any
Governmental Entity necessary to effect the transactions contemplated by the
Agreement shall have occurred, been filed or been obtained, subject to a
separate provision of the Agreement relating to Environmental Permits; and (iii)
no judgment, injunction, order or decrees of any court, arbitrator or
Governmental Entity shall restrain or prohibit the consummation of the Closing.
The waiting period required by the HSR Act expired on March 22, 1996.
Buyer's Obligations. In addition, the obligation of Buyer to consummate
the Closing is subject to the satisfaction, or waiver by FMC if it pertains to
the Container Assets or JV if it pertains to the Mill Assets, of the following
further conditions: (i) that each of Sellers' representations and warranties in
the Agreement shall be true and correct in all material respects; (ii) that
Seller shall have performed in all material respects all obligations and
complied with all covenants required of it by the Agreement; (iii) that Buyer
shall have received at the Closing a certificate to the effect of items (i) and
(ii) above, dated the Closing Date and duly executed on behalf of Seller; and
(iv) Buyer shall have obtained the debt financing required in order to
consummate the transactions contemplated by this Agreement.
Seller's Obligations. In addition, the obligations of Seller to consummate
the Closing is subject to the satisfaction, or waiver by Seller, of the
following further conditions: (i) that each of Buyer's representations and
warranties in the Agreement shall be true and correct in all material respects;
(ii) that Buyer in all
21
<PAGE> 27
material respects shall have performed all obligations and complied with all
covenants required of it by the Agreement; (iii) that Seller shall have received
at the Closing a certificate to the effect of items (i) and (ii) above, dated
the Closing Date and duly executed on behalf of Buyer; (iv) that a majority of
the outstanding shares of capital stock of the Company shall have approved the
Agreement and consummation of the transactions contemplated thereby; and (v)
that Dillon Read shall not have withdrawn its opinion as to the fairness of the
transactions contemplated by the Agreement to the stockholders of the Company.
The Board retains authority to waive any or all of the conditions set forth in
this paragraph in (i) through (iii) above without further action of the
Company's stockholders following the Special Meeting.
TERMINATION
The Agreement may be terminated (i) by mutual consent of Seller and Buyer;
(ii) by either Seller or Buyer if the Closing shall not have occurred on or
before May 31, 1996 (unless the failure to consummate the Closing by such date
shall be due to the action or failure to act of the party seeking to terminate
the Agreement in violation of its covenants pursuant to the Agreement, in which
case the foregoing date shall be extended by the period of delay due to such
action or failure to act); (iii) by either Seller or Buyer if the other party
shall fail to perform its agreements in any material respect or materially
breach any of its representations or warranties, and fails to cure such failure
or breach promptly; or (iv) by either Seller or Buyer in the event that any
arbitrator or Governmental Entity shall have issued a judgment, injunction,
order or decree restraining or prohibiting the consummation of the Closing and
such judgment, injunction, order or decree shall have become final and
non-appealable. Termination provisions for the benefit of Buyer or Seller as to
financing matters or of Buyer as to environmental matters have expired.
NON-SOLICITATION OF TRANSACTIONS
The Company and Seller have agreed to refrain from initiating, soliciting
or encouraging inquiries or proposals to acquire all or substantially all of the
Business, or entering or maintaining or continuing discussions or negotiating
with any person in furtherance of the same, subject to the right to furnish
information in response to unsolicited third party Transaction Proposals or to
engage in discussions or negotiations with a third party making a Transaction
Proposal, but only (i) after the Board of Directors concludes that such action
is necessary to comply with its fiduciary obligations to stockholders, or (ii)
if Dillon Read is unable to render or withdraws its opinion as to the fairness
of the Sale Transaction to the stockholders of the Company. A Transaction
Proposal is defined in the Agreement as any proposal with respect to any
acquisition or purchase of a substantial amount of assets of, or any equity
interest in, Seller or any of its Subsidiaries or any merger, consolidation, or
business combination, involving Seller or any of its Subsidiaries. The Board of
Directors also agreed not to withdraw or modify or prepare to withdraw or modify
in a manner adverse to Buyer the approval or recommendation by the Board of the
Agreement, or approve or recommend or propose to approve or recommend any
agreement with respect to a Transaction Proposal, unless an unsolicited
Transaction Proposal is received from a third party and the Board concludes in
good faith based on the advice of outside counsel that in order to comply with
its fiduciary obligations to the Stockholders under applicable law it is
necessary to do so or to approve or recommend or enter into an agreement with
respect to such Transaction Proposal or terminate the Agreement.
TERMINATION FEE
In the event of a Transaction Proposal, if Seller fails to reject such a
third party Transaction Proposal or give required notice of it to Buyer, Seller
shall be deemed to have elected to terminate the Agreement and Buyer shall be
entitled to payment of a termination fee. See "Non-Solicitation of
Transactions." If such termination fee is payable, Seller shall pay to Buyer a
fee of eight million dollars ($8,000,000) plus fifteen percent (15%) of the
excess consideration represented by the Transaction Proposal, up to an aggregate
maximum of twelve million dollars ($12,000,000).
The Agreement also provides that, should the Closing not occur as a result
of Seller's failure to meet these Closing conditions described in (i) through
(iii) above under the heading "Conditions To Closing -- Buyer's Obligations" or
as a result of the failure of a majority of the holders of outstanding shares of
capital stock of the Company to have approved this Agreement and the
consummation of the transactions
22
<PAGE> 28
contemplated thereby, Seller shall pay Buyer and SCC collectively their
out-of-pocket fees and expenses up to a maximum amount of two million dollars
($2,000,000). If the Closing does not occur as a result of Buyer's failure to
meet these Closing conditions described in (i) through (iii) above under the
heading "Conditions To Closing -- Seller's Obligations," FMC and JV shall
jointly and severally pay Seller its out-of-pocket fees and expenses up to a
maximum amount of two million dollars ($2,000,000). Failure of FMC or JV to
obtain financing in connection with the Sale Transaction would not trigger such
payment, but failure of FMC or JV to use best efforts to obtain such financing
would trigger such payment. See "Buyer Financing."
SURVIVAL AND INDEMNIFICATION
All representations and warranties in the Agreement survive for eighteen
months following the earlier of the Closing Date and March 31, 1996, provided
that the survival period shall not be less than one year from the Closing Date.
In the Agreement, the parties agree that they shall jointly and severally
indemnify and hold harmless certain other parties from and against any costs or
expenses (including reasonable attorney's fees), judgments, fines, amounts paid
in settlement, losses, claims and damages as follows: (i) SJPC and SJCC shall
indemnify and hold harmless the FMC Group from losses and damages to the extent
they arise from (w) a breach of any representation or warranty of Seller in the
Agreement with respect to the Container Assets or the Container Business, (x)
failure to perform any covenant of Seller under the Agreement with respect to
the Container Assets or the Container Business, (y) any Liens other than
Permitted Liens with respect to the Container Assets or the Container Business
(other than the Real Property and the Realty Rights), and (z) Retained
Liabilities with respect to the Container Assets or the Container Business; (ii)
SJPC and SJFP shall indemnify and hold harmless the JV Group from losses and
damages arising from (w) a breach of any representation or warranty of Seller
contained in the Agreement with respect to the Mill Assets or the Mill Business,
(x) failure to perform any covenant of Seller under the Agreement with respect
to the Mill Assets or the Mill Business, (y) any Liens other than Permitted
Liens with respect to the Mill Assets or the Mill Business (other than the Real
Property, the SJLD Property and the Realty Rights), and (z) Retained Liabilities
with respect to the Mill Assets or the Mill Business; (iii) FMC shall indemnify
and hold harmless the Seller Group from and against all losses and damages
arising from (x) a breach of any representation or warranty of FMC or any FMC
Affiliates (other than JV) contained in or made pursuant to the Agreement, (y)
failure to perform any covenant made by or on behalf of FMC or any FMC Affiliate
(other than JV) under the Agreement, or (z) any Assumed Liabilities assumed by
FMC or any FMC Affiliate (other than JV); and (iv) JV and JV Affiliates shall
indemnify and hold harmless the Seller Group from and against all losses and
damages arising from (x) a breach of any representation or warranty of JV in the
Agreement, (y) failure to perform any covenant of JV under the Agreement, or (z)
any Assumed Liabilities assumed by JV.
ENVIRONMENTAL INDEMNIFICATION
Under the Agreement, Seller provides $10,000,000 for On-Site Environmental
Liabilities existing on the Closing Date as long as they are discovered within
three years of the Closing Date and Seller has, except in limited circumstances,
received invoices for them within five years of the Closing Date. The Agreement
further provides that Seller shall have no obligations for costs Buyer incurs to
comply with Title V of the Clean Air Act or the Cluster Rules. On-Site
Environmental Liabilities arising from Environmental Conditions caused from
activities both before and after the Closing Date are to be allocated among the
parties based on relative contribution. The Agreement provides the exclusive
remedy for On-Site Environmental Liabilities which relate to matters within the
property lines of real property conveyed under the Agreement. Seller's
obligation to pay $10,000,000 for On-Site Environmental Liabilities existing on
the Closing Date is subject to cost-sharing with Buyer according to the
following schedule: the first $2,500,000 by Buyer; the next $2,500,000 by
Seller; the next $2,500,000 by Buyer; the next $2,500,000 by Seller; the next
$2,500,000 by Buyer; and the next $5,000,000 by Seller.
The Agreement contains no indemnification provisions as to Off-Site
Environmental Liabilities, except that Buyer and Seller agree that where the
Environmental Liabilities are caused by acts or omissions which occurred both
before and after the Closing Date, responsibility between Buyer and Seller would
be allocated
23
<PAGE> 29
between the two parties based upon the relative contribution of acts or
omissions during each period to the injury or harm. In the event of any Change
of Control with respect to FMC or JV, all of Seller's obligations under the
environmental indemnification provisions terminate, except for Off-Site
Environmental Liabilities for which Seller was solely responsible; however,
Buyer's and Buyer Affiliates' obligations continue. Environmental Liabilities
alleged, imposed or required by any state or federal agency arising from
Off-Site landfills or other land disposal facilities owned and operated by
Persons other than Seller to which municipal and industrial solid waste has been
carted or trucked by Seller prior to the Closing Date, and to which Buyer has
not carted or trucked any solid waste after the Closing Date, shall be the sole
responsibility of Seller. With respect to landfills or other land disposal
facilities to which both Seller and Buyer have carted or trucked any solid
waste, responsibility for Environmental Liabilities of Buyer and Seller will be
allocated according to the relative contribution of each party to the harm.
Under the Agreement, Seller also committed to undertake certain corrective
actions with respect to existing Environmental Conditions, including: (i)
continuation of asbestos removal projects at the paper mill and (ii) completing
specified remedial actions. Seller also agreed to provide Buyer $1,400,000
toward other specified environmental projects. Finally, as part of the January
12, 1996 amendment, Seller agreed to reimburse JV up to $1,000,000 for certain
remediation activities at the paper mill, if such activities were required under
environmental laws, subject to the following cost sharing: the first $200,000 by
Seller; the next $300,000 by Buyer; the next $300,000 by Seller; the next
$300,000 by Buyer; the next $500,000 by Seller; the next $500,000 by Buyer; with
any remaining expenses being treated as On-Site Environmental Liabilities.
FMC and JV and their affiliates agreed to release, and forever discharge
Seller Group from any and all claims, including claims for contribution and
indemnity, which could be asserted and that in any way arise out of On-Site
Environmental Liabilities. FMC and JV and their affiliates also provided a
covenant not to sue the Seller Group upon any claim, including without
limitation any claim for indemnity and contribution, that have been asserted or
could be asserted for Environmental Liabilities, except for the purpose of
enforcing matters expressly set forth in the Agreement.
WOOD FIBER SUPPLY AGREEMENT
In connection with the Agreement, SJLD will enter into a Wood Fiber Supply
Agreement with JV. Under that agreement, wood fiber would be supplied for the
operations of the paper mill at Port St. Joe, Florida for a period of 15 years,
with two five-year renewal options available to JV. The tonnage of pulp wood and
wood chips to be supplied under the agreement are 1,600,000 (year one);
1,400,000 (year two); 1,200,000 (year three); and 900,000 tons in year four and
thereafter. The amount of tonnage required to be provided from SJLD's land would
be 900,000 tons per year starting in the third year. In addition, JV would have
the election to reduce in increments the amount of tonnage to not less than
600,000 tons per year. Prices for the wood fiber were negotiated at the time of
the negotiation of the Agreement and were negotiated based on fixed prices from
geographic zones for pulp wood and prices tied to designated chipping facilities
for wood chips. Under the Wood Fiber Supply Agreement, prices are to be
renegotiated every two years and are to be indexed on a quarterly basis to
certain published prices resulting in quarterly adjustments that are not greater
than five percent. Under the Wood Fiber Supply Agreement, annual wood fiber
tonnage to be supplied from the Company's lands will not exceed that currently
provided to the paper mill. In the future, the Company plans to shift its
remaining fiber production from the Company's lands to higher margin timber
products.
CONSIGNMENT AGREEMENT
In connection with the Agreement, Seller and FMC will enter into a
Consignment Agreement in a form reasonably satisfactory to Seller which provides
for the consignment of the Consigned Inventory to FMC and the purchase thereof
at the rate of at least one sixth of the value of the Consigned Inventory Amount
per month and payment therefor in an amount equal to the Consigned Inventory
Amount. See "Purchase Price; Purchase Price Adjustment."
24
<PAGE> 30
MARKET PRICE DATA AND RELATED MATTERS
COMMON STOCK INFORMATION
The Company had 870 common stockholders of record as of March 8, 1996. The
Common Stock is quoted on the New York Stock Exchange ("NYSE") Composite
Transactions Tape under the symbol "SJP". On November 1, 1995, the business day
immediately preceding public announcement of the Sale Transaction, the high and
low sales prices for the Common Stock as reported on the NYSE Composite
Transactions Tape were 61 1/4 and 60 1/2. On March 29, 1996, the high and low
sales prices for the Common Stock were 58 1/8 and 55 7/8.
The range of high and low sales prices for the Common Stock as reported on
the NYSE Composite Transactions Tape for the periods indicated is set forth
below.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
- -------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C>
1994 First Quarter........................................................... 57 7/8 50 1/4
Second Quarter.......................................................... 57 49 1/8
Third Quarter........................................................... 62 5/8 49 1/4
Fourth Quarter.......................................................... 61 7/8 54 1/4
1995 First Quarter........................................................... 67 3/4 53 3/4
Second Quarter.......................................................... 65 1/2 60 5/8
Third Quarter........................................................... 64 1/2 60
Fourth Quarter.......................................................... 62 3/4 53 1/2
1996 First Quarter........................................................... 61 1/2 53 7/8
</TABLE>
DIVIDENDS
The Company paid a cash dividend of $.20 per share to holders of Common
Stock in 1994 and 1995. A dividend of $.05 per share for the first quarter of
1996 is payable on March 29, 1996 to holders of record on March 22, 1996.
Although the Company has historically paid quarterly cash dividends of $.05 per
share and there are currently no plans to reduce such dividends following the
Sale Transaction and the partial liquidation, there can be no assurance that
such practice will continue in the future. See "The Sale Transaction -- Use of
Proceeds; Effect on the Company's Stockholders" and "The Sale
Transaction -- Other Transactions; Plans for Future Operations Following the
Sale Transaction."
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed financial data reflect (i) the
sale of the communications segment, (ii) the Sale Transaction, and (iii) the
distribution of the net proceeds to the stockholders, as if all transactions had
occurred on December 31, 1995. This pro forma condensed balance sheet should be
read in conjunction with the pro forma condensed statement of operations of the
Company and the historical consolidated financial statements and notes thereto
included in this Proxy Statement.
The unaudited pro forma adjustments are based upon available information
and contain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma condensed financial data are not
necessarily indicative of what the actual financial position of the Company
would have been at December 31, 1995, nor does it purport to represent the
future financial position of the Company. Since these transactions have not
occurred and the sales prices are to be adjusted based on events which cannot be
predicted with certainty, the results reported below will change.
25
<PAGE> 31
ST. JOE PAPER COMPANY
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
HISTORICAL -----------------------------------------------------
COST COMMUNICATIONS DISTRIBUTION PRO FORMA
BALANCE SEGMENT SALE IN PARTIAL BALANCE
SHEET SALE(1) TRANSACTION(2) LIQUIDATION(3) SHEET
---------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash, cash equivalents
and short-term
investments.......... $ 113,725 128,221(a) 354,500(a) (375,499) $ 220,947
Other current assets.... 87,458 -- 21,000(a) -- 108,458
Net assets of
discontinued
operations........... 296,001 (56,313)(b) (239,688)(b) -- --
---------- -------------- -------------- -------------- ----------
Total current
assets............. 497,184 71,908 135,812 (375,499) 329,405
Total investments and
other assets............ 228,836 -- 10,000(a) -- 238,836
Property, plant and
equipment, net.......... 804,974 -- -- -- 804,974
---------- -------------- -------------- -------------- ----------
Total assets......... $1,530,994 71,908 145,812 (375,499) $1,373,215
========= ============ =========== =========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued
liabilities.......... $ 44,469 -- 9,400(b)(c) -- $ 53,869
Income taxes payable.... -- 32,856(c) 74,966(d) -- 107,822
---------- -------------- -------------- -------------- ----------
Total current
liabilities........ 44,469 32,856 84,366 161,691
---------- -------------- -------------- -------------- ----------
Accrued casualty reserves
and other liabilities... 11,681 -- -- -- 11,681
Deferred income taxes and
income.................. 192,036 -- -- -- 192,036
Minority interest in
consolidated
subsidiaries............ 266,741 -- -- -- 266,741
Stockholders' Equity:
Common stock............ 8,714 -- -- -- 8,714
Retained earnings....... 955,239 39,052 61,446 (375,499) 680,238
Net unrealized gains on
debt and marketable
equity securities.... 52,114 -- -- -- 52,114
---------- -------------- -------------- -------------- ----------
Total stockholders'
equity............. 1,016,067 39,052 61,446 (375,499) 741,066
---------- -------------- -------------- -------------- ----------
Total liabilities and
stockholders'
equity............. $1,530,994 71,908 145,812 (375,499) $1,373,215
========= ============ =========== =========== =========
</TABLE>
See accompanying notes to unaudited pro forma condensed balance sheet.
26
<PAGE> 32
ST. JOE PAPER COMPANY
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
(1) To record the sale of the communications segment as follows:
<TABLE>
<S> <C>
Gross Proceeds:
St. Joe Communications.......................................... $115,000
Cellular partnerships........................................... 25,000
--------
140,000
Less:
Net book value of assets sold................................... 75,513
Estimated sales costs........................................... 1,500
--------
Gain on sale before income taxes.................................. 62,987
Estimated income taxes............................................ 23,935
--------
Net gain on sale.................................................. $ 39,052
========
</TABLE>
(a) The gross proceeds of $140,000 include assumption of debt of $18,093
resulting in cash proceeds of $121,907. The Company expects to retain a
portion of the communications segment cash balances which is estimated
to be $7,814, and after paying sales costs estimated at $1,500 will
have cash remaining after the sale of $128,221. The proceeds from the
sale will be increased or decreased, as the case may be, based upon
certain changes in net worth.
(b) The communications segment net assets of discontinued operations of
$56,313 is increased by the debt assumed by Buyer of $18,093, increased
by the deferred tax liability retained by the Company of $8,921, and
decreased by the cash retained of $7,814 to derive the estimated net
book value of assets sold.
(c) Income taxes payable of $32,856 includes income tax expense of $23,935
on the gain, which was calculated using the estimated combined net
federal and state tax rates, and $8,921 of deferred income taxes, which
will become currently payable as a result of the sale.
(2) To record the Sale Transaction as follows:
<TABLE>
<S> <C>
Gross Proceeds:................................................... $390,000
Less:
Net book value of assets sold................................... 284,894
Estimated sales costs........................................... 4,500
Additional liabilities resulting from sale...................... 1,500
--------
Gain on sale before income taxes.................................. 99,106
Estimated income taxes............................................ 37,660
--------
Net gain on sale.................................................. $ 61,446
========
</TABLE>
(a) The gross proceeds of $390,000 include a $10,000 senior subordinated
note and $21,000 of inventory to be sold over the six months following
the closing resulting in cash proceeds of $359,000. After paying
estimated sales costs of $4,500, the cash remaining after the sale is
estimated to be $354,500. The actual gross proceeds will be increased
or decreased, as the case may be, based upon changes in net working
capital, capital expenditures and sales of assets up to the date of
sale. See "The Asset Purchase Agreement."
(b) The linerboard mill and container plant net assets of discontinued
operations of $239,668 is increased by the deferred tax liability
retained by the Company of $37,306 and payables estimated to
27
<PAGE> 33
be retained by the Company of $7,900 to derive the estimated net book
value of assets sold. The retained liabilities are related to
environmental and workers' compensation claims.
(c) Additional liabilities resulting from the sale of $1,500 relate to a
proposed transferred employee early retirement incentive program. While
the Company has agreed to indemnify Buyer in an amount equal to $10,000
for On-Site Environmental Liabilities (as defined in the Agreement) and
$1,000 for certain remediation activities at the paper mill if such
activities are required under environmental laws, no matters have been
identified at this time which would require an accrual in the pro forma
balance sheet.
(d) Income taxes payable of $74,966 includes income tax expense of $37,660
on the gain, which was calculated using the estimated combined net
federal and state rates, and $37,306 of deferred income taxes, which
will become currently payable as a result of the sale.
(3) See "The Sale Transaction -- Use of Proceeds; Effect on the Company's
Stockholders." GIVEN THAT THE SELECTED UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA CONTAIN ESTIMATES ON PROCEEDS OF SALES, STOCKHOLDERS ARE
ADVISED THAT THE ACTUAL AMOUNT OF NET PROCEEDS THAT WILL BE DISTRIBUTED WILL
BE DIFFERENT AND MAY BE SUBSTANTIALLY DIFFERENT. THE ACTUAL AMOUNT OF NET
PROCEEDS TO BE DISTRIBUTED WILL BE DETERMINED AT THE TIME OF DISTRIBUTION
AFTER THE SALES HAVE BEEN COMPLETED AND AFTER PURCHASE PRICE ADJUSTMENTS,
FEES AND EXPENSES OF THE SALES, TAXES PAYABLE AND RELATED AMOUNTS HAVE BEEN
FINALLY DETERMINED.
(4) The Company sponsors defined benefit pension plans which cover substantially
all of the employees of the operations being sold. The defined benefit
plans' assets are not a part of the sales. In accordance with Statement of
Financial Accounting Standards No. 88 "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," the Company expects to recognize a curtailment gain at the date
of sale. The gain amount has not yet been determined and, accordingly, has
not been reflected in the pro forma condensed balance sheet.
28
<PAGE> 34
ST. JOE PAPER COMPANY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
STATEMENT OF PRO-FORMA STATEMENT OF
OPERATIONS(1) ADJUSTMENTS(2) OPERATIONS
------------- -------------- ------------
<S> <C> <C> <C>
Net Sales and operating revenues....................... $ 334,924 2,693 $337,617
Cost of Sales.......................................... 116,014 -- 116,014
Operating expenses..................................... 139,875 -- 139,875
Selling, general and administrative expenses........... 31,718 -- 31,718
------------- ------ ------------
Operating profit..................................... 47,317 2,693 50,010
Other income (expense), net............................ 18,770 -- 18,770
------------- ------ ------------
Income from continuing operations before income taxes
and minority interest................................ 66,087 2,693 68,780
Total provision for income taxes....................... 24,535 1,000 25,535
------------- ------ ------------
Income from continuing operations before minority
interest............................................. 41,552 1,693 43,245
Minority interest...................................... 12,194 -- 12,194
------------- ------ ------------
Income from continuing operations...................... $ 29,358 1,693 $ 31,051
========== =========== =========
Income from continuing operations per share............ $0.96 0.06 $1.02
======= ======== =======
</TABLE>
- ---------------
(1) The Historical Statement of Operations reflects the Company's continuing
operations and excludes operations of the linerboard mill, container plants
and communications segment. Also, the anticipated gains on sales of these
excluded operations are not included in this pro forma condensed statement
of operations, but are shown as an adjustment to the retained earnings on
the pro forma condensed balance sheet. No interest income has been reflected
on the cash received from the sales since a distribution in partial
liquidation of the proceeds is planned and the timing of payment is
uncertain.
(2) In connection with the Sale Transaction, the Company will retain its
timberlands and will enter into a wood fiber supply agreement with the
Buyer. See "The Sale Transaction-Other Transactions; Plans for Future
Operations Following the Sale Transaction" and "The Asset Purchase
Agreement-Wood Fiber Supply Agreement." The pro-forma adjustment reflects
the difference between the sales price actually charged and the price
estimated in accordance with the wood fiber supply agreement as if the
agreement had been in effect commencing January 1, 1995.
29
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the five years
ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company. The statement of operations data with
respect to the years ended December 31, 1995, 1994 and 1993 and the balance
sheet data as of December 31, 1995 and 1994 have been derived from the audited
financial statements of the Company as included in this Proxy Statement. The
statement of operations data with respect to the years ended December 31, 1992
and 1991 and the balance sheet data as of December 31, 1993, 1992 and 1991 have
been derived from audited financial statements of the Company previously filed
with the SEC but not incorporated by reference or included elsewhere in this
Proxy Statement. The selected consolidated financial data set forth below are
qualified in their entirety by and should be read in conjunction with the
financial statements and the notes related thereto included elsewhere in this
Proxy Statement. See "Management Discussion and Analysis of Financial Condition
and Results of Operations; Consolidated Financial Statements."
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
Total Assets........................................ $1,531 $1,449 $1,396 $1,289 $1,280
====== ====== ====== ====== ======
Current Assets...................................... $ 497 $ 485 $ 486 $ 442 $ 465
Less: Current Liabilities........................... 44 68 69 56 68
------ ------ ------ ------ ------
Working Capital..................................... 453 417 417 386 397
Current Ratio (to 1).............................. 11.3 7.0 6.9 7.9 6.8
Investment & Other Assets........................... 229 207 187 164 175
Properties, at Cost................................. 1,105 1,040 990 935 870
Less:
Accumulated Depreciation.......................... 300 283 268 250 229
Long-Term Debt.................................... -- 17 16 16 18
Reserves and Other Liabilities.................... 12 11 8 16 13
Deferred Income Taxes............................. 192 165 161 137 137
Minority Interests................................ 267 251 239 230 221
------ ------ ------ ------ ------
Shareholders' Equity................................ $1,016 $ 937 $ 902 $ 836 $ 824
====== ====== ====== ====== ======
RESULTS OF OPERATIONS
Net Sales and Operating Revenues.................... $ 335 $ 331 $ 312 $ 300 $ 287
====== ====== ====== ====== ======
Operating Profit.................................... $ 47 $ 60 $ 55 $ 43 $ 34
Other Income........................................ 19 25 12 18 37
Less:
Taxes on Income................................... 25 31 30 22 24
Income Applicable to Minority Interest............ 12 16 10 11 13
------ ------ ------ ------ ------
Net Income from Continuing Operations............... 29 38 27 28 34
Earnings (Loss) from Discontinued Operations........ 45 4 (15) (12) (6)
Cumulative Effect of Change in Accounting
Principle......................................... -- -- 21 -- --
------ ------ ------ ------ ------
Net Income.......................................... $ 74 $ 42 $ 33 $ 16 $ 28
====== ====== ====== ====== ======
PER COMMON SHARE
Book Value -- End of Year........................... $33.31 $30.72 $29.58 $27.35 $27.02
====== ====== ====== ====== ======
Net Income from Continuing Operations............... $ 0.96 $ 1.24 $ 0.87 $ 0.92 $ 1.11
Earnings (Loss) from Discontinued Operations........ 1.46 0.14 (0.48) (0.40) (0.19)
Cumulative Effect of Change in Accounting
Principle......................................... -- -- 0.68 -- --
------ ------ ------ ------ ------
Net Income.......................................... $ 2.42 $ 1.38 $ 1.07 $ 0.52 $ 0.92
====== ====== ====== ====== ======
Net Income as % of Book Value....................... 7.3 4.5 3.6 1.9 3.4
Dividends Paid...................................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
</TABLE>
30
<PAGE> 36
- ---------------
(1) As discussed in Note 3 to the Consolidated Financial Statements, net
operating results of the communications segment, linerboard mill and
container plants are shown separately as earnings (loss) from discontinued
operations for the years ended December 31, 1995, 1994, 1993, 1992 and 1991.
Net assets to be disposed of have been classified as a current asset at
December 31, 1995. The 1994, 1993, 1992 and 1991 presentations have been
restated to reflect this classification.
(2) As discussed in Note 4 to the Consolidated Financial Statements, the Company
follows the asset and liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to affect taxable income. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. SFAS 109 also requires the
recognition of a deferred tax liability on the undistributed earnings of
subsidiaries applied on a prospective basis. Effective January 1, 1993, the
Company adopted SFAS 109 and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1993 consolidated
statement of income.
(3) As discussed in note 4 to the Consolidated Financial Statements, the Company
adopted the provisions of SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" at December 31, 1993. This adoption increased
Shareholders' Equity by $41.5 million or $1.36 per share.
(4) In 1988, a subsidiary entered into an agreement with the Florida Department
of Transportation (DOT) for the sale of approximately 20.7 miles of
abandoned 100-foot wide right-of-way. The total sales price of $35.5 million
was divided into six segments. The DOT made an initial payment of $10
million and issued an executory note for $25.5 million at an interest rate
of 9.01%. As the payments from the State were received, the liens on the pro
rata portion of the succeeding segments were removed and related gains
recognized. A principal and interest payment of $6.25 million was received
in 1989, a payment of $8.86 million was received in 1990, and a final
payment of $16.4 million was received in 1991. The land sale gain recognized
in 1991 amounted to $15 million and was included in Other Income.
31
<PAGE> 37
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements and "Additional Information About the
Company -- The Company's Business" included elsewhere herein, which are
incorporated herein by reference.
OVERVIEW
Consolidated net income rose to $73.8 million ($2.42 per share) for the
year ended 1995 compared to $42.1 million ($1.38 per share) for 1994 and $32.6
million ($1.07 per share) in 1993. These results included the earnings (loss)
from discontinued operations as described below as well as the cumulative effect
of adopting Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" in 1993. This change amounted to $20.5 million
($0.68 per share) in 1993. Excluding the cumulative effect of accounting
changes, net income for 1993 was $12.1 million ($0.39 per share).
Net sales and operating revenues rose to $334.9 million for the year ended
December 31, 1995, an increase of $4 million from 1994. Transportation operating
revenues increased by $10.9 million and sugar net sales were up by $2.6 million.
Forestry revenues declined slightly while real estate revenues dropped by $9.4
million, principally due to a condemnation sale which occurred in 1994 and was
not repeated in 1995. In 1994, revenues increased in all segments compared to
1993, rising from $312.5 million in 1993 to $330.9 million in 1994.
Operating profits declined by $12.7 million in 1995 from $60 million in
1994. Lower cost of sales helped the sugar segment realize a $7 million increase
in operating profit. The transportation segment experienced a $1.4 million
decrease in operating profit. The net from the condemnation sale referred to
above was the largest factor in the $10.8 million decline of real estate
operating profit. Increased cost of sales in the forestry segment contributed
heavily to the $7.5 million decrease in its 1995 operating profit. In 1994,
sugar and real estate operating profits increased while transportation and
forestry declined.
Other income declined in 1995 primarily due to land sales of $3.5 million
by transportation subsidiaries and $8.7 million by forestry subsidiaries in 1994
which were not repeated in 1995. These sales also contributed to the $12.8
million increase in 1994 over 1993.
The provision for income taxes decreased by $6.9 million in 1995 compared
to 1994 after increasing by $1.1 million in 1994 compared to 1993. These changes
are due to the changes in taxable income during these years. The 1993 provision
reflects the deferred tax effect of the change in the federal income tax rate
enacted that year. The Company files a consolidated federal income tax return
for the parent and all 80% or greater owned subsidiaries. The effective income
tax rate was 37.1%, 36.9% and 45.1% in 1995, 1994 and 1993, respectively. In
1993, the Company adopted SFAS No. 109 which resulted in the recognition of
$20.5 million in additional income in 1993 for the cumulative effect of the
change in accounting for income taxes.
Income from continuing operations was $29.4 million in 1995, a decrease of
$8.5 million from 1994, which had been $11.2 million higher than 1993. The land
sales referred to above were the primary causes of the changes in income.
On September 1, 1995, Industries agreed to sell the stock of SJCI to TPG
Communications, Inc. for approximately $115 million, subject to purchase price
adjustments. SJCI has sold its interests in three cellular partnerships and has
a contract to sell its interest in the remaining cellular partnership for an
aggregate of approximately $27 million. These sales represent the Company's
entire communications segment and the remaining sales are expected to close in
the first half of 1996. See "The Sale Transaction -- Other Transactions; Plans
for Future Operations Following the Sale Transaction." On November 1, 1995, SJFP
agreed to sell its pulp and paper mill and SJCC agreed to sell its container
plants for approximately $390 million subject to purchase price adjustments and
certain contingencies. See "The Asset Purchase Agreement." Earnings from
discontinued operations, net of taxes, were $44.5 million in 1995 and $4.3
million in 1994 compared to a loss of $14.6 million in 1993. The increase in
earnings reflects the increase in profitability of the pulp and paper mill and
container plants.
32
<PAGE> 38
Assuming consummation of the sale of the paper mill and box plants and the
sales of its telephone communications segment, the Company will have continuing
operations in (i) transportation of goods by rail; (ii) the growing and
harvesting of timber; (iii) growing sugarcane and processing sugarcane into raw
sugar and (iv) development, construction and management of real estate. See Note
1 to "Notes to Consolidated Financial Statements." Following the consummation of
these transactions, the Company plans to scale down and eliminate non-essential
corporate functions. The Company is also undertaking an executive management
search effort to enhance management expertise.
Upon the completion of these sales, revenues of the Company will be
materially lower than historical levels. Net income, earnings per share and cash
flows may also be materially different than previous periods. Prior period
financial statements have been restated to reflect the reclassification of the
communications segment, the pulp and paper mill and container plants as
discontinued operations.
In addition, as previously announced on February 28, 1995, the Company has
been exploring the sale of its sugar business and is engaged in discussions with
interested parties. Should such a sale materialize, the Company would also
withdraw from the sugar segment of its business. There can be no assurance when,
if or on what terms such a sale may be made. The U.S. Senate on March 28, 1996
and the House on March 29, 1996 passed the Federal Agriculture Improvement and
Reform Act of 1996, which includes provisions for the restoration of the
Everglades ecosystem in South Florida. Signature by the President is pending.
The Act provides significant funding levels for the acquisition of real property
located in the Everglades which is where the Company's sugar operations are
located. Assuming the President signs the Act, it is currently unknown whether
such funds would be available or utilized if a sale of the sugar segment
materializes in the future.
As to transportation of goods by rail and real estate, FECI, in which the
Company beneficially owns 54% of the outstanding shares of common stock,
appointed the FECI Special Committee to consider whether its railroad
transportation business now owned by its wholly owned subsidiary, FEC, should be
disposed of in a merger or sale transaction. The FECI Special Committee reached
the conclusion that a disposition should be pursued but only under certain
conditions. The Company's Board agrees with that conclusion. The FECI Special
Committee has advised the Company that the FECI Special Committee will not
pursue a disposition of the railroad unless the FECI Special Committee has
adequate assurance that the remaining business of FECI, the real estate
operations conducted by its wholly owned subsidiary, GCC, can also be disposed
of on acceptable terms. There can be no assurance when, if and on what terms a
disposition of FEC may be made.
The FECI Special Committee has recognized that it might be possible for
FECI to merge with another company with substantial railroad operations in a
transaction in which no gain or loss would be recognized to FECI or its
shareholders. FECI believes that the likelihood of such a merger is
significantly lessened as long as GCC remains a FECI subsidiary. The Company has
indicated to FECI that, if a merger of FECI with another railroad corporation
would be facilitated by an exchange of GCC stock for the FECI stock held by the
Company, the Company would be willing to consider exchanging shares of FECI
stock it owns for all of the shares of GCC stock held by FECI and in that regard
has proposed acquiring all the issued and outstanding shares of common stock per
share of GCC in a tax free exchange of its shares in FECI in return for 100%
ownership of GCC stock. GCC is engaged in commercial real estate development in
Florida. Each of the Company and FECI has hired an appraisal firm to assist in
evaluating the property of GCC, and the Company and FECI intend to see if they
can negotiate terms of an exchange that will be acceptable to both parties.
Accordingly, there can be no assurance when, if and on what terms the Company
may acquire GCC from FECI.
The Proposed Budget could have a substantial and adverse effect upon a
merger of FECI with another company subsequent to the acquisition of GCC common
stock by the Company in exchange for FECI common stock. The Proposed Budget
would amend current laws to provide that a merger of FECI with another company
within two years of the exchange of GCC common stock for FECI common stock,
pursuant to which the FECI shareholders would own less than fifty percent of the
voting power, and less than fifty percent of the value, of the stock of the
surviving company, could cause FECI to recognize gain on the exchange of the GCC
common stock. The gain would be measured by the difference between the fair
market
33
<PAGE> 39
value of the GCC common stock and FECI's adjusted tax basis in such stock. If
enacted, the Proposed Budget would be effective for distributions made after
March 19, 1996. The Chairmen of the House Ways and Means and Senate Finance
Committees, however, have jointly announced their intention that the effective
date of new tax proposals in the Proposed Budget will not be earlier than "the
date of appropriate Congressional action." Accordingly, there can be no
assurance when, if, and on what terms a merger of FECI with another corporation,
or sale of FEC or GCC, may be made. Also, there can be no assurance when, if,
and on what terms the Company may acquire GCC from FECI.
Assuming the sale of the sugar segment by the Company and the sale of the
railroad by FECI and the acquisition of GCC by the Company, the Company's
operations will thereafter be primarily focused on real estate operations from
the point of view of the growing and harvesting of timber and the development of
commercial and residential real estate.
CONTINUING OPERATIONS
TRANSPORTATION
The transportation segment accounted for 56% of the consolidated revenues
of the Company in 1995 compared to 53% in 1994 and 56% in 1993. Revenues
increased by $10.9 million in 1995 compared to 1994 and $1.0 million in 1994
compared to 1993. As to the future of this segment, see "Overview."
The revenues and expenses of FEC increased in 1995 due to the purchase of a
trucking subsidiary in the second quarter. The increases in revenues and
expenses are related primarily to this acquisition but the contribution to
operating profit of FEC was negligible. Also contributing to the change was the
implementation on April 1, 1995 of a haulage agreement with a connecting rail
carrier, whereby the connecting rail carrier's intermodal shipments were handled
in wholesale fashion to and from FEC's south Florida intermodal terminals. The
purchase of the trucking subsidiary increased revenues and expenses, whereas the
haulage agreement reduced revenues and expenses. FEC's revenues are derived from
four major classifications of traffic: shipments of rock, intermodal (container
and trailer), automotive and other. Rock shipments were flat in 1995 compared to
1994. Adverse weather conditions during the second and third quarters of 1995
contributed significantly to the decline. Fourth quarter shipments rebounded
strongly and would have been greater had it not been for a car shortage created
by the increased demand for this commodity.
Intermodal shipments decreased by 1.4% compared to 1994. 1995 first quarter
shipments began with an increase but the rest of the year produced a steady
decline in this classification of traffic. The market for intermodal shipments
became very competitive with the trucking industry, where pricing remained at
low levels. Automotive shipments during 1994 and 1995 remained relatively
unchanged.
All other shipments in 1995 increased by 5% over 1994. Sizable gains were
realized in originating shipments of raw sugar with modest gains in shipments of
beer, fructose, building materials and other consumer goods received from
connecting carriers.
Operating expenses for FEC increased in 1995 due to the acquisition of the
trucking subsidiary. Salaries and wages and associated fringe benefits declined
by $7.1 million while purchased services increased $3.5 million. The increase in
purchased services represents third party contractors performing services for
FEC in 1995 that were performed by employees in 1994.
The Apalachicola Northern Railroad Company ("ANRR") increased its operating
profits by $0.9 million in 1995 primarily due to environmental cleanup expenses
incurred in 1994, which were not repeated in 1995.
In 1994, transportation segment operating revenues grew by $1.0 million,
with FEC accounting for $0.8 million of the increase. Increased operating
expenses at FEC in 1993, principally property taxes, caused the operating profit
of the transportation segment to drop from $30.6 million in 1993 to $29.7
million in 1994.
FORESTRY
Net sales by the forestry segment declined by $0.1 million in 1995 compared
with 1994, while operating profit dropped from $4.1 million in 1994 to a loss of
$3.4 million in 1995. The primary factors in this decline was the cost of wood,
which increased by $5.9 million despite volume remaining flat and prices to the
34
<PAGE> 40
linerboard mill remaining fixed on an annual basis. Increased demand for
pulpwood in the first half of 1995 caused pulpwood prices to increase
substantially. As supplies became tighter near the Company's linerboard mill,
the Company was forced to bring in wood from greater distances, which increased
hauling costs. Fixed expenses of the forestry units (principally depreciation
and property taxes) increased by $1 million in 1995, but other costs were
reduced.
Net sales in 1994 remained at approximately the same level as 1993, while
expenses rose. Higher cost of wood purchased contributed to a decline in
operating profit from $8.3 million to $4.1 million.
In connection with the Sale Transaction, the Forestry segment would enter a
wood fiber supply agreement with JV. See "The Asset Purchase Agreement -- Wood
Fiber Supply Agreement." The pricing provisions of the wood fiber supply
agreement will allow increased and decreased wood costs to be passed on at least
partially to the Buyer. As tonnage supplied under the wood fiber supply
agreement decreases in relation to the amount of tonnage historically supplied
to the linerboard mill and the Company shifts to higher margin timber products
by allowing its forests to grow for longer periods, the performance of this
segment may decline in the near term as this shift occurs. In the long term, the
Company believes that the performance of this segment will be enhanced.
SUGAR
A slight increase in volume combined with a 4% price increase to produce a
$2.6 million increase in net sales in 1995 for the sugar segment compared to
1994. A $14 per ton decrease in harvesting expense and a 24% increase in
production reduced the cost per ton of sugar, resulting in a $4.4 million
decrease in the cost of sales. The increased revenue and decreased costs
contributed to a $7.0 million increase in operating profit, from $6.3 million in
1994 to $13.3 million in 1995. In 1994, volume was 12,233 tons higher than 1993.
This additional volume, coupled with a slight price increase and lower costs of
production, led to a $1.2 million increase in 1994 operating profit over 1993.
The Company is exploring the sale of its sugar business. See "Overview."
REAL ESTATE
Real estate segment net sales declined by $9.4 million in 1995 to $30.4
million. The 1994 net sales included an $11.3 million condemnation sale to the
State of Florida which was not repeated in 1995. Other land sales decreased by
$2.0 million compared to 1994. Rental income increased by $4.3 million in 1995
over 1994. Operating profit for the real estate segment fell to $9.1 million in
1995 compared to $19.9 million in 1994. The decrease was primarily due to the
condemnation sale referred to earlier. As to the future of this segment, see
"Overview."
1994 real estate revenues were $11.4 million higher than 1993, due
primarily to the condemnation sale. Rental income was $3.9 million higher in
1994 than 1993. Operating profit in 1994 was $8.9 million higher than 1993's
$11.0 million.
As of year-end 1995, GCC owned 50 buildings with approximately 4.1 million
square feet of leasable space. Approximately 95% of this space was under lease
at year end 1995 compared to 90% in 1994 and 88% in 1993. Under construction at
December 31, 1995 were 5 additional buildings which will add 0.6 million square
feet of leasable space.
The Company's Southwood Properties ("Southwood") division began
construction on a second building in Southwood Center Office Park in Panama
City, Florida in 1995 and expects it to be completed in March 1996. Building #1
remains fully leased. Site development for the 70-lot Phase I of Summerwood
subdivision also began in 1995 and should be complete in March 1996. Walton
County, Florida issued the Development Order for Camp Creek Point subdivision in
December 1995 and a bid package is currently out to site contractors.
Construction is expected to start in April with the first sales projected for
the last quarter of 1996.
In the first quarter of 1996, the Company reached an agreement with the
State of Florida regarding the Topsail condemnation proceeding. The State will
purchase 680 acres at Topsail for approximately $84 million. The Company has
agreed to sell in 1996 to the State of Florida an additional tract of land at
Deer Lake for $13.7 million.
35
<PAGE> 41
DISCONTINUED OPERATIONS
FOREST PRODUCTS
The linerboard mill operating results in the first half of 1995 continued
the same robust pace as the latter part of 1994. However, the second half of
this year reflected the general slowdown in the economy. Domestic prices for
kraft linerboard rose in 1995 from $430 per ton in January to $530 per ton in
May and declined to $505 per ton in December. The average sales price of the
Company's kraft linerboard rose by $136 per ton. Mill sales to outside customers
increased 8%. Product mix of the mill reflected a decrease in Crest White
revenues in 1995 to 58% compared to 60% in 1994. In 1995, mill net sales to
outside customers increased 9% compared to a 22% increase in 1994. The mill cost
dropped 1% on a volume decrease of 9%. In 1994, the mill had an increase in cost
of sales over 1993. In 1995, the mill's selling, general and administrative
expenses increased by 6%. In 1994, the mills expenses decreased by 8%.
Container plant net sales increased to $332.6 million in 1995 from $283.9
million in 1994 due to increased prices in the first half of 1995. The pricing
levels of linerboard and corrugated containers flattened in midyear and declined
at the end of the year. During the first quarter of 1996, price levels have
continued to deteriorate. Cost of sales increased by $30.0 million due to
increased roll stock prices in 1995. The increased margins allowed the container
operation to post its first operating profit since 1985. Operating profit in
1995 was $4.5 million compared to a loss of $9.5 million in 1994.
The Company's policy of operating the linerboard mill at full capacity and
shipping any excess production to the container plants resulted in an increase
in inventory at the container plants due to the soft linerboard market.
Beginning in late 1995 and continuing through the first quarter of 1996,
demand for containerboard and market pulp dramatically diminished and the
Company took downtime at the paper mill in December and January of one paper
machine for both maintenance and excess inventory purposes and, in order to
prevent excessive increases in inventory, has announced further downtime of both
paper machines for at least the period April 7, 1996 through April 29, 1996.
Pricing for paper products has continued to decline from historical highs as a
result of further reduction in demand and the introduction of new industry
capacity, particularly for containerboard. Prices and shipments for market pulp,
however, have declined significantly since the beginning of the year and it is
expected that these declines will have a substantial, adverse impact on
operating results for the first quarter of 1996. The Company cannot at this time
forecast when demand will increase to offset the current excess supply in the
containerboard industry.
COMMUNICATIONS
In 1995 communication operating revenues increased 7% due to increased
interstate long distance pooling settlements. Operating expenses for the year
increased 12.5% due to extensive cable maintenance efforts at all three of the
operating telephone companies. Selling, general and administrative expenses
remained relatively constant from the prior year.
As a result of recent Florida legislation and order by the Alabama Public
Service Commission, the operating telephone companies of St. Joe Communications
were given options for price cap regulation in their Florida and Alabama service
areas. An election for price cap regulation was actually made for the Alabama
territory effective December 20, 1995. A decision on the Florida territory is
forthcoming with a deadline of July 1, 1996. The essentials of the two state
plans are similar in that price cap elections would remove net income limits
previously imposed under rate base regulation, but would freeze current rates
for a fixed period of time. The price cap elections would also open the
companies' certificated areas to competition from alternate providers, although
there is some temporary protection afforded under the Alabama plan.
The decision for price cap versus rate of return regulation requires
consideration of a number of issues, namely, the likelihood of competition, the
adequacy of present rate structures and the quality and variety of services
offered. Management believes there may be positive opportunities in the state
price cap elections depending on the effect of the recent federal
Telecommunications Act that the Company is currently unable to predict.
36
<PAGE> 42
FINANCIAL POSITION
GENERAL
In 1995, the Company continued to have a strong balance sheet. Management's
long-standing policy of retaining funds to finance capital additions was
continued in 1995. Cash, short-term investments and marketable securities
totaled $304 million at December 31, 1995, a $28.2 million increase over 1994.
$20.9 million of this increase was due to the increase of unrealized gains on
debt and marketable equity securities.
Net working capital (current assets less current liabilities) increased 9%
at December 31, 1995 over 1994 to $452.7 million. The current ratio (current
assets divided by current liabilities) grew to 11.2 in 1995 compared to 7.1 in
1994. The current ratio excluding net assets of discontinued operations grew
from 2.7 in 1994 to 4.5 at December 31, 1995.
During 1995, the Company paid off its long-term debt and short term
borrowings, except for those related to the communications segment. These
payments amounted to $28.9 million.
Stockholders' equity at December 31, 1995 was $33.31 per share, an increase
of $2.59 or 8% from 1994. Over the last five years, stockholders' equity has
increased 23%.
In light of the Company's strong financial position and other
considerations, the Company plans to distribute the net proceeds of the Sale
Transaction and the sale of the communications segment in a partial liquidation
to its stockholders. See "The Sale Transaction -- Background and Reasons" and
"The Sale Transaction -- Use of Proceeds; Effect on the Company's Stockholders."
CAPITAL ADDITIONS
Property, plant and equipment additions were $78.8 million in 1995 compared
to $65.5 million in 1994 and $68.6 million in 1993. $47.0 million of the
additions were in the real estate segment where GCC has seven major projects in
progress. The level of property, plant and equipment additions are expected to
remain at comparable levels or increase despite the Sale Transaction, with
future emphasis being placed on the real estate segment.
Gran Park at Jacksonville had been permitted, platted and designed at
December 31, 1995. By March 1996, this project is expected to have drainage,
utilities and streets in place. Construction of the first building is planned to
begin in March 1996.
Gran Park at the Avenues (Jacksonville) had approximately 474,000 square
feet of leasable space at December 31, 1995. A second office/warehouse building
is scheduled for completion in March 1996.
Gran Park at Deerwood (Jacksonville) had two buildings under construction
at year-end which will add approximately 260,000 square feet of leasable space.
One of these is scheduled for completion in February 1996 and the other in May.
Gran Park at Miami (Section 32 Property) had 2.2 million square feet of
leasable space as of December 31, 1995. Under construction at year-end was an
office/warehouse building which will add approximately 110,000 square feet to
inventory. As of December 31, 1995, 97% of the available space was leased.
Gran Park at Miami (Section 6 Property) required a turnpike interchange and
a dredge and fill operation which were 95% complete at December 31, 1995. Other
infrastructure construction, including street, water and sewer, of this park
began in late 1995 with the construction of three to four buildings expected to
begin in the first half of 1996.
Gran Park at McCahill (Miami) at year end 1995 had leased 88% of the
available 0.5 million square feet of leasable space. A new office/warehouse was
under construction and approximately 95% complete December 31, 1995.
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Gran Park at South Park (Orlando) was purchased in the fourth quarter 1995
for approximately $7.6 million. This purchase includes 78.6 acres located within
the present Orlando Central Park. This development will primarily be an
industrial park providing 1.2 million square feet of leasable space. Building
construction is estimated to begin in the third or fourth quarter of 1996.
ENVIRONMENTAL
The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites. It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed and adjusted, if necessary, as additional
information becomes available.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of three Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these three sites.
Based upon management's evaluation of the other potentially responsible parties,
the Company does not expect to incur additional amounts even though the Company
has joint and several liability. Other proceedings involving environmental
matters such as alleged discharge of oil or waste material into water or soil
are pending against the Company. See, "Legal Proceedings."
It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available, management
believes that the ultimate disposition of currently known matters will not have
a material effect on the financial position, liquidity or results of operations
of the Company. Aggregate environmental-related accruals were $6.2 million and
$6.7 million, as of December 31, 1995 and 1994, respectively. Environmental
liabilities are paid over an extended period and the timing of such payments
cannot be predicted with any confidence.
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ADDITIONAL INFORMATION ABOUT THE COMPANY
THE COMPANY'S BUSINESS
CONTINUING OPERATIONS
GENERAL. The Company was incorporated in 1936 under the laws of the State
of Florida. The general purposes of the Company at incorporation were (1) to
manufacture, buy, sell, import, export, and deal in pulpwood, woodpulp, paper,
paperboard, all raw materials thereof, and products and by-products therefrom to
establish, operate and maintain mills, plants and factories for such purpose and
(2) to buy, hold, work, develop, improve, divide or subdivide, sell, convey,
lease, mortgage, pledge, exchange and otherwise deal in and dispose of all kinds
of real and personal property.
The Executive Offices of the Company are located at Suite 400, duPont
Center, 1650 Prudential Drive, Jacksonville, Florida 32207 and its telephone
number is (904) 396-6600.
Financial information as to revenue, operating profits and identifiable
assets by industry segment is set forth in footnote 12 to the Consolidated
Financial Statements. Below is a description of each of these industry segments
with information to the extent necessary and material in order that the
Company's business taken as a whole can be understood.
TRANSPORTATION. The Company owns 54% of FECI which in turn owns 100% of
FEC. The Company also owns and operates ANRR. The common stock, par value $6.25
per share, of FECI is registered pursuant to Section 12(b) of the Securities
Exchange Act (Commission file number 2-89530).
Both FEC and ANRR are subject to regulation by the Surface Transportation
Board and, in some areas, the State of Florida. These governmental agencies must
approve, prior to implementation, changes in areas served and certain other
changes in operations of FEC and ANRR.
The principal business of FEC is that of a common carrier of goods by rail
over 442 miles of main and branch line track all in the state of Florida. The
mainline extends 351 miles from Jacksonville on the north, to Miami on the
south, with 91 miles of branch line extending west from Fort Pierce to Lake
Harbor. Principal commodities carried by the FEC in its rail service include
automotive vehicles, crushed stone, cement, trailers-on-flatcars,
containers-on-flatcars and basic consumer goods such as food. FEC is the only
railroad serving the area between Jacksonville and West Palm Beach on the east
coast of Florida. Common motor carriers are competitors throughout the entire
transportation system and CSX Transportation, Inc. is a competitor over that
section of track extending southward from West Palm Beach to Miami for rail
traffic, excluding that of trailer-on-flatcar and container-on-flatcar traffic.
FEC had capital expenditures in 1995 of $26.6 million in addition to
maintenance expenditures of $30.6 million. This compares to 1994 capital
expenditures of $21.3 million and 1993 capital expenditures of $19.8 million.
The maintenance expense in 1994 was $55.8 million and in 1993, $53.7 million.
ANRR is a short line railroad that operates exclusively within the state of
Florida, over 90 miles of main track and 6 miles of rail yard track extending
from Port St. Joe to Chattahoochee where it connects with an unaffiliated
carrier. All 90 miles of the main line are 100% concrete crossties. Although it
is a common carrier, most of ANRR business consists of carrying coal and items
related to wood. The other items carried by ANRR are tall oil, chemicals, stone
and clay products and recyclable items.
Capital expenditures by ANRR in 1995 were $1.6 million which compares to
1994 capital expenditures of $3.8 million and 1993 capital expenditures of $4.2
million. ANRR has budgeted $1.2 million in 1996 for capital expenditures.
FEC is a party to various proceedings before state regulatory agencies
relating to environmental issues. In addition, FEC, along with many other
companies, has been named a potentially responsible party in proceedings under
Federal statutes for the cleanup of designated Superfund sites at Jacksonville,
Florida and Portsmouth, Virginia. FEC has made an estimate of its likely costs
attributed to sites for which its cleanup responsibility is probable and a
liability has been recorded. Such liability is not material to the financial
position of FEC. Based upon management's evaluation of the other potentially
responsible parties, the
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<PAGE> 45
Company does not expect to incur additional amounts even though the Company has
joint and several liability. FEC is not aware of any monetary sanctions to be
proposed which in the aggregate, are likely to exceed $100,000, nor does it
believe that corrections will necessitate significant capital outlays or cause
material changes in its business. See "Legal Proceedings."
ANRR has environmental problems involving stormwater run-off and
contaminated soil from fuel oil and gasoline. These items cost approximately
$0.3 million in 1995. These items are remediated and the only expenses
anticipated for 1996 are for groundwater monitoring.
FORESTRY. The Company owns approximately 700,000 acres of plantable pine
timberland, of which approximately 665,000 acres are situated in northwestern
Florida and the remaining 35,000 acres are situated in southern Georgia.
Presently, approximately 623,000 acres have been planted as managed plantations
to facilitate harvesting and reforestation and to maximize timber yields. During
the current planting season, November, 1995 through the end of February, 1996,
the Company anticipates planting 17 million seedlings on 22,500 acres. The
Company owns, in total, approximately 1 million acres of land.
Six forestry units and a wood procurement unit manage the timberlands. The
timberlands are harvested by local contractors pursuant to agreements which
generally are renewed annually. Timber harvested from Company timberlands
accounted for 52% of mill wood requirements in 1995, compared to 54% in 1994.
The Company has wood chipping facilities located at Lowry and Newport, Florida.
The Company operates a nursery located in Capps, Florida. The nursery
conducts research to produce faster-growing, more disease-resistant species of
pine trees, and produces seedlings for planting on Company-owned plantations. In
addition, the Company in cooperation with the University of Florida, is doing
experimental work in genetics on the development of superior pine seed orchards.
In 1995 and 1994 capital expenditures in the forestry operations were
approximately $5.5 million each year. The Company has adopted a capital
expenditure program for 1996 to reinvest approximately $5.5 million in these
operations. These expenditures include nursery expense and tree planting.
The forestry operation continues to have no major environmental problems.
The one area of expense in 1995 was at one of the forestry units in connection
with fuel contamination of soil. Approximately $0.1 million was spent on this in
1995 and it is estimated that $0.1 million will be spent in 1996 for cleanup and
monitoring the ground water.
SUGAR. In 1971, the Company acquired a 60% interest in Talisman Sugar
Corporation ("TSC") which is a grower of sugarcane located in the fertile Belle
Glade area in south central Florida. In addition to growing sugarcane TSC
harvests the cane and processes the cane into raw sugar. In 1984, the Company
acquired the remaining 40% interest in TSC, thereby owning 100% of it today.
The Company at the end of 1995 owned approximately 48,600 acres of
agricultural land and leased approximately 6,000 acres for use in its sugarcane
growing operation. Sugarcane production and processing is seasonal in nature.
Sugarcane plantings generally yield two harvests before replanting is necessary.
The Company harvests its sugarcane crop in one-year cycles, as do other Florida
producers. The Company generally plants sugarcane in the fall of each year.
Harvesting of a crop generally commences in October of each year and continues
into the following March. During the 1995-1996 crop TSC grew sugarcane on
approximately 43,000 acres of land.
The majority of the Florida sugarcane producers, including TSC, harvest
sugarcane using mechanical cane harvesters. Cane cutting and loading are
performed with mechanized harvesters which reduces significantly the labor
requirements, resulting in substantial cost savings and permits the grinding of
the sugarcane more quickly after harvesting, resulting in improved efficiency.
Mechanized harvesting, however, is less precise than manual harvesting,
resulting in greater amounts of chaff and trash being mixed in with the
harvested sugarcane. As a result, a minimal amount of sucrose is lost through
leaching into the trash and chaff. In addition, mechanized harvesting causes
more damage to cane fields than manual harvesting, resulting in slightly lower
cane yields in subsequent crops. Consequently, yields of sucrose from harvested
sugarcane and its crop yields per acre are generally slightly lower than those
cut by hand. These negative effects are far outweighed by the labor cost savings
and other efficiencies resulting from mechanized harvesting.
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The Company's sugar mill has a grinding capacity of approximately 11,500
tons of sugarcane per day. The Company ground approximately 1,321,000 tons of
sugarcane in 1993, approximately 1,184,000 tons in 1994 and approximately
1,386,000 tons of sugarcane in 1995 from Company operated lands. Total raw sugar
production for the Company was approximately 119,000 tons in 1993, 114,000 in
1994, and 137,715 tons in 1995.
The sugar mill is virtually energy self-sufficient, with almost all of its
energy requirements supplied through the use of bagasse, a by-product of the
mill's cane grinding operations. The Company harvests and processes its
sugarcane into raw sugar and sells its entire production to Everglades Sugar
Refinery, Inc., a wholly-owned subsidiary of Savannah Foods & Industries, Inc.,
pursuant to a contract which was to expire in 1996. In 1993, this contract was
amended and extended through the 1997/1998 crop year and is automatically
renewed each crop year thereafter. Either party can decline to renew by giving
notice to the other party no later than October 1 of the fourth year prior to
the termination date. Under the contract, the Company is paid for its sugar
based on market prices.
The sugar industry is highly competitive. The Company competes with foreign
and domestic sugarcane and sugar beet processors, as well as manufacturers of
corn sweeteners and artificial sweeteners such as aspartame and saccharin. Sugar
is a volatile commodity subject to wide price fluctuations in the marketplace.
Sugar prices have been supported by the United States Government. Currently,
such prices are supported by a combination of nonrecourse loans to domestic
sugar processors and restrictions on sugar imports. The nonrecourse loan portion
of the sugar price support system was extended in 1990 to cover the 1991-1995
crops of sugarcane through the Food, Agriculture, Conservation and Trade Act of
1990 and was just extended to cover the 1996-2002 sugar crops pursuant to the
Agriculture Act signed into law by President Clinton on April 4, 1996. The
restrictions on sugar imports are implemented through a tariff-rate quota system
determined under the Uruguay Round Agreements Act.
In 1994 the State of Florida enacted the Everglades Forever Act which
significantly affects agriculture in the Everglades Agricultural Area ("EAA").
The Act calls for the creation of six Stormwater Treatment Areas ("STA") as
buffers between the Everglades Protection Area and the EAA. The Act imposes
substantial taxes on TSC and other agricultural interests to pay for
construction of the STAs. There is concern in the Sugar segment with the new
Clean Air Act and not knowing at this time what will be the complete impact of
the Act on this operation. The sugarcane growers as well as TSC will need to get
Title V permits as required under the Clean Air Act, as amended. It is not known
at this time what the full impact of amendments to the Clean Air Act will be on
the future operations of the Sugar segment.
Capital expenditures by TSC in 1995 were $0.2 million and compare to $3.4
million in 1994 and $2.9 million in 1993.
The Company had only minor expenditures for environmental problems in 1995.
The only environmental problem TSC has, at present, is in the removal of water
from its property. TSC has installed equipment to monitor the quality and
quantity of water being pumped out of its pumping stations as required by the
local Water Management District.
REAL ESTATE. The Real Estate segment of the Company consists of two
operations, Southwood and GCC. The Company reorganized into industry segments in
1985 and at that time put most of the Company's investment and developable real
estate into Southwood. GCC was incorporated in 1981, but was not very active
until 1984 when, by reorganization, it received all of FECI's non-operating real
estate. The Real Estate segment was established for more efficient management
and for better planning of future development, sales and/or leasing of various
parcels of property. The property in this segment is suited for development in
all areas, commercial, industrial, residential and resort. The Company began in
the mid 80's to actively pursue plans to develop these real estate properties.
The Real Estate segment became a significant business operation and for the
first time in 1987 was reported as a separate segment of the Company.
The Company has not in the past incurred debt in the development of its
various projects. The financing of development activities has been accomplished
from internally generated cash flows. This policy may not be continued into the
future as the magnitude of construction expands, and new geographic and market
areas are established. Debt may, therefore, be incurred in those situations
where management deems the use of leverage will be appropriate to meet cash flow
requirements and where it will enhance return on equity.
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The Company intends to take a more aggressive approach to development and
will thereby utilize well situated properties whenever the market permits. Those
properties that are well situated marketwise that the Company does not elect to
develop may be sold to third parties or utilized in joint ventures. The
Company's objectives will continue to emphasize the building of long-term
appreciation, but at the same time through both horizontal and vertical
construction and the sale/lease of properties generate additional cash flow and
net income.
The growth of the panhandle area, where the Company owns significant
acreage, is expected to continue, although at a much lower rate than is
generally expected for the rest of the state. Florida's fastest population and
employment growth areas are expected to be along both coasts (excluding the
panhandle region) and in central Florida. GCC owns sizable acreage within
several high-growth areas along Florida's east coast, including, but not limited
to, the West Palm Beach, Melbourne-Titusville, Daytona Beach, Miami-Hialeah and
Fort Pierce areas. The focus of GCC's activities has been the Miami and
Jacksonville area.
Although this growth has provided, and is expected to continue to provide,
significant real estate development opportunities, there is substantial concern
among state and local authorities about the impact that this development may
have on the environment and facilities and services provided by municipalities.
As a result, land use and environmental regulations are becoming more complex
and burdensome. Development of real property in Florida entails an extensive
approval process which involves regulatory agencies with overlapping
jurisdictions. The process requires compliance with the Local Government
Comprehensive Planning and Land Development Act (the "Growth Management Act").
In addition, development projects that exceed certain specified regulatory
thresholds require approval of a comprehensive Development of Regional Impact
("DRI") application by a state-appointed regional planning council. Compliance
with the Growth Management Act and the DRI process is usually lengthy and costly
and can be expected to have a material effect on the Company's real estate
development activities in the area of land use and its application to wetlands.
Southwood manages the extensive properties that the Company owns and has
identified as suitable for development in the Florida panhandle and in St. Johns
county. These wooded properties include substantial gulf, lake and riverfront
acreage and, therefore, are well suited to residential and resort development,
including development as large residential and mixed-use planned communities. A
portion of the Company's property along the northwestern coast of Florida is
suitable for commercial or industrial development. Southwood's general strategy
for developing its residential and mixed-use properties will be to install
infrastructure improvements, such as sewers, utility hookups and roads, and to
sell lots to builders or individuals for building in accordance with the master
development plan formulated for the community. At present, the Company does not
intend to build individual homes.
In 1991, Southwood completed the construction of its first office building
containing 11,700 square feet. This building is in the Southwood Center Office
Park, Panama City, Florida and at December 31, 1995 was 100% leased.
Construction of the next building at this location was begun during 1995 and is
expected to be completed in March 1996. In 1995, the Company was successful in a
variance request for Phase III of the Woods. This has delayed construction but
is expected to improve the financial returns of the project. The Retreat, which
will be a 100 lot, gulf-front subdivision near Old Florida Beach in Walton
County has received state environmental permits. Federal permits are pending and
should be issued by the end of the first quarter in 1996. Phase I of 50 lots
will be completed this year with the first sales anticipated at year end 1996.
Site development for the 70 lot Phase I of Summerwood, a 200 lot subdivision in
Bay County, began in 1995 and is expected to be finished in March 1996. The
development permit for Camp Creek subdivision, an 18 lot gulf-front subdivision
in Walton County, was issued in December 1995 with sales possible by year end
1996. Southwood had approximately $1.0 million in capital expenditures in 1995
compared to $0.3 million in 1994 and $1.5 million in 1993.
The development properties owned and managed by GCC total approximately
19,100 acres. These properties are in thirteen counties situated in a corridor
running along the eastern seaboard of Florida between Jacksonville and Miami.
They include both urban and rural properties on sites that range in size from
parcels of under one acre to a tract of over 6,000 acres. Many of the properties
are located on strategic urban streets or
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are easily accessible by major highways such as Interstate 95 or U. S. Route 1
and several are located adjacent to mass transit facilities.
Approximately two-thirds of GCC's properties are located in or adjacent to
industrial and commercial corridors, and are well suited to the development of
office buildings, office/distribution parks and industrial parks. GCC has been
pursuing planning, permitting and infrastructure development and now has
approximately 4.0 million square feet of buildings. Approximately 95% of the
leasable space was under lease at year-end 1995 compared to 90% in 1994 and 88%
in 1993. In 1995, GCC added approximately 0.3 million square feet of leasable
space. GCC had capital expenditures of $44.0 million in 1995 compared to $28.0
million in 1994 and $34.1 million in 1993.
DISCONTINUED OPERATIONS
FOREST PRODUCTS. The Company is a vertically integrated producer of
corrugated containers. It owns a paper mill located in Port St. Joe, Florida,
and 16 container plants located throughout the eastern half of the United
States. The Company's forestry operations supply wood chips and pulpwood to the
mill, which produces linerboard, some of which is bartered for corrugating
medium. The container plants convert the linerboard and corrugating medium into
corrugated containers. The Company produces and sells a wide variety of
corrugated containers to processors and manufacturers in the food, agricultural,
paper, petrochemical, plastics, electronics, electrical equipment and machinery
industries. Demand for corrugated containers is cyclical and correlates closely
with real growth in the United States gross national product and also with
population and other demographic factors.
The corrugated container industry is highly competitive, with over 1,500
container plants in the United States. When demand for corrugated containers
falls, the ability to maintain prices by adjusting inventory levels is limited
because container plants and paper mills operate most economically at or near
full capacity. In addition, although corrugated containers are the dominant form
of transport packaging nationally, corrugated containers compete with various
other packaging materials, including paper, plastic, wood and metal.
The Company's operating strategy for its forest products operations has
been to reduce unit production costs by increasing operating efficiency and
maximizing capacity utilization. In addition, the Company emphasizes the
marketing and production of higher margin products such as the Company's mottled
white linerboard and high performance linerboard, over unbleached linerboard.
The Company's paper mill, located at Port St. Joe, Florida, produces
mottled white and unbleached linerboard, a principal component of corrugated
containers. The mill can produce linerboard in a full range of grades and
weights. Set forth below is certain information as to mill linerboard production
for the years indicated:
LINERBOARD PRODUCTION
(IN TONS)
<TABLE>
<CAPTION>
TOTAL AVERAGE DAILY
YEAR PRODUCTION PRODUCTION*
------------------------------------------------------ ---------- -------------
<S> <C> <C>
1995.................................................. 441,229 1,372
1994.................................................. 477,990 1,375
1993.................................................. 444,005 1,254
1992.................................................. 425,087 1,266
1991.................................................. 433,352 1,308
</TABLE>
-----------------------
* Average daily production is computed by dividing the total production
of each paper machine by the number of days on which such paper
machine operates each year.
In 1994 and 1995, approximately 52% of mill production in tons was mottled
white linerboard marketed by the Company under the trade name "Crest White."
Demand for mottled white linerboard has increased significantly in recent years.
Mottled white linerboard, which is more aesthetically attractive than unbleached
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linerboard, in 1995 sold at approximately 27% over the price of unbleached
linerboard while, in 1994, this upcharge was 39%. Since mottled white linerboard
offers significantly higher profit margins than unbleached linerboard, the
Company has emphasized, and expects to continue to emphasize, the production of
mottled white over unbleached linerboard. Approximately 60% of the Company's
mottled white linerboard production in 1995 was traded to other producers under
trade agreements in exchange for corrugating medium or kraft liner.
The capital expenditures at the paper mill in 1994 for maintenance and
upgrade were $20.3 million which compares to $11.5 million for the 1995 capital
and maintenance expenditures. The 1996 budget for maintenance and upgrade at the
paper mill is $12.9 million.
The Company has sought to lower its energy costs at the mill by using
increasing amounts of timber harvesting and pulp mill by-products as energy
sources. The mill's boilers use "biomass" fuel (scrub wood, bark and timber
wastes) and "black liquor" solids (a by-product of the wood pulping process) to
meet a substantial percentage of the mill's energy requirements. In 1995, fuel
oil and natural gas accounted for 27.12% of mill energy requirements. Black
liquor solids and biomass supplied most of the mill requirements.
Linerboard and corrugating medium are the principal materials used in the
manufacture of corrugated containers. The container plants have an aggregate
production capacity of approximately 8 billion square feet of containerboard per
year. The plants in 1995 produced approximately 6.7 billion square feet of
containerboard. In 1995, fourteen of the container plants operated on two shifts
and two on one shift. The Company could increase capacity by running the two
plants that are on one shift two additional shifts, as well as adding a third
shift to the fourteen plants presently on two shifts. The Company's paper mill
production resulted in supplying of approximately 84% of the container plants'
requirements for linerboard and corrugating medium for 1995 which was up from
the 78% that was supplied in 1994.
The Company's container plants accounted for approximately 2% of the total
national industry shipments during 1995 and 1994 up from approximately 1.9% in
1993. The Company's corrugated container business services approximately 2,700
customers. The single largest customer accounted for approximately 3% of the
Company's corrugated container shipments for 1995 and the ten largest customers
accounted for approximately 15% of the Company's 1995 corrugated container
revenues.
The Company considers its container plant facilities to be in satisfactory
condition. To maintain and upgrade these facilities, the Company spent $0.9
million in 1995. The Company maintains a laboratory facility located in
Louisville, Kentucky, which tests container components, materials and
workmanship to ensure quality control for container products.
Recycled fiber is obtained in part from third parties and in part from mill
operations. In 1995 and 1994, recycled or secondary fiber supplied approximately
13% and 17% respectively, of the mill's total fiber requirements.
In 1995, the mill at Port St. Joe spent $1.88 million on environmental
related items. These were for asbestos removal and disposal, repair of the
recovery boiler precipitator, replacement of PCB transformers, and construction
of chemical containment areas. The Company has budgeted $1.6 million in 1996 for
predominantly capitalized environmental items. The main items in 1996 will be
for additional asbestos removal and disposal and modifications to meet proposed
Environmental Protection Agency Cluster Rules. The imposition of new
requirements is anticipated under revised permits issued under EPA's Title V
program and under the EPA's proposed Effluent Limitation Guidelines,
Pretreatment Standards, and New Source Performance Standards: Pulp Paper and
Paper Board Categories; National Standards for Hazardous Air Pollutants for
Source Category; Pulp and Paper Production (the "Cluster Rules"). The Cluster
Rules have not been finally adopted and remains subject to change. The Company
has not yet formulated a final plan for the application of these programs for
SJFP. Until these regulations are finally implemented process capital cost and
operating estimates cannot be made. EPA has delayed the issuance of comments
regarding revised Cluster Rules that was scheduled for late 1995 until sometime
in 1996. See "The Asset Purchase Agreement -- Environmental Indemnification."
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In addition, SJFP has notified the Florida Department of Environmental
Protection of emission sources not currently permitted and has received an
exemption for them until they are included in the application for permitting
under the Title V program. SJCC will have additional permitting requirements
under the Title V program, but this is not expected to impose substantial
additional cost on the Company.
Wastewater from SJFP is handled by the City of Port St. Joe Industrial
Wastewater Treatment Plant ("IWTP") under a permit issued by the City of Port
St. Joe ("CPSJ"). SJFP bears the preponderate costs of operating the IWTP under
an agreement with the IWTP and other industrial users of the IWTP. The
wastewater is discharged from the IWTP into the Gulf County Canal. The ability
of the CPSJ to take wastewater from SJFP is dependent upon the CPSJ's
maintaining its NPDES Permit. CPSJ is appealing the recent permit issued by the
EPA. The CPSJ objects to certain parameters and conditions of the permit. SJFP
is cooperating with the CPSJ and expects that even if the appeal is not
successful, it will not impair IWTP's ability to accept its wastewater nor
substantially affect its costs.
In 1995, the Company had expenses at several plants with the total for all
plants being less than $0.4 million. Anticipated spending is approximately $0.8
million in 1996 on similar items.
COMMUNICATIONS. SJCI provides unregulated telecommunications services such
as the sale of communications systems and of telephone equipment to commercial
and residential customers and in addition owns three regional operating
telephone companies. The operating companies provide local telephone
communications services in 12 northwestern Florida counties, 2 southern Alabama
counties and 1 Georgia county through 19 exchanges located in the region which
service approximately 36,900 access lines. In addition to providing local
exchange telephone service, the Company's facilities are connected with other
telephone companies and the nationwide toll networks of long distance carriers.
The Company also supplies telephone and other communications service to Tyndall
Air Force Base pursuant to a long-term contract.
In addition to its regular telephone services, the Communications segment
participates in one limited partnership with a major telecommunications company
as partner to provide cellular telephone service.
The Company owns and leases to MCI a fiber optic transmission network
extending from Fort Walton Beach to Tallahassee of approximately 150 miles. The
parties have recently agreed to enter into a 5-year extension of the lease. The
Company owns fiber optic routes from Port St. Joe to Blountstown, Carrabelle,
and Tyndall Air Force Base, Blountstown to Bristol and Perry to Keaton Beach and
one-half of the distance from Perry to Tallahassee. These locations are all in
Florida and total over 326 miles. This network is used exclusively to serve
intercompany and intracompany routes. The intracompany routes are major feeder
routes between exchanges and/or electronic remote facilities associated with the
various exchanges. The companies will continue to install fiber optic cable for
these same basic transmission functions.
SJCI has a policy to invest in the latest, most advanced equipment and
technology. In keeping with this policy SJCI expended $5.8 million on capital
improvements in 1995 which compares to $5.4 million that was spent in 1994 and
$5.3 million in 1993. The Communications operations are subject to regulations
by the Public Service Commissions of the states of Florida and Alabama with
respect to intrastate services and the Federal Communications Commission with
respect to interstate services. The operating companies are limited to certain
specified rates of return on its regulated operations and in 1990 and 1991
exceeded these permitted rates of return and were required to rebate the excess
revenue to its customers.
INVESTMENTS
The Company in addition to its operations has investments in U.S.
Government securities, tax exempt municipal bonds, certificates of deposit,
remarketed certificates of participation, common and preferred stocks, and other
corporate debt securities. The Company's marketable securities include common
stock of E. I. duPont de Nemours & Company, General Motors Corporation and
General Motors Corporation Class-H stock.
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NEW PRODUCTS
During 1995, no single refinement or group of refinements was introduced
which would require the investment of a material amount of the Company's assets
or which otherwise would be considered material.
SOURCES AND AVAILABILITY OF RAW MATERIALS
During 1995 and 1996 to date, all of the raw materials the Company uses
were available in adequate supply from multiple sources.
Talisman owns or leases approximately 53,800 acres of land in Palm Beach
County, Florida, of which approximately 43,000 acres are being used to grow
sugarcane.
PATENTS AND LICENSES
The Company did not obtain any new patents or licenses in 1995. The Company
has no pending applications for trademarks.
SEASONALITY
The sugarcane production and processing segment is seasonal with one
sugarcane crop being harvested each year. Little significant seasonality exists
for products or services in the other segments of the Company.
WORKING CAPITAL
In general, the working capital practices followed by the Company are
typical of industries in which it operates. During some periods the accumulation
of inventories in the sugar operations prior to expected shipments reflects the
seasonal nature of this industry and may require periodic short-term borrowing.
CUSTOMERS
Major customers exist for each of the Company's industry segments. TSC has
a contract with Everglades Sugar Refinery, Inc. to purchase the entire raw sugar
production. This contract runs through the 1997/1998 crop year and is
automatically renewed each crop thereafter. Either party can decline to renew by
giving notice to the other party no later than October 1 of the fourth year
prior to the termination date. No other single customer accounts for 10% or more
of the Company's consolidated revenues.
RESEARCH AND DEVELOPMENT
The Company maintains a nursery and research facility in Capps, Florida,
which grows seedlings for use in reforestation of its lands. Experiments in
forestry genetics, including research on the production of faster growing, more
disease-resistant pine species, are also conducted at this facility. The Company
also participates through cooperation with the University of Florida in their
Genetics Co-op program. This experimentation work is in genetics, plantation and
fertilization. The amounts spent during the last three fiscal years on
Company-sponsored research and development activities were not material.
EMPLOYEES
The Company had approximately 5,000 employees at December 31, 1995.
Approximately 70% of the Company's employees are covered by collective
bargaining agreements with 9 different unions. These agreements generally have
terms of between one and four years and have varying expiration dates. The
Company considers its relations with its employees to be good. Upon consummation
of the Sale Transaction and the sale of the communications segment, the Company
expects to have approximately 1,700 employees.
46
<PAGE> 52
Set forth below are the names, ages (at March 15, 1996), positions and
offices held, and a brief account of the business experience during the past
five years of each executive officer.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Winfred L. Thornton........... 67 Chairman of the Board and Chief Executive Officer since
1991; President 1984-1991; Director since 1968;
President of FECI 1984-1995; Chairman of the Board of
FECI since 1984; President of FEC 1964-1984.
Robert E. Nedley.............. 57 President since 1991; Vice President 1981-1991; Director
since 1989.
Howard L. Brainin............. 66 Vice President and Director since 1992; President of
SJCC since 1992; Regional Vice President at SJCC
1982-1992.
Edward C. Brownlie............ 58 Vice President - Administration since 1992; Treasurer
1977-1992; Director 1982-1995.
E. Thomas Ford................ 62 Vice President since 1981; Director 1989-1995.
J. Malcolm Jones, Jr. ........ 42 Vice President and Chief Financial Officer since 1995;
President, AmSouth Bank of Florida, Jacksonville Bank
1994-1995; President and Chief Executive Officer of
Florida Bank 1990-1994.
</TABLE>
There are no family relationships among the persons named above. All
officers serve at the pleasure of the Board of Directors of the Company and
there is no arrangement or understanding between any of the officers of the
Company and any other persons pursuant to which such officer was selected as an
officer. Each officer has been elected to the position shown until the next
annual election of officers, which is to be held on May 14, 1996.
PROPERTIES
The principal manufacturing facilities and other materially important
physical properties of the Company at December 31, 1995 are listed below and
grouped by industry segment. All properties shown are owned in fee simple except
where otherwise indicated.
CONTINUING OPERATIONS
CORPORATE FACILITIES. Jacksonville, Florida -- Occupies approximately one
and one-half floors of a four story Company-owned building.
FORESTRY
Forestry Management Facilities
Albany, Georgia
Hosford, Florida
Newport, Florida
Port St. Joe, Florida
West Bay, Florida
Wewahitchka, Florida
Chip Plants
Lowry, Florida
Newport, Florida
Nursery and Genetics Research Facility
Capps, Florida
47
<PAGE> 53
Pulpwood Procurement Offices
Port St. Joe, Florida
AGRICULTURAL LANDS. The Company owns slightly over one million acres of
agricultural lands in Florida and Georgia and leases an additional 6,000 acres.
TRANSPORTATION. FEC owns three four-story buildings in downtown St.
Augustine, Florida which it uses for its corporate headquarters. Its
transportation facilities include 351 miles of main track, which is mostly 132#
rail on concrete crossties, 91 miles of branch line track, 157 miles of yard
switching track and 184 miles of other track. FEC owns 82 diesel electric
locomotives, approximately 2,740 freight cars, approximately 1,590 tractor
and/or trailer units for highway service, numerous pieces of work equipment and
automotive vehicles. All property and equipment owned is in good physical
condition.
SUGAR OPERATIONS. Belle Glade, Florida. The Company owns approximately
48,600 acres of land and leases approximately 6,000 acres. In addition, it owns
a raw sugar mill and various types of agricultural equipment.
REAL ESTATE. Southwood owns approximately 50,000 acres of investment land
the majority of which is located in West Florida. The counties with the largest
holdings at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
COUNTY ACRES
-------------------------------------------------------------------- -------
<S> <C>
Bay................................................................. 25,020
Leon................................................................ 9,612
Franklin............................................................ 7,049
St. Johns........................................................... 4,321
Walton.............................................................. 1,993
Wakulla............................................................. 1,153
</TABLE>
Southwood owns an office building in Panama City, Florida which was
completed in 1991 and contains 11,700 square feet.
GCC at December 31, 1995 owned and managed approximately 19,146 acres of
land, including approximately 1,132 acres owned by FEC. The largest holdings by
Florida counties are as follows:
<TABLE>
<CAPTION>
COUNTY ACRES
-------------------------------------------------------------------- ------
<S> <C>
Volusia............................................................. 3,581
Flagler............................................................. 3,464
St. Johns........................................................... 3,385
Brevard............................................................. 2,799
Dade................................................................ 1,684
Duval............................................................... 1,534
Manatee............................................................. 897
</TABLE>
48
<PAGE> 54
GCC also owned at year-end 1995 fifty buildings as detailed below:
<TABLE>
<CAPTION>
NUMBER OF RENTABLE YEAR
LOCATION BUILDINGS TYPE SQUARE FEET BUILT
- --------------------------- --------- ---------------------------- ----------- --------------
<S> <C> <C> <C> <C>
duPont Center
Jacksonville, FL........... 2 Office 144,000 1987/88
Barnett Plaza
Jacksonville, FL........... 1 Office 59,000 1982
Gran Park at Interstate
South Jacksonville, FL... 6 Office/Showroom/Warehouses 260,000 1987/89
Gran Park at the Avenues
Jacksonville, FL........... 2 Office/Showroom/Warehouses 101,000 1992
3 Office 225,000 1992/93/95
1 Office/Warehouses 147,000 1994
Gran Park at Melbourne
Melbourne, FL.............. 1 Office/Showroom/Warehouse 28,000 1989
Gran Park at Lewis
Terminals
Riviera Beach, FL.......... 1 Office/Showroom/Warehouse 62,000 1987
2 Rail Warehouses 176,000 1982/87
4 Cross Docks 75,000 1987/91
Gran Park -- McCahill
Miami, FL................ 2 Rail Warehouses 468,000 1992/94
Gran Park at Miami
Miami, FL.................. 5 Office/Showroom/Warehouses 368,000 1988/90/92/94
4 Office/Warehouses 382,000 1990/91/92/93
4 Rail Warehouses 398,000 1989/90/93/94
7 Front Load/Warehouses 790,000 1991/92/93/95
1 Double Front Load Warehouse 239,000 1993
1 Office Service Center 39,000 1994
Hialeah, FL................ 1 Cross Dock 20,000 1987
1 Transit Warehouse 30,000 1975
Pompano, FL................ 1 Rail Warehouse 54,000 1987
--
-----------
TOTAL................. 50 4,065,000
======== =========
</TABLE>
GCC's holdings include lands adjacent to FEC tracks which are suitable for
development into office and industrial parks offering both rail and
non-rail-served parcels. Certain other holdings are in urban or suburban
locations offering opportunities for development of office building structures
or business parks offering both office building sites and sites for flexible
space structures such as office/showroom/warehouse buildings. Wherever possible,
GCC intends to develop infrastructure and construct buildings for lease and
continued ownership.
49
<PAGE> 55
DISCONTINUED OPERATIONS -- PROPERTIES UNDER CONTRACTS TO SELL
FOREST PRODUCTS
Paper Mill
Port St. Joe, Florida
Container Manufacturing Plants
Atlanta, Georgia
Baltimore, Maryland
Birmingham, Alabama
Charlotte, North Carolina
Chesapeake, Virginia
Chicago, Illinois
Dallas, Texas
Dothan, Alabama
Hartford City, Indiana
Houston, Texas
Lake Wales, Florida
Laurens, South Carolina
Louisville, Kentucky
Memphis, Tennessee
Pittsburgh, Pennsylvania
Port St. Joe, Florida
Marketing Offices
Union, New Jersey (leased)
COMMUNICATIONS -- TELEPHONE EXCHANGES AND OFFICES
Alligator Point, Florida
Altha, Florida
Apalachicola, Florida
Blountstown, Florida
Bristol, Florida
Carrabelle, Florida
Chattahoochee, Florida
Eastpoint, Florida
Florala, Alabama
Hosford, Florida
Keaton Beach, Florida
Laurel Hill, Florida
The Beaches, Florida
Paxton, Florida
Perry, Florida
Port St. Joe, Florida
Tyndall AFB, Florida
Wewahitchka, Florida
Wing, Alabama
The Company considers that its facilities are suitable and adequate for the
operations involved. All facilities are being productively utilized in the
business.
LEGAL PROCEEDINGS
SJFP has been named as a potentially responsible party for the remediation
of a designated Superfund site near Tampa, Florida. The United States
Environmental Protection Agency ("USEPA") has alleged that
50
<PAGE> 56
SJFP caused certain materials to be disposed of at the site over a period of
years in the late 1970's or early 1980's. SJFP has provided USEPA with certain
evidence indicating that SJFP did not dispose of any material at the site. SJFP
has declined an invitation to join a PRP Group as a de minimis party. SJFP
continues to deny liability, and vigorously opposes any attempt to impose any
liability upon it for the remediation of the site. Under the Agreement, SJFP
retains any responsibility it may have for Off-Site Environmental Liabilities.
See "Asset Purchase Agreement -- Environmental Indemnification."
FEC has been named as a potentially responsible party for the remediation
of a designated Superfund Site near Jacksonville, Florida. The USEPA has alleged
FEC caused certain materials to be disposed of at the site over a period of
years. The USEPA has offered all named PRP's an opportunity to participate in a
pilot allocation program. This program is similar to binding arbitration. If FEC
participates in this program, its share of the liability for the remediation of
the site will be fixed. USEPA has also offered to negotiate a separate
settlement with certain parties, including FEC, whom the USEPA considers to be
de minimis parties. FEC believes that, whichever alternative is chosen, its
liability for the remediation of the site will not be material.
FEC has been named as a potentially responsible party for the remediation
of a designated Superfund Site in Portsmouth, Virginia. The USEPA has alleged
that FEC caused certain materials to be sent to the site over a period of years.
These materials were utilized by the owner of the site in the course of its
business which FEC believes caused the site to become contaminated. FEC is
vigorously opposing any attempt to impose any liability upon FEC. The owner of
the site filed suit in the United States District Court for the Eastern District
of Virginia, Norfolk Division, seeking to impose liability upon the defendants,
including FEC, for remediation of the site. Defendant railroad companies have
formed a joint defense group and continue to oppose the imposition of any
liability upon them. In the event the railroad defendants do not prevail upon
the issue of liability, FEC believes its responsibility for the remediation of
the site will not be material.
The Company through its subsidiaries, is a party to various proceedings
before state regulatory agencies relating to environmental issues. The Company
is not aware of any monetary sanctions to be proposed, which in the aggregate,
are likely to exceed $100,000.00, nor does it believe that corrections, if any,
will necessitate significant capital outlays or cause material changes in its
business.
The Company, through its subsidiaries, is a party in various pending legal
proceedings which are ordinary, routine litigation incidental to its business.
SECURITY OWNERSHIP
The following table and notes thereto sets forth, to the Company's
knowledge, beneficial ownership of the Common Stock by holders of over 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS NUMBER OF SHARES CLASS(1)
- -------------------------------------------------- ---------------- ----------
<S> <C> <C>
Alfred I. duPont
Testamentary Trust (2) (3) 21,291,900 69.8
P. O. Box 1380
Jacksonville, Florida 32201
State Farm Mutual
Automobile Insurance Company (4) 1,752,200 5.7
One State Farm Plaza
Bloomington, Illinois 61710
</TABLE>
- ---------------
(1) All percentages are rounded to the nearest tenth of one percent.
(2) The Trust owns 20,717,764 shares in its name and The Nemours Foundation own
574,136 in its name. The Trustees constitute the entire Board of Directors
of The Nemours Foundation and, therefore, have sole voting and sole
dispositive power over these shares.
(3) Under the provisions of the Will creating the Trust, the Trustees of the
Trust having the power to vote the shares of stock specified above are J.
C. Belin, Alfred duPont Dent, Herbert Peyton, John Porter, W. T.
51
<PAGE> 57
Thompson, III, W. L. Thornton and NationsBank of Florida, a subsidiary of
NationsBank Corporation. A majority of the Trustees have the right to vote
the Common Stock. Under the beneficial ownership rules of the Securities
and Exchange Commission Act of 1934, as amended, the Trustees are each
deemed to be the beneficial owners of the shares of stock owned directly by
the Trust. In addition to the Trust, NationsBank Corporation and its
subsidiaries have sole voting power of 6,050 shares and sole dispositive
power of 1,800 shares of the Company's stock, but deny beneficial ownership
of these shares.
(4) According to a Schedule 13G filed with the Securities and Exchange
Commission, as of December 31, 1995, State Farm Mutual Automobile Insurance
Company owns 775,000 shares or 2.5% of the Company's stock and State Farm
Employees Retirement Trust owns 977,200 shares or 3.2%. The Board of
Directors of State Farm Automobile Insurance Company and the Trustees of
State Farm Employees Retirement Trust have sole voting and sole dispositive
power over the shares of Common Stock each owns.
The following table and notes thereto sets forth beneficial ownership of
the Common Stock by each director and executive officer and by all directors and
officers of the Company as a group as of January 31, 1996.
<TABLE>
<CAPTION>
SOLE VOTING/ SHARED VOTING/ PERCENT OF
NAME DISPOSITIVE POWER DISPOSITIVE POWER CLASS(1)
- ---------------------------------------------------- ----------------- ----------------- ----------
<S> <C> <C> <C>
J. C. Belin......................................... 8,750 21,291,900(2) 69.8
H. L. Brainin....................................... -- 1,495(3) *
E. C. Brownlie...................................... -- 204(3) *
E. T. Ford.......................................... -- 176 *
J. M. Jones, Jr. ................................... -- 62(3) *
R. E. Nedley........................................ -- 125 *
R. B. Newton, Jr. .................................. 2,000 -- *
W. L. Revell........................................ 100 -- *
J. J. Quindlen...................................... 200 -- *
W. L. Thornton...................................... -- 21,293,531(2)(3) 69.8
J. D. Uible......................................... 1,000 -- *
Directors and Officers as a Group (17 persons)...... 73,046(4) 21,308,018(5) 70.1
</TABLE>
- ---------------
(1) All percentages are rounded to the nearest tenth of one percent. An asterisk
(*) indicates that the percentage is less than one-half of one percent.
(2) Includes 20,717,764 shares or 67.9% of the Common Stock owned by the Trust
of which the named individuals are trustees and 574,136 shares or 1.88%
owned by The Nemours Foundation of which the named individuals are
directors.
(3) Includes shares held in the accounts of the named individuals in the St. Joe
Paper Company Salary Deferral Plan (the "Salary Deferral Plan") under which
the participants have sole dispositive power and the trustee of the plan has
sole voting power. Of the shares shown for W.L. Thornton, 631 shares are
held in the plan.
(4) Includes 57,967 (.19%) held in the St. Joe Paper Company Employee Stock
Ownership Plan for which the trustee of the plan has sole voting and
dispositive power. The trustee of both plans is Ronald A. Anderson,
Corporate Secretary of the Company.
(5) Includes 14,817 (.05%) shares held in the Salary Deferral Plan for which the
trustee of the plan has sole voting power and the participant's have sole
dispositive power.
STOCKHOLDER PROPOSALS
A stockholder proposal entitled to be presented at the Company's annual
meeting in 1997 must be received by the Company on or before December 13, 1996
in order to be included in the Company's proxy statement and proxy material
relating to that meeting. Any such proposal(s) as well as any questions relating
thereto, should be directed to the corporate secretary.
52
<PAGE> 58
OTHER MATTERS
The Board is not aware of any other matters which may be presented for
action at the Special Meeting. However, if other matters come before the Special
Meeting, it is the intention of the persons named in the proxy to vote those
shares represented by proxies in the accompanying form in accordance with their
best judgment.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors in August, 1990, appointed KPMG Peat Marwick LLP, an
independent firm of certified public accountants, to examine and report on the
financial statements of the Company. The firm has been serving in that capacity
since that time.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
stockholders' meeting and will be given an opportunity to make a statement, if
they so desire, and will be available to respond to appropriate questions from
stockholders.
53
<PAGE> 59
ST. JOE PAPER COMPANY
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Independent Auditors' Report.................................................... F-1
Consolidated Balance Sheet at December 31, 1995 and 1994........................ F-2
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1995............................................................. F-3
Consolidated Statement of Changes in Stockholders' Equity for each of the three
years in the period ended December 31, 1995................................... F-4
Consolidated Statement of Cash Flows for each of the three years in the period
ended December 31, 1995....................................................... F-5
Notes to Consolidated Financial Statements...................................... F-6
Consolidated Schedules for each of the three years in the period ended December
31, 1995:
II -- Valuation and Qualifying Accounts.................................... S-1
III -- Real Estate and Accumulated Depreciation............................ S-2
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements, including the notes to the consolidated financial
statements.
54
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
St. Joe Paper Company:
We have audited the consolidated financial statements of St. Joe Paper
Company and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of St. Joe
Paper Company and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
As discussed in note 4 to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the provisions
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" at December 31, 1993. As discussed in note 4, the Company changed
its method of accounting for income taxes effective January 1, 1993 to adopt the
provisions of the Financial Accounting Standards Board's SFAS No. 109,
"Accounting for Income Taxes".
KPMG PEAT MARWICK LLP
Jacksonville, Florida
February 12, 1996
F-1
<PAGE> 61
ST. JOE PAPER COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 16,802 $ 46,389
Short-term investments............................................. 96,923 59,157
Accounts receivable................................................ 44,390 41,251
Income taxes refundable............................................ 4,314 --
Inventories........................................................ 20,592 19,764
Other assets....................................................... 18,162 19,354
Net assets of discontinued operations.............................. 296,001 299,347
---------- ----------
Total current assets............................................ 497,184 485,262
INVESTMENTS AND OTHER ASSETS:
Marketable securities.............................................. 189,865 169,871
Other assets....................................................... 38,971 37,303
---------- ----------
Total investments and other assets.............................. 228,836 207,174
Property, plant and equipment, net................................... 804,974 756,954
---------- ----------
Total Assets......................................................... $1,530,994 $1,449,390
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 26,024 $ 26,644
Accrued liabilities................................................ 18,445 22,742
Income taxes payable............................................... -- 7,012
Long-term debt due within one year................................. -- 12,135
---------- ----------
Total current liabilities....................................... 44,469 68,533
Accrued casualty reserves and other liabilities...................... 11,681 11,043
Long-term debt due after one year.................................... -- 16,747
Deferred income taxes and income tax credits......................... 192,036 164,639
Minority interest in consolidated subsidiaries....................... 266,741 251,447
STOCKHOLDERS' EQUITY:
Common stock, no par value; 60,000,000 shares authorized;
30,498,650 shares issued and outstanding........................ 8,714 8,714
Retained earnings.................................................. 955,239 887,520
Net unrealized gains on debt and marketable equity securities...... 52,114 40,747
---------- ----------
Total stockholders' equity......................................... 1,016,067 936,981
---------- ----------
Total Liabilities and Stockholders' Equity........................... $1,530,994 $1,449,390
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 62
ST. JOE PAPER COMPANY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales..................................................... $148,073 $152,755 $135,417
Operating revenues............................................ 186,851 178,151 177,040
-------- -------- --------
334,924 330,906 312,457
Cost of sales................................................. 116,014 111,014 105,644
Operating expenses............................................ 139,875 133,091 129,704
Selling, general and administrative expenses.................. 31,718 26,836 22,145
-------- -------- --------
Operating profit.............................................. 47,317 59,965 54,964
-------- -------- --------
Other income (expense):
Dividends................................................... 2,595 2,187 2,143
Interest income............................................. 12,666 9,678 8,696
Interest expense............................................ (2,235) (1,982) (1,644)
Gain on sales and other dispositions of property, plant
and equipment............................................ 2,674 13,895 1,146
Other, net.................................................. 3,070 1,386 1,988
-------- -------- --------
18,770 25,164 12,329
-------- -------- --------
Income from continuing operations before income taxes
and minority interest....................................... 66,087 85,129 67,293
Provision for income taxes
Current..................................................... 5,778 24,692 13,654
Deferred.................................................... 18,757 6,754 16,674
-------- -------- --------
Total provision for income taxes.............................. 24,535 31,446 30,328
-------- -------- --------
Income from continuing operations before minority interest.... 41,552 53,683 36,965
Minority interest............................................. 12,194 15,827 10,241
-------- -------- --------
Income from continuing operations............................. 29,358 37,856 26,724
Earnings (loss) from discontinued operations, net of income
taxes of $26,116, $2,491 and ($8,119), respectively......... 44,461 4,253 (14,599)
-------- -------- --------
Income before cumulative effect of change in accounting
principle................................................... 73,819 42,109 12,125
Cumulative effect of change in accounting principle for income
taxes....................................................... -- -- 20,518
-------- -------- --------
Net income.................................................... $ 73,819 $ 42,109 $ 32,643
======== ======== ========
PER SHARE DATA:
Income from continuing operations............................. $ 0.96 $ 1.24 $ .87
Earnings (loss) from discontinued operations.................. 1.46 .14 (.48)
-------- -------- --------
Income before cumulative effect of change in accounting
principle................................................... 2.42 1.38 0.39
Cumulative effect of change in accounting principle for income
taxes....................................................... -- -- 0.68
-------- -------- --------
Net income.................................................... $ 2.42 $ 1.38 $ 1.07
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 63
ST. JOE PAPER COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK
Balance, at end of year (1995, 1994 and 1993 -- 30,498,650
shares)..................................................... $ 8,714 $ 8,714 $ 8,714
======== ======== ========
RETAINED EARNINGS
Balance, at beginning of year................................. $887,520 $851,511 $824,968
Net income.................................................... 73,819 42,109 32,643
Dividends:
Cash ($0.20 per share -- 1995, 1994 and 1993)............... (6,100) (6,100) (6,100)
======== ======== ========
Balance, at end of year....................................... $955,239 $887,520 $851,511
======== ======== ========
NET UNREALIZED GAIN ON DEBT AND
MARKETABLE EQUITY SECURITIES
Balance, at beginning of year................................. $ 40,747 $ 41,485 $ --
Increase (decrease) in net unrealized gain, net of tax
effect...................................................... 11,367 (738) --
Cumulative effect of change in accounting principle for
investments................................................. -- -- 41,485
-------- -------- --------
Balance, at end of year....................................... $ 52,114 $ 40,747 $ 41,485
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
ST. JOE PAPER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income................................................ $ 73,819 $ 42,109 $ 32,643
Adjustments to reconcile net income to cash provided by
operating activities:
Cumulative effect of a change in accounting
principle......................................... -- -- (20,518)
Depreciation and depletion........................... 28,551 27,612 26,216
Minority interest in income.......................... 12,194 15,827 10,241
Gain on sale of property............................. (2,674) (13,895) (1,146)
Increase in deferred income taxes.................... 18,757 6,754 16,674
Changes in operating assets and liabilities:
Accounts receivable............................... (3,139) (1,375) (1,229)
Inventories....................................... (828) 6,545 (2,533)
Other assets...................................... (4,790) (406) (7,921)
Accounts payable, accrued liabilities and casualty
reserves........................................ (4,279) 3,176 395
Income taxes payable.............................. (7,012) 4,275 2,737
Discontinued operations -- noncash charges and
working capital changes......................... 43,483 12,096 26,046
--------- --------- --------
Cash provided by operating activities....................... 154,082 102,718 81,605
--------- --------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (78,816) (65,450) (68,615)
Investing activities of discontinued operations........... (28,102) (19,513) (25,020)
Proceeds from sales of property........................... 5,119 18,135 6,960
Purchases of investments:................................. -- -- (72,876)
Available for sale(1).................................. (31,247) (18,851) --
Held-to-maturity(1).................................... (168,607) (105,091) --
Maturity of investments:.................................. -- -- 91,443
Available for sale(1).................................. 29,058 12,779 --
Held-to-maturity(1).................................... 135,480 95,241 --
--------- --------- --------
Cash used in investing activities........................... (137,115) (82,750) (68,108)
--------- --------- --------
Cash flows from financing activities:
Net change in short-term borrowings....................... (11,989) (5,437) 6,093
Financing activities of discontinued operations........... (9,917) 2,092 (824)
Dividends paid to stockholders............................ (6,100) (6,100) (6,100)
Repayment of long-term debt............................... (16,893) (19) (3,604)
Dividends paid to minority interest....................... (1,655) (1,679) (1,718)
--------- --------- --------
Cash used in financing activities........................... (46,554) (11,143) (6,153)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (29,587) 8,825 7,344
Cash and cash equivalents at beginning of period............ 46,389 37,564 30,220
--------- --------- --------
Cash and cash equivalents at end of period.................. $ 16,802 $ 46,389 $ 37,564
========= ========= ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 4,541 $ 3,973 $ 3,340
Income taxes paid......................................... $ 45,283 $ 20,494 $ 12,476
</TABLE>
- ---------------
(1) Disclosure is not applicable for the year ended December 31, 1993. See note
4.
See notes to consolidated financial statements.
F-5
<PAGE> 65
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
The Company is a diversified corporation with primary revenues and assets
based in four different segments: Transportation, Forestry, Sugar and Real
Estate. The Forestry segment has operations in both Florida and Georgia while
the remaining segments operate principally within the state of Florida.
TRANSPORTATION -- The Transportation segment, which accounted for 56% of
the Company's net sales and operating revenues in 1995, consists of both railway
and trucking operations. The two railroads, one serving the northwest Florida
area from Port St. Joe to Chattahoochee and the other serving the eastern
seaboard of Florida from Jacksonville to Miami, provide transportation services
for the common carriage of goods by rail between their terminating points. Since
the rail operations are within the state of Florida, more than one-half of its
transportation revenue is generated by shipments which originate and terminate
within Florida. Additionally, a significant portion of the traffic handled is
received from or transferred to other rail carriers. The principal commodities
carried by rail include crushed stone, cement, automobile vehicles and parts,
trailer-on-flatcar, container-on-flatcar, basic consumer goods such as
foodstuffs and building material, coal, pulpboard, pulpwood, woodchips, tall oil
chemicals, stone and clay products and recyclables. The trucking portion of the
Company's operation is an interstate, irregular route, common carrier with
terminals located throughout the eastern half of the United States.
FORESTRY -- The Forestry segment, which accounted for 18% of the Company's
net sales and operating revenues in 1995, consists of the growing and harvesting
of timber on approximately one million acres of timberlands in Florida and
Georgia. The major customer for the wood harvested by the Company has been the
Company's linerboard mill. As discussed in Note 3, the Company has agreed to
sell its linerboard mill. The Company will retain its timberlands and will enter
into a fifteen year fiber supply agreement with the buyer with two five-year
extensions. Annual wood fiber tonnage to be supplied from the Company's lands
will not exceed that currently provided and will be at negotiated market prices
adjusted on a quarterly basis. The Company plans in the future to shift its
remaining fiber production from the Company's lands to higher margin timber
products.
SUGAR -- The Sugar segment, which accounted for 17% of the Company's net
sales and operating revenues in 1995, consists of a sugarcane plantation and a
sugar mill which processes the sugarcane into raw sugar. The raw sugar from the
mill is sold to one customer. The sugarcane crop is subject to weather
conditions. Excessive rain or freezing temperatures can significantly reduce the
harvest.
REAL ESTATE -- The Real Estate segment, which accounted for 9% of the
Company's net sales and operating revenues in 1995, consists of the development,
construction and management of real estate projects within the state of Florida,
both for long-term appreciation and for sale to third parties. Along Florida's
east coast, the Company concentrates in industrial property which it can manage,
maintain and develop. In west Florida, the Company has concentrated on
developing small parcels for residential use. The Real Estate segment's
competition is with other developers and brokers throughout its operating area.
2. MAJORITY STOCKHOLDER
The Alfred I. duPont Testamentary Trust (the "Trust") owns approximately
70% of the outstanding shares of common stock of the Company. The Company and
its subsidiaries had no significant transactions with the Trust during the
period.
3. DISCONTINUED OPERATIONS
COMMUNICATIONS -- On September 1, 1995, St. Joe Industries, Inc., a wholly
owned subsidiary of the Company, agreed to sell the stock of St. Joe
Communications, Inc. ("SJCI") to TPG Communications, Inc.
F-6
<PAGE> 66
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
for approximately $115 million, subject to purchase price adjustments. The sale
is subject to customary conditions, including certain regulatory approvals. At
year end, SJCI had sold its interest in one cellular partnership for
approximately $2 million and has contracts to sell the remaining three
partnership interests for approximately $25 million. These sales represent the
Company's entire Communications segment and are all expected to close in the
first half of 1996.
FOREST PRODUCTS -- On November 1, 1995, St. Joe Forest Products Company
("SJFP"), a wholly owned subsidiary of the Company, and St. Joe Container
Company, a wholly owned subsidiary of SJFP, agreed to sell the linerboard mill
and container plants (the "Sale Transaction") for approximately $390 million,
subject to purchase price adjustments and contingent, among other things, on the
buyer's receipt of financing and approval of the Company's shareholders. The
Trust has advised the Company that, subject to certain conditions, it intends to
vote its shares of the Company's common stock in favor of the Sale Transaction.
Other customary conditions apply, including termination of the Hart-Scott-Rodino
waiting period. The Company has retained certain liabilities in connection with
the Sale Transaction, environmental matters and workmen's compensation claims,
currently estimated to be approximately $7.9 million. These liabilities have
been recorded in the financial statements and will reduce the gain on disposal.
An additional liability of $1.5 million relating to a proposed transferred
employee early retirement incentive program will result from the Sale
Transaction. While the Company has agreed to indemnify the Buyer in amount equal
to $10,000 for On-Site Environmental Liabilities (as defined in the Agreement)
and $1,000 for certain remediation activities at the paper mill if such
activities are required under environmental laws, no matters have been
identified which would require an accrual in the financial statements. This sale
is expected to close in the second quarter of 1996.
Operating revenues for the Communications segment were $32,826, $30,638 and
$29,153 and net sales for the linerboard mill and container plants were
$438,399, $378,088 and $303,902 for the years ended December 31, 1995, 1994 and
1993, respectively. Operating profit of the Communications segment was $6,261,
$6,753 and $5,130 for the years ended December 31, 1995, 1994 and 1993,
respectively. For the linerboard mill and container plants, operating profit
(loss) for the years ended December 31, 1995, 1994, and 1993 were $56,276
($2,240) and ($27,992), respectively. Net operating results of the
Communications segment and linerboard mill and container plants for the years
ended December 31, 1995, 1994 and 1993 are shown separately as earnings from
discontinued operations in the accompanying statement of income. The gain on the
sale of the one cellular partnership which occurred in 1995 was not material.
Net assets to be disposed of have been separately classified in the
accompanying balance sheet at December 31, 1995. The December 31, 1994 balance
sheet has been restated to conform to the current year
F-7
<PAGE> 67
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
presentation. Assets and liabilities of the Communications segment, linerboard
mill and container plants at December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash and cash equivalents............................... $ 11,357 $ 25,501
Short-term investments.................................. -- 1,998
Accounts receivable..................................... 43,419 47,355
Inventories............................................. 49,414 37,910
Other assets............................................ 19,748 15,445
Marketable securities................................... 2,582 4,157
Property, plant and equipment........................... 261,674 269,921
-------- --------
Total assets.......................................... 388,194 402,287
Accounts payable........................................ 14,460 18,170
Accrued liabilities..................................... 7,671 2,597
Long term debt.......................................... 18,093 28,010
Accrued casualty reserves and other liabilities......... 4,332 3,491
Deferred income taxes................................... 47,637 50,672
-------- --------
Net assets of discontinued operations................. $296,001 $299,347
======== ========
</TABLE>
Identifiable assets for the Communications segment were $85,676, $70,658
and $65,674 and for the linerboard mill and container plants were $302,518,
$331,629 and $305,329 at December 31, 1995, 1994 and 1993, respectively.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of St. Joe Paper Company and all of its majority owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated except for sales by continuing operations of $59,535, $58,925 and
$58,518 to discontinued operations in the years ended December 31, 1995, 1994
and 1993, respectively. The unrealized profit in ending inventory relating to
these sales has been eliminated.
REVENUE RECOGNITION -- Transportation revenues are substantially recognized
upon completion of transportation services at destination. Revenues from sales
of forestry products and sugar are recognized generally on delivery of the
product to the customer. Revenues from realty land sales are recognized upon
closing of sales contracts for sale of land or upon settlement of condemnation
proceedings. Rental revenues are recognized upon completion of rental and lease
contracts, using the straight-line basis for recording the revenues over the
life of the contract.
CASH AND CASH EQUIVALENTS -- For purposes of the Consolidated Statement of
Cash Flows, cash and cash equivalents include cash on hand, bank demand
accounts, money market accounts, remarketed certificates of participation and
repurchase agreements having original maturities of three months or less.
F-8
<PAGE> 68
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
INVENTORIES -- Inventories are stated at the lower of cost or market. Costs
for substantially all inventories are determined under the first in, first out
(FIFO) or the average cost method.
PROPERTY, PLANT AND EQUIPMENT -- Depreciation is computed using both
straight-line and accelerated methods over the useful lives of various assets.
Depletion of timber is determined by the units of production method.
Railroad properties are depreciated and amortized using the straight-line
method at rates established by regulatory agencies. Gains and losses on normal
retirements of these items are credited or charged to accumulated depreciation.
DEFERRED CANE CROP COSTS -- Sugar cane plantings generally yield two annual
harvests, depending on weather conditions and soil quality, before replanting is
necessary. New planting costs are amortized on a straight-line basis over two
years.
EARNINGS PER COMMON SHARE -- Earnings per common share are based on the
weighted average number of common shares outstanding during the year.
INCOME TAXES -- The Company follows the asset and liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. SFAS 109 also requires the recognition of a
deferred tax liability on the undistributed earnings of subsidiaries applied on
a prospective basis. Effective January 1, 1993, the Company adopted SFAS 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 consolidated statement of income.
INVESTMENTS -- Investments consist principally of certificates of deposit,
certificates of participation, remarketed certificates of participation,
mortgage backed securities, municipal bonds, common stocks, redeemable preferred
stocks, and U.S. Government obligations. Investments maturing in three months to
one year are classified as short term. Those having maturities in excess of one
year are classified as marketable securities.
The Company adopted the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993. Under SFAS 115,
the Company classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities for which the Company has
the ability and intent to hold the security until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related income tax effect and minority interest in
consolidated subsidiaries, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.
F-9
<PAGE> 69
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A decline in the market of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
and held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
5. INVENTORIES
Inventories as of December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Materials and supplies.................................... $12,875 $14,754
Sugar..................................................... 7,717 5,010
------- -------
$20,592 $19,764
======= =======
</TABLE>
F-10
<PAGE> 70
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. INVESTMENTS
Investments as of December 31, 1995, consist of:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED CARRYING FAIR HOLDING HOLDING
COST VALUE VALUE GAIN LOSS
--------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Short term investments (maturing within one year)
Held to maturity
U.S. Government securities........... $ 50,077 $ 50,818 $ 51,203 $ 385 $0
Tax exempt municipals................ 39,135 39,179 39,150 -- 29
Mortgage backed securities........... 5,641 5,911 5,909 -- 2
Certificates of deposit.............. 1,000 1,015 1,015 -- --
--------- -------- -------- ---------- ---
$ 95,853 $ 96,923 $ 97,277 $ 385 $31
======== ======== ======== ======== ========
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five years...... $ 872 $ 887 $ 887 $ 15 $--
Tax exempt municipals
Maturing in one to five years...... 6,968 7,181 7,181 213 --
Maturing in five to ten years...... 20,093 20,953 20,953 860 --
Maturing in more than ten years.... 5,610 5,820 5,820 210 --
Equity securities.................... 11,633 94,027 94,027 82,394 --
Mortgage backed securities
Maturing in five to ten years...... 3,801 3,877 3,877 76 --
Other corporate debt securities
Maturing in five to ten years...... 1,842 1,897 1,897 55 --
--------- -------- -------- ---------- ---
50,819 134,642 134,642 83,823 --
--------- -------- -------- ---------- ---
Held to maturity
U.S. Government securities
Maturing in one to five years...... 45,569 45,902 46,432 530 --
Tax exempt municipals
Maturing in one to five years...... 1,283 113 113 -- --
Maturing in more than ten years.... 1,000 1,003 1,003 -- --
Mortgage backed securities
Maturing in five to ten years...... 6,132 6,143 6,699 556 --
Other corporate debt securities
Maturing in five to ten years...... 794 2,062 2,454 451 59
--------- -------- -------- ---------- ---
54,778 55,223 56,701 1,537 59
--------- -------- -------- ---------- ---
$ 105,597 $189,865 $191,343 $ 85,360 $59
======== ======== ======== ======== ========
</TABLE>
F-11
<PAGE> 71
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Investments as of December 31, 1994, consist of:
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED HOLDING
AMORTIZED CARRYING FAIR HOLDING LOSS
COST VALUE VALUE GAIN -
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Short term investments (maturing within one year)
Held to maturity
U.S. Government securities........... $ 43,041 $ 43,463 $ 43,875 $ 482 $ 70
Tax exempt municipals................ 3,157 3,157 3,091 -- 66
Mortgage backed securities........... 2,990 3,009 2,985 -- 24
Other corporate debt securities...... 3,473 3,499 3,499 -- --
Remarketed certificates of
participation...................... 2,988 3,062 3,062 -- --
Certificates of deposit.............. 2,963 2,967 2,967 -- --
--------- -------- -------- ---------- --------
$ 58,612 $ 59,157 $ 59,479 $ 482 $ 160
======== ======== ======== ======== ========
Marketable securities
Available for sale
U.S. Government securities
Maturing in one to five years...... $ 3,003 $ 2,948 $ 2,948 $ -- $ 55
Tax exempt municipals
Maturing in one to five years...... 4,457 4,236 4,236 -- 221
Maturing in five to ten years...... 22,148 21,278 21,278 -- 870
Maturing in more than ten years.... 3,364 3,272 3,272 -- 92
Equity securities.................... 10,155 74,568 74,568 64,636 223
Mortgage backed securities
Maturing in more than ten years.... 1,669 1,530 1,530 -- 139
Other corporate debt securities
Maturing in more than ten years.... 2,250 2,176 2,176 -- 74
--------- -------- -------- ---------- --------
47,046 110,008 110,008 64,636 1,674
======== ======== ======== ======== ========
Held to maturity
U.S. Government securities
Maturing within one year........... 40,080 40,080 41,136 1,056 --
Maturing in one to five years...... 17,249 17,226 17,350 543 419
Tax exempt municipals
Maturing in one to five years...... 1,416 443 1,288 845 --
Other corporate debt securities
Maturing in five to ten years...... 885 2,114 2,293 387 208
--------- -------- -------- ---------- --------
59,630 59,863 62,067 2,831 627
--------- -------- -------- ---------- --------
$ 106,676 $169,871 $172,075 $ 67,467 $2,301
======== ======== ======== ======== ========
</TABLE>
Marketable securities, including certain investments which mature within
one year, are held as a developmental fund created to accumulate capital
expected to be required for future improvement of the Company's real estate
properties.
F-12
<PAGE> 72
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
7. ACCRUED LIABILITIES
Accrued liabilities as of December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Payroll and benefits...................................... $ 1,433 $ 1,255
Payroll taxes............................................. 246 573
Property and other taxes.................................. 3,418 3,126
Accrued casualty reserves................................. 16,635 21,019
Other accrued liabilities................................. 8,394 7,812
------- -------
30,126 33,785
Less: noncurrent accrued casualty reserves and other
liabilities............................................. 11,681 11,043
------- -------
$18,445 $22,742
======= =======
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consist of:
<TABLE>
<CAPTION>
ESTIMATED
1995 1994 USEFUL LIFE
---------- ---------- -----------
<S> <C> <C> <C>
Land and timber............................ $ 132,393 $ 130,441 --
Land improvements.......................... 19,149 19,024 20
Buildings.................................. 3,686 3,650 45
Machinery and equipment.................... 623,183 605,274 12-30
Office equipment........................... 799 789 10
Autos and trucks........................... 2,375 2,235 3-6
Construction in progress................... 5,689 4,836 --
Investment property........................ 318,181 273,732 various
---------- ----------
1,105,455 1,039,981
Accumulated depreciation................... 300,481 283,027
---------- ----------
$ 804,974 $ 756,954
========= =========
</TABLE>
Real estate properties having net book value of $153.3 million at December
31, 1995 are leased under non-cancelable operating leases with expected
aggregate rentals of $86.7 million of which $25.2, $21.9, $17.2, $12.9 and $9.5
million is due in the years 1996 through 2000, respectively.
9. INCOME TAXES
Total income tax expense for the years ended December 31 was allocated as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations................ $24,535 $31,446 $30,328
Earnings (loss) from discontinued operations..... 26,116 2,491 (8,119)
Shareholders' equity, for recognition of
unrealized gain (loss) on debt and marketable
equity securities.............................. 8,778 (2,377) 25,472
------- ------- -------
$59,429 $31,560 $47,681
======= ======= =======
</TABLE>
F-13
<PAGE> 73
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Income tax expense attributable to income from continuing operations
differed from the amount computed by applying the statutory federal income tax
rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Tax at the statutory federal rate................ $23,131 $29,795 $23,552
Dividends received deduction and tax free
interest....................................... (1,277) (1,075) (937)
State income taxes (net of federal benefit)...... 1,916 2,497 1,863
Adjustment to deferred tax assets and liabilities
for enacted changes in tax laws and rates...... -- -- 3,293
Undistributed earnings of FECI................... 916 1,245 775
Other, net....................................... (151) (1,016) 1,782
------- ------- -------
$24,535 $31,446 $30,328
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31
are presented below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued casualty and other reserves................... $ 7,451 $ 7,857
Alternative minimum tax credit carryforward........... -- 14,315
Other................................................. 1,912 1,654
-------- --------
Total deferred tax assets.......................... 9,363 23,826
-------- --------
Deferred tax liabilities:
Tax in excess of financial depreciation............... 114,047 110,732
Deferred gain on land sales........................... 6,893 6,904
Deferred gain on subsidiary's defeased bonds.......... 2,139 2,322
Unrealized gain on debt and marketable equity
securities......................................... 30,902 22,124
Deferred gain on involuntary conversion of land....... 29,160 29,227
Prepaid pension asset recognized for financial
reporting.......................................... 8,085 7,804
Other................................................. 5,620 4,661
-------- --------
Total gross deferred tax liabilities............... 196,846 183,774
-------- --------
Net deferred tax liability......................... $187,483 $159,948
======== ========
</TABLE>
Based on the timing of reversal of future taxable amounts and the Company's
history of reporting taxable income, the Company believes that the deferred tax
assets will be realized and a valuation allowance is not considered necessary.
The current deferred tax asset of $4,553 and $4,691 is recorded in other current
assets as of December 31, 1995 and 1994, respectively.
The Company has not recognized a deferred tax liability of approximately
$17,842 for the undistributed earnings of FECI that arose in 1992 and prior
years because the Company does not currently expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable future. A deferred
tax liability will be recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investment. As of December 31, 1995, the undistributed
earnings of the subsidiary for which no deferred tax liability was provided were
approximately $48,454.
F-14
<PAGE> 74
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
10. PENSION AND RETIREMENT PLANS
The Company sponsors defined benefit pension plans covering approximately
70% of its employees. The benefits are based on the employees' years of service
or years of service and compensation during the last five or ten years of
employment. The Company's funding policy is to contribute annually the maximum
contribution required by ERISA.
A summary of the net periodic pension credit follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost............................................ $ 3,450 $ 3,486
Interest cost........................................... 7,986 7,418
Actual return on assets................................. (40,436) 1,365
Net amortization and deferral........................... 28,221 (13,673)
-------- --------
Total pension income.................................... $ (779) $ (1,404)
======== ========
</TABLE>
A summary of the plans' funded status as of December 31 was:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accumulated benefit obligation, included vested benefits
of $92,354 and $86,807 in 1995 and 1994,
respectively.......................................... $100,104 $ 94,485
======== ========
Projected benefit obligation for service rendered to
date.................................................. 125,136 116,101
Plan assets at fair value, primarily listed stocks and
U.S. bonds............................................ 177,276 141,090
-------- --------
Plan assets in excess of projected benefit obligation... 52,140 24,989
Unrecognized net (gain) loss............................ (27,734) 2,615
Unrecognized prior service cost......................... 12,956 11,545
Unrecognized transition asset........................... (15,395) (17,961)
-------- --------
Prepaid pension cost.................................... $ 21,967 $ 21,188
======== ========
</TABLE>
The weighted-average discount rates for the plans were 7% in 1995 and 1994.
The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation for salaried
employees was 6% in 1995 and 1994. The expected long-term rates of return on
assets was 8% in 1995 and 1994.
As discussed in note 3, several of the Company's operations are being sold
which will significantly reduce the number of employees covered under the
defined benefit plans. The defined benefit plans' assets are not a part of the
sales. In accordance with SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits",
the Company expects to recognize a curtailment gain at the date of sale.
The Company has an Employee Stock Ownership Plan for the purpose of
purchasing stock of the Company for the benefit of qualified employees.
Contributions to the Plan are limited to .5% of compensation of employees
covered under the Plan. The Company also has other defined contribution plans
which, in conjunction with the Plan cover substantially all its salaried
employees. Contributions are at the employees' discretion and are matched by the
Company up to certain limits. Expense for these defined contribution plans was
$1,322, $1,213, and $1,387 in 1995, 1994 and 1993, respectively.
F-15
<PAGE> 75
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
1995 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- --------------------------------------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Net sales and operating revenues................... $89,764 $ 82,877 $85,905 $76,378
Operating profit................................... 11,888 11,745 12,857 10,827
Net income from continuing operations.............. 8,006 6,360 8,340 6,652
Earnings from discontinued operations.............. 6,804 4,799 17,996 14,862
Net income......................................... 14,810 11,159 26,336 21,514
Per Share Data:
Net income from continuing operations.............. 0.26 0.21 0.27 0.22
Earnings from discontinued operations.............. 0.23 0.16 0.59 0.49
Net income......................................... 0.49 0.37 0.86 0.71
</TABLE>
<TABLE>
<CAPTION>
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- --------------------------------------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Net sales and operating revenues................... $87,985 $ 72,572 $80,664 $89,685
Operating profit................................... 15,038 8,031 12,832 24,064
Net income from continuing operations.............. 13,511 6,439 6,711 11,195
Earnings (loss) from discontinued operations....... 5,292 1,080 915 (3,034)
Net income......................................... 18,803 7,520 7,627 8,159
Per Share Data:
Net income from continuing operations.............. 0.44 0.21 0.22 0.37
Earnings (loss) from discontinued operations....... 0.18 0.04 0.03 (0.10)
Net income......................................... 0.62 0.25 0.25 0.27
</TABLE>
12. SEGMENT INFORMATION
Total net sales and operating revenues represent sales to unaffiliated
customers, as reported in the Company's consolidated income statement and
intercompany sales which occur principally between the Forestry and
Transportation segments and discontinued operations.
Operating profit is net sales and operating revenues less directly
traceable costs and expenses. In computing operating profit, the following items
have not been considered: other income (expense) and provision for income taxes.
Identifiable assets by lines of business are those assets that are used in
the Company's operations in each segment. Corporate assets are composed of cash,
marketable securities and miscellaneous nonsegment assets.
F-16
<PAGE> 76
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Information by lines of business segment follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales and operating revenues
Transportation......................................... $ 186,941 $ 176,074 $ 175,095
Forestry............................................... 60,057 60,158 59,819
Sugar.................................................. 57,547 54,900 49,138
Real Estate............................................ 30,379 39,774 28,405
---------- ---------- ----------
Consolidated............................................. $ 334,924 $ 330,906 $ 312,457
========= ========= =========
Operating profit:
Transportation......................................... $ 28,255 $ 29,680 $ 30,648
Forestry............................................... (3,377) 4,072 8,308
Sugar.................................................. 13,310 6,329 5,058
Real Estate............................................ 9,129 19,884 10,950
---------- ---------- ----------
Consolidated............................................. $ 47,317 $ 59,965 $ 54,964
========= ========= =========
Assets:
Transportation......................................... $ 407,969 $ 424,241 $ 390,332
Forestry............................................... 111,848 91,319 82,002
Sugar.................................................. 72,647 93,685 96,925
Real Estate............................................ 290,013 229,449 230,343
Discontinued operations................................ 296,001 299,347 294,597
Corporate.............................................. 352,516 311,349 301,634
---------- ---------- ----------
Consolidated............................................. $1,530,994 $1,449,390 $1,395,833
========= ========= =========
Capital expenditures:
Transportation......................................... $ 28,204 $ 25,060 $ 22,682
Forestry............................................... 5,413 8,655 5,295
Sugar.................................................. 170 3,381 2,944
Real Estate............................................ 45,029 28,354 37,694
---------- ---------- ----------
Consolidated............................................. $ 78,816 $ 65,450 $ 68,615
========= ========= =========
Depreciation and depletion:
Transportation......................................... $ 18,840 $ 18,706 $ 18,147
Forestry............................................... 2,307 2,184 2,207
Sugar.................................................. 1,671 1,605 1,769
Real Estate............................................ 5,733 5,117 4,093
---------- ---------- ----------
Consolidated............................................. $ 28,551 $ 27,612 $ 26,216
========= ========= =========
</TABLE>
13. CONTINGENCIES
The Company and its subsidiaries are involved in litigation on a number of
matters and are subject to certain claims which arise in the normal course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's consolidated financial position or
results of operations.
F-17
<PAGE> 77
ST. JOE PAPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The Company has retained certain self-insurance risks with respect to
losses for third party liability, property damage and group health insurance
provided to employees.
The Company is subject to costs arising out of environmental laws and
regulations, which include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites. It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed and adjusted, if necessary, as additional
information becomes available.
The Company is currently a party to, or involved in, legal proceedings
directed at the cleanup of three Superfund sites. The Company has accrued an
allocated share of the total estimated cleanup costs for these three sites.
Based upon management's evaluation of the other potentially responsible parties,
the Company does not expect to incur additional amounts even though the Company
has joint and several liability. Other proceedings involving environmental
matters such as alleged discharge of oil or waste material into water or soil
are pending against the Company.
It is not possible to quantify future environmental costs because many
issues relate to actions by third parties or changes in environmental
regulation. However, based on information presently available, management
believes that the ultimate disposition of currently known matters will not have
a material effect on the financial position, liquidity or results of operations
of the Company. The aggregate environmental-related accruals were $6.2 and $6.7
million, as of December 31, 1995 and 1994, respectively. Environmental
liabilities are paid over an extended period and the timing of such payments
cannot be predicted with any confidence.
F-18
<PAGE> 78
ST. JOE PAPER COMPANY
SCHEDULE II (CONSOLIDATED)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED
BEGINNING TO BALANCE AT
OF YEAR EXPENSE PAYMENTS END OF YEAR
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
Reserves included in Liabilities
1995
Accrued casualty reserves.............. $ 21,019 4,742 9,126 $16,635(a)
1994
Accrued casualty reserves.............. $ 16,587 9,305 4,873 $21,019(a)(b)
1993
Accrued casualty reserves.............. $ 16,680 2,443 2,536 $16,587(a)(b)
</TABLE>
- ---------------
(a) Includes $7,322, $9,976 and $8,423 in current liabilities at December 31,
1995, 1994 and 1993, respectively. The remainder is included in "Accrued
casualty reserves and other liabilities."
(b) 1994 and 1993 amounts have been restated to reflect the classification of
the Communications segment, the linerboard mill and container plants as
discontinued operations.
S-1
<PAGE> 79
ST. JOE PAPER COMPANY
SCHEDULE III (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COST TO CARRIED AS OF DECEMBER 31,
COMPANY 1995
---------------------- COSTS ---------------------------
BUILDINGS & CAPITALIZED LAND & BUILDINGS &
TENANT SUBSEQUENT TO LAND TENANT
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS
- -------------------------------------------- ------------ ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Duval County
Office Buildings (6)....................... $0 $ 1,153 $6,200 $ 32,513 $ 4,972 $ 34,894
Office/Showroom/Warehouses (8)............. 0 1,502 0 19,555 3,930 17,127
Office/Warehouse........................... 0 0 0 4,753 1,074 3,679
Land w/Infrastructure...................... 0 6,593 0 6,794 13,387 0
Unimproved land & Misc Assets.............. 0 915 0 1,548 2,289 174
City & Residential Lots.................... 0 362 5 77 362 82
St. Johns County
Land w/Infrastructure...................... 0 179 0 621 800 0
Unimproved land............................ 0 2,631 0 407 3,038 0
Flagler County
Unimproved land............................ 0 3,218 0 1,184 4,402 0
Volusia County
Unimproved land............................ 0 3,651 0 528 4,179 0
Brevard County
Office/Showroom/Warehouse.................. 0 73 0 2,184 438 1,819
Land w/Infrastructure...................... 0 3,633 0 0 3,633 0
Unimproved land............................ 0 4,846 0 191 5,037 0
Indian River County
Unimproved land............................ 0 218 0 189 407 0
St. Lucie County
Unimproved land............................ 0 639 0 5 644 0
Martin County
Unimproved land............................ 0 4,671 0 2,493 7,164 0
Palm Beach County
Office/Showroom/Warehouse.................. 0 113 0 2,984 599 2,498
Rail Warehouses (2)........................ 0 449 0 4,164 557 4,056
Cross Docks (4)............................ 0 117 0 3,786 1,262 2,641
Land w/Infrastructure...................... 0 1,251 0 0 1,251 0
Unimproved land............................ 0 1,596 0 9 1,605 0
Broward County
Rail Warehouse............................. 0 85 0 1,708 405 1,388
Unimproved land............................ 0 733 0 1,848 2,581 0
Dade County
Cross Dock................................. 0 137 0 1,018 137 1,018
Double Front Load Warehouse................ 0 768 0 5,735 1,449 5,054
Rail Warehouses (6)........................ 0 808 0 25,077 4,948 20,937
Office/Showroom/Warehouses (5)............. 0 1,003 0 16,344 4,004 13,343
Office/Warehouses (4)...................... 0 1,462 0 13,363 2,877 11,948
Front Load Warehouses (7).................. 0 1,943 0 21,888 5,439 18,392
Office/Service Center...................... 0 285 0 2,191 680 1,796
Land w/Infrastructure...................... 0 2,577 0 5,915 8,492 0
Unimproved land & Misc Assets.............. 0 15,725 0 11,575 26,973 327
Manatee County
Unimproved land............................ 0 14 0 87 101 0
<CAPTION>
GROSS
AMOUNT
AT WHICH
CARRIED
AS OF LIFE ON WHICH
DECEMBER 31, DEPRECIATION IN
1995 DATE LATEST INCOME
-------- ACCUMULATED STARTED OR STATEMENT IS
DESCRIPTION TOTAL DEPRECIATION ACQUIRED COMPUTED
- -------------------------------------------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Duval County
Office Buildings (6)....................... $ 39,866 $ 6,302 1985 3 to 40 years
Office/Showroom/Warehouses (8)............. 21,057 4,069 1987 3 to 40 years
Office/Warehouse........................... 4,753 280 1994 3 to 40 years
Land w/Infrastructure...................... 13,387 0 Various
Unimproved land & Misc Assets.............. 2,463 457 Various 3 to 40 years
City & Residential Lots.................... 444 5 Various
St. Johns County
Land w/Infrastructure...................... 800 0 Various
Unimproved land............................ 3,038 0 Various
Flagler County
Unimproved land............................ 4,402 0 Various
Volusia County
Unimproved land............................ 4,179 0 Various
Brevard County
Office/Showroom/Warehouse.................. 2,257 424 1988 3 to 40 years
Land w/Infrastructure...................... 3,633 0 Various
Unimproved land............................ 5,037 0 Various
Indian River County
Unimproved land............................ 407 0 Various
St. Lucie County
Unimproved land............................ 644 0 Various
Martin County
Unimproved land............................ 7, 164 0 Various
Palm Beach County
Office/Showroom/Warehouse.................. 3,097 754 1986 3 to 40 years
Rail Warehouses (2)........................ 4,613 1,144 1982 3 to 40 years
Cross Docks (4)............................ 3,903 890 1987 3 to 40 years
Land w/Infrastructure...................... 1,251 0 Various
Unimproved land............................ 1,605 0 Various
Broward County
Rail Warehouse............................. 1,793 556 1986 3 to 40 years
Unimproved land............................ 2,581 0 Various
Dade County
Cross Dock................................. 1,155 235 1987 3 to 40 years
Double Front Load Warehouse................ 6,503 617 1993 3 to 40 years
Rail Warehouses (6)........................ 25,885 2,343 1990 3 to 40 years
Office/Showroom/Warehouses (5)............. 17,347 2,380 1988 3 to 40 years
Office/Warehouses (4)...................... 14,825 1,823 1988 3 to 40 years
Front Load Warehouses (7).................. 23,831 1,687 1991 3 to 40 years
Office/Service Center...................... 2,476 137 1994 3 to 40 years
Land w/Infrastructure...................... 8,492 0 Various
Unimproved land & Misc Assets.............. 27,300 1,924 Various
Manatee County
Unimproved land............................ 101 0 Various
</TABLE>
S-2
<PAGE> 80
ST. JOE PAPER COMPANY
SCHEDULE III (CONSOLIDATED) REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COST TO CARRIED AS OF DECEMBER 31,
COMPANY 1995
---------------------- COSTS ---------------------------
BUILDINGS & CAPITALIZED LAND & BUILDINGS &
TENANT SUBSEQUENT TO LAND TENANT
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION IMPROVEMENTS IMPROVEMENTS
- -------------------------------------------- ------------ ------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Orange County
Land w/Infrastructure...................... 0 0 0 7,626 7,626 0
Gulf County
Unimproved land............................ 0 358 0 180 538 0
Bay County
Land w/Infrastructure...................... 0 1 0 29 1 29
Office Building............................ 0 1 0 1,195 1 1,195
Unimproved land............................ 0 517 0 121 524 114
Leon County
Land w/Infrastructure...................... 0 603 0 30 594 39
Walton County
Land w/Infrastructure...................... 0 120 0 66 186 0
Other Counties
Unimproved land............................ 0 229 0 3,161 3,349 41
-
------- ------ ------------- ------------ ------------
Grand Total................................. $0 $65,179 $6,205 $ 203,142 $131,935 $142,591
=============== ======== ============== ============== ============== ==============
<CAPTION>
GROSS AMOUNT
AT WHICH
CARRIED
AS OF LIFE ON WHICH
DECEMBER 31, DEPRECIATION IN
1995 DATE LATEST INCOME
-------- CCUMULATED STARTED OR STATEMENT IS
DESCRIPTION TOTAL DEPRECIATION ACQUIRED COMPUTED
- -------------------------------------------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Orange County
Land w/Infrastructure...................... 7,626 0 1995
Gulf County
Unimproved land............................ 538 24 Various
Bay County
Land w/Infrastructure...................... 30 0 Various
Office Building............................ 1,196 238 1993 3 to 40 years
Unimproved land............................ 638 13 Various
Leon County
Land w/Infrastructure...................... 633 13 Various
Walton County
Land w/Infrastructure...................... 186 0 Various
Other Counties
Unimproved land............................ 3,390 41 Various
-------- -----------
Grand Total................................. $274,526 $26,356
========== =============
</TABLE>
- ---------------
Notes
(a) The aggregate cost of real estate owned at December 31, 1995 for federal
income tax purposes $163,175
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(b) Reconciliation of real estate owned:
Balance at beginning of year.......................................................... $249,180 $222,498 $192,466
Amounts capitalized................................................................... 26,499 28,350 31,691
Amounts retired or adjusted........................................................... (1,153) (1,668) (1,659)
-------- -------- --------
Balance at close of period.......................................................... $274,526 $249,180 $222,498
======== ======== ========
(c) Reconciliation of accumulated depreciation:
Balance at beginning of year.......................................................... $ 20,596 $ 15,475 $ 11,306
Depreciation expense.................................................................. 5,760 5,145 4,169
Amounts retired or adjusted........................................................... 0 (24) 0
-------- -------- --------
Balance at close of period.......................................................... $ 26,356 $ 20,596 $ 15,475
======== ======== ========
</TABLE>
(d) Table excludes $43,655 of real estate costs in progress.
S-3
<PAGE> 81
[DILLON READ LETTERHEAD]
January 12, 1996
The Board of Directors
St. Joe Paper Company
1650 Prudential Drive
Suite 400
Jacksonville, FL 32207
Gentlemen:
You have advised us that St. Joe Forest Products Company, St. Joe Container
Company and St. Joe Paper Company (the "Company") have entered into an Asset
Purchase Agreement with Four M Corporation and Port St. Joe Paper Company (the
"Buyers") dated as of November 1, 1995, as amended through January 12, 1996 (the
"Agreement"), whereby the Buyers would acquire certain of the Company's assets
and assume certain of the Company's liabilities associated with St. Joe Forest
Products Company and St. Joe Container Company (the "Business"), for an
aggregate purchase price of $390.0 million in cash, subject to certain
adjustments, as more fully described in the Agreement (the "Transaction").
You have requested our opinion as to whether the consideration to be paid
by the Buyers, as set forth in the Agreement, is fair to the holders of the
common stock of the Company (the "Stockholders") from a financial point of view,
as of the date hereof.
Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Dillon Read
is acting as financial advisor to the Company in connection with the Transaction
and will receive a fee upon consummation thereof. In the ordinary course of
business, we have traded securities of the Company for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement and the exhibits thereto; (ii) reviewed certain publicly available
business and financial information relating to the Company; (iii) reviewed the
reported price and trading activity for the Common Stock of the Company; (iv)
reviewed certain internal financial information and other data provided to us by
the Company relating to the business and prospects of the Business, including
financial projections prepared by the management of the Company and the
Business; (v) conducted discussions with members of the senior management of the
Company and the Business; (vi) reviewed the financial terms, to the extent
publicly available, of certain acquisition transactions which we considered to
be generally comparable to the Transaction; (vii) reviewed publicly available
financial and securities market data pertaining to certain publicly-held
companies in lines of business generally comparable to those of the Business;
(viii) considered the results of the auction of the Business conducted at the
Company's request by Dillon Read; and (ix) conducted such other financial
studies, analyses and investigations, and considered such other information as
we deemed necessary and appropriate.
In connection with our review, at your direction we have not assumed any
responsibility for independent verification of any of the foregoing information
and have relied upon its being complete and accurate in all material respects.
We have not been requested to and have not made an independent evaluation or
appraisal of
A-1
<PAGE> 82
any assets or liabilities (contingent or otherwise) of the Business, nor have we
been furnished with any such evaluation or appraisal. Further, we have assumed,
with your consent, that all of the information, including the projections,
provided to us by the Company's management was prepared in good faith and was
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
of the Business, and was based upon the historical performance of the Business
and certain estimates and assumptions which were reasonable at the time made. In
addition, our opinion is based on economic, monetary and market conditions
existing on the date hereof.
In rendering this opinion, we are not rendering any opinion as to the value
of the Company as a whole or making a recommendation to the Stockholders with
respect to the advisability of disposing of or retaining shares held in the
Company. In addition, we are not making any recommendation regarding whether or
not it is advisable for Stockholders to vote in favor of the Transaction.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the consideration to be paid by the Buyers in connection with
the Transaction is fair to the Stockholders from a financial point of view.
Very truly yours,
DILLON, READ & CO. INC.
By: /s/ David M. Dickson, Jr.
-----------------------------------
David M. Dickson, Jr.
A-2
<PAGE> 83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
DATED AS OF
NOVEMBER 1, 1995
(WITH AMENDMENTS THROUGH JANUARY 12, 1996)
BY AND AMONG
ST. JOE FOREST PRODUCTS COMPANY,
ST. JOE CONTAINER COMPANY,
AND
ST. JOE PAPER COMPANY
ON THE ONE HAND
AND
FOUR M CORPORATION
AND
PORT ST. JOE PAPER COMPANY
[PSJ PAPER COMPANY L.L.C.]
ON THE OTHER HAND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
PARTIES................................................................................. B-5
PREAMBLE................................................................................ B-5
ARTICLE I
DEFINITIONS
1.01 Definitions.................................................................. B- 5
ARTICLE II
PURCHASE AND SALE
2.01 Purchase and Sale............................................................ B-12
2.02 Excluded Assets.............................................................. B-13
2.03 Assumption of Liabilities.................................................... B-14
2.04 Retained Liabilities......................................................... B-14
2.05 Benefits of Assets........................................................... B-15
ARTICLE III
PURCHASE PRICE AND CLOSING
3.01 Purchase Price............................................................... B-16
3.02 Closing...................................................................... B-16
3.03 Deliveries at the Closing.................................................... B-16
3.04 Allocation of the Purchase Price............................................. B-17
3.05 Purchase Price Adjustment.................................................... B-18
3.06 Count of Inventory........................................................... B-18
Resolution of Net Working Capital and Closing Capital Expenditures
3.07 Disputes..................................................................... B-19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
4.01 Corporate Existence and Power, Etc........................................... B-19
4.02 Corporate Authorization...................................................... B-19
4.03 Consents and Approvals; No Violation......................................... B-20
4.04 Financial Statements......................................................... B-20
4.05 Absence of Certain Changes................................................... B-20
4.06 Tangible Assets.............................................................. B-21
4.06A Disclaimer of Warranties of Merchantability and Fitness...................... B-21
4.07 Title to the Acquired Assets................................................. B-21
4.08 Certain Agreements........................................................... B-21
4.09 Legal Matters................................................................ B-22
4.10 Environmental Permits; Other Permits......................................... B-22
4.11 Intellectual Property........................................................ B-23
4.12 Finders' Fees................................................................ B-23
4.13 Real Property; Realty Rights................................................. B-24
4.14 Labor Controversies, Etc..................................................... B-24
4.15 No Implied Representation.................................................... B-24
</TABLE>
B-2
<PAGE> 85
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
5.01 Organization and Existence................................................... B-24
5.02 Authorization................................................................ B-25
5.03 Consents and Approvals; No Violation......................................... B-25
5.04 Finders' Fees................................................................ B-25
5.05 Litigation................................................................... B-25
5.06 Investor Status.............................................................. B-25
5.07 Outstanding Debt............................................................. B-26
5.08 Title to Properties.......................................................... B-26
5.09 Taxes........................................................................ B-26
5.10 Financial Statements......................................................... B-26
ARTICLE VI
COVENANTS OF THE PARTIES
6.01 Conduct of the Business...................................................... B-26
6.02 Access to Information........................................................ B-27
6.03 Seller Trademarks............................................................ B-27
6.04 Guaranties................................................................... B-28
6.05 Efforts; Further Assurances; Permits......................................... B-28
6.06 Bulk Sales Laws.............................................................. B-28
6.07 Books and Records............................................................ B-29
6.08 Intellectual Property Cooperation; Etc....................................... B-29
6.09 Governmental Regulatory Approval............................................. B-29
6.10 HSR Act Review............................................................... B-29
6.11 Effect of Due Diligence and Related Matters.................................. B-29
6.12 Real Property Transfers...................................................... B-30
6.13 Insurance.................................................................... B-31
6.14 Secured Indebtedness......................................................... B-31
6.15 Licensing Arrangements....................................................... B-31
6.16 No Solicitation of Transactions.............................................. B-31
6.17 Stockholders' Meeting........................................................ B-32
6.18 Prompt Payment of Taxes and Indebtedness..................................... B-32
6.19 Conduct of Business and Corporate Existence.................................. B-32
6.20 Insurance.................................................................... B-32
6.21 Limitation on Distributions, Investments and Payments........................ B-33
6.22 Lien, Debt and Other Restrictions............................................ B-33
6.23 Non-Competition.............................................................. B-34
6.24 Financing.................................................................... B-34
6.25 Audited Financial Statements................................................. B-34
ARTICLE VII
TAX MATTERS
7.01 Pre-Closing Tax Periods; Post-Closing Tax Periods; Bridge Tax Periods........ B-34
7.02 Refunds or Credits........................................................... B-35
7.03 Mutual Cooperation........................................................... B-35
7.04 Tax Audits................................................................... B-36
7.05 No Offset.................................................................... B-36
</TABLE>
B-3
<PAGE> 86
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE VIII
EMPLOYEE BENEFITS
8.01 Employee Benefit Plans....................................................... B-36
8.02 Employees and Offers of Employment........................................... B-37
8.03 Seller's Benefit Plans....................................................... B-37
8.04 Buyer Benefit Plans.......................................................... B-38
8.05 Seller's 401(k) Plan......................................................... B-38
8.06 Early Retirement Incentive................................................... B-38
8.07 Severance.................................................................... B-38
8.08 Labor Controversies.......................................................... B-39
8.09 No Third Party Beneficiaries................................................. B-39
ARTICLE IX
CONDITIONS TO CLOSING
9.01 Conditions to the Obligations of Each Party.................................. B-40
9.02 Conditions to Obligation of Buyer............................................ B-40
9.03 Conditions to Obligation of Seller........................................... B-40
ARTICLE X
TERMINATION AND ABANDONMENT
10.01 Termination.................................................................. B-41
10.02 Effect of Termination........................................................ B-42
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01 Survival..................................................................... B-42
11.02 Indemnification.............................................................. B-42
11.03 Procedures................................................................... B-43
11.04 Tax, Insurance and Other Benefits............................................ B-44
11.05 Environmental Indemnification................................................ B-44
11.06 Environmental Audit.......................................................... B-47
11.07 Work To Be Completed by Seller............................................... B-47
11.08 Work To Be Completed by Buyer................................................ B-48
11.09 Other Disposal Facilities.................................................... B-48
ARTICLE XII
MISCELLANEOUS
12.01 Notices...................................................................... B-48
12.02 Amendments; No Waivers....................................................... B-50
12.03 Expenses..................................................................... B-50
12.04 Assignment; Parties in Interest.............................................. B-50
12.05 Governing Law; Jurisdiction; Forum........................................... B-50
12.06 Counterparts; Effectiveness.................................................. B-50
12.07 Entire Agreement............................................................. B-51
12.08 Publicity.................................................................... B-51
12.09 Captions..................................................................... B-51
12.10 Severability................................................................. B-51
12.11 Knowledge.................................................................... B-51
AMENDMENT DATED DECEMBER 14, 1995...................................................... B-52
AMENDMENT DATED DECEMBER 20, 1995...................................................... B-54
AMENDMENT DATED JANUARY 10, 1996....................................................... B-57
AMENDMENT DATED JANUARY 12, 1996....................................................... B-58
</TABLE>
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ASSET PURCHASE AGREEMENT
AGREEMENT (this "Agreement") dated as of the 1st day of November, 1995 by
and among St. Joe Forest Products Company, a Florida corporation ("SJFP"), St.
Joe Container Company, a Florida corporation ("SJCC") and St. Joe Paper Company,
a Florida corporation ("SJPC"), on the one hand, and Four M Corporation, a
Maryland corporation ("FMC") and Port St. Joe Paper Company, organized by FMC
and SCC as a joint venture ("JV"), on the other hand.
WITNESSETH:
WHEREAS, Seller is engaged in the production of mottled white and
unbleached kraft linerboard and corrugated containers; and
WHEREAS, Seller desires to sell, convey, assign, transfer and deliver to
FMC and JV, and FMC and JV desire to purchase and accept from Seller, certain of
its paper mill, box plants and related assets, upon the terms and conditions set
forth in this Agreement; and
WHEREAS, pursuant to the terms and conditions of this Agreement JV intends
to acquire the Mill Assets and the Mill Business and assume the Assumed
Liabilities relating to the Mill Assets and the Mill Business; and
WHEREAS, pursuant to the terms and conditions set forth in this Agreement,
FMC intends to acquire the Container Assets and the Container Business and to
assume the Assumed Liabilities relating to the Container Assets and the
Container Business.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Definitions.
(a) The following terms, as used herein, have the following meanings:
"Accounts Payable" shall mean all current liabilities of Seller
outstanding as of the Closing Date relating to the Business, other than
Intercompany Payables, to the extent such Accounts Payable are included in
the calculation of Closing Net Working Capital.
"Acquired Agreements" shall mean all contracts, agreements, leases,
purchase orders, instruments and commitments related to the Business to
which Seller is a party, other than Collective Bargaining Agreements, those
with respect to Realty Rights, those with respect to which Rights of First
Refusal have been exercised, and those with respect to Secured Indebtedness
and the Security Documents.
"Acquired Assets" has the meaning set forth in Section 2.01.
"Acquired Books and Records" means all of Seller's customer lists and
records, vendor and supplier lists and records, accounts and billing
records, property records, plans, blueprints, specifications, designs,
drawings, surveys, engineering reports, personnel records (where
applicable) and all other documents, computer data and records (including
records and files on computer disks or stored electronically) relating to
the Business, the Acquired Assets, the Transferred Employees and/or the
Assumed Liabilities, except to the extent related to Excluded Assets or
Retained Liabilities.
"Acquired Claims" has the meaning set forth in Section 2.01(ix).
"Acquired Equipment" means all personal property (other than the
Excluded Assets, Fixtures and Improvements, Rolling Stock, and Inventories)
owned by Seller and used in connection with the operation of the Business,
including, but not limited to, all furniture and other furnishings, tools,
office equipment, machinery and equipment and other such property used by
Seller for the Business or for the
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use of raw materials, utilities or supplies therefor (except office
furnishings and equipment used by directors and salaried Eligible Employees
located outside the Real Property who do not become Transferred Employees).
"Acquired Insurance Claims" has the meaning set forth in Section
2.01(xv).
"Acquired Intellectual Property" shall mean the Intellectual Property
used or held for use exclusively in the Business and owned by Seller, which
shall be assigned to Buyer and the Buyer Affiliates under Section 2.01
hereof.
"Acquired Software" shall mean the computer software used or held for
use in the businesses of Seller and its Affiliates other than the Business
and also used in the Business set forth in Section 1.01 of the Disclosure
Schedule and owned by Seller which shall be licensed to Buyer and the Buyer
Affiliates under Section 6.15 hereof.
"Affiliate" shall mean, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control
with such other Person; "Buyer Affiliates" shall mean (i) with respect to
FMC, only the Affiliates of FMC receiving Container Assets hereunder; and
(ii) with respect to JV, only Affiliates of JV receiving the Mill Assets
hereunder which Affiliates of JV shall not be deemed to include SCC or
Affiliates of SCC or FMC or Affiliates of FMC and "Seller Affiliates" shall
mean the Affiliates of Seller.
"Ancillary Agreements" shall mean the Assignment and Assumption
Agreement, the Bill of Sale, the Intellectual Property Instruments, the
license for Acquired Software, the lease referred to in Section 3.03(b)(ix)
hereof, the Wood Fiber Supply Contract, the SJLD Deed, the deeds conveying
the Real Property and documents conveying or assigning the Realty Rights.
"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement in substantially the form attached hereto as Exhibit
A.
"Assumed Charges" shall mean all of the following charges incurred
with respect to Acquired Assets to the extent allocable to periods after
the Closing Date: (i) utility charges (which shall include, without
limitation, water, sewer, electricity, gas and other utility charges) with
respect to the Real Property, the SJLD Property and the Realty Rights, (ii)
rental charges (which shall include, without limitation, rental charges and
other payments under the Realty Rights) and (iii) payments and assessments
for waste water treatment.
"Assumed Liabilities" has the meaning set forth in Section 2.03.
"Assumed Taxes" shall mean (a) all Taxes allocated or apportioned to
Buyer under Section 7.01(d) and (b) fifty (50%) of all Transfer Taxes.
"Audited Financial Statements" has the meaning set forth in Section
6.25.
"Benefit Plan" has the meaning set forth in Section 8.01(a).
"Bill of Sale" shall mean the Bill of Sale in substantially the form
attached hereto as Exhibit B.
"Bridge Tax Period" has the meaning set forth in Section 7.01(d).
"Business" shall mean the business as conducted by SJFP and SJCC of
producing mottled white and unbleached kraft linerboard and corrugated
containers and products associated therewith and of conducting other
related activities and services; "Mill Business" shall mean the business as
conducted by SJFP of producing mottled white and unbleached kraft
linerboard and products associated therewith; and "Container Business"
shall mean the business as conducted by SJCC of producing corrugated
containers and products associated therewith.
"Business Day" shall mean any day except a Saturday, Sunday or other
day on which commercial banks in New York City are generally authorized to
close.
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"Buyer" shall mean (i) FMC or one or more FMC Affiliates solely with
respect to all matters under this Agreement relating to the Container
Assets and the Container Business; and (ii) JV solely with respect to all
matters under this Agreement relating to the Mill Assets and the Mill
Business.
"Buyer's Plan" has the meaning set forth in Section 8.05.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Change of Control" has the meaning set forth in Section 11.05(g).
"Closing" shall mean the closing of the sale and purchase of the
Acquired Assets pursuant to this Agreement.
"Closing Capital Expenditures" has the meaning set forth in Section
3.05.
"Closing Date" shall mean the date and time of the Closing.
"Closing Inventory Schedule" has the meaning set forth in Section
3.06.
"Closing Net Working Capital" has the meaning set forth in Section
3.05.
"Closing Sales Proceeds" has the meaning set forth in Section 3.05.
"Cluster Rules" has the meaning set forth in Section 4.10(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collective Bargaining Agreement" has the meaning set forth in Section
8.01(c).
"Confidentiality Agreement" has the meaning set forth in Section 6.02.
"Consents" has the meaning set forth in Section 4.03.
"Container Assets" shall mean the Acquired Assets of SJCC.
"Disclosure Schedule" shall mean the Disclosure Schedule annexed
hereto, including the Introduction thereto.
"Dispute Notice" has the meaning set forth in Section 3.07.
"Eligible Employees" shall mean all employees of Seller or any Seller
Affiliate whose principal employment is for or in connection with the
Business, except for those employees listed on Confidential Section 8.02 of
the Disclosure Schedule which Seller shall provide to Buyer one day after
the Financing Date.
"Environmental Conditions" shall mean any and all acts, omissions,
events, circumstances, and conditions, including any pollution,
contamination, degradation, damage, or injury caused by, related to, or
arising from or in connection with the generation, use, handling,
treatment, storage, disposal, discharge, emission or release of Hazardous
Materials.
"Environmental Laws" shall mean all Federal, state, local or municipal
laws, rules, regulations, statutes, ordinances or orders of any
Governmental Entity relating to (a) the control of any potential pollutant,
or protection of the air, water or land, (b) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation, and
(c) exposure to hazardous, toxic or other substances alleged to be harmful.
"Environmental Laws" shall include, but not be limited to, the Clean Air
Act, the Clean Water Act, the Resource Conservation Recovery Act, the
Superfund Amendments and Reauthorization Act, the Toxic Substances Control
Act, the Safe Drinking Water Act, and CERCLA and shall also include all
state, local and municipal laws, rules, regulations, statutes, ordinances
and orders dealing with the subject matter of the above listed Federal
statutes or promulgated by any governmental or quasi-governmental agency
thereunder in order to carry out the purposes of any Federal, state, local
or municipal law.
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"Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remedial,
removal, response, abatement, clean-up, investigative and/or monitoring
costs and any other related costs and expenses), other causes of action
recognized now or at any later time, damages, settlements, expenses,
charges, assessments, liens, penalties, fines, pre-judgment and post-
judgment interest, attorneys' fees and other legal costs incurred or
imposed (a) pursuant to any agreement, order, notice of responsibility,
directive (including directives embodied in Environmental Laws),
injunction, judgment or similar documents (including settlements) arising
out of, in connection with, or under Environmental Laws, or (b) pursuant to
any claim by a Governmental Entity or other Person for personal injury,
property damage, damage to natural resources, remediation, or payment or
reimbursement of response costs incurred or expended by such Governmental
Entity or Person pursuant to common law or statute, as a result of
Environmental Conditions.
"Environmental Permit" or "Environmental Permits" means any permit,
license, approval, registration, identification number or other
authorization with respect to the Acquired Assets or the Business under any
applicable law, regulation or other requirement of the United States or any
other country or of any state, municipality or other subdivision thereof
relating to the control of any pollutant or protection of health or the
environment, including laws, regulations or other requirements relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air,
surface water, groundwater or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic materials or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any person, firm or entity (whether or
not incorporated) which, by reason of its relationship with Seller or any
Seller Affiliate, is required to be aggregated with Seller or any Seller
Affiliate under Sections 414(b), (c) or (m) of the Code or which, together
with Seller or any Seller Affiliate, is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" has the meaning set forth in Section 2.02.
"Execution Date" shall mean the date of execution of this Agreement.
"Federal" shall mean of or pertaining to the federal government of the
United States of America.
"Financial Statements" has the meaning set forth in Section 4.04.
"Financing Date" shall mean the sixty-fifth (65th) calendar day after
the Execution Date or January 5, 1996, provided that in the event the
Audited Financial Statements are not delivered on the sixtieth (60th)
calendar day after the Execution Date, such date shall be extended by one
day for each day beyond the sixtieth (60th) day after the Execution Date to
and including the date of delivery of the Audited Financial Statements.
"Fixtures and Improvements" shall mean the buildings and other
improvements referred to in the definition of Real Property.
"FMC" shall mean Four M Corporation.
"FMC Financial Statements" has the meaning set forth in Section 5.10.
"401(k) Plan" shall mean the St. Joe Paper Company Employee Salary
Deferral Plan.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"Governmental Entity" has the meaning set forth in Section 4.03.
"Group" shall mean a Person and such Person's Affiliates and their
respective directors, officers, employees, representatives, consultants,
stockholders, controlling persons and agents and each of the heirs,
executors, successors and assigns of any of the foregoing.
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"Guarantee" has the meaning set forth in Section 6.04.
"Hazardous Materials" shall mean any (a) petroleum or petroleum
products, (b) hazardous substances as defined by sec. 101(14) of CERCLA and
(c) any other chemical, substance or waste that is regulated by any
Governmental Entity under any Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Incentive Program" has the meaning set forth in Section 8.06.
"Indemnified Parties" has the meaning set forth in Section 11.02.
"Indemnifying Party" has the meaning set forth in Section 11.03.
"Intellectual Property" shall mean all patents, patent applications,
service marks, trademarks, trademark registrations, trademark applications,
copyrights, industrial design registrations, utility models, trade names,
whether or not registered (or by whatever name or designation), used by
Seller, and all proprietary data, and technical or manufacturing know-how
or information (and materials embodying such information) used by Seller,
including inventions and trade secrets and documentation thereof in
whatever form.
"Intellectual Property Instruments" shall mean, collectively, a Patent
Assignment in the form attached hereto as Exhibit C, and an Acquired
Software license in the form attached hereto as Exhibit D.
"Intercompany" shall mean a transaction, obligation or account between
Seller, any Seller Affiliate, any other Affiliate of Seller or their
divisions, on the one hand, and any of Seller, any Seller Affiliate, any
other Affiliate of Seller or their divisions, on the other hand, arising
from the conduct of the Business.
"Intercompany Payables" shall mean all Intercompany payables and other
Intercompany liabilities of the Business of whatever nature and regardless
of whether such liabilities would be treated as short-term or long-term on
a balance sheet prepared in accordance with GAAP.
"Intercompany Receivables" shall mean all Intercompany receivables of
the Business of whatever nature.
"Inventories" shall mean all supplies, spare parts, raw materials,
work in process, and material held for resale, and other inventories,
including without limitation, all as are owned by Seller for use in the
Business and all as are located at, used in connection with, acquired for,
produced for, contained in or in transit to, through or from the Real
Property including, without limitation, those in warehouses or other
storage facilities outside the Real Property; provided, however, that
Inventories shall not include any of the foregoing that have no valid
continuing use in Buyer's conduct of the Business after the Closing Date
which are required to be destroyed or returned to Seller pursuant to
Section 6.03.
"JV" shall mean Port St. Joe Paper Company organized by FMC and SCC as
a joint venture.
"Lenders" has the meaning set forth in Section 11.05(g).
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset.
"Listed Employee" has the meaning set forth in Confidential Section
8.07 of the Disclosure Schedule which Seller shall provide to Buyer one day
after the Financing Date and which shall not indicate aggregate annual
salaries or average straight time rates materially in excess of that shown
on the comparable schedule dated August 18, 1995 which Seller has
previously provided to Buyer.
"Listed Intellectual Property" has the meaning set forth in Section
4.11(a).
"Losses and Damages" has the meaning set forth in Section 11.02.
"Material Adverse Effect" shall, as the case may be, mean a material
adverse effect on the condition (financial or otherwise), business, assets
or results of operations of the Mill Business taken as a whole or the
Container Business taken as a whole.
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"Mill Assets" shall mean the Acquired Assets of SJFP and SJLD.
"Multiemployer Plan" shall mean each Benefit Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
"Net Working Capital" has the meaning set forth in Section 3.05.
"Off-Site Environmental Liabilities" has the meaning set forth in
Section 11.05(e).
"On-Site Environmental Liabilities" has the meaning set forth in
Section 11.05(e).
"Other Employee" has the meaning set forth in Confidential Section
8.07 of the Disclosure Schedule which Seller shall provide to Buyer one day
after the Financing Date and which shall not indicate aggregate annual
salaries or average straight time rates materially in excess of that shown
on the comparable schedule dated August 18, 1995 which Seller has
previously provided to Buyer.
"Parcel" has the meaning set forth in Section 6.12(b).
"Permits" shall mean all franchises, licenses, authorizations,
approvals, permits (including Environmental Permits), consents or other
rights granted by Federal, state or local governmental authorities and all
certificates of convenience or necessity, immunities, privileges, licenses,
consents, grants, ordinances and other rights, of every character
whatsoever, which are used by Seller in the conduct of the Business.
"Permitted Lien" shall mean, with respect to any of the Acquired
Assets, (a) mechanics', carriers', workers', repairers', purchase money
security interests and other similar Liens arising or incurred in the
ordinary course of business related to obligations as to which there is no
default on the part of Seller; (b) other Liens, imperfections in title,
charges, easements, restrictions and encumbrances; and (c) Liens for Taxes
not yet due and payable in the case of each of (a), (b) and (c) which,
individually or in the aggregate, do not detract from the value, or
interfere with the continuation of the present use, of the property subject
thereto or affected thereby, other than in any de minimis respect and (d)
applicable zoning laws and ordinances and municipal regulations which are
not violated in any material respect by the continuation of the present use
of the property subject thereto or affected thereby and rights in the
nature of condemnation reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate real
property and realty rights.
"Person" shall mean an individual, a limited liability company, a
corporation, a partnership, an association, a trust or other entity or
organization, including a governmental or political subdivision or an
agency or instrumentality thereof.
"Post-Closing Tax Periods" has the meaning set forth in Section
7.01(c).
"Pre-Closing Tax Periods" has the meaning set forth in Section
7.01(b).
"Principals" has the meaning set forth in Section 11.05(g).
"Purchase Price" has the meaning set forth in Section 3.01(b).
"Purchase Price Adjustment" has the meaning set forth in Section 3.05.
"Real Property" shall mean those tracts or parcels of land described
by metes and bounds or identified in Section 4.13(a)(i) of the Disclosure
Schedule and all buildings and other improvements of every kind and nature
thereon, including fixtures and personalty of a permanent nature.
"Realty Rights" shall mean those easements, privileges, right-of-way
agreements, surface use rights, realty leasehold interests, servitudes, and
other real property interests located outside the Real Property and the
SJLD Property, other than those Acquired Agreements set forth in Section
4.08(a)(i) and (ii) of the Disclosure Schedule, necessary for access to or
which are ancillary or appurtenant to the use and enjoyment of the Real
Property, the SJLD Property and the operation of the Business, as described
in Section 4.13(b) of the Disclosure Schedule.
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"Receivables" shall mean accounts receivable relating to the Business
existing as of the Closing Date other than Intercompany Receivables.
"Regulatory Approvals" has the meaning set forth in Section 6.09.
"Releases and Terminations" has the meaning set forth in Section 6.14.
"Retained Books and Records" has the meaning set forth in Section
2.02(ix).
"Retained Liabilities" has the meaning set forth in Section 2.04.
"Reviewing Accountant" has the meaning set forth in Section 3.07.
"Right of First Refusal" shall mean those certain rights to elect to
purchase certain assets of the Business as listed in Section 1.03 of the
Disclosure Schedule.
"Rolling Stock" shall mean all vehicles, certificated and otherwise,
(including, but not limited to automobiles, trucks, rail engines and rail
cars), owned or leased by Seller and used in connection with the operation
of the Business (other than vehicles used by directors and salaried
Eligible Employees located outside the Real Property who do not become
Transferred Employees).
"Section 6.16 Fee" has the meaning set forth in Section 12.03.
"Secured Indebtedness" shall mean all indebtedness to Secured Parties.
"Secured Parties" shall mean the Polk County Industrial Development
Authority, Groveton Paperboard, Inc. and the holder of any purchase money
security interest.
"Securities Act" has the meaning set forth in Section 5.06.
"Security Documents" shall mean all security agreements, mortgages and
financing statements reflecting a security interest or Lien in the Acquired
Assets and entered into with the Secured Parties.
"Seller" shall mean (i) SJCC solely with respect to all matters under
this Agreement relating to the Container Assets and the Container Business;
and (ii) SJFP solely with respect to all matters under this Agreement
relating to the Mill Assets and the Mill Business.
"Seller Trademarks" has the meaning set forth in Section 6.03(a).
"SCC" shall mean Stone Container Corporation.
"SJCC" shall mean St. Joe Container Company, a wholly owned subsidiary
of SJFP.
"SJFP" shall mean St. Joe Forest Products Company, a wholly owned
subsidiary of SJPC.
"SJLD" shall mean St. Joseph Land and Development Company, a wholly
owned subsidiary of SJFP.
"SJLD Deed" has the meaning set forth in Section 3.03(b)(vi).
"SJLD Property" has the meaning set forth in Section 3.03(b)(vi).
"SJPC" shall mean St. Joe Paper Company.
"Stock" shall mean 7,483 shares of capital stock of Groveton
Paperboard, Inc., a New Hampshire corporation, 310 of which are held in
escrow as of the Execution Date pending payment therefor in equal
installments of $24,799.05 for 62 shares in each of the next five quarters.
"Subsidiary" shall mean a corporation or other entity a majority of
whose capital stock with voting power, under ordinary circumstances,
entitling holders of such capital stock to elect the board of directors or
other governing body, is at the time, directly or indirectly, owned by such
Person and/or Subsidiary or subsidiaries of such Person.
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts,
alternative minimum, excise, property, real estate, sales, purchase, use,
payroll
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(including required withholdings), and franchise taxes imposed by any
Governmental Entity with respect to the Business or the Acquired Assets,
but excluding Transfer Taxes. Such term shall include any interest,
penalties or additions payable in connection with such taxes, charges,
fees, levies or other assessments and "Tax" shall mean one of the foregoing
Taxes.
"Tax Returns" shall mean all returns, declarations, reports,
statements and other documents required to be filed with any Governmental
Entity in respect of any Tax and "Tax Return" shall mean one of the
foregoing Tax Returns.
"Title Exception" has the meaning set forth in Section 6.12(a).
"Trademark" shall mean any word, name, symbol or device or any
combination thereof, whether or not registered, used to identify and
distinguish a Person's goods, including unique products, from those
manufactured or sold by others and to indicate the source of the goods,
even if that source is unknown.
"Transaction Proposal" has the meaning set forth in Section 6.16.
"Transfer Taxes" shall mean all sales, transfer, use, gross receipts,
value added, recording, registration, stamp and similar taxes or fees
(including recording fees) imposed by any Governmental Entity in connection
with the transfers by Seller and the Seller Affiliates to Buyer and the
Buyer Affiliates of any of the Acquired Assets pursuant to this Agreement.
"Transferred Employees" has the meaning set forth in Section 8.02.
"Unaudited Financial Statements" has the meaning set forth in Section
6.25.
"WARN" has the meaning set forth in Section 8.07.
"Wood Fiber Supply Contract" shall mean a Wood Fiber Supply Contract
in the form attached hereto as Exhibit E.
ARTICLE II
PURCHASE AND SALE
2.01 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, Buyer agrees to purchase, or cause one or more Buyer Affiliates
to purchase, from Seller and Seller Affiliates and Seller and Seller Affiliates
agree to sell, transfer, assign and deliver to Buyer and its designated Buyer
Affiliates at the Closing (except as provided in Section 2.05), all of Seller's
and Seller Affiliates' right, title and interest in and to the following assets,
wherever located, including all such assets hereafter acquired by Seller (the
"Acquired Assets"), it being understood that the Mill Assets will be purchased
by JV and the Container Assets will be purchased by FMC or one or more FMC
Affiliates:
(i) the Real Property and the SJLD Property;
(ii) the Realty Rights;
(iii) the Acquired Equipment;
(iv) the Rolling Stock;
(v) the Inventories;
(vi) the Receivables;
(vii) all rights under all Acquired Agreements, except to the extent
related to Excluded Assets or Retained Liabilities;
(viii) the Stock, if the Right of First Refusal has not been
exercised;
(ix) all rights, claims, credits, causes of action or rights of
set-off against third Persons relating to the Acquired Assets, arising
after the Closing Date, including, without limitation, unliquidated rights
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under manufacturers' and vendors' warranties, except to the extent related
to Excluded Assets or Retained Liabilities (collectively, the "Acquired
Claims");
(x) the Permits (to the extent assignable);
(xi) the Acquired Intellectual Property;
(xii) the Acquired Books and Records;
(xiii) all other intangibles including, but not limited to, goodwill
associated with the Business or the Acquired Assets;
(xiv) cash in an amount equal to all condemnation proceeds and all
property and casualty insurance proceeds (excluding business interruption
insurance) plus an amount equal to any deductible from any Person (other
than Seller or any of its Affiliates) from the Execution Date through the
Closing Date with respect to the loss, damage, destruction or condemnation
of any of the tangible Acquired Assets identified in the preceding clauses
(i) through (xiii) other than Inventories, but only to the extent not
applied by Seller to the repair, restoration or replacement thereof on or
prior to the Closing Date;
(xv) all claims to property and casualty insurance proceeds and
condemnation proceeds (excluding business interruption insurance) from any
Person (other than Seller or any of its Affiliates) with respect to the
loss, damage, destruction or condemnation of any of the tangible Acquired
Assets identified in the preceding clauses (i) through (xiii) other than
Inventories occurring from the Execution Date through the Closing Date to
the extent proceeds of such claims are not covered in clause (xiv) above,
but only to the extent Seller has not paid for the repair, restoration or
replacement with respect thereto as of the Closing Date ("Acquired
Insurance Claims"); and
(xvi) the Acquired Software.
2.02 Excluded Assets. Buyer expressly understands and agrees that the
following assets and properties of Seller and the Seller Affiliates (the
"Excluded Assets") shall be excluded from the Acquired Assets and shall be
retained by Seller and the Seller Affiliates:
(i) all cash, cash equivalents and cash investments of Seller and any
of the Seller Affiliates, except to the extent included within the
definition of Acquired Assets pursuant to clause (xiv) of Section 2.01;
(ii) all Intercompany Receivables;
(iii) all rights and claims, whether now existing or arising
hereafter, for credits or refunds of any Taxes other than Assumed Taxes or
Taxes attributable to Post-Closing Tax Periods upon the terms and subject
to the conditions of Section 7.02;
(iv) all prepaid interest, security deposits and other like assets
related to any Excluded Asset or Retained Liability;
(v) all of Seller Affiliates' (other than Seller's) right, title and
interest in and to all of their assets and properties that are not
dedicated exclusively to the Business and otherwise are not Acquired
Assets.
(vi) Seller's interest in the capital stock of SJLD, all of the assets
and businesses of SJLD and any applications or licenses granted with
respect thereto other than the SJLD Property and all of Seller's and Seller
Affiliates' real property other than the Real Property;
(vii) all prepaid rentals, refunds and dividends on insurance policies
and other prepaid expenses relating to the Business and the Acquired Assets
allocable to periods after the Closing Date, as reflected on Seller's or
Seller Affiliates' books and records as of the Closing Date;
(viii) except as otherwise specifically provided herein, all rights
and claims (whether now existing or arising hereafter) and all other assets
relating to any Benefit Plan;
(ix) all books and records relating to (a) Closing Net Working Capital
until the Purchase Price Adjustment becomes final pursuant to Section 3.07
hereof; (b) Tax Returns and tax records for periods
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on or prior to the Closing Date, (c) the other assets and properties of
Seller which are included in the Excluded Assets, and (d) the Retained
Liabilities (collectively, the "Retained Books and Records");
(x) except as otherwise provided in Section 6.03 hereof, all
Trademarks, trade names, trade dress, logos and any other intangible assets
that use or incorporate the words "St. Joe" and any other marks listed in
Section 2.02 of the Disclosure Schedule;
(xi) the Stock, if the Right of First Refusal with respect thereto has
been exercised; and
(xii) all claims to all types of insurance proceeds and condemnation
proceeds to the extent related to Excluded Assets and Retained Liabilities.
2.03 Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer and the Buyer Affiliates agree to assume,
and shall defend, indemnify and hold harmless the Seller Group in accordance
with Article XI hereof from and against, all of the following liabilities and
obligations (all such liabilities and obligations being herein referred to as
the "Assumed Liabilities"), it being understood that only those of the Assumed
Liabilities which relate to the Mill Assets and the Mill Business will be
assumed by JV and only those of the Assumed Liabilities which relate to the
Container Assets and the Container Business will be assumed by FMC or one or
more FMC Affiliates and that neither JV nor any JV Affiliates will have any
liability or obligation with respect to the Assumed Liabilities which relate to
the Container Assets or the Container Business and that neither FMC nor any FMC
Affiliates will have any liability or obligation with respect to the Assumed
Liabilities which relate to the Mill Assets or the Mill Business:
(i) Environmental Liabilities specified to Buyer in Section 11.05;
(ii) current liabilities or obligations reflected in the calculation
of Closing Net Working Capital;
(iii) upon the terms and subject to the conditions of Article VII, all
Assumed Taxes and all other Taxes relating to, arising from or with respect
to the Acquired Assets or the operations of the Business which are
attributable to the Post-Closing Tax Periods;
(iv) all liabilities and obligations to Transferred Employees and
their beneficiaries which are Buyer's responsibility under Article VIII;
(v) Assumed Charges;
(vi) (other than those described in clauses (i) and (ii) above) all
liabilities and obligations under the terms of any of the Acquired
Agreements or that relate to the Real Property, the SJLD Property, the
Realty Rights, the Acquired Equipment, the Rolling Stock, the Inventories,
the Receivables, the Stock (if the Right of First Refusal has not been
exercised), the Acquired Claims, the Permits (to the extent assignable),
the Acquired Intellectual Property, the Acquired Books and Records, the
Acquired Insurance Claims and the Acquired Software relating to periods
after the Closing Date; and
(vii) (other than those described in clauses (i) and (ii) above)
liabilities and obligations attributable to the Acquired Assets or the
Business arising out of any action, suit or proceeding based upon an event
occurring, a condition existing or a claim arising after the Closing Date,
except as and to the extent that Buyer is entitled to indemnification in
respect thereof pursuant to Article XI; provided, however, that nothing in
this Section 2.03 shall be construed to impose any Environmental
Liabilities, such liabilities being treated exclusively under Sections
11.05, 11.07, 11.08 and 11.09.
Notwithstanding the foregoing, the Assumed Liabilities shall not include
any liabilities or obligations if and to the extent they are (a) attributable to
any business or activity of Seller or any of its Affiliates other than the
Business or the Acquired Assets, (b) Retained Liabilities, or (c) related to
Excluded Assets.
2.04 Retained Liabilities. Upon the terms and subject to the conditions
of this Agreement, Seller agrees to retain, and SJPC and Seller shall defend,
indemnify and hold harmless the Buyer Group in
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accordance with Article XI hereof from and against, all of the following
liabilities and obligations of Seller and the Seller Affiliates (all such
liabilities and obligations being herein referred to as the "Retained
Liabilities"):
(i) Environmental Liabilities specified to Seller in Sections 11.05,
11.07, 11.08 and 11.09;
(ii) upon the terms and subject to the conditions of Article VII, all
liabilities or obligations for Taxes relating to, arising from or with
respect to the Acquired Assets or the Business which are incurred in or
attributable to the Pre-Closing Tax Periods and the portion of Taxes
allocated or apportioned to Seller for Bridge Tax Periods;
(iii) all Intercompany Payables;
(iv) except as specifically assumed by Buyer under Article VIII or
imposed by operation of law, all liabilities and obligations to employees
of Seller whether or not arising under the Benefit Plans;
(v) the Secured Indebtedness and the Security Documents;
(vi) all liabilities or obligations directly relating to any Excluded
Assets;
(vii) fifty percent (50%) of all Transfer Taxes;
(viii) (other than those described in clause (i) above) all
liabilities or obligations attributable to the Acquired Assets or the
Business arising out of any action, suit or proceeding based upon an event
occurring, a condition existing or a claim arising on or prior to the
Closing Date; provided, however that nothing in this Section 2.04 shall be
construed to impose any Environmental Liabilities, such liabilities being
treated exclusively under Sections 11.05, 11.07, 11.08 and 11.09; and
(ix) accounts payable related to capital expenditures with respect to
matters identified in Section 11.07.
2.05 Benefits of Assets. To the extent that any Acquired Agreement,
Permit or other Acquired Asset is not capable of being sold, conveyed, assigned,
transferred, delivered, subleased or sublicensed without the waiver or consent
of any third Person, including a Governmental Entity, Seller and Buyer agree to
use and cause their respective Affiliates to use their best efforts to obtain
such a waiver or consent (which best efforts shall not in any case include the
payment of money or, in the case of Seller and its Affiliates, the providing of
any guarantees). To the extent such consent or waiver cannot be obtained, this
Agreement shall not constitute a sale, conveyance, assignment, transfer,
delivery, sublease or sublicense or an attempted sale, conveyance, assignment,
transfer, delivery, sublease or sublicense thereof notwithstanding anything in
this Agreement to the contrary. In those cases where any necessary consents,
assignments, releases and/or waivers have not been obtained at or prior to the
Closing Date, this Agreement shall constitute an equitable assignment by Seller
and the Seller Affiliates to Buyer and the Buyer Affiliates of all of Seller's
and the Seller Affiliates' rights, benefits, title and interest in and to such
Acquired Assets, and where necessary or appropriate, Buyer or a Buyer Affiliate
shall be deemed to be Seller's or the Seller Affiliate's agent for the purpose
of completing, fulfilling and discharging all of Seller's or such Seller
Affiliate's rights and liabilities arising after the Closing Date with respect
to such Acquired Assets. Seller shall take or cause its Seller Affiliate to take
all necessary steps and actions to provide Buyer or a Buyer Affiliate with the
benefit of such Acquired Assets including, without limitation, (i) enforcing, at
the request of Buyer and for the account of Buyer or a Buyer Affiliate, any
rights of Seller or any Seller Affiliate arising with respect to any such
Acquired Assets (including, without limitation, the right to terminate in
accordance with the terms thereof upon the advice of Buyer) or (ii) permitting
Buyer or a Buyer Affiliate to enforce any rights arising with respect to such
Acquired Assets as if they had been sold, conveyed, assigned, transferred,
delivered, subleased or sublicensed to Buyer or a Buyer Affiliate, and Buyer or
a Buyer Affiliate shall, to the extent Buyer or a Buyer Affiliate is provided
with the benefits of such Acquired Assets, assume, perform and in due course pay
and discharge all debts, obligations and liabilities of Seller or any Seller
Affiliate with respect to such Acquired Assets, and shall defend, indemnify and
hold harmless the Seller Group with respect thereto. Nothing contained in this
Section 2.05 will be deemed to limit Seller's or the Seller Affiliates'
representation and warranty in Section 4.03, or require Buyer to agree to any
material change in any contract, agreement or commitment. Notwithstanding the
foregoing, in the case of the Acquired Agreements and the Realty Rights, if
Seller shall have complied with its covenants set forth in this
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Section 2.05, the failure of Seller to obtain the necessary consents or the
formal legal assignment of such Acquired Agreements or Realty Rights shall not
provide grounds for Buyer not to close under Section 9.02(b). Seller and Buyer
agree to schedule items subject to this Section 2.05 at and as of the Closing
Date.
ARTICLE III
PURCHASE PRICE AND CLOSING
3.01 Purchase Price. Upon the terms and subject to the conditions of this
Agreement and in consideration of the sale, conveyance, assignment and transfer
of the Acquired Assets to be sold to Buyer or one or more Buyer Affiliates
hereunder, Buyer will pay or deliver and cause one or more Buyer Affiliates to
pay or deliver to Seller or one or more Seller Affiliates the following:
(a) on the Closing Date, one or more Assignment and Assumption
Agreements and the other agreements contemplated hereby to effect the
assumption by Buyer or the Buyer Affiliates of all Assumed Liabilities,
duly executed by Buyer or such Buyer Affiliate; and
(b) on the Closing Date, the aggregate sum of three hundred ninety
million dollars ($390,000,000), subject to reduction in the amount of five
million two hundred fifty thousand dollars ($5,250,000) in the event the
Right of First Refusal is exercised, by wire transfer of immediately
available funds in U.S. dollars to an account designated by notice from
Seller at least two (2) Business Days prior to the Closing Date (the
"Purchase Price").
3.02 Closing. The Closing of the sale and purchase of the Acquired Assets
hereunder shall take place at the offices of Seller's counsel in Washington,
D.C. at 10:00 a.m. EDT (a) on or before the seventh Business Day following the
date on which all conditions to the parties' respective obligations under
Article IX have been satisfied; or (b) at such other place, date and time as the
parties hereto may mutually agree.
3.03 Deliveries at the Closing.
(a) At the Closing, Buyer shall deliver, or shall cause one or more of the
Buyer Affiliates to deliver, the following to Seller or to one or more of the
Seller Affiliates:
(i) the Purchase Price as provided for in Section 3.01;
(ii) one or more Assignment and Assumption Agreements, duly executed
by Buyer and/or the Buyer Affiliates;
(iii) a license for the Acquired Software;
(iv) the Wood Fiber Supply Contract;
(v) a lease in the form of Exhibit F annexed hereto covering
approximately 12,000 square feet of office space in Port St. Joe, Florida;
(vi) the easements referenced in Section 6.12;
(vii) certified copies of resolutions duly adopted by Buyer and the
Buyer Affiliates constituting all necessary authorization for the
consummation by Buyer and the Buyer Affiliates of the transactions
contemplated by this Agreement;
(viii) the certificate required by Section 9.03(c);
(ix) certificates of incumbency for all relevant officers of Buyer and
the Buyer Affiliates executing this Agreement and any other documents
pursuant to this Agreement;
(x) an opinion of counsel substantially in the forms annexed hereto as
Exhibit G; and
(xi) such other documents, instruments, certificates and writings as
reasonably may be requested by Seller at least three (3) Business Days
prior to the Closing.
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(b) At the Closing, Seller shall deliver, or shall cause one or more of its
Affiliates to deliver, the following to Buyer or to one or more of the Buyer
Affiliates:
(i) one or more Bills of Sale duly executed by Seller;
(ii) one or more Assignment and Assumption Agreements duly executed by
Seller;
(iii) the certificates representing the Stock, duly assigned to FMC
(if the Right of First Refusal has not been exercised);
(iv) the Intellectual Property Instruments and such other assignments
or other appropriate documents of transfer for the Acquired Intellectual
Property and a license for the Acquired Software;
(v) the Wood Fiber Supply Contract;
(vi) a deed (in form and substance mutually satisfactory to Seller and
JV in accordance with customary practices for the conveyance of commercial
real property rights in the locality) conveying, subject to Section 6.12
hereof, all of SJLD's right, title and interest in that certain tract of
land (the "SJLD Deed") outlined in Section 3.03(b) of the Disclosure
Schedule as it may be altered pursuant to Section 6.12(b)(1) (the "SJLD
Property");
(vii) deeds (in form and substance mutually satisfactory to Seller and
Buyer in accordance with customary practices for the conveyance of
commercial real property rights in the locality of the particular Real
Property) conveying the Real Property;
(viii) documents (in form and substance mutually satisfactory to
Seller and Buyer in accordance with customary practices for the sale of
commercial real property in the locality of the particular Real Property or
the SJLD Property) conveying or assigning the Realty Rights;
(ix) a lease in the form of Exhibit F annexed hereto covering
approximately 12,000 square feet of office space in Port St. Joe, Florida;
(x) certified copies of resolutions duly adopted by the Board of
Directors of Seller and any Seller Affiliates constituting all necessary
corporate authorization for the consummation by Seller and such Seller
Affiliates of the transactions contemplated by this Agreement;
(xi) the certificate required by Section 9.02(c);
(xii) certificates of incumbency for all relevant officers of Seller
and its Affiliates executing this Agreement and any other documents
pursuant to this Agreement;
(xiii) subject to Section 6.14, evidence of the release of Liens other
than Permitted Liens on the Acquired Assets, including the Releases and
Terminations;
(xiv) an opinion of counsel substantially in the form of Exhibit H
annexed hereto, including without limitation reliance letters to Buyer's
financing institutions; and
(xv) such other documents, instruments, certificates and writings,
including without limitation landlord estoppel certificates, as reasonably
may be requested by Buyer at least three (3) Business Days prior to the
Closing.
3.04 Allocation of the Purchase Price. The Purchase Price shall be
allocated among the Acquired Assets in a manner to be agreed between Buyer and
Seller prior to the filing of any Tax Returns. The allocation may be changed by
written agreement of the parties after the Closing, and the agreement of the
parties shall be binding for all tax purposes. For Federal income tax purposes
(including, without limitation, Buyer's and Seller's compliance with the
reporting requirements under Section 1060 of the Code), each of Seller and Buyer
hereby agree to use such allocation and to cooperate with each other in
connection with the preparation and filing of any information required to be
furnished to the Internal Revenue Service under Section 1060 of the Code and any
applicable regulations thereunder. Without limiting the generality of the
preceding sentence, Buyer and Seller agree to (i) report such allocations to the
Internal Revenue Service on Form 8594 and, if required, supplemental Forms 8594,
in accordance with the instructions to Form 8594 and
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the provisions of Section 1060 of the Code and the applicable regulations
thereunder, and (ii) coordinate their respective preparation and filing of each
such Form 8594 and any other forms or information statements or schedules
required to be filed under Section 1060 of the Code and the applicable
regulations thereunder so that the allocations and information reflected on such
forms, statements and schedules shall be consistent. For the purposes of the
reporting requirements of Section 1060 of the Code, the parties acknowledge that
the total consideration payable by Buyer to Seller shall include the amount
referred to herein as the Purchase Price plus or minus the Purchase Price
Adjustment plus the amount of the Assumed Liabilities fixed at the Closing Date
which were an obligation of Seller prior to the transaction contemplated by this
Agreement.
3.05 Purchase Price Adjustment. After Closing, the Purchase Price shall
(a) be increased or decreased, as the case may be, by the difference between Net
Working Capital as of the Closing Date, including adjustments made pursuant to
Section 3.07 of this Agreement and Net Working Capital as of June 30, 1995
("Closing Net Working Capital"), and (b) subject to Section 6.01(e), be
increased by the excess, if any, of capital expenditures of Seller following
June 30, 1995 (exclusive of capital expenditures with respect to matters
identified in Section 11.07) incurred and paid as of the Closing Date over
depreciation of the Business for the period June 30, 1995 through the Closing
Date (exclusive of depreciation with respect to matters identified in Section
11.07) determined in accordance with GAAP ("Closing Capital Expenditures") and
(c) be decreased by the aggregate amount of cash proceeds, plus an amount equal
to the value of any other consideration if such consideration is not included in
the Acquired Assets, realized from the sale of any machinery, equipment and
fixtures of the Business after June 30, 1995 and prior to the Closing Date
("Closing Sales Proceeds"; and collectively with Closing Net Working Capital and
Closing Capital Expenditures, the "Purchase Price Adjustment"). "Net Working
Capital" means Receivables and Inventories, minus Accounts Payable (not
including Inventories or Accounts Payable related to capital expenditures with
respect to matters identified in Section 11.07). For this purpose, Receivables
and Accounts Payable, as defined in Section 1.01, shall be determined in
accordance with GAAP. Inventories as determined under Section 3.06 hereof shall
be valued in accordance with the procedures set forth in Section 3.05 of the
Disclosure Schedule which procedures are, except as otherwise set forth in such
Section 3.05 of the Disclosure Schedule, in accordance with GAAP.
Seller shall provide Buyer with a schedule of the Closing Net Working
Capital, Closing Capital Expenditures and Closing Sales Proceeds within
forty-five (45) days after Closing, together with a letter of Seller's
independent certified public accountants stating that such schedule has been
prepared, in all material respects, in accordance with the provisions of this
Agreement and fairly presents the Closing Net Working Capital, Closing Capital
Expenditures and Closing Sales Proceeds for the relevant period in accordance
with the provisions of this Agreement. If the Purchase Price Adjustment is a
negative number, Seller shall make payment by wire transfer to Buyer in
immediately available funds for the amount of the Purchase Price Adjustment on
or before fifteen (15) days after the Purchase Price Adjustment becomes final
pursuant to Section 3.07. If the Purchase Price Adjustment is a positive number,
Buyer shall, on or before fifteen (15) days after the Purchase Price Adjustment
becomes final pursuant to Section 3.07, make payment by wire transfer to Seller
in immediately available funds for the amount of the Purchase Price Adjustment.
The Purchase Price Adjustment shall be paid by or to FMC and JV on the basis of
the elements of the Purchase Price Adjustment allocable to the Mill Assets
acquired by JV and the Container Assets acquired by FMC, respectively. All
payments of the Purchase Price Adjustment shall also include interest on the
amount of such Purchase Price Adjustment at the prime rate announced from time
to time by The Chase Manhattan Bank N.A. from the forty-fifth (45th) day after
Closing until the day actually paid.
3.06 Count of Inventory. Seller and Buyer and their respective
independent certified public accountants shall conduct a joint physical count as
of the Closing Date, in accordance with the procedures set forth in Section 3.05
of the Disclosure Schedule, of the Inventory, in order to determine the quantity
of all items of such Inventory that qualify as Inventory. Based upon such joint
physical count, Seller shall prepare and deliver to Buyer as part of the
schedule of Closing Net Working Capital a schedule, by item and quantity, of
Inventory (the "Closing Inventory Schedule") accompanied by a letter of agreed
upon procedures of Seller's independent certified public accountant to the
effect that the Closing Inventory Schedule has been prepared, in all material
respects, in accordance with this Section 3.06.
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3.07 Resolution of Net Working Capital and Closing Capital Expenditures
Disputes. Seller shall make available to Buyer and, if Buyer elects, Buyer's
independent certified public accountants, at no expense, such of the facilities,
books, records and personnel of Seller related to the Business and such of the
work papers of Seller's independent certified public accountants as are
reasonably requested by Buyer to enable it to review and verify Seller's Closing
Net Working Capital calculation, including the Closing Inventory Schedule, the
Closing Capital Expenditures and Closing Sales Proceeds calculations. In the
event Buyer disputes Seller's calculations, it shall, within thirty (30) days of
delivery thereof, deliver a notice to Seller (the "Dispute Notice") setting
forth in reasonable detail the basis of such dispute. If the Dispute Notice is
not delivered within such thirty (30) day period, then the Purchase Price
Adjustment, as determined by Seller, shall be final. In the event that the
Dispute Notice is so delivered, the parties shall negotiate to attempt to
resolve the portion which is in dispute and the portion which is not in dispute,
together with interest accrued thereon, shall be promptly paid by the party
owing the same. If the parties fail to resolve any such dispute within ninety
(90) days after receipt by Seller of the Dispute Notice, the parties shall
select a firm of independent certified public accountants of national standing
(the "Reviewing Accountant") to review the portions of Seller's calculation
which are subject to dispute or, if the parties fail to agree upon a Reviewing
Accountant within twenty (20) days after receipt by Seller of the Dispute
Notice, such firm shall be selected by lot from among all so-called "Big Six"
firms not having (and not having announced a pending combination with another
firm having) a disqualifying interest with respect to either party. The
performance of any such firm as the Reviewing Accountant under this or any other
provision of this Agreement shall not constitute a disqualifying interest. The
parties shall make available to the Reviewing Accountant all work papers and all
other information and material in their possession relating to the matters
asserted in the Dispute Notice. The Reviewing Accountant shall be instructed by
the parties to use its best efforts to deliver to the parties its determination
as promptly as practicable after such submission of the dispute to the Reviewing
Accountant. The determination of the Reviewing Accountant shall be final and
binding on the parties. Each party shall bear its own expenses and the fees and
expenses of its own representatives and experts, including its independent
accountant, in connection with the preparation, review, dispute (if any) and
final determination of the Purchase Price Adjustment. The parties shall share
equally in the costs, expenses and fees of the Reviewing Accountant.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
4.01 Corporate Existence and Power, Etc.
(a) Each of SJPC, SJFP and SJCC is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, and has all required corporate power and authority to
carry on the Business as now conducted by it and, in the case of SJFP and
SJCC, to own any of the Acquired Assets owned by it. Section 4.01 of the
Disclosure Schedule sets forth the name and the jurisdiction of
incorporation of each of SJPC, SJFP and SJCC. Each of SJPC, SJFP and SJCC
is duly qualified or licensed to do business and is in good standing in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities make such qualification necessary, except
where failure to be so qualified would not, individually or in the
aggregate, materially adversely affect compliance with this Agreement.
4.02 Corporate Authorization. The execution and delivery of this
Agreement by SJPC, SJFP and SJCC and the execution and delivery of the Ancillary
Agreements by Seller and each of the Seller Affiliates which is a party thereto,
and the performance by SJPC of this Agreement and by Seller of this Agreement
and each of the Ancillary Agreements to which it is a party and the consummation
by Seller and any Seller Affiliate of the transactions contemplated hereby and
by the Ancillary Agreements to which it is a party are within SJPC's, Seller's
and such Seller Affiliate's corporate powers and have been duly authorized by
all necessary corporate action on the part of SJPC, Seller and such Seller
Affiliate, subject to the requirement that this Agreement and the transactions
contemplated thereby are subject to the approval of a majority of the
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outstanding shares of capital stock of SJPC. This Agreement constitutes, and
when executed and delivered the Ancillary Agreements will constitute, valid and
binding agreements of SJPC, Seller and each Seller Affiliate which is a party
thereto, enforceable against it in accordance with its terms except that (a)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or other similar laws now or hereafter
in effect relating to creditor's rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
4.03 Consents and Approvals; No Violation. Except for consents under any
applicable "bulk sales" laws, requirements of the HSR Act, the Right of First
Refusal, those permits and licenses identified in Section 4.10(a) of the
Disclosure Schedule, the stockholder approval referenced in Section 4.02 and
each of the consents set forth in Section 4.03 of the Disclosure Schedule (each
a "Consent" and together the "Consents"), no notice to or filing with, and no
permit, authorization, consent or approval of, any Person, or any public body or
authority, including courts of competent jurisdiction, domestic or foreign (a
"Governmental Entity"), is necessary for the execution, delivery and performance
of this Agreement and the consummation by Seller and any Seller Affiliate of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by Seller and SJPC, nor the consummation by Seller and any
Seller Affiliate of the transactions contemplated hereby, nor compliance by
Seller and any Seller Affiliate with any of the provisions hereof, will (i)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of Seller or such Seller Affiliate; (ii) assuming the
obtaining of all Consents and the Releases and Terminations, result in a default
(with or without due notice or lapse of time or both), or give rise to any right
of termination, cancellation or acceleration, under any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Seller or any such Seller Affiliate is a party or by which Seller, any
such Seller Affiliate or any of the Acquired Assets may be bound; or (iii)
assuming the obtaining of all Consents, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Seller, any such Seller
Affiliate or any of the Acquired Assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which will not in the aggregate have a Material
Adverse Effect.
4.04 Financial Statements. SJFP has delivered to Buyer a copy of
unaudited consolidated financial statements of SJFP and SJCC (without SJLD)
consisting of a balance sheet, statement of operating profit and changes in cash
and investments as of and for the years ended December 31, 1994, 1993 and 1992
and the periods ended March 31, 1995 and June 30, 1995 and unaudited
consolidating balance sheets and income statements as of and for the periods
ended March 31, 1995 and June 30, 1995 (the "Financial Statements"). Subject to
Section 4.04 of the Disclosure Schedule, the Financial Statements were prepared
or will be prepared based upon the books and records of Seller, and fairly
present or will fairly present in all material respects the financial condition
of Seller as of the appropriate periods and the results of operations for the
period then ended, in each case in conformity with GAAP. SJFP shall promptly
deliver to Buyer comparable unaudited or audited financial statements for
periods subsequent to June 30, 1995 and prior to the Closing Date, and they
shall be deemed to be included within the defined term "Financial Statements."
Except as set forth in Section 4.04 of the Disclosure Schedule and except as
reflected or reserved against on the most recent Financial Statements delivered
to Buyer pursuant to this Section 4.04, as of the date of such most recent
Financial Statements the Business did not have any liabilities or obligations of
a nature that would be required to be reflected or reserved against on a balance
sheet prepared in accordance with GAAP.
4.05 Absence of Certain Changes. Except as set forth in Section 4.05 of
the Disclosure Schedule, since January 1, 1995, (a) Seller has conducted the
Business in the ordinary course consistent with past practices; (b) the Business
and the Acquired Assets have not suffered any occurrence which has resulted in
or could reasonably be expected to result in a Material Adverse Effect; (c)
other than transactions wholly within the Business, Seller has not sold,
transferred, or otherwise disposed of, or agreed to sell, transfer, or otherwise
dispose of, any property or asset, real, personal or mixed, which is (or would
be if held by Seller at the Closing Date) an Acquired Asset and which has a
sales price in any single case in excess of $50,000 or in the aggregate for all
such cases in excess of $500,000, except in the ordinary course of business or
in connection with capital improvements or replacements; (d) Seller and the
Seller Affiliates have not received any written notice, or had actual knowledge,
that any supplier or customer of the Business has taken any steps which could
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reasonably be expected to result in a Material Adverse Effect; and (e) other
than transactions wholly within the Business, Seller has not entered into,
amended, modified or terminated any other agreements, commitments or contracts
of a nature required to be listed in Section 4.08 of the Disclosure Schedule
relating to the Business, except agreements, commitments or contracts made in
the ordinary course of business consistent with past practice.
4.06 Tangible Assets. Assets constituting Acquired Equipment as of
September 30, 1995 are listed in Section 4.06 of the Disclosure Schedule.
Acquired Equipment will at the Closing Date constitute all (except as disclosed
in such definition) personal property (other than the Excluded Assets, Fixtures
and Improvements, Rolling Stock, and Inventories) owned by Seller and used in
connection with the operation of the Business. Rolling Stock will at the Closing
Date constitute all (except as disclosed in such definition) vehicles,
certificated and otherwise, (including, but not limited to automobiles, trucks,
rail engines and rail cars), owned or leased by Seller and used in connection
with the operation of the Business. Fixtures and Improvements will at the
Closing Date constitute the buildings, fixtures and other improvements referred
to in the definition of Real Property. Seller's tangible assets comprising
Acquired Equipment, Fixtures and Improvements and Rolling Stock are in good
operating condition and repair, normal wear and tear excepted. Except as set
forth in Sections 4.09, 4.10(a) and 11.08 of the Disclosure Schedule, Seller has
not received any written notice within the past twelve (12) months of a
violation of any ordinances, regulations or other laws with respect to such
assets that could reasonably be expected to result in a Material Adverse Effect.
4.06A DISCLAIMER OF WARRANTIES OF MERCHANTABILITY AND FITNESS. EXCEPT AS
EXPRESSLY PROVIDED IN SECTION 4.06, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PERSONAL ACQUIRED ASSETS AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
4.07 Title to the Acquired Assets. Except as set forth in Section 4.07 of
the Disclosure Schedule with respect to Secured Indebtedness, there are no Liens
on the Acquired Assets other than Permitted Liens. On the Closing Date, Seller
shall convey to Buyer or a Buyer Affiliate good and marketable title in and to
the Acquired Assets free and clear of all Liens other than Permitted Liens
(except with respect to the Acquired Agreements, Acquired Software, Acquired
Claims, and Acquired Insurance Claims, as to which Seller shall convey to Buyer
a valid and enforceable leasehold or other contractual interest in and to each
of such Acquired Assets (subject to Section 2.05 and subject to Section 4.08 of
the Disclosure Schedule) (except that no representation is made as to
enforceability to the extent it may be affected by the nature of Buyer or Buyer
Affiliates or Buyer's or Buyer Affiliates' acts or omissions after the Closing
Date and except that (a) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium (whether general or specific) or other
similar laws now or hereafter in effect relating to creditor's rights generally
and (b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought) and except with
respect to the Real Property, the SJLD Property and the Realty Rights which are
the subject of Section 6.12, and except with respect to Acquired Intellectual
Property which is the subject of Sections 4.11 and 6.08 to the extent related to
perfecting title as to third parties.
4.08 Certain Agreements.
(a) Section 4.08(a) of the Disclosure Schedule sets forth a list of all of
the following agreements constituting Acquired Agreements as of September 30,
1995 (other than purchase orders and replacement parts supply arrangements
outstanding in the ordinary course of business regardless of amount):
(i) each agreement which involves the receipt or payment of more than
fifty thousand dollars ($50,000) per annum;
(ii) each railroad tracking agreement;
(iii) each pipeline agreement; and
(iv) any other agreement that is material to the Business.
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(b) Except as set forth in Section 4.08(b) of the Disclosure Schedule, to
Seller's knowledge, each agreement which will constitute Acquired Agreements as
of the Closing Date and each right which will constitute a Realty Right as of
the Closing Date is or will be as of the Closing Date in full force and effect.
Neither Seller nor any Seller Affiliate nor, to Seller's knowledge, any third
party is or will be as of the Closing Date in default under the terms of any
Acquired Agreement or any Realty Right in any manner which could reasonably be
expected to have a Material Adverse Effect.
4.09 Legal Matters. Except as set forth in Sections 4.09, 4.10(a), 4.14,
8.08 and 11.08 of the Disclosure Schedule and excluding matters pertaining to
Excluded Assets or Retained Liabilities, (a) there is no written notice of any
action, suit, claim, arbitration, investigation or proceeding pending against,
or to the knowledge of Seller, threatened against, Seller or any of the Seller
Affiliates (i) with respect to the Business or any Acquired Asset before any
court, arbitrator or any Governmental Entity which could reasonably be expected
to have a Material Adverse Effect or (ii) which in any manner challenges or
seeks to prevent or enjoin the transactions contemplated hereby; (b) none of
Seller or the Seller Affiliates is a party to or, to the knowledge of Seller, is
bound by any judgment, injunction, award or order of any Governmental Entity,
arbitrator or any other Person which would bind the Buyer after the Closing Date
and which could reasonably be expected to have a Material Adverse Effect; (c)
the Business is being conducted in compliance with all applicable laws,
statutes, ordinances, regulations, decrees and orders, including Environmental
Laws, except for violations that have not had and could not reasonably be
expected to have a Material Adverse Effect; (d) Seller has not received any
written notice of any actual or threatened proceeding, claim, lawsuit or loss
that relates to Acquired Assets or the Business and arises under any
Environmental Law, except for notices that have not had and could not reasonably
be expected to have a Material Adverse Effect; (e) to Seller's knowledge, no
written notice of the type described in the preceding clause (d) was given to
any Person or entity that occupied or owned any of the Real Property or the SJLD
Property prior to Seller's acquisition or use thereof that could reasonably be
expected to have a Material Adverse Effect; (f) Seller is not currently
operating or required to be operating the Business or the Acquired Assets under
any compliance order, schedule, decree or agreement, any consent decree, order
or agreement, and/or any corrective action decree, order or agreement issued or
entered into under any Environmental Law except for those that have not had and
could not reasonably be expected to have a Material Adverse Effect; and (g) to
Seller's knowledge, there are not on the Real Property or the SJLD Property
landfills or land farms where Seller has intentionally accumulated and disposed
of any solid waste or Hazardous Materials in violation of law which could
reasonably be expected to have a Material Adverse Effect. Except as set forth in
Sections 4.09 and 4.10(a) of the Disclosure Schedule, as of the Execution Date
there have been no environmental reports or studies made by or on behalf of
Seller relating to the Acquired Assets or the Business within the last five (5)
years which were prepared as part of a single plant or a division-wide
environmental compliance audit or a comprehensive review of all media (air,
water, and solid waste) for all facilities and operations and which were not
related to any reporting obligation under any Environmental Law.
4.10 Environmental Permits; Other Permits.
(a) Listed in Section 4.10(a) of the Disclosure Schedule are the
Environmental Permits held by Seller and used in the operation of the Business,
which list shall be updated as of the Closing Date. Except as set forth in
Sections 4.09 and 4.10(a) of the Disclosure Schedule, to Seller's knowledge, as
of the Execution Date, Seller possesses all Environmental Permits necessary for
the conduct of the Business and as of the Closing Date will possess all
Environmental Permits necessary for the conduct of the Business except where the
failure to possess the same could not reasonably be expected to have a Material
Adverse Effect. Except as set forth in Sections 4.09 and 4.10(a) of the
Disclosure Schedule, Seller has not received written notice from any
Governmental Entity that it is required to have in effect as of the Execution
Date any additional Environmental Permits. Seller has furnished Buyer a copy of
each such Environmental Permit. To Seller's knowledge, except as set forth in
Section 4.10(a) of the Disclosure Schedule, each such Environmental Permit is in
full force and effect. Except as set forth in Section 4.10(a) of the Disclosure
Schedule, no outstanding notice of cancellation or termination has been
delivered to Seller in connection with any Environmental Permit nor to Seller's
knowledge is any such cancellation or termination threatened (i) as of the
Execution Date or (ii) as of the Closing Date which could reasonably be expected
to have a Material
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Adverse Effect. Except as set forth in Sections 4.09 and 4.10(a) of the
Disclosure Schedule, no applications are known by Seller to be required, as of
the Execution Date, for operating permits or alternatives thereto in connection
with the Business under Title V of the Federal Clean Air Act. Except as set
forth in Sections 4.09 and 4.10(a) of the Disclosure Schedule, there are no
complaints or petitions by others, of which written notice has been given to
Seller, with respect to revocation of any such Environmental Permits (i) as of
the Execution Date or (ii) as of the Closing Date which could reasonably be
expected to have a Material Adverse Effect.
(b) Listed in Section 4.10(b) of the Disclosure Schedule are all Permits
other than Environmental Permits used in the conduct of the Business which list
shall be updated as of the Closing Date. Seller possesses all Permits necessary
for the conduct of the Business, except where the failure to possess any such
Permit could not reasonably be expected to result in a Material Adverse Effect.
To Seller's knowledge, each such Permit is in full force and effect. No
outstanding notice of cancellation or termination has been delivered to Seller
in connection with any such Permit nor to Seller's knowledge is any such
cancellation or termination threatened (i) as of the Execution Date or (ii) as
of the Closing Date which could reasonably be expected to have a Material
Adverse Effect.
(c) Notwithstanding anything to the contrary in Sections 4.09 and 4.10(a),
nothing herein shall be construed as a representation of Seller's compliance
with any provision of Title V of the Clean Air Act or the U.S. Environmental
Protection Agency's Effluent Limitations Guidelines, Pretreatment Standards, and
New Source Performance Standards: Pulp, Paper, and Paperboard Category; National
Emission Standards for Hazardous Air Pollutants for Source Category; Pulp and
Paper Production ("Cluster Rules") which becomes effective or which must
initially be complied with after the Execution Date.
4.11 Intellectual Property.
(a) Section 4.11 of the Disclosure Schedule sets forth a list of (i) all
Trademark registrations, patents, copyright registrations and applications
therefor and all material unregistered Trademarks, service marks and trade names
which are owned by Seller or any of the Seller Affiliates and used exclusively
or held for use exclusively in the Business, (ii) Acquired Software which is
owned by Seller or any of the Seller Affiliates, and (iii) any written license,
sublicense or other agreement which Seller or any of the Seller Affiliates has
entered granting Seller or any of the Seller Affiliates rights to use
Intellectual Property (the "Listed Intellectual Property").
(b) Buyer understands that Seller has not made or given, and does not make
or give, any warranty as to the value, enforceability, or validity of any
Intellectual Property or that the use by Buyer or Buyer Affiliates of any
Intellectual Property pursuant to this Agreement will not infringe upon other
intellectual property rights.
(c) Nothing contained in this Agreement shall be construed as an agreement
by, or obligation of, Seller to bring or prosecute actions or suits against
third parties for infringement or violation of any Intellectual Property
transferred or licensed hereunder.
(d) Seller shall have no obligation to defend, indemnify or hold harmless
Buyer Group from any damages, costs or expenses resulting from any obligation,
proceeding or suit based upon any claim that any activity, subsequent to the
Closing Date, engaged in by Buyer Group, a customer of Buyer or Buyer Affiliates
or anyone claiming under Buyer constitutes direct or contributory infringement
or misuse of any intellectual property rights not licensed under this Agreement.
(e) Buyer shall be liable for and shall hold Seller Group harmless from and
against any and all Losses and Damages resulting from any obligation, proceeding
or suit based upon any claim that any activity conducted or engaged in,
subsequent to the Closing Date, by Buyer Group, a customer of Buyer or Buyer
Affiliates, or anyone claiming under Buyer constitutes direct or contributory
infringement, or misuse, or misappropriation of any intellectual property right
of any third party.
4.12 Finders' Fees. Except for Dillon, Read & Co. Inc. whose fees related
thereto, if any, will be paid by Seller, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Seller or any of its Affiliates who would be entitled to any fee or
commission upon consummation of or in connection with the transactions
contemplated by this Agreement.
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4.13 Real Property; Realty Rights.
(a) Section 4.13(a)(i) of the Disclosure Schedule sets forth a description
of the Real Property. Subject to Section 6.12 and except as set forth in Section
4.13(a)(i) of the Disclosure Schedule, the Real Property and the SJLD Property
include all the real property (expressly excluding parcels of undeveloped real
property) of SJFP currently used and necessary in the operation of the Mill
Business. Subject to Section 6.12 and except as set forth in Section 4.13(a)(ii)
of the Disclosure Schedule, the Real Property includes all real property owned
by SJCC.
(b) Section 4.13(b) of the Disclosure Schedule sets forth the Realty Rights
used in the operation of the Business. Except as set forth in Section 4.13(b) of
the Disclosure Schedule, to Seller's knowledge and subject to Section 6.12, the
Realty Rights set forth in Section 4.13(b) of the Disclosure Schedule are all
those that are currently used and necessary in the operation of the Business.
(c) To Seller's knowledge, no zoning law or other similar ordinance or
municipal regulation is violated by continuation of the present use and
operation of the Acquired Assets presently on the Real Property or the SJLD
Property and Seller has not received notice of any such violation.
(d) No outstanding notice of condemnation of any of the Real Property or
the SJLD Property has been delivered to Seller nor, to Seller's knowledge, is
any condemnation proceeding of any of the Real Property or the SJLD Property
threatened.
(e) To Seller's knowledge, no fact or condition exists which would result
in the termination or curtailment of the current access from the Real Property
or the SJLD Property to any presently existing public roads adjoining the Real
Property or the SJLD Property. All of the Real Property and the SJLD Property
has direct access to existing public roads and to all utilities utilized at such
location, except that utilities at the Port St. Joe container facility are
provided from the mill.
(f) Except as set forth in Section 4.13(f) of the Disclosure Schedule, to
Seller's knowledge, no underground storage tanks are present on the Real
Property or the SJLD Property.
(g) Except as set forth in Section 4.13(g) of the Disclosure Schedule, to
Seller's knowledge, no asbestos containing materials remain in place on any of
the Real Property or the SJLD Property.
4.14 Labor Controversies, Etc. Except as set forth in Section 8.08 of the
Disclosure Schedule, as of the Execution Date, and subject to Buyer's and Buyer
Affiliates' compliance with Article VIII hereto, as of the Closing Date:
(a) there are no controversies between Seller and any Eligible
Employees that could reasonably be expected to have a Material Adverse
Effect; and
(b) to Seller's knowledge, there are no organizational efforts
currently being made or threatened involving any Eligible Employees that
could reasonably be expected to have a Material Adverse Effect.
4.15 No Implied Representation. It is the explicit intent of each party
hereto that neither Seller nor SJPC is making any representation or warranty
whatsoever, express or implied, except those representations and warranties of
Seller and SJPC explicitly set forth in this Agreement, the Disclosure Schedule
or in any certificate contemplated hereby and delivered by or on behalf of
Seller or any Seller Affiliate in connection herewith.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Each of FMC and JV, severally and not jointly, hereby represents and
warrants to Seller as to itself and where applicable its Affiliates that:
5.01 Organization and Existence. Each of FMC and JV is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate or other
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organizational power and authority and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Each of FMC and JV is duly qualified or licensed to do business and
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities make such qualification
necessary, except where failure to be so qualified would not, individually or in
the aggregate, materially adversely affect FMC's or JV's compliance with this
Agreement.
5.02 Authorization. The execution, delivery and performance by FMC and JV
of this Agreement and the Ancillary Agreements to which FMC or JV is a party and
the consummation by FMC and JV of the transactions contemplated hereby and
thereby are within FMC's and JV's powers and have been duly authorized by all
necessary action on the part of FMC and JV. This Agreement constitutes and, when
executed and delivered, the Ancillary Agreements will constitute, the valid and
binding agreements where applicable of FMC and JV, enforceable against each of
them in accordance with its terms except that (a) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium (whether general
or specific) or other similar laws now or hereafter in effect relating to
creditor's rights generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
5.03 Consents and Approvals; No Violation. Except for the applicable
requirements of the HSR Act, or as set forth in Section 5.03 of the Disclosure
Schedule, no notice to or filing with, and no permit, authorization, consent or
approval of, any Person or Governmental Entity is necessary for the execution,
delivery and performance of this Agreement and the consummation by FMC or JV of
the transactions contemplated by this Agreement. Neither the execution and
delivery of this Agreement by FMC or JV nor the consummation by FMC or JV of the
transactions contemplated hereby nor compliance where applicable by FMC or JV
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of the certificate of incorporation or by-laws (or other
similar charter documents) of FMC or JV; (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which FMC or JV is a party or by which FMC or JV or their respective assets may
be bound; or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to FMC or FMC's assets or JV or JV's assets, except in the
case of (ii) or (iii) for violations, breaches or defaults which will not, in
the aggregate, have a material adverse effect on FMC or JV, respectively.
5.04 Finders' Fees. Except for Bear Stearns & Co. Inc., whose fees
related thereto, if any, will be paid by Buyer, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of Buyer or any Buyer Affiliates or SCC who would be entitled
to any fee or commission upon consummation of the transactions contemplated by
this Agreement.
5.05 Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer, threatened before any court or
arbitrator or any Governmental Entity which (a) would be reasonably likely to
have a material adverse effect on Buyer or any Buyer Affiliate or (b) in any
manner challenges or seeks to prevent or enjoin the transactions contemplated
hereby.
5.06 Investor Status. FMC is an accredited investor within the meaning of
Rule 501 of the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"), has the financial ability to bear the
economic risk of the investment in the Stock, can afford to sustain a complete
loss of such investment, and has no need for liquidity in the investment in the
Stock. FMC is acquiring the Stock for investment and not with a view to the sale
or distribution thereof, for its own account and not with a view to the
subsequent distribution thereof and not on behalf of or for the benefit of
others and has not granted any other person any right or option or any
participation or beneficial interest in the Stock. FMC acknowledges that the
shares of Stock constitute restricted securities within the meaning of Rule 144
under the Securities Act, and that none of such securities may be sold except
pursuant to an effective registration statement under the Securities Act or in a
transaction exempt from registration under the Securities Act, and acknowledges
that it understands the meaning and effect of such registration. FMC is aware
that no Federal or state
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regulatory agency or authority has passed upon the sale of the Stock or the
terms of the sale or the accuracy or adequacy of any material being provided to
FMC and that the purchase price thereof was negotiated between the Seller and
FMC and does not necessarily bear any relationship to the underlying assets or
value of Groveton Paperboard, Inc.
5.07 Outstanding Debt. There exists no default under the provisions of
any instrument evidencing debt or of any agreement related thereto to which
Buyer or any Buyer Affiliate or any of their subsidiaries is a party.
5.08 Title to Properties. Buyer and each Buyer Affiliate has good and
marketable title to its respective real property (other than property which it
leases) and good title to all its other respective property.
5.09 Taxes. Buyer and each Buyer Affiliate has filed all returns for
taxes which are required to be filed, and each has paid all taxes as shown on
said returns and on all assessments received by it to the extent that such taxes
have become due, other than any assessments being contested in good faith by
appropriate proceedings.
5.10 Financial Statements.
FMC has delivered to Seller a copy of its audited consolidated financial
statements consisting of a balance sheet, income statement and statement of cash
flows as of and for the year ended July 31, 1995 (the "FMC Financial
Statements"). The FMC Financial Statements were prepared based upon the books
and records of FMC, and fairly present in all material respects the financial
condition of FMC as of the appropriate periods and the results of operations for
the period then ended, in each case in conformity with GAAP. FMC shall promptly
deliver to Seller unaudited or comparable audited financial statements for
interim quarterly and annual periods subsequent to July 31, 1995 and prior to
the Closing Date, and they shall be deemed to be included within the defined
term "FMC Financial Statements." Except as reflected or reserved against on the
most recent FMC Financial Statements delivered to Seller pursuant to this
Section 5.10, as of the date of such most recent FMC Financial Statements FMC
had no liabilities or obligations of a nature that would be required to be
reflected or reserved against on a balance sheet prepared in accordance with
GAAP.
ARTICLE VI
COVENANTS OF THE PARTIES
6.01 Conduct of the Business. From the date hereof until the Closing
Date, except as otherwise expressly set forth in this Agreement or disclosed in
the Disclosure Schedule, Seller shall, and shall cause the Seller Affiliates to,
conduct the Business in the ordinary course consistent with past practice.
Without limiting the generality of the foregoing, except as otherwise expressly
set forth in this Agreement or disclosed in the Disclosure Schedule, from the
date hereof until the Closing Date, without the prior written consent of Buyer,
Seller will not:
(a) with respect to the Business, acquire a material amount of assets
of any other Person other than in the ordinary course consistent with past
practice;
(b) sell, lease, license or otherwise dispose of (i) any assets of the
Business unless in the ordinary course consistent with past practice or
(ii) any item of equipment or fixtures of the Business for an amount in
excess of $10,000;
(c) cause any of the Acquired Assets to become subject to any Lien
other than Permitted Liens;
(d) except for changes in the ordinary course consistent with past
practice, grant any bonus or any increase in wages or salaries or enter
into, adopt or make any change in any consulting agreement, employment
agreement or other Benefit Plan or Seller benefit arrangement or commit to
do so, in each case as it may relate to Eligible Employees;
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(e) make capital expenditures other than those itemized in Section
6.01 of the Disclosure Schedule without the prior written approval of Buyer
except as required to remain in compliance with applicable law; or
(f) agree or commit to do any of the foregoing.
6.02 Access to Information. Subject to applicable law and restrictions
contained in any confidentiality agreements to which Seller is subject, Seller
will give Buyer, its counsel, consultants, financial advisors, auditors and
other authorized representatives reasonable access during business hours to the
offices, properties, books and records of Seller relating to the Business and
the Acquired Assets and will instruct the employees, counsel, independent
certified public accountants and financial advisors of Seller to cooperate with
Buyer in its investigation of the Business; provided that any investigation
pursuant to this Section 6.02 shall be conducted on commercially reasonable
prior notice and in such manner as not to interfere unreasonably with the
conduct of the Business of Seller and in accordance with such reasonable
procedures as Seller may require to protect the confidentiality of proprietary
information. All such information shall be kept confidential pursuant to the
terms of the confidentiality agreements dated as of April 13, 1995 between FMC
and Dillon, Read & Co. Inc. for itself and as a representative of SJPC and SJFP
and dated as of April 12, 1995 between SCC and Dillon, Read & Co. Inc. for
itself and as a representative of SJPC and SJFP (collectively, the
"Confidentiality Agreement").
6.03 Seller Trademarks.
(a) Except as set forth in Section 6.03 of the Disclosure Schedule, after
the Closing Date, Buyer and its Affiliates shall not use any Trademark or trade
name owned or used by Seller or any of the Seller Affiliates other than those
constituting Acquired Intellectual Property (the "Seller Trademarks"). Buyer
understands and agrees that the Seller Trademarks, or any right or license to
the Seller Trademarks, are not being transferred pursuant to this Agreement.
Buyer acknowledges Seller's exclusive and proprietary rights in the use of the
Seller Trademarks, and Buyer agrees that it shall not use and shall not permit
its Affiliates to use the Seller Trademarks (or any names or Trademarks
confusingly similar to the Seller Trademarks) except as expressly set forth in
Section 6.03 of the Disclosure Schedule. After the Closing Date, all Seller
Trademarks shall be replaced by Buyer as soon as possible, but in no event later
than one hundred and twenty (120) days after the Closing Date for items with
Seller Trademarks affixed to them with a valid continuing use in Buyer's conduct
of the Business, including, without limitation, buildings, vehicles, heavy
equipment, hard hats, tools, tool boxes, kits (safety and others), signs, manual
covers and notebooks. After the Closing Date, Buyer will not use, and will
destroy or deliver to Seller, all such items with Seller Trademarks affixed to
them that have no valid continuing use in Buyer's conduct of the Business,
including items affecting customer or employee relations or items that do not
reflect Buyer's true identity. Specific items to be destroyed or returned
include items with Seller Trademarks affixed to them including, without
limitation, giveaways; order, purchase or materials forms; requisitions;
invoices; statements; time sheets/labor reports; bill inserts; stationery;
personalized note pads; maps; organization charts; bulletins/releases;
sales/price literature; manuals or catalogs; report covers/folders; program
materials; and materials such as media contact lists/cards. Notwithstanding the
foregoing, Seller consents to the use of the locality name "Port St. Joe" in the
name of JV, but Buyer agrees to change the name of JV to exclude use of "St.
Joe" therein upon the request of Seller made prior to December 31, 1995.
(b) Buyer recognizes the value associated with the Seller Trademarks, and
acknowledges that the Seller Trademarks and all rights therein and the goodwill
pertaining thereto belong exclusively to Seller, and that the Seller Trademarks
have a secondary meaning in the minds of the public.
(c) Buyer agrees that the conduct of the Business after the Closing Date by
Buyer and Buyer Affiliates using the Seller Trademarks shall be provided in
accordance with all applicable Federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Seller, and that the conduct
of the Business will be of a standard and skill equivalent to that employed by
Seller prior to the Closing Date.
(d) Buyer acknowledges that its or its Affiliates' failure to cease use of
the Seller Trademarks as provided in this Agreement, or its or its Affiliates'
improper use of the Seller Trademarks, will result in
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immediate and irreparable damage to Seller. Buyer acknowledges and admits that
there is no adequate remedy at law for such failure to terminate use of the
Seller Trademarks, or for such improper use of the Seller Trademarks, and Buyer
agrees that in the event of such failure or improper use, Seller shall be
entitled to equitable relief by way of temporary restraining order or any other
relief available under this Agreement.
6.04 Guaranties. Buyer shall use its best efforts (other than the payment
of money or agreement to substantive changes in the applicable document) to
cause itself or a Buyer Affiliate to be substituted in all respects for each
member of the Seller Group, effective as of the Closing Date, in respect of all
obligations of any such member allocated to any period, or to be performed after
the Closing Date, under any Acquired Agreement or Realty Rights under which
Seller or a Seller Affiliate is liable and is not released by the other party
thereto to the extent the obligations thereunder constitute an Assumed Liability
(the items described shall be referred to individually as a "Guarantee" and
collectively as the "Guaranties") but such obligation shall be limited to those
Guaranties which are listed in Section 6.04 of the Disclosure Schedule. Section
6.04 of the Disclosure Schedule lists all Guaranties as of the date hereof which
individually or in the aggregate are material. Following the Closing Date, with
respect to any Guarantee which is not listed in Section 6.04 of the Disclosure
Schedule or for which no such substitution is effected for the benefit of the
Business and which relate to an Assumed Liability, Buyer and Buyer Affiliates
shall defend, indemnify and hold harmless each member of the Seller Group
against any obligation and liability under any such Guarantee.
6.05 Efforts; Further Assurances; Permits.
(a) Subject to the terms and conditions of this Agreement, each party will
use its commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or desirable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement, including, without limitation, preparing and making any filings
required to be made under applicable law. Each party shall furnish to the other
party such necessary information and reasonable assistance as such other party
may request in connection with the foregoing.
(b) In case at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement, including
action to fully vest in Buyer and Buyer Affiliates their rights in the Acquired
Assets, to perfect the assumption by Buyer and Buyer Affiliates of the Assumed
Liabilities or to perfect the retention by Seller of the Excluded Assets and the
Retained Liabilities, the proper officers and/or directors of Seller or the
Seller Affiliates and Buyer or Buyer Affiliates shall on the written request of
any of them take all such necessary or desirable action.
(c) Seller shall, at its own expense (but without providing any
guarantees), promptly apply for or otherwise seek and use commercially
reasonable efforts to obtain all authorizations, consents, waivers and approvals
as may be required in connection with the assignment of the Acquired Agreements
to Buyer and Buyer Affiliates at the Closing. Upon Buyer's request Seller will
also use, and will cause its Affiliates to use, commercially reasonable efforts
(not including the payment of money, incurring any out-of-pocket costs or
providing any guarantees) to assist Buyer and the Buyer Affiliates in obtaining
any other permits, licenses or other authorizations after the Closing Date
necessary for Buyer's and the Buyer Affiliates' operation of the Business after
the Closing Date in a manner consistent with past practice.
(d) In the event that at any time, any order, decree or injunction shall be
entered which prevents or delays the consummation of any of the transactions
contemplated by this Agreement, each party shall promptly use its best efforts
to cause such order, decree or injunction to be reversed, vacated or modified in
order to permit such transactions to proceed as expeditiously as possible.
6.06 Bulk Sales Laws. Buyer hereby waives to the fullest extent possible
under applicable laws compliance by Seller and the Seller Affiliates with the
provisions of any applicable "bulk sales", "bulk transfer" or similar laws.
Seller shall comply with any such laws which cannot be waived. Seller agrees to
defend, indemnify and hold the Buyer Group harmless against any and all Losses
and Damages incurred by Buyer or Buyer Affiliates arising under any such "bulk
sales", "bulk transfer" or similar laws as a result of the sale of the Acquired
Assets pursuant to this Agreement.
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6.07 Books and Records. Buyer and Seller agree to retain, for a period of
ten (10) years after the Closing Date, any and all books and records (hard copy,
electronic or otherwise) related to the Acquired Assets, the Assumed
Liabilities, the Retained Liabilities or the Business for all periods through
the Closing Date or related to the transactions contemplated hereby, provided
that upon expiration of such period, the party with custody of such books and
records shall give written notice to the other party and an opportunity to such
other party to ship such books and records at such other party's cost, expense
and risk to a location chosen by it. In the event either party needs access to
such books and records for purposes of verifying any representations and
warranties contained in this Agreement, responding to inquiries regarding the
Business from Governmental Entities, indemnifying, defending and holding
harmless the Seller Group or the Buyer Group, as the case may be, in accordance
with applicable provisions of this Agreement or any other legitimate business
purposes, including without limitation books and records related to businesses
conducted by SJLD, each party will allow representatives of the other party
access to such books and records upon reasonable notice during regular business
hours for the sole purpose of obtaining information for use as aforesaid and
will permit such other party to make such extracts and copies thereof as may be
necessary or convenient and, if required for such purpose, to have access to and
possession of original documents.
6.08 Intellectual Property Cooperation; Etc. Seller and the Seller
Affiliates covenant and agree that at any time from and after the Closing Date
upon reasonable and specific written request of Buyer, they will use
commercially reasonable efforts to communicate to Buyer all information known to
them relating to the Acquired Intellectual Property, and they will execute and
deliver any papers, make all rightful oaths, testify in any legal proceedings
and perform all other lawful acts reasonably deemed necessary or desirable by
Buyer to convey or perfect title to the Acquired Intellectual Property and to
enforce or defend Buyer's rights in and to the Acquired Intellectual Property or
assist Buyer in obtaining or enforcing Buyer's rights in and to the Acquired
Intellectual Property. Buyer shall reimburse Seller for all reasonable and
documented out-of-pocket expenses incurred in providing cooperation pursuant to
this Section 6.08 other than expenses for conveying or perfecting title to such
Acquired Intellectual Property, which shall be handled in accordance with
Section 12.03 (except for recordation fees and expenses, which shall be for
Buyer's account).
6.09 Governmental Regulatory Approval. As promptly as practicable after
the Financing Date, Buyer and Seller shall cooperate in filing the required
applications and notices with the appropriate Governmental Entities seeking
authorization to transfer or assign the Permits to Buyer (the "Regulatory
Approvals"). To the extent assignable, Seller will assign the Permits to Buyer.
Each party agrees to use its best efforts to obtain the Regulatory Approvals and
the parties agree to cooperate fully with each other and with all Governmental
Entities to obtain the Regulatory Approvals at the earliest practicable date.
6.10 HSR Act Review. As promptly as practicable after the Execution Date,
the parties will make such filings as may be required by the HSR Act with
respect to the sale contemplated by this Agreement. Thereafter, the parties will
file as promptly as practicable any supplemental information that may be
requested by the U.S. Federal Trade Commission or the U.S. Department of Justice
pursuant to the HSR Act. If necessary, the parties will use their best efforts
in seeking early termination of the waiting periods under the HSR Act.
6.11 Effect of Due Diligence and Related Matters. Buyer represents that
it is a sophisticated entity that was advised by knowledgeable counsel,
environmental consultants and financial advisors and, to the extent it deemed
necessary, other advisors in connection with this Agreement and by the Closing
Date will have conducted its own independent review, evaluation and inspection
of the Acquired Assets and Assumed Liabilities. Accordingly, Buyer covenants and
agrees that (i) except for the representations and warranties set forth in this
Agreement and the Disclosure Schedule and any other written communication signed
and delivered by an executive officer of Seller, Buyer and Buyer Affiliates have
not relied and will not rely upon any document or written or oral information
furnished to it by or on behalf of Seller or its Affiliates or discovered by it
or its representatives in a review of Seller's or Seller Affiliates' records,
including, without limitation, any financial statements or data, provided that
nothing stated aforesaid shall prevent Buyer and Buyer Affiliates from using any
document or written record of Seller or Seller Affiliates in connection with
verification of a representation or warranty in this Agreement, (ii) there are
no representations or warranties by or on behalf of Seller or its Affiliates or
representatives except for those expressly set forth in this
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Agreement and the Disclosure Schedule and any other written agreement entered
into with Seller or any of its Affiliates with Buyer in connection with this
Agreement, and (iii) to the fullest extent permitted by law, Buyer's and Buyer
Affiliates' rights and obligations with respect to all of the foregoing matters
will be solely as set forth in this Agreement or in such other written
agreements.
6.12 Real Property Transfers.
(a) Within five (5) Business Days after the Financing Date, Buyer may (at
its option and expense) order a preliminary title binder (on a standard form
reasonably acceptable to Buyer), to be issued by a title insurance company or
companies reasonably acceptable to Buyer, with respect to the Real Property and
the SJLD Property. Within thirty (30) days after the Financing Date, Seller
shall provide Buyer with boundary surveys of the Real Property and the SJLD
Property and within seventy-five (75) days after the Financing Date, Seller
shall provide Buyer with ALTA surveys of the Real Property and the SJLD
Property. Buyer shall provide Seller with a copy of each preliminary title
binder (with copies of all instruments listed as exceptions to title) and any
continuation thereof not later than five (5) Business Days following Buyer's
receipt thereof. If a preliminary title binder or any continuation thereof
indicates an exception (other than a Permitted Lien) that would impair
marketability in any material respect in Buyer's reasonable judgment (the "Title
Exception"), Seller shall, upon written notice thereof from Buyer given at the
time of Buyer's submitting the preliminary title binder or continuation thereof,
as the case may be, not later than thirty (30) days before the Closing Date,
cause such Title Exception to be removed on or before the Closing Date, or, with
Buyer's approval (such approval not to be unreasonably withheld), to put up a
bond with the title insurer in an amount sufficient to cause the title insurer
to insure over such Title Exception or to remove such Title Exception from the
title commitment for the benefit of Buyer or the Buyer Affiliate.
Notwithstanding the foregoing, if any Title Exception cannot be removed prior to
the Closing Date, Seller shall have such additional time as Seller may
reasonably require to remove such Title Exception and an interest-bearing escrow
account shall be established at Closing out of a portion of the moneys payable
by Buyer at the Closing equal to the estimated reasonable cost of curing such
Title Exception. To the extent the escrow contains funds following the cure of
all such Title Exceptions, said surplus shall be delivered to Seller. To the
extent the escrow contains inadequate funds to cure all such Title Exceptions,
Seller shall pay the cost of such cure directly. Notwithstanding the foregoing,
Seller shall not be required to incur any expense to cure Title Exceptions in
excess of an aggregate amount of $500,000; provided, however, that Seller shall
be required as of the Closing Date to cure any mortgage, mechanic's lien, tax
lien, or judgment lien capable of being removed by payment of a fixed sum of
money, regardless of the amount thereof, subject to Seller's right to contest
any of the foregoing in good faith and by appropriate proceedings diligently
conducted, and an interest-bearing escrow account shall be established at
Closing out of a portion of the moneys payable by Buyer at Closing equal to the
amount of such contested item. To the extent the escrow contains funds following
the cure of such contested item, said surplus shall be delivered to Seller. To
the extent the escrow contains inadequate funds to cure such contested item,
Seller shall pay the cost of such cure directly. If the estimated cost to cure
Title Exceptions other than mortgages, mechanic's liens, tax liens or judgment
liens, exceeds $500,000 in the aggregate, and Seller shall elect not to cure
such Title Exceptions, Buyer shall have the right upon five (5) days' prior
written notice to Seller to either (a) accept title subject to such Title
Exceptions and receive a credit against the Purchase Price in the amount of
$500,000 or (b) terminate this Agreement.
(b) Notwithstanding the foregoing subsection (a), JV agrees to provide SJLD
with a recordable easement with respect to the SJLD Property to extract water
from the canal included therein in an amount up to one million gallons per day
in the event of a forest fire in the environs and to have reasonable access to
the roads currently along and over such real property and to provide the
Apalachicola Northern Railroad with a recordable easement with respect to the
SJLD Property as to its existing rail lines across such property.
Notwithstanding anything to the contrary in this Agreement, JV may at its
election: (1) no less than sixty (60) days prior to the Closing Date, notify
Seller to substitute a single parcel of 100 contiguous undeveloped acres of real
property which, to the reasonable satisfaction of JV, shall be free of any
Environmental Conditions giving rise to Environmental Liabilities (the "Parcel")
to be designated by Seller in place of similar acreage for dredge material along
the water canal supplying water to the mill; or (2) within three (3) years of
the Closing Date purchase from Seller the Parcel at the then fair market value
thereof for use as
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dredge spoil disposal; provided, however, that in either case JV shall bear all
responsibilities for obtaining all necessary permits from Governmental Entities
in connection therewith and JV shall bear all costs associated with the
development and use of the Parcel for such intended use. The Parcel shall have
direct access to an existing public road or recordable easements from Seller or
its Affiliates to provide access over its real property thereto.
(c) In addition, within five (5) Business Days after the Financing Date,
Buyer may (at its option and expense) commence an investigation of Seller's
right, title and interest in the Realty Rights. If any such investigation
indicates an exception other than a Permitted Lien, Seller shall, upon written
notice thereof from Buyer not later than thirty (30) days before the Closing
Date, cause such exception to be removed on or before the Closing Date or to be
addressed in a fashion similar to that for Real Property in this Section 6.12,
except where the failure to obtain any such exception could not reasonably be
expected to have a Material Adverse Effect.
(d) SJFP shall provide JV with a recordable easement to a twenty foot wide
strip of that certain real property not constituting Real Property hereunder
under which the water canal pipeline to the mill facility of SJFP runs for
ingress and egress for the purpose of repairing and maintaining such pipeline.
6.13 Insurance. Seller shall, prior to the Closing Date, continue to keep
in effect at existing levels and coverage all its insurance for its properties
which are of an insurable nature and of the character usually insured by
companies operating similar properties against loss or damage by fire, which
insurance Seller currently maintains in such amounts as are usually insured
against by such companies. On the Closing Date, the coverage under the insurance
policies and programs applicable to the Acquired Assets will be terminated, and
Buyer and Buyer Affiliates will be responsible for providing all insurance
coverage for the Acquired Assets and the Business.
6.14 Secured Indebtedness. Seller shall take, at Seller's sole cost and
expense, all actions necessary with respect to the Secured Parties to obtain the
termination or release, as of the Closing Date, of all Security Documents (the
"Releases and Terminations"). Buyer shall cooperate in good faith with Seller in
obtaining the Releases and Terminations.
6.15 Licensing Arrangements. From and after the Closing Date, Seller
shall license to Buyer the Acquired Software. Such license shall be a royalty
free license in the form attached hereto as Exhibit D.
6.16 No Solicitation of Transactions.
(a) SJPC and Seller shall not, and shall cause their Affiliates, officers,
directors, employees, investment bankers, financial advisors and other
representatives not to, initiate, solicit or knowingly encourage any inquiries
or the making of any proposal to acquire all or substantially all of the
Business or enter into or maintain or continue discussions or negotiate with any
person or entity in furtherance of such inquiries or such proposal; provided,
however, that nothing in this Section 6.16 shall prohibit the Board of Directors
of SJPC from (i) furnishing information pursuant to an appropriate
confidentiality letter concerning Seller and its businesses, properties or
assets to a third party who has made an unsolicited Transaction Proposal, or
(ii) engaging in discussions or negotiations with such a third party who has
made an unsolicited Transaction Proposal, but in each case referred to in the
foregoing clauses (i) and (ii) only (x) after the Board of Directors of SJPC
concludes in good faith based on the advice of outside counsel that such action
is necessary for the Board of Directors of SJPC to comply with its fiduciary
obligations to stockholders under applicable law or (y) if Dillon, Reed & Co.
Inc. is unable to render, or withdraws, its opinion as to the fairness of the
transactions contemplated by this Agreement to the stockholders of SJPC.
Notwithstanding anything in this Agreement to the contrary, Seller shall
immediately inform Buyer orally and in writing of the receipt by it after the
Execution Date of any Transaction Proposal. "Transaction Proposal" means any
proposal with respect to any acquisition or purchase of a substantial amount of
assets of, or any equity interest in, Seller or any of its Subsidiaries or any
merger, consolidation, or business combination, involving Seller or any of its
Subsidiaries.
(b) The Board of Directors of SJPC shall not (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Buyer, the approval or
recommendation by such Board of Directors of this Agreement,
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(ii) approve or recommend, or propose to approve or recommend, any Transaction
Proposal or (iii) approve Seller entering into any agreement with respect to any
Transaction Proposal, unless an unsolicited Transaction Proposal is received
from a third party and the Board of Directors of SJPC concludes in good faith
based on the advice of outside counsel that in order to comply with its
fiduciary obligations to stockholders under applicable law, it is necessary for
the Board of Directors to withdraw or modify its approval or recommendation of
this Agreement, approve or recommend such Transaction Proposal, enter into an
agreement with respect to such Transaction Proposal or terminate this Agreement,
provided that no such action shall be taken prior to ten (10) days after notice
of such Transaction Proposal has been provided to Buyer and provided further
that either the Board of Directors shall reject such Transaction Proposal or
such action shall be taken and notice thereof given to Buyer no later than
forty-five (45) days after notice of such Transaction Proposal has been provided
to Buyer. A failure to reject such Transaction Proposal or to give such notice
to Buyer within such 45-day period shall be deemed an election by Seller to
terminate this Agreement and shall entitle Buyer to immediate payment of the
Section 6.16 Fee. In the event the Board of Directors of SJPC takes any of the
foregoing actions, Seller shall, concurrently with the taking of any such
action, pay Buyer the Section 6.16 Fee. Notwithstanding anything contained in
this Agreement to the contrary, any action by the Board of Directors permitted
by this Section 6.16 shall not constitute a breach of this Agreement by Seller
or SJPC if, concurrently with such action, Seller pays the Section 6.16 Fee.
6.17 Stockholders' Meeting. SJPC shall call and hold a meeting of its
stockholders as promptly as practicable after the Financing Date for the purpose
of approving this Agreement and the consummation of the transactions
contemplated hereby. SJPC shall solicit from its stockholders proxies in favor
of this Agreement and the transactions contemplated hereby; provided, however,
that SJPC shall not be obligated to solicit such proxies if (a) its Board of
Directors takes an action authorized under Section 6.16 in accordance with the
terms and conditions thereof; or (b) if Dillon, Read & Co. Inc. is unable to
render, or withdraws, its opinion as to the fairness of the transactions
contemplated by this Agreement to the stockholders of SJPC; provided, however,
that SJPC shall give Buyer prompt notice of the occurrence of any such event.
6.18 Prompt Payment of Taxes and Indebtedness. On and prior to the
Closing Date, Buyer covenants that it will, and it will cause each Buyer
Affiliate to promptly pay and discharge, or cause to be paid and discharged,
prior to the earliest date on which any penalty or interest is incurred or
begins to accrue, all lawful taxes, assessments and governmental charges or
levies imposed upon any of its income, profits, property or business and
promptly pay when due all its debt (including all claims or demands of
materialmen, mechanics, carriers, workmen, repairmen, warehousemen and landlords
which, if unpaid, might result in the creation of a Lien upon its property);
provided that any such tax, assessment, charge, levy or debt need not be paid if
(i) the same shall currently be contested in good faith, (ii) accruals shall
have been provided which are adequate to pay and discharge any such tax,
assessment, charge, levy or debt that could reasonably be anticipated, and (iii)
no proceedings shall have been commenced to accelerate the payment of any such
tax, assessment, charge, levy or debt or to foreclose any Lien which may have
attached as security therefor.
6.19 Conduct of Business and Corporate Existence. On and prior to the
Closing Date, Buyer will, and will cause each Buyer Affiliate to, do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its corporate existence and its rights, franchises, licenses and permits
necessary to continue its business. On and prior to the Closing Date, Buyer
will, and will cause each Buyer Affiliate to, use its best efforts to comply
with all laws, and with all rules, regulations and orders made by governmental
authority, applicable to it or its properties or business (or any part thereof),
non-compliance with which could materially adversely affect the properties,
business, profits or condition (financial or otherwise) of Buyer or any Buyer
Affiliates.
6.20 Insurance. Buyer will, and will cause each Buyer Affiliate to, prior
to the Closing Date, continue to keep in effect at existing levels and coverage
all its insurance for its properties which are of an insurable nature against
loss or damage by fire and from other causes customarily insured against by
similar companies and against liability for loss or damage from such hazards and
risks to the person and property of others as are usually insured against by
companies operating similar property. All such insurance is and shall continue
to be carried with independent insurers of good standing.
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6.21 Limitation on Distributions, Investments and Payments. Buyer
covenants that, on or prior to the Closing Date, it will not, and will not allow
any Buyer Affiliate to directly or indirectly, (a) declare or make, or incur a
liability to make, a distribution in respect of its capital stock (other than a
distribution to Buyer), (b) make any investments in any Person, whether by
acquisition of stock, indebtedness or other obligation or security or by loan,
guaranty, advance, capital contribution or otherwise or in any property except
property to be used in the ordinary course of business or current assets arising
from the sale of goods and services in the ordinary course of business and
except for investments in JV and investments in Buyer or Buyer's Subsidiaries or
(c) subject to Section 6.22(f), make any payment in cash or property to any
Buyer Affiliate or Affiliates of Buyer (other than payments consistent with past
practice to Persons solely as director or officer).
6.22 Lien, Debt and Other Restrictions. Buyer covenants that, prior to
the Closing Date, neither it nor any Buyer Affiliate will:
(a) Liens. Create, assume or suffer to exist any Lien upon any of its
property whether now owned or hereafter acquired, except
(i) Liens for taxes not yet delinquent or which are being actively
contested in good faith by appropriate proceedings,
(ii) Other Liens incidental to the conduct of its business or the
ownership of its property which were not incurred in connection with the
borrowing of money or the obtaining of advances or credit, and which do
not in the aggregate materially detract from the value of its property
or materially impair the use thereof in the operation of its business,
(iii) Liens securing obligations for term loans currently in place
and for working capital line(s) of credit at existing advance rates
relative to accounts receivable and inventories, and
(iv) Liens in the nature of purchase money security interests;
(b) Debt. Create, incur, assume or suffer to exist any debt for
borrowed money, except (i) debt secured by Liens permitted by the
provisions of clause (iii) of Section 6.22(a), or (ii) the renewal or
refunding of existing debt that is presently outstanding, provided that the
principal amount of such existing debt is not increased; provided, however,
that nothing in this Section 6.22 shall inhibit the incurrence of debt to
finance the transactions contemplated by this Agreement or the creation of
Liens in connection therewith;
(c) Merger and Sale of Assets. (i) Merge or consolidate with any
other corporation other than one or more Subsidiaries of Buyer or (ii)
sell, lease or transfer or otherwise dispose of all or any part of its
assets, rights, or property other than in the ordinary course of business;
(d) Sale and Leaseback. Enter into any arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by Buyer or any Buyer Affiliate of real or personal property which
has been or is to be sold or transferred by Buyer or any Buyer Affiliate to
such lender or investor or to any such person to whom funds have been or
are to be advanced by such lender or investor on the security of such
property or rental obligations of Buyer or any Buyer Affiliate;
(e) Sale or Discount of Receivables. Sell with recourse, or discount
or otherwise sell for less than the face value thereof, any of its notes or
accounts receivable, except Buyer and any Buyer Affiliate may discount or
otherwise sell for less than the face value thereof, without recourse,
notes or accounts receivable the collection of which is doubtful in
accordance with GAAP; or
(f) Transactions with Affiliates. Directly or indirectly, purchase,
acquire, or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, in the ordinary course of business or
otherwise, any Buyer Affiliate or Affiliate of Buyer unless such
transaction or series of transactions is on terms that are no less
favorable than would be available in a comparable transaction with an
unrelated third party. Notwithstanding the foregoing, this provision will
not apply to any transaction with an officer or director of Buyer or any
Buyer Affiliate entered into in the ordinary course of business (including
compensation or employee benefit arrangements with any officer or director)
and transactions in
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existence on the date hereof, provided that such transactions were entered
into in accordance with the original agreements (as amended) in effect at
that time.
6.23 Non-Competition. If the Closing occurs, Seller and SJPC hereby agree
that, for a period of three (3) years following the Closing Date, Seller and
SJPC will not, and Seller and SJPC will cause their respective Affiliates (other
than individuals) not to, directly or indirectly, engage in any business which
is competitive with the Mill Business within the United States or Canada or
which is competitive with the Container Business within 300 miles of any of the
box plants included in the Real Property. Seller and SJPC acknowledge that FMC
and JV would be irreparably harmed by any breach of this Section 6.23 and that
there would be no adequate remedy in damages to compensate FMC or JV for any
such breach.
6.24 Financing. Buyer shall use its best efforts to (a) cause to be
provided the letters and documents listed in Section 10.01(e) hereof; (b) to
obtain the financing contemplated in such letters; and (c) cause to be satisfied
the closing condition set forth in Section 9.02(d) hereof. For this purpose, the
term "best efforts" shall not include causing (a) any of the forgoing to be in a
form not deemed commercially reasonable by FMC and JV in the context of
transactions similar to those contemplated by this Agreement or (b) any of the
terms and conditions relating to the issuance of common stock, preferred stock,
warrants or other equity interests in FMC and/or JV to be determined, subject to
the terms and conditions of the letters and documents listed in Section 10.01(e)
hereof and the commitment letters dated as of the Execution Date from FMC and
JV, other than in their sole judgment.
6.25 Additional Financial Statements. Seller, at its sole cost and
expense, will deliver to Buyer (i) no later than thirty-five (35) days after the
Execution Date, a copy of unaudited unconsolidated financial statements for each
of SJFP and SJCC consisting of a balance sheet, income statement and statement
of cash flows as of and for the years ended December 31, 1994, 1993 and 1992 and
the periods ended March 31, 1995, June 30, 1995 and September 30, 1995 and their
respective comparable fiscal 1994 periods and as soon as available, if available
prior to the Closing Date, comparable unaudited financial statements for periods
subsequent to September 30, 1995 (other than the period ended December 31, 1995)
and prior to the Closing Date (the "Unaudited Financial Statements"), and (ii)
no later than sixty (60) days after the Execution Date, a copy of audited
unconsolidated financial statements for each of SJFP and SJCC consisting of a
balance sheet, income statement and statement of cash flows as of and for the
years ended December 31, 1994, 1993 and 1992 and as soon as available comparable
audited financial statements as of and for the year ended December 31, 1995 (the
"Audited Financial Statements"). The Audited Financial Statements but not the
Unaudited Statements shall be deemed to be included in the term "Financial
Statements" for purposes of Section 4.04(a) hereof. Any delay in providing the
Unaudited Financial Statements or the Audited Financial Statements shall be
addressed in Section 10.01(e) hereof and shall not be deemed to be a breach of
the covenants in this Section 6.25.
ARTICLE VII
TAX MATTERS
7.01 Pre-Closing Tax Periods; Post-Closing Tax Periods; Bridge Tax
Periods.
(a) Seller represents to Buyer that there are no Liens for any Tax (other
than for any current Tax not yet due and payable) on the Acquired Assets.
(b) Seller shall be liable for, and shall indemnify and hold the Buyer
Group harmless from and against, all Taxes with respect to the Business and the
Acquired Assets for all Tax periods ending on or before the Closing Date
("Pre-Closing Tax Periods") plus 50% of all Transfer Taxes. Except with respect
to Transfer Taxes, Seller shall be responsible for preparing and filing all Tax
Returns with respect to Taxes relating to the Business and the Acquired Assets
for Pre-Closing Tax Periods.
(c) Buyer shall be liable for, and shall indemnify and hold the Seller
Group harmless from and against, all (i) Assumed Taxes and (ii) Taxes with
respect to the Business and the Acquired Assets for all Tax periods commencing
after the Closing Date ("Post-Closing Tax Periods"). Buyer shall be responsible
for preparing
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and filing all Tax Returns with respect to Transfer Taxes and with respect to
Taxes relating to the Business and the Acquired Assets for PostClosing Tax
Periods.
(d) For any taxable period or taxable reporting period which includes (but
does not end on) the Closing Date (a "Bridge Tax Period"), there shall be
allocated or apportioned between Seller and Buyer all Taxes other than Transfer
Taxes and Taxes based on income as follows: (i) for any payroll Taxes in respect
of Transferred Employees (including all Taxes under the Federal Insurance
Contributions Act and the Federal Unemployment Tax Act and other Taxes or
contributions related to compensation paid to such Transferred Employees),
allocation shall be made to the Seller and Buyer respectively based on actual
payroll accrued before and including the Closing Date and based on actual
payroll accrued after the Closing Date; (ii) for sales and use taxes other than
Transfer Taxes, allocation shall be made to Seller and Buyer respectively based
on actual sales before and including the Closing Date and based on actual sales
after the Closing Date using the method used for reporting sales to Tax
authorities; (iii) for purchase or value added Taxes, allocation shall be made
to Seller and Buyer respectively based on actual purchases before and including
the Closing Date and based on actual purchases after the Closing Date; (iv) for
other Taxes on which a measure of activity is used to measure or assess the Tax,
allocation shall be made to Seller and Buyer respectively based on the actual
measure of activity before and including the Closing Date and based on the
actual measure of activity after the Closing Date; (v) for Taxes which are
assessed on the basis of some measurement of value, including real and personal
property Taxes and capital or other intangibles Taxes, apportionment shall be
made to Seller and Buyer respectively based on actual valuations used by the Tax
authorities before and after the Closing Date and based on the number of days of
the Bridge Tax Period before and including the Closing Date and after the
Closing Date to Seller and Buyer respectively. Seller shall be liable for, and
shall defend and indemnify the Buyer Group from and against, the proportionate
amount of all such Taxes that are allocated or apportioned to it for the Bridge
Tax Period and Buyer shall be liable for, and shall defend and indemnify the
Seller Group from and against, the proportionate amount of all such Taxes that
are allocated or apportioned to it for the Bridge Tax Period. Buyer shall be
responsible for preparing and filing all Tax Returns for any Bridge Tax Period
in a manner consistent with the past practices (including accounting principles,
methods and elections) followed by Seller and shall submit all Tax Returns to
Seller for review and approval at least twenty (20) days prior to the filing
thereof. Seller shall review all such Tax Returns within ten (10) Business Days
of their receipt and inform Buyer in writing of any item(s) with which Seller
does not agree. Seller and Buyer shall negotiate in good faith to resolve all
disputed items.
7.02 Refunds or Credits. Any refunds or credits of Taxes, to the extent
that such refunds or credits are attributable to Taxes (other than Assumed
Taxes) for Pre-Closing Tax Periods, shall be for the account of Seller and, to
the extent that such refunds or credits are attributable to Taxes for
Post-Closing Tax Periods or to Assumed Taxes they shall be for the account of
Buyer. To the extent that such refunds or credits are attributable to Taxes for
a Bridge Tax Period, such refunds or credits shall be for the account of the
party who bears responsibility for such Taxes pursuant to Section 7.01(d). In
the event Buyer has any discretion to designate whether any credit or refund is
attributable to a Pre-Closing Tax Period, a Bridge Tax Period or a Post-Closing
Tax Period, the credit or refund shall be treated for purposes of this Agreement
as attributable to the earliest taxable period to which it may be attributed.
Each party shall promptly notify the other of any refund or credit which it
receives or expects to receive which is for the account of the other party.
Buyer shall promptly forward to Seller or reimburse Seller for any refunds or
credits due Seller hereunder after receipt thereof by or on behalf of Buyer with
interest from the date of receipt by Buyer, and Seller shall promptly forward to
Buyer or reimburse Buyer for any refunds or credits due Buyer hereunder after
receipt thereof by or on behalf of Seller with interest from the date of receipt
by Seller.
7.03 Mutual Cooperation. As soon as practicable, but in any event within
fifteen (15) days after a party's request, the other party shall deliver to it
such information and other data relating to Tax Returns and Taxes with respect
to the Business and the Acquired Assets and shall make available such of its
knowledgeable employees as the other party may reasonably request, including
providing the information and other data customarily required, to cause the
completion and filing of all Tax Returns for which it has responsibility or
liability under this Agreement or to respond to audits by any taxing authorities
with respect to any Tax Returns or taxable periods for which it (or any of its
Affiliates) has any responsibility or liability
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under this Agreement or to otherwise enable it (or any of its Affiliates) to
satisfy its reasonable accounting or Tax requirements.
7.04 Tax Audits. Within thirty (30) days after Buyer or Seller has
received oral or written notice (but in any event not less than thirty (30) days
before any response to any Governmental Entity is due) that any Governmental
Entity is auditing or investigating, or intends to audit or investigate, any
taxable period for which the other party may be liable, in whole or in part, to
it under this Agreement, Buyer or Seller, as the case may be, shall give to the
other party written notice of such audit or investigation, and shall tender to
the other party the defense of such audit or investigation with respect to Taxes
for which the other party may be liable in whole under this Article VII. If both
Buyer and Seller may be liable in part as to the same Tax, Buyer and Seller
shall have the right jointly to defend such audit or investigation. If the other
party accepts the tendered defense of any such audit or investigation, (a) the
tendering party shall execute and deliver to the other party all documents
necessary or appropriate (including powers of attorney) (i) to enable the other
party to act, at its sole cost and expense, on behalf of the tendering party in
defending against such audit or investigation, in the case of periods for which
the other party may be liable in whole, or (ii) to enable the other party to
defend against those issues raised in such audit or investigation for which the
other party may be liable, in the case of any taxable period or Taxes for which
the other party may be liable in part, and (b) the other party shall determine,
at its sole discretion, the manner in which such audit or investigation (in the
case of periods for which the other party may be liable in whole) will be
defended or settled and the other party shall defend or settle such audit or
investigation in good faith with respect to future taxes of the tendering party,
provided, however, that the tendering party may reject any settlement (or
portion thereof) proposed by the other party, in which case the other party will
have no obligation to indemnify the tendering party with respect to the taxable
period or Taxes under audit or investigation for any amount in excess of the
settlement proposed by the other party, reduced by the actual settlement amount,
if any, of the items the proposed settlement of which was not rejected by the
tendering party. Notwithstanding anything in this Agreement to the contrary, the
other party shall not be liable to the tendering party with respect to any Taxes
for which the other party's defense or settlement of the audit or investigation
has been adversely affected by the tendering party's failure to give the timely
written notice required by this Section 7.04. Each party shall keep the other
party fully informed of the status of all audits and investigations for which
the other party may be liable in whole or in part.
7.05 No Offset. To the extent that any party hereto is responsible for
any Tax pursuant to this Article VII or to receive or remit any refund or credit
in respect of any Tax, such party shall not offset its obligation to pay any
such Tax or to remit any such refund or credit by any claim it may have against
the other party under this Agreement or otherwise.
ARTICLE VIII
EMPLOYEE BENEFITS
8.01 Employee Benefit Plans.
(a) Section 8.01(a) of the Disclosure Schedule lists each of the following
plans, contracts, policies and arrangements which is sponsored, maintained,
administered or contributed to by, or otherwise binding upon Seller or any
Seller Affiliates or, in the case of an "employee pension plan" (as defined in
Section 3(2) of ERISA), an ERISA Affiliate for the benefit of any Eligible
Employee or a beneficiary thereof: (1) any "employee benefit plan," as such term
is defined in Section 3(3) of ERISA, which is subject to ERISA, and (2) any
other employment, consulting, stock option, stock bonus, stock purchase, phantom
stock, incentive, severance, deferred compensation, bonus, vacation, dependent
care, employee assistance, fringe benefit, medical, dental, sick leave, death
benefit, insurance or other material compensatory plan, contract, policy or
arrangement which is not an employee benefit plan as such term is defined in
Section 3(3) of ERISA. Each plan, contract or arrangement described in the
preceding sentence is herein referred to as a "Benefit Plan". With respect to
each Benefit Plan, Seller has provided or made available to Buyer a true and
complete copy of the governing documents and of the most recently distributed
summary material(s).
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(b) No Benefit Plan is a Multiemployer Plan. Neither Seller nor any ERISA
Affiliate has incurred or expects to incur any unpaid liability (contingent or
otherwise) under Title IV of ERISA in connection with a termination or
withdrawal from any funded pension plan (within the meaning of Section 3(2) of
ERISA) that is or could become an obligation of Buyer or any Buyer Affiliate.
With respect to any benefit plan which is a funded pension plan (within the
meaning of Section 3(2) of ERISA), there has been no accumulated funding
deficiency within the meaning of Section 302 of ERISA or Section 412 of the
Code, which has resulted or could result in the imposition of a Lien upon the
Acquired Assets or with respect to which Buyer or any Buyer Affiliate could have
any liability. Groveton Paperboard, Inc. is not, and never has been, an ERISA
Affiliate of Seller.
(c) Section 8.01(c) of the Disclosure Schedule lists each collective
bargaining agreement to which Seller or any Seller Affiliate is a party and
which covers any Eligible Employees ("Collective Bargaining Agreement"). Seller
has provided or made available to Buyer true and complete copies of each
Collective Bargaining Agreement, including any side letters thereto.
8.02 Employees and Offers of Employment. On or prior to the Closing Date,
Buyer or a Buyer Affiliate shall offer employment, subject to consummation of
the Closing, to the Eligible Employees, to commence as of the Closing Date.
Seller will provide to Buyer one day after the Financing Date a complete list of
all Eligible Employees, together with their annualized base salary or hourly
wage rate and a description of the amount and basis of their other compensation.
Seller will update the list for Buyer to reflect additions and deletions prior
to the Closing. Prior to the Closing, Seller and the Seller Affiliates will not
terminate the employment of or transfer any Eligible Employee to another
business of Seller other than in the ordinary course of business. All offers of
employment by Buyer or Buyer Affiliates to Eligible Employees shall be at the
same or higher salaries or hourly wage rates and with benefits commencing on the
Closing Date which, in the aggregate, are not less favorable than those in
effect under the Benefit Plans prior to the Closing Date, except that Buyer or
Buyer Affiliate does not maintain any stock option, stock bonus, stock purchase,
or phantom stock plans for its employees and except that Buyer or Buyer
Affiliates may make available participation in a defined contribution profit
sharing plan and not a defined benefit plan aggregate contributions to which
shall be no less than 3% of the aggregate covered pay of participants therein.
As to each collective bargaining unit covered under a Collective Bargaining
Agreement, if a majority of Eligible Employees in the unit accept an offer of
employment from Buyer or a Buyer Affiliate, the union representing such unit of
employees of Seller shall be recognized by Buyer or Buyer Affiliate as the
collective bargaining agent for such unit of employees of Buyer or Buyer
Affiliate. Buyer and Buyer Affiliates will waive any waiting periods under its
welfare plans and any preexisting conditions restrictions with respect to the
disability, life and health coverage which shall be provided for all Eligible
Employees who accept employment with Buyer or Buyer Affiliates (herein
collectively referred to as the "Transferred Employees").
8.03 Seller's Benefit Plans.
(a) Buyer will not assume the sponsorship of, the responsibility for
contributions to, or any liability in connection with, any Benefit Plan. Except
as provided in Section 8.05, with respect to any Transferred Employee, no assets
of any Benefit Plan shall be transferred to Buyer or any Buyer Affiliates or to
any plan of Buyer or any Buyer Affiliates. Accrued benefits or account balances
of Transferred Employees under the Benefit Plans which are funded employee
pension plans under Section 3(2) of ERISA shall be fully vested as of the
Closing Date.
(b) With respect to any Transferred Employee (including any beneficiary or
dependent thereof), Seller shall retain (i) all liabilities and obligations
arising under any group life, accident, medical, dental or disability plan
(whether or not insured) to the extent that such liability or obligation relates
to claims or expenses incurred (whether or not then reported) on or prior to the
Closing Date, (ii) all liabilities and obligations arising under any worker's
compensation arrangement to the extent such liability or obligation arises out
of an illness or injury that originated on or prior to the Closing Date, (iii)
all liabilities or other obligations incurred under or imposed by Section 4980B
of the Code due to qualifying events which occur on or prior to the Closing
Date, and (iv) all other liabilities or obligations incurred or arising under
any Collective Bargaining
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Agreement or individual employment agreement or by any statute pertaining to
employment relationships or common law pertaining to employment relationships on
or prior to the Closing Date.
8.04 Buyer Benefit Plans. Buyer and Buyer Affiliates will recognize all
service of the Transferred Employees with Seller or any of its Affiliates for
purposes of eligibility to participate and vesting in any employee benefit plans
(within the meaning of Section 3(3) of ERISA) of Buyer or any Buyer Affiliates,
and for determining the period of employment under any vacation, sick leave or
other paid time off plan of Buyer or any Buyer Affiliates, as well as for
determining other entitlements and terms of employment affected by seniority
under Buyer's or Buyer Affiliates' employment policies, except to the extent
such service with Seller is disregarded for such purposes under a corresponding
plan or policy of Seller. Buyer or Buyer Affiliates shall be liable for sick
leave, vacation or paid time off benefits accrued and untaken by each
Transferred Employee as of the Closing Date to the extent reflected in the
calculation of Closing Net Working Capital and shall provide such benefits to
the Transferred Employees in accordance with Buyer's and Buyer Affiliates'
standard policies concerning the use of or payment for same, to the extent that
the same shall be included in the calculation of the Closing Net Working
Capital.
8.05 Seller's 401(k) Plan. As soon as practicable after the Closing,
Seller will give or will cause to be given to each Transferred Employee the
following choices with respect to the disposition of his or her account balance
under the 401(k) Plan: (a) an immediate payout from the 401(k) Plan, (b) a
deferred payout from the 401(k) Plan, or (c) if Buyer or Buyer Affiliate
maintains a qualified plan (under Section 4.01(a) of the Code) (the "Buyer's
Plan") direct roll over to the Buyer's or Buyer Affiliate's Plan.
8.06 Early Retirement Incentive. Seller, at JV's request (if made within
six (6) months after the Closing Date), will use its best efforts to establish
an early retirement incentive program (the "Incentive Program") offering
supplemental retirement pension benefits to designated eligible Transferred
Employees of SJFP as reasonably proposed by JV within the limitations of this
Section 8.06. In connection therewith, Seller will use its best efforts to amend
its funded pension plans to provide such supplemental benefits to those
Transferred Employees of SJFP who elect early retirement under the Incentive
Program, provided, however, that (a) Seller's obligation shall be limited to
fifteen salaried and thirty-five hourly Transferred Employees, (b) the present
value of the supplemental benefits provided by Seller's plans, determined by the
plans' actuarial consultants in accordance with the interest and mortality
assumptions used by the plans in determining benefit values, will be limited to
$500,000 in the case of salaried employees and $600,000 in the case of hourly
employees, (c) Seller's obligation will be contingent upon its receipt of an
opinion of Buyer's counsel reasonably satisfactory to Seller's counsel to the
effect that the amendment of Seller's plans to provide the supplemental
retirement pension benefits will not adversely affect the qualified status of
Seller's plans under Section 401(a) of the Code and will not be in violation of
applicable law, (d) JV will indemnify the Seller Group and Seller's and Seller
Affiliates' plans under which such supplemental benefits are provided from and
against any liability, cost or expense which may be incurred by the Seller Group
or Seller's or Seller Affiliate's plans in connection with claims or demands
arising from the amendment of such plans to provide such benefits and/or the
payment of supplemental retirement pension benefits pursuant to this Section
8.06 in reliance upon the aforesaid opinion of counsel, except claims for the
payment of supplemental benefits payable pursuant to the amendments, (e) group
health coverage for any Transferred Employee who accepts the early retirement
offer (and his/her eligible dependents) shall be provided by either Seller or JV
as mutually agreed at the expense of Seller and JV until the Transferred
Employee reaches age 65, provided that Seller's share shall be no greater than
50% of the total cost and no greater than a total of $400,000; and (f) Seller's
obligation under this Section 8.06 will apply only with respect to early
retirement incentive offers which are made within six months after the Closing
Date and which are accepted within twelve months after the Closing Date. Seller
will furnish JV with copies of the Incentive Program documents and advance
copies of any written materials which Seller proposes to furnish to Transferred
Employees in connection with the Incentive Program. Notwithstanding anything to
the contrary herein, Seller's obligation in this Section 8.06 will extend to one
Incentive Program, irrespective of whether any Transferred Employees of SJFP
accept such early retirement offers.
8.07 Severance. Buyer shall have the sole responsibility for making or
causing to be made any applicable severance payments and any other applicable
similar payment (including any payment under the
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Worker Adjustment and Retraining Act ("WARN"), or any similar law) to
Transferred Employees in the event their services are terminated after the
Closing Date. Buyer shall be liable for any continuation coverage (including any
penalties, excise taxes or interest resulting from the failure to provide
continuation coverage) required by Section 4980B of the Code due to qualifying
events which occur with respect to Transferred Employees (or their dependents)
after the Closing Date. Notwithstanding anything to the contrary contained
herein, if Buyer or a Buyer Affiliate terminates or causes the termination of
the employment of (i) any Listed Employee at any time within one year of the
Closing Date, then, unless such Listed Employee's employment is terminated for
cause (defined below), Buyer shall pay or cause to be paid to such terminated
Listed Employee a lump sum severance payment in an amount equal to the annual
salary of any such Listed Employee at the time of termination (or, if greater,
immediately prior to the Closing Date), and the prior year's bonus, if any,
granted in the ordinary course of business, which severance and bonus payments
shall be subject to applicable income tax withholding; or (ii) any Other
Employee within six months of the Closing Date, then, unless such Other
Employee's employment is terminated for cause, Buyer shall pay or cause to be
paid to such Other Employee a lump sum severance payment in an amount equal to
the gross weekly regular straight-time rate of pay of such Other Employee at the
time of termination (or, if greater, immediately prior to the Closing Date)
multiplied by the aggregate number of years (including a fraction of a year) of
such Other Employee's employment with Seller, any Seller Affiliate, Buyer and
any Buyer Affiliate, with a minimum severance payment of four weeks of the
foregoing weekly rate of pay, and a pro rata share of the prior year's bonus, if
any, granted in the ordinary course of business, determined by multiplying the
prior year's bonus by a fraction, the numerator of which is the number of weeks
for which severance is to be paid and the denominator of which is 52, which
severance payments shall be subject to applicable income tax withholding. In
addition, any terminated Listed Employee or Other Employee entitled to a lump
sum severance payment under this Section 8.07 shall also be entitled to receive
from Buyer or a Buyer Affiliate the first six months of COBRA continuation
coverage at no premium cost to him or her. For the purpose of this Section 8.07,
the term "cause" shall mean (i) the failure or refusal of an employee to
substantially perform the material duties of his or her employment with Buyer,
or any Buyer Affiliate, subject to a written notice and cure period of at least
thirty (30) days; (ii) commission by the employee of a crime involving moral
turpitude, or (iii) the employee's wilful engagement in conduct which is
materially injurious to the business of the Buyer. An employee shall be deemed
to have been terminated by Buyer or a Buyer Affiliate without cause if he or she
terminates employment because of a refusal to accept an offer of employment by
Buyer or a Buyer Affiliate at a business location which is more than one hundred
miles from his or her present location of employment or if his or her duties or
employment status are materially altered by Buyer or Buyer Affiliate without his
or her consent.
8.08 Labor Controversies. Except as set forth in Section 8.08 of the
Disclosure Schedule, Seller represents and warrants with respect to Eligible
Employees that as of the Execution Date and, subject to Buyer's and Buyer
Affiliates' compliance with this Article VIII, as of the Closing Date neither
Seller nor any of the Seller Affiliates has received written notice of its being
a party to any grievance, arbitration, demand, labor dispute or unfair practice
proceeding with respect to claims of, or obligations to, Eligible Employees that
could reasonably be expected to have a Material Adverse Effect.
8.09 No Third Party Beneficiaries. No provision of this Article VIII or
this Agreement shall create any third party beneficiary or other rights in any
employee or former employee (including any beneficiary or dependent thereof) or
collective bargaining agent of such present or former employee of Seller or
Seller Affiliates in respect of continued employment (or resumed employment)
with either Buyer, Seller, the Business or any of Buyer or Seller Affiliates and
no provision of this Article VIII or this Agreement shall create any such rights
in any such employee or former employee or collective bargaining agent in
respect of any benefits that may be provided, directly or indirectly, under any
Benefit Plan or any plan or arrangement which may be established by Buyer or
Buyer Affiliates.
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ARTICLE IX
CONDITIONS TO CLOSING
9.01 Conditions to the Obligations of Each Party. The obligations of
Buyer and Seller to consummate the Closing are subject to the satisfaction of
the following conditions:
(a) all required waiting periods under the HSR Act shall have expired
or been terminated;
(b) all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations or terminations of waiting
periods imposed by, any Governmental Entity necessary to effect the
transactions contemplated by this Agreement shall have occurred, been filed
or been obtained, subject to Section 10.01(f)(ii); and
(c) no judgment, injunction, order or decree of any court, arbitrator
or Governmental Entity shall restrain or prohibit the consummation of the
Closing.
9.02 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction, or waiver by FMC if it
pertains to the Container Assets or JV if it pertains to the Mill Assets, of the
following further conditions and Seller shall use its best efforts to cause each
such condition to be timely satisfied:
(a) Each of the representations and warranties of Seller in this
Agreement shall be true and correct in all material respects as of the date
hereof and (except the representation in Section 4.09(a)(ii), which shall
be superseded by Section 9.01(b)) at and as of the Closing Date with the
same effect as though such representations and warranties had been made at
and as of the Closing Date, other than representations and warranties that
speak as of a specific date or time (which need only be true and correct as
of such date or time);
(b) Seller shall have performed in all material respects all
obligations and complied in all material respects with all covenants
required to be performed or complied with by it under this Agreement at or
prior to the Closing Date;
(c) Buyer shall have received at the Closing a certificate to the
effect of (a) and (b) above, dated the Closing Date and duly executed on
behalf of Seller; and
(d) Buyer shall have obtained the debt financing required in order to
consummate the transactions contemplated by this Agreement.
9.03 Conditions to Obligation of Seller. The obligation of Seller to
consummate the Closing is subject to the satisfaction, or waiver by Seller, of
the following further conditions:
(a) The representations and warranties of Buyer in this Agreement
shall be true and correct in all material respects as of the date hereof
and (except for the representation in Section 5.05(b), which shall be
superseded by Section 9.01(b)) at and as of the Closing Date with the same
effect as though such representations and warranties had been made at and
as of such time, other than representations and warranties that speak as of
a specific date or time (which need only be true and correct as of such
date or time);
(b) Buyer shall have performed in all material respects all
obligations and complied in all material respects with all covenants
required to be performed or complied with by it under this Agreement at or
prior to the Closing Date;
(c) Seller shall have received at the Closing a certificate to the
effect of (a) and (b) above, dated the Closing Date and duly executed on
behalf of Buyer;
(d) A majority of the outstanding shares of capital stock of SJPC
shall have approved this Agreement and consummation of the transactions
contemplated thereby;
(e) Dillon, Read & Co. Inc. shall not have withdrawn its opinion as to
the fairness of the transactions contemplated by this Agreement to the
stockholders of SJPC; and
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(f) Notwithstanding anything to the contrary herein, Seller shall not
be required to close any portion of the transactions contemplated by this
Agreement unless both FMC and JV have satisfied the aforementioned Closing
conditions.
ARTICLE X
TERMINATION AND ABANDONMENT
10.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of Seller and Buyer; or
(b) by either Seller or Buyer if the Closing shall not have occurred
on or before May 31, 1996 (unless the failure to consummate the Closing by
such date shall be due to the action or failure to act of the party seeking
to terminate this Agreement in violation of its covenants pursuant to this
Agreement, in which case the foregoing date shall be extended by the period
of delay due to such action or failure to act); or
(c) by either Seller or Buyer if the other party shall (i) fail to
perform in any material respect its agreements contained herein required to
be performed by it at or prior to the date of termination or (ii)
materially breach any of its representations or warranties contained herein
as of the date when made, and in either such case such party fails to cure
such failure or breach promptly upon notice from the party asserting a
right to terminate pursuant to this subparagraph (c); or
(d) by either Seller or Buyer in the event that any arbitrator or
Governmental Entity shall have issued a judgment, injunction, order or
decree restraining or prohibiting the consummation of the Closing, and such
judgment, injunction, order or decree shall have become final and
nonappealable; or
(e) by Seller or Buyer, if Buyer fails or is unable to provide Seller
(i) an equity commitment letter or letters no later than forty-five (45)
days after the Execution Date, (ii) an updated equity commitment letter or
letters, including from FMC and SCC no later than the Financing Date which
contain no conditions other than debt financing and satisfaction by the
parties of the conditions to Closing set forth in Article IX of this
Agreement; (iii) a highly confident letter from Bear Stearns as to the high
yield debt no later than fifty (50) days after the Execution Date, (iv) an
updated highly confident letter as to the same no later than the Financing
Date which contains no environmental conditions and, upon the request of
Seller, a reaffirmation after the Financing Date of the highly confident
letter issued on the Financing Date; (v) an initialed term sheet from its
bank as to a term loan and revolving credit facility no later than the
Financing Date, in each case satisfactory to Seller in its sole discretion;
and (vi) evidence satisfactory to Seller that FMC and SCC shall have duly
organized JV, subject only to capitalization thereof and shall have
approved by all necessary corporate action and executed and delivered their
shareholders' and any other related agreements with respect thereto no
later than the Financing Date; provided that if the Unaudited Financial
Statements are not delivered to Buyer by the thirty-fifth (35th) day after
the Execution Date, each date in (i) and (iii) above by which Buyer is
required to provide certain documentation shall be increased one day for
each day beyond such thirty-fifth (35th) day after the Execution Date to
and including the date of delivery of the Unaudited Financial Statements;
and provided further that from and after any such failure on the part of
Buyer to provide such letters to Seller when due, the applicability of
Section 6.16 of this Agreement shall be terminated and be of no further
force and effect; or
(f) by Buyer no later than the Financing Date if an environmental
audit report from an environmental consultant of national standing
indicates either (i) that the mill facility of SJFP or any of the other
Real Property is (x) subject to any Environmental Liabilities not
identified in Sections 11.07 and 11.08 of the Disclosure Schedule and (y)
subject to On-Site Environmental Liabilities which could reasonably be
expected to involve aggregate remediation costs in excess of $2,000,000,
not including costs incurred pursuant to Sections 11.07 and 11.08, or (ii)
that Environmental Permits identified in Disclosure Schedule 4.10(a) cannot
be transferred or assigned to Buyer and that the absence of any such
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Environmental Permits would have a material adverse effect on the
properties, business or condition of Buyer and Buyer Affiliates taken as a
whole.
10.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.01 hereof:
(a) Each party will redeliver all documents, work papers and other
materials of the other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same; and
(b) Neither party hereto shall have any liability or further
obligation of any nature to the other party to this Agreement except as
provided in the last sentence of Section 6.02, and in Section 12.03 and
except for any breach of this Agreement prior to such date of which Seller
or Buyer, as the case may be, shall have received notice in accordance with
Section 10.01(c).
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01 Survival. All representations and warranties of the parties
contained in this Agreement or in the Disclosure Schedule shall survive for
eighteen months following the earlier of the Closing Date and March 31, 1996,
provided that the survival period shall not be less than one year from the
Closing Date. No action or proceeding may be brought with respect to any of the
representations and warranties unless written notice thereof, setting forth in
reasonable detail the nature of the claimed misrepresentation or breach of
warranty, shall have been delivered to the party alleged to be in breach on or
prior to the expiration of the period provided above. The covenants and
agreements of the parties hereto shall not be subject to the foregoing
limitation, including Seller's obligations with respect to Retained Liabilities
and Buyer's obligations with respect to Assumed Liabilities upon all of the
terms and conditions hereof, notwithstanding any reference in the applicable
provisions hereof to representations and warranties which may have expired. If
the Closing occurs the exclusive remedy under this Agreement for Environmental
Liabilities incurred by Buyer and Buyer Affiliates for breach of the
representations in Sections 4.09, 4.10 and 4.13(f) and (g) shall be found in
Section 11.05.
11.02 Indemnification. Subject to the other provisions of this Article
XI, from and after the Closing (a) SJPC and SJCC, jointly and severally, shall
indemnify and hold harmless the FMC Group from and against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement, losses, claims and damages (collectively, "Losses and Damages") to
the extent they arise from (i) a breach of any representation or warranty of
Seller contained in or made pursuant to this Agreement with respect to the
Container Assets or the Container Business, (ii) failure to perform any covenant
made by or on behalf of Seller under this Agreement with respect to the
Container Assets or the Container Business, (iii) any Liens other than Permitted
Liens with respect to the Container Assets or the Container Business (other than
the Real Property and Realty Rights which are the subject of Section 6.12) and
(iv) Retained Liabilities with respect to the Container Assets or the Container
Business, (b) SJPC and SJFP, jointly and severally, shall indemnify and hold
harmless the JV Group from and against Losses and Damages to the extent they
arise from (i) a breach of any representation or warranty of Seller contained in
or made pursuant to this Agreement with respect to the Mill Assets or the Mill
Business, (ii) failure to perform any covenant made by or on behalf of Seller
under this Agreement with respect to the Mill Assets or the Mill Business, (iii)
any Liens other than Permitted Liens with respect to the Mill Assets or the Mill
Business (other than the Real Property, the SJLD Property and Realty Rights
which are the subject of Section 6.12) and (iv) Retained Liabilities with
respect to the Mill Assets or the Mill Business, (c) FMC shall indemnify and
hold harmless the Seller Group from and against all Losses and Damages to the
extent that they arise from (i) a breach of any representation or warranty of
FMC or any FMC Affiliates (other than JV) contained in or made pursuant to this
Agreement, (ii) failure to perform any covenant made by or on behalf of FMC or
any FMC Affiliate (other than JV) under this Agreement, or (iii) any Assumed
Liabilities assumed by FMC or any FMC Affiliate (other than JV), and (d) JV and
JV Affiliates shall indemnify and hold harmless the Seller Group
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from and against all Losses and Damages to the extent they arise from (i) a
breach of any representation or warranty of JV contained in or made pursuant to
this Agreement, (ii) failure to perform any covenant made by or on behalf of JV
under this Agreement, or (iii) any Assumed Liabilities assumed by JV. The Seller
Group, the FMC Group or the JV Group, as the case may be, are referred to herein
as the "Indemnified Parties." Notwithstanding anything to the contrary in this
Article XI, all indemnification obligations with respect to Environmental
Liabilities shall be exclusively those provided in Sections 11.05 and 11.09.
11.03 Procedures. If an Indemnified Party intends to seek indemnity under
this Article XI, such Indemnified Party shall promptly notify Seller, FMC or JV,
as the case may be (the "Indemnifying Party"), in writing of such claims setting
forth the basis for and the amount of such claims in reasonable detail, provided
that the failure to provide such notice shall not affect the obligations of the
Indemnifying Party unless it is actually prejudiced thereby, subject, however,
to the time periods in Sections 11.01 and 11.05 hereof. In the event such claim
involves a claim by a third party against the Indemnified Party, the
Indemnifying Party shall have thirty (30) days after receipt of such notice to
decide whether it will undertake, conduct and control, through counsel of its
own choosing and at its own expense, the settlement or defense thereof, and if
it so decides, the Indemnified Party shall cooperate with it in connection
therewith; provided that the Indemnifying Party may so undertake, conduct and
control the settlement or defense thereof only if it acknowledges its
indemnification obligations hereunder and the Indemnified Party may participate
(subject to the Indemnifying Party's control) in such settlement or defense
through counsel chosen by it; and provided further that the fees and expenses of
such Indemnified Party's counsel shall be borne by the Indemnified Party. If the
defendants in any action include the Indemnified Party and the Indemnifying
Party, and the Indemnified Party shall have been advised by its counsel in
writing that there are legal defenses available to the Indemnified Party which
are materially different from or in addition to those available to the
Indemnifying Party, the Indemnified Party shall have the right to employ its own
counsel in such action, and, in such event, the reasonable fees and expenses of
such counsel shall be borne by the Indemnifying Party. The Indemnifying Party
may, without the consent of the Indemnified Party, settle or compromise or
consent to the entry of any judgment in any action involving only the payment of
money which includes as an unconditional term thereof the delivery by the
claimant or plaintiff to the Indemnified Party of a duly executed written
release of the Indemnified Party from all liability in respect of such action
which written release shall be reasonably satisfactory in form and substance to
the Indemnified Party. The Indemnifying Party shall not, without the written
consent of the Indemnified Party, settle or compromise any action involving
relief other than the payment of money in any manner that, in the reasonable
judgment of the Indemnified Party, would materially and adversely affect the
Indemnified Party; provided, however, that if the Indemnified Party shall fail
or refuse to consent to a settlement, compromise or judgment proposed by the
Indemnifying Party and approved by the third party in any such action and a
judgment thereafter shall be entered or a settlement or compromise thereafter
shall be effected on terms less favorable in the aggregate to the Indemnified
Party than the settlement, compromise or judgment proposed by the Indemnifying
Party and approved by the third Person on such action, the Indemnifying Party
shall have no liability hereunder with respect to any Losses and Damages in
excess of those that were provided for in such settlement, compromise or
judgment so proposed by the Indemnifying Party or any costs or expenses related
to such claim arising after the date such settlement, compromise or judgment was
so proposed. So long as the Indemnifying Party is contesting any such claim in
good faith, the Indemnified Party shall not pay or settle any such claim, unless
such settlement includes as an unconditional term thereof the delivery by the
claimant or plaintiff and by the Indemnified Party to the Indemnifying Party of
duly executed written releases of the Indemnifying Party from all liability in
respect of such claim which written releases shall be reasonably satisfactory in
form and substance to the Indemnifying Party. The Indemnified Party shall
cooperate fully in all aspects of any investigation, defense, pre-trial
activities, trial, compromise, settlement or discharge of any claim in respect
of which indemnification is sought pursuant to this Article XI. If the
Indemnifying Party does not notify the Indemnified Party within thirty (30) days
after the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof or does not
acknowledge its indemnification obligations with respect thereto, the
Indemnified Party shall have the right to contest, settle or compromise the
claim but shall not thereby waive any right to indemnity therefor pursuant to
this Agreement.
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11.04 Tax, Insurance and Other Benefits. The amount of any claim by an
Indemnified Party shall be reduced by any Tax, insurance or other benefits which
such party or its Group receives in respect of or as a result of such claim or
the facts or circumstances relating thereto. If any Losses and Damages for which
indemnification is provided hereunder are subsequently reduced by any Tax
benefit, insurance payment or other recovery from a third party, the amount of
such reduction shall be remitted to the Indemnifying Party. To the extent the
receipt of any indemnification payment will result in an increase of the amount
of tax payable by the recipient, the Indemnifying Party will increase the amount
of its indemnification payment so that the amount received after the payment of
all taxes payable as a result of such receipt shall equal the amount of Losses
and Damages for which indemnification is provided.
11.05 Environmental Indemnification.
(a) Except as otherwise provided in Sections 11.07 and 11.08 if the Closing
occurs, On-Site Environmental Liabilities (as defined in Section 11.05(e))
arising from conditions existing on the Closing Date shall be paid by Buyer and
Seller according to the following schedule:
100% of the first $2,500,000 of On-Site Environmental
Liabilities shall be paid by Buyer;
100% of the next $2,500,000 of On-Site Environmental
Liabilities shall be paid by Seller;
100% of the next $2,500,000 of On-Site Environmental
Liabilities shall be paid by Buyer,
100% of the next $2,500,000 of On-Site Environmental
Liabilities shall be paid by Seller;
100% of the next $2,500,000 of On-Site Environmental
Liabilities shall be paid by Buyer; and
100% of the next $5,000,000 of On-Site Environmental
Liabilities shall be paid by Seller;
provided that (i) Environmental Conditions that give rise to On-Site
Environmental Liabilities are discovered and Seller is notified thereof with
reasonable specificity by Buyer not later than three (3) years after the Closing
Date (which notice shall be sufficient even if the source and extent of the
problem to be remedied cannot be fully or completely identified) consistent with
Exhibit I attached hereto, and (ii) Seller has received invoices or statements
for On-Site Environmental Liabilities within five (5) years after the Closing
Date; provided, however that the running of such five (5) year period shall be
extended (A) until the completion of remedial projects which are substantially
underway or are under continuing contest with a Governmental Entity within five
(5) years after the Closing Date and (B) for the period of time, if any,
beginning on the date of the applicable Trigger Notice relating to a dispute
described in paragraph 3 of Exhibit I and ending on the date the arbitrator
gives Seller and Buyer notice of its decision pursuant to the terms of Exhibit I
(and any payment of Seller which would be due but for a dispute with respect
thereto as referred to in paragraph 3 of Exhibit I shall be required of Seller
to the extent such dispute is resolved in favor of Buyer promptly after such
resolution). Buyer and Buyer Affiliates shall have no rights against Seller for
On-Site Environmental Liabilities which result from the acts or omissions of
Buyer or Buyer Affiliates after the Closing Date. The payment of On-Site
Environmental Liabilities by JV and FMC and their Affiliates shall be aggregated
for the purposes of determining payments by Buyer in this Section 11.05 and the
payment of On-Site Environmental Liabilities by SJFP, SJCC and SJPC for the
benefit of either JV or FMC shall be aggregated for the purposes of determining
payments by Seller in this Section 11.05. In no event shall Seller or Seller
Affiliates in the aggregate have any obligation to JV, FMC or Affiliates thereof
or to such other Persons or Group to which Seller or Seller Affiliates may have
obligations under Section 11.05(g) for On-Site Environmental Liabilities under
this Agreement or under statute or common law (excluding the specific
obligations Seller has assumed under Sections 11.07 and 11.08) in excess of
$10,000,000.
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(b) For purposes of defining Seller's obligations under this Section 11.05,
On-Site Environmental Liabilities shall not include conditions, claims, losses,
or causes of action which arise because of a change in any law or regulation
becoming effective after the Execution Date and imposing new requirements,
conditions, or obligations on Buyer or Buyer Affiliates or the Acquired Assets,
including but not limited to the adoption or modification of regulations under
Title V of the Clean Air Act or related to the Cluster Rules; provided, however,
that On-Site Environmental Liabilities shall be defined to include for the three
(3) years after the Closing Date conditions, claims, losses or causes of action
which both (i) arise for the first time from a statute or regulation enacted,
adopted or amended after the Execution Date and (ii) arise from an activity or
operation not continued or contributed to by Buyer during that three (3) year
period. It is specifically understood that in no event shall Buyer seek or Buyer
Affiliates seek nor recover any payment from Seller for any Environmental
Liabilities Buyer or Buyer Affiliates may incur in order to comply with any
regulatory or permitting requirements which are not, on the Execution Date, then
specially and currently enforceable under Federal or state law against the
Acquired Assets or the Business and in no event shall Buyer or Buyer Affiliates
seek nor recover any payments under this Section 11.05 or otherwise for costs
Buyer or Buyer Affiliates may incur to comply with the requirements of Title V
of the Clean Air Act or to comply with the Cluster Rules, it being agreed that
all costs required for compliance with such programs shall be borne entirely by
Buyer and Buyer Affiliates regardless of when those requirements might be deemed
specifically applicable to any of the Acquired Assets or the Business.
(c) If the Closing occurs, Buyer and Buyer Affiliates shall take full
responsibility for all On-Site Environmental Liabilities not specifically agreed
to be assumed by Seller pursuant to Section 11.05(a). In the event that On-Site
Environmental Liabilities arise from Environmental Conditions which were caused
by or arise from acts or omissions which occurred both before and after the
Closing Date, such liabilities shall be allocated between the periods before and
after the Closing Date based upon the relative contribution of the acts or
omissions occurring in each period to such On-Site Environmental Liabilities and
then only that share of the On-Site Environmental Liabilities allocated to the
periods before the Closing Date will be deemed to be included within the On-Site
Environmental Liabilities covered by Buyer and Seller in Section 11.05(a).
(d) FMC and JV and their Affiliates shall have no rights to recovery or
indemnification for On-Site Environmental Liabilities under this Agreement,
common law, or any statute or regulation other than the rights and remedies
specifically provided in Sections 11.05(a), 11.07 and 11.08, and all rights or
remedies FMC and JV and their Affiliates may have at common law or under any
statute or regulation with respect to On-Site Environmental Liabilities are
expressly waived. FMC AND JV AND THEIR AFFILIATES DO HEREBY AGREE, WARRANT, AND
COVENANT TO RELEASE, ACQUIT, AND FOREVER DISCHARGE SELLER GROUP FROM ANY AND ALL
CLAIMS, DEMANDS, CAUSES OF ACTION OF WHATSOEVER NATURE, INCLUDING WITHOUT
LIMITATION ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION FOR CONTRIBUTION AND
INDEMNITY UNDER STATUTE OR COMMON LAW, WHICH COULD BE ASSERTED NOW OR IN THE
FUTURE AND THAT RELATE TO OR IN ANY WAY ARISE OUT OF ON-SITE ENVIRONMENTAL
LIABILITIES. FMC AND JV AND THEIR AFFILIATES WARRANT, AGREE, AND COVENANT NOT TO
SUE THE SELLER GROUP UPON ANY CLAIM, DEMAND, OR CAUSE OF ACTION, INCLUDING
WITHOUT LIMITATION ANY CLAIM, DEMAND, OR CAUSE OF ACTION FOR INDEMNITY AND
CONTRIBUTION THAT HAVE BEEN ASSERTED OR COULD BE ASSERTED FOR ENVIRONMENTAL
LIABILITIES, EXCEPT FOR THE PURPOSE OF ENFORCING SECTIONS 11.05, 11.07, 11.08,
AND 11.09.
(e) With respect to Environmental Conditions existing on the Closing Date
it is intended that the Environmental Liabilities under Section 11.05(a) and
11.05(b) be allocated between the parties based on the property lines of the
Real Property and the SJLD Property conveyed, with Buyer and Buyer Affiliates
taking full responsibility (subject to Section 11.05(a)) for On-Site
Environmental Liabilities and Seller or Buyer taking full responsibility, as the
case may be, or Buyer and Seller sharing responsibility for Off-Site
Environmental Liabilities, as described below. For purposes of this Section
11.05, therefore, "On-Site Environmental Liabilities" shall mean Environmental
Liabilities which are incurred for Environmental Conditions within the
boundaries of the Real Property and the SJLD Property conveyed to Buyer under
this
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Agreement and which arise out of Environmental Conditions or events existing or
occurring prior to the Closing Date and "Off-Site Environmental Liabilities"
shall mean Environmental Liabilities other than On-Site Environmental
Liabilities; provided that in no event shall Seller be responsible for acts or
omissions of Buyer after the Closing Date. With respect to Off-Site
Environmental Liabilities only, Buyer and Seller agree that where the
Environmental Liabilities were caused by acts or omissions which occurred both
before and after the Closing Date, responsibility between Buyer and Seller shall
be allocated between the two parties based upon the relative contribution of
acts or omissions during each period to the injury or harm; provided that if
Buyer has not contributed to such acts or omissions its relative contribution
shall be zero and provided further that if Seller has not contributed to such
acts or omissions its relative contribution shall be zero. Buyer and Seller
agree that for purposes of Section 11.05 when an Environmental Condition exists
which requires remediation costs to be incurred both within and without the
boundaries of the Real Property and the SJLD Property such remediation costs
incurred for work within the boundaries of the Real Property and the SJLD
Property will be deemed On-Site Environmental Liabilities and those remediation
costs for work outside such boundaries shall be deemed Off-Site Environmental
Liabilities, provided that where Buyer (or Buyer Affiliates) and Seller (or
Seller Affiliates) both contributed to the harm beyond the boundaries of the
Real Property and the SJLD Property the Environmental Liabilities will be
allocated as provided in the preceding sentence.
(f) All claims by Buyer and Buyer Affiliates for payment of On-Site
Environmental Liabilities under Section 11.05(a) which must be resolved by
initiation of construction, remediation, monitoring, disposal or related
activities shall be presented and resolved in accordance with Exhibit I. All
other claims for OnSite Environmental Liabilities shall be asserted and resolved
in accordance with the procedures specified in Section 11.03.
(g) In the event of a Change of Control, all of Seller's obligations in
this Section 11.05 shall terminate, except for Off-Site Environmental
Liabilities for which Seller was solely responsible; however, Buyer's and Buyer
Affiliates' obligations under Section 11.05(d) shall continue. "Change of
Control" means (a) any transaction (including a merger or consolidation) the
result of which is that any Person or Group (as defined in Rule 13d-5 of the
Exchange Act), other than the Principals or the Lenders acquires, directly or
indirectly, more than 50% of the total voting power of all classes of voting
stock of FMC or JV, as the case may be; (b) any transaction (including a merger
or consolidation) the result of which is that any Person or Group (as defined in
Rule 13d-5 of the Exchange Act), other than the Principals or the Lenders has a
sufficient number of its or their nominees elected to the board of directors of
FMC or JV, as the case may be such that such nominees so elected (whether new or
continuing as directors) shall constitute a majority of the board of directors
of FMC or JV, as the case may be; or (c) the sale of all or substantially all of
the capital stock of FMC or JV, as the case may be to any Person or Group (as
defined in Rule 13d-5 of the Exchange Act), other than the Principals or the
Lenders as an entirety or substantially as an entirety in one transaction or a
series of related transactions; or (d) the sale or transfer of all or
substantially all of the assets of FMC or JV, as the case may be, as an entirety
or substantially as an entirety in one transaction or series of related
transactions to any Person other than the Principals or the Lenders; provided
that in the event any of the Principals or Lenders is involved in any change of
control in which they are exempted as described in (a)-(d) above and either JV
or FMC is no longer the entity directly holding the Mill Assets or the Container
Assets, respectively, then such Principals or Lenders agree to cause the Person
which will directly hold such assets upon the Change of Control to agree in
writing in a form acceptable to Seller to be bound by Section 11.05(d);
otherwise all of Seller's obligations in Section 11.05 as described in the first
sentence of this Section 11.05(g) will terminate upon such Change of Control.
For the foregoing purposes, the term "Principals" shall mean (x) Dennis Mehiel
in the case of FMC, (y) FMC and SCC in the case of JV, and (z) any Subsidiary of
Dennis Mehiel, FMC or SCC; and the term "Lenders" shall mean one or more
institutional lenders which provided any of the debt financing that was issued
to FMC or JV as of the Closing Date in connection with the transactions
contemplated by this Agreement.
(h) SJPC shall be jointly and severally liable with SJFP or SJCC, as the
case may be, for Seller's obligations under this Section 11.05.
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11.06 Environmental Audit. Buyer may desire to engage a third party
environmental consulting firm for the purposes of conducting prior to the
Financing Date an environmental audit or survey of the Real Property and the
SJLD Property satisfactory to the Buyer which may include a phase 1 and phase 2
environmental audit or survey. If Buyer so elects, Seller shall permit such
firm, its agents and employees, and Buyer, its employees, agents and other
representatives, to enter upon such properties and conduct such surveys, tests
and evaluations as may be reasonably requested by Buyer or such firm, all at
Buyer's sole expense, risk and cost under the terms of a Property Access
Agreement in the form attached hereto as Exhibit J. In connection with any such
audit and survey, Seller shall cooperate with Buyer and said firm in connection
with scheduling and conducting said surveys, tests and evaluations to the extent
the same do not unreasonably interfere with the normal operations of Seller and
Seller Affiliates conducted at such properties. If Buyer elects to cause such
environmental audit or survey to be conducted and a report is prepared by said
firm in connection therewith, Buyer agrees promptly to provide a copy at no cost
to Seller thereof to Seller if requested by Seller at Closing.
11.07 Work To Be Completed by Seller.
(a) Seller shall use its best efforts to complete the removal of asbestos
from the steam pipe (140 lbs.) which runs from the Turbine Room to the Digester
in the Turbine and old Boiler Room areas and the removal and replacement of
electric transformers (GE5848920, GE5711610, and GE5711609) with a single
transformer, at the mill facility at Port St. Joe at Seller's sole cost and
expense before Closing. If, however, that work is not completed prior to
Closing, Seller shall cause such work to be completed promptly thereafter.
Seller shall have no other obligations under this Agreement for asbestos or
transformers except to the extent such conditions constitute an Environmental
Liability for which Seller is responsible hereunder.
(b) Seller shall complete, at Seller's sole cost and expense, remedial
actions required for the former land application area adjacent to and north of
the Laurens, South Carolina manufacturing plant. Those remedial activities will
be deemed to be satisfactorily completed by Seller upon receipt from the South
Carolina Department of Environmental Control and any other Governmental Entity
with jurisdiction over the matter of an approval of the completion of those
remedial activities, if a procedure for approval exists, and, if no such
procedure for approval exists, upon delivery to Buyer of a report from a
registered professional engineer that such work has been completed consistent
with good engineering practice and in compliance with all applicable
Environmental Laws. Seller shall have no other obligations under this Agreement
for the conditions described in this paragraph except to the extent such
conditions constitute an Environmental Liability for which Seller is responsible
hereunder.
(c) Seller shall complete, at Seller's sole cost and expense, remedial
actions associated with two underground tanks at the Chicago Container Division
identified in Leaking Underground Storage Tank Incident Number 902200. Those
remedial activities will be deemed to be satisfactorily completed upon receipt
from the Illinois Environmental Protection Agency and any other Governmental
Entity with jurisdiction over the matter of an approval of the completion of
those remedial activities, if a procedure for approval exists, and, if no such
procedure for approval exists, upon delivery to Buyer of a report from a
registered professional engineer that such work has been completed consistent
with good engineering practice and in compliance with all applicable
Environmental Laws. Seller shall have no other obligations under this Agreement
for the conditions described in this paragraph except to the extent such
conditions constitute an Environmental Liability for which Seller is responsible
hereunder.
(d) With respect to any remedial activities which must be undertaken by
Seller after the Closing Date under paragraphs (a), (b), or (c) of this Section
11.07, Buyer agrees to provide its full cooperation to complete the work
required. Such cooperation shall be given at no cost to Seller and shall
include, but shall not be limited to, reasonable access for construction and/or
removal activities, locations for monitor wells, execution of all necessary
reports, plans, certifications, and deed record notices specified under
Environmental Laws, and attendance at meetings with regulatory authorities.
Except for the personnel time of Buyer needed to implement and complete the
remediation activities specified in this Section 11.07, Buyer shall not be
obligated to incur any out-of-pocket costs in connection with the completion of
such work. Seller shall be
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responsible for the implementation of remedial plans and the work specified in
this Section 11.07 and Seller's implementation of those plans shall be
consistent with good engineering practice and all Environmental Laws.
11.08 Work To Be Completed By Buyer.
(a) SJCC shall reimburse FMC or FMC Affiliates for projects listed in
Section 11.08 of the Disclosure Schedule in an amount not to exceed $1,400,000,
provided (i) FMC or FMC Affiliates shall present a reasonable description of the
work performed and all invoices for which reimbursement is sought within sixty
(60) days of incurring that expense and within three (3) years of the Closing
Date and (ii) FMC or FMC Affiliates shall provide all other reasonable
information requested by SJCC to (x) permit a determination that the work
performed was directly related to and required for completion of the projects
listed in Section 11.08 of the Disclosure Schedule, (y) permit a determination
that the costs incurred were reasonable and (iii) a determination that the work
was performed in accordance with all Environmental Laws. If SJCC and FMC or FMC
Affiliates are unable to agree on whether the project for which reimbursement
was sought was specified in Section 11.08 of the Disclosure Schedule, whether
the costs incurred were reasonable, or whether the work was done in compliance
with all Environmental Laws, either party may on ten (10) days' written notice
refer the matter to arbitration as specified on Exhibit I. If upon completion of
all of the projects in Section 11.08 of the Disclosure Schedule FMC or FMC
Affiliates have not sought reimbursement of the entire $1,400,000, the
difference between the amount sought and $1,400,000 shall be remitted to FMC or
FMC Affiliates.
11.09 Other Disposal Facilities. All Environmental Liabilities alleged,
imposed or required by any state or Federal agency arising from off-site
landfills or other land disposal facilities owned and operated by Persons other
than Seller to which municipal and industrial solid waste has been carted or
trucked by Seller, its agents, or contractors prior to the Closing Date and to
which neither Buyer, its agents, or its contractors have carted or trucked any
solid wastes after the Closing Date, shall be the sole responsibility of Seller,
and Buyer shall have no obligations to Seller or Seller Affiliates for
Environmental Liabilities related to such landfills or facilities. However, with
respect to landfills or other land disposal facilities to which both Seller and
Buyer or their agents or contractors have carted or trucked any solid waste,
responsibility for Environmental Liabilities of Buyer and Seller will be
allocated according to the relative contribution of each party to the harm. This
Section 11.09 does not apply to, alter, modify or change obligations of Buyer
and Buyer Affiliates under Section 11.05 for On-Site Environmental Liabilities.
ARTICLE XII
MISCELLANEOUS
12.01 Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered personally or by telecopier or mailed by certified or registered mail
(return receipt requested), postage prepaid, provided that any notice delivered
by certified or registered mail shall also be delivered by telecopy or by hand
at the time that it is mailed. If such telecopy is sent, notices shall be deemed
given on the Business Day of confirmation at the sender's telecopy machine of
receipt at the recipient's telecopy machine (or if such confirmation is received
on a day which is not a Business Day, on the Business Day occurring immediately
thereafter). If the notice is delivered by hand, it shall be deemed given when
so delivered to a responsible representative of the addressee. All
communications hereunder shall be delivered to the respective parties at the
following addresses (or to such other person or at
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such other address for a party as shall be specified by like notice, provided
that notices of a change of address shall be effective only upon receipt
thereof):
(a) If to Buyer, in care of:
Dennis Mehiel
Chairman
Four M Corporation
115 Stevens Avenue
Valhalla, NY 10595
and by telecopy to: (914) 747-2774
Roger W. Stone
Chairman, President and
Chief Executive Officer
Stone Container Corporation
150 N. Michigan Avenue
Chicago, IL 60601
and by telecopy to: (312) 580-4650
with a copy to:
Harvey L. Friedman
Four M Corporation
115 Stevens Avenue
Valhalla, NY 10595
and by telecopy to: (212) 747-9062
with a copy to:
Leslie T. Lederer
Vice President, Corporate Secretary and
General Counsel
Stone Container Corporation
150 N. Michigan Avenue
Chicago, IL 60601
and by telecopy to: (312) 580-4624
(b) If to SJPC or Seller, to:
Winfred L. Thornton
Chairman
St. Joe Paper Company
duPont Center Suite 400
1650 Prudential Drive
Jacksonville, FL 32207
and by telecopy to: (904) 396-1932
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with a copy to:
Fulbright & Jaworski L.L.P.
Market Square
801 Pennsylvania Avenue, N.W.
Washington, DC 20004-2604
Attn: Marilyn Mooney, Esq.
and by telecopy to: (202) 662-4643
12.02 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived if, and only
if, such amendment or waiver is in writing and signed, in the case of an
amendment, by Buyer and Seller, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.03 Expenses. Except as otherwise provided herein, all costs, fees and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost, fee or expense. If the Closing does not occur as a result
of Seller's failure to meet the closing conditions in Sections 9.02(a)-(c) or as
a result of the failure of a majority of the outstanding shares of capital stock
of SJPC to have approved this Agreement and consummation of the transactions
contemplated thereby, Seller shall promptly pay to Buyer and SCC collectively
their actual documented out-of-pocket fees and expenses in connection with this
Agreement and the transactions contemplated hereby up to a maximum amount of two
million dollars ($2,000,000); provided, however, Seller shall, in lieu of the
reimbursement of fees and expenses described above, promptly pay to Buyer in
immediately available funds a fee of $8,000,000 plus 15% of the excess
consideration represented by the Transaction Proposal up to an aggregate maximum
of $12,000,000 ("Section 6.16 Fee") if the Section 6.16 Fee is payable pursuant
to Section 6.16. If the Closing does not occur as a result of Buyer's failure to
meet the closing conditions in Section 9.03(a)-(c), then FMC and JV shall
jointly and severally promptly pay to Seller and Seller Affiliates their actual
documented out-of-pocket fees and expenses in connection with this Agreement and
the transactions contemplated hereby up to a maximum amount of two million
dollars ($2,000,000).
12.04 Assignment; Parties in Interest. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the written consent of
the other party hereto.
12.05 Governing Law; Jurisdiction; Forum. The parties hereto agree that
all of the provisions of this Agreement and any questions concerning its
interpretation and enforcement shall be governed by the laws of the State of
Florida without regard to any applicable principles of conflicts of law. Each of
the parties irrevocably and unconditionally consents that any suit, action or
proceeding relating to this Agreement may be brought in the United States
District Court for the Middle District of Florida, or, if jurisdiction is
lacking in such court, in a court of record of the State of Florida in Duval
County, and each party hereby irrevocably waives, to the fullest extent
permitted by law, any objection that it may have, whether now or in the future,
to the laying of the venue in, or to the jurisdiction of, any and each of such
courts for the purpose of any such suit, action, proceeding or judgment and
further waives any claim that any such suit, action, proceeding or judgment has
been brought in an inconvenient forum, and each party hereby submits to such
jurisdiction.
12.06 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
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12.07 Entire Agreement. This Agreement and the Disclosure Schedule hereto
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement, except for the Confidentiality Agreement and
any amendments or letter agreements relating to the subject matter referred to
herein that may be entered into in writing by Seller and Buyer. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto.
12.08 Publicity. Except as otherwise required by law or the rules of any
national securities exchange, neither the Buyer Group nor the Seller Group shall
issue or cause the publication of any press release or other public announcement
with respect to this Agreement or the transactions contemplated by this
Agreement without the express written prior approval of the parties hereto.
12.09 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
12.10 Severability. This Agreement shall be deemed severable; the
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or enforceability of this Agreement or of any other term
hereof.
12.11 Knowledge. Whenever information provided herein is based on
"knowledge", such term means the actual knowledge of any person presently
holding the position of Vice President or higher.
IN WITNESS WHEREOF, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
<TABLE>
<S> <C>
ST. JOE FOREST PRODUCTS COMPANY ST. JOE CONTAINER COMPANY
By: /s/ R. E. Nedley By: /s/ R. E. Nedley
----------------------------- -------------------------
Name: R. E. Nedley Name: R. E. Nedley
Title: President Title: Vice-President
ST. JOE PAPER COMPANY FOUR M CORPORATION
By: /s/ R. E. Nedley By: /s/ D. Mehiel
----------------------------- -------------------------
Name: R. E. Nedley Name: D. Mehiel
Title: President Title: Chairman
PORT ST. JOE PAPER COMPANY
By: Box USA Paper Corporation, a general partner
By: /s/ D. Mehiel
-----------------------------
Name D. Mehiel
Title Chairman
PORT ST. JOE PAPER COMPANY
By: SSJ Corporation, a general partner
By: /s/ Leslie T. Lederer
-----------------------------
Name Leslie T. Lederer
Title Vice President
</TABLE>
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<PAGE> 134
[ST. JOE PAPER COMPANY LETTERHEAD]
December 14, 1995
<TABLE>
<S> <C>
Mr. Dennis D. Mehiel, Chairman Mr. Roger W. Stone,
Box USA Chairman, President and
115 Stevens Avenue Chief Executive Officer
Valhalla, NY 10595 Stone Container Corporation
150 N. Michigan Avenue
Chicago, IL 60601-7568
</TABLE>
Re: Asset Purchase Agreement dated as of November 1, 1995, By and Between St.
Joe Forest Products Company ("SJFP"), St. Joe Container Company ("SJCC")
and St. Joe Paper Company ("SJPC") on the One Hand and Four M Corporation
and Port St. Joe Paper Company on the Other Hand ("Asset Purchase
Agreement")
Dear Messrs. Mehiel and Stone:
By letter dated December 13, 1995, addressed to Winfred L. Thornton,
Russell B. Newton, Jr., and H. C. Bowen Smith, Four M Corporation requested an
extension of time to provide that certain letter contemplated under Section
10.01(e)(i) of the Asset Purchase Agreement, which letter would otherwise become
due on December 16, 1995. By signing below, SJFP, SJCC, and SJPC hereby agree to
amend Section 10.01(e)(i) to read as follows:
"an equity commitment letter or letters no later than fifty-one (51)
days after the Execution Date,"
As a result, the relevant letter(s) will now be due on Friday, December 22,
1995. No other provision, term or condition of the Asset Purchase Agreement is
hereby amended, and all other provisions, terms and conditions remain in full
force and effect.
Please execute below to evidence your acknowledgement and agreement to this
amendment.
Sincerely yours,
ST. JOE FOREST PRODUCTS COMPANY
ST. JOE CONTAINER COMPANY
ST. JOE PAPER COMPANY
By: /s/ Winfred L. Thornton
---------------------------
Winfred L. Thornton
Chairman of the Board and
Chief Executive Officer
B-52
<PAGE> 135
ACKNOWLEDGED AND AGREED:
FOUR M CORPORATION
By: /s/ Dennis Mehiel
---------------------------
Name: Dennis Mehiel
Title: Chairman
PORT ST. JOE PAPER COMPANY
By: Box USA Paper Corporation
By: /s/ Dennis Mehiel
---------------------------
Name: Dennis Mehiel
Title: Chairman
cc: Mr. Leslie T. Lederer
Harvey L. Friedman, Esq.
B-53
<PAGE> 136
[St. Joe Paper Company Letterhead]
December 20, 1995
Mr. Dennis D. Mehiel
Chairman
Box USA
115 Stevens Avenue
Valhalla, NY 10595
Mr. Roger W. Stone
Chairman, President and Chief
Executive Officer
Stone Container Corporation
150 N. Michigan Avenue
Chicago, IL 60601-7568
Re: Amendment Number 2 to Asset Purchase Agreement dated as of November 1,
1995 By and Between St. Joe Forest Products Company ("SJFP"), St. Joe
Container Company ("SJCC") and St. Joe Paper Company ("SJPC") on the
One Hand and Four M Corporation and Port St. Joe Paper Company on the
Other Hand ("Asset Purchase Agreement")
Dear Messrs. Mehiel and Stone:
By letter dated December 15, 1995 addressed to Winfred L. Thornton, Four M
Corporation requested further extensions of time as set forth in that letter
with respect to certain matters contained in Section 10.01 of the Asset Purchase
Agreement. By signing below, SJFP, SJCC, and SJPC hereby agree to amend Sections
1.01, 6.24, 10.01 and 11.06 in the Asset Purchase Agreement as indicated below.
The definition of "Financing Date" in Section 1.01(a) of the Agreement is
hereby amended to read as follows:
"Financing Date" shall mean January 24, 1996,
provided that in the event the Audited Financial
Statements for the fiscal years ended December 31, 1992,
1993 and 1994 are not delivered on the sixtieth (60th)
calendar day after the Execution Date, such date shall be
extended by one day for each day beyond January 19, 1996
such statements are not delivered to and including the
date of delivery of the Audited Financial Statements."
Section 6.24 of the Agreement is hereby amended to add the following
sentence at the end of such section as follows:
"FMC shall on December 20, 1995 wire transfer seventy
five thousand dollars ($75,000) as a good faith deposit to
NationsBank and Banque Indosuez in connection with those
certain term sheets to be provided pursuant to Section
10.01(e)(iii) hereof."
Sections 10.01(e) and (f) of the Agreement are hereby amended to read as
follows:
"(e) by Seller or Buyer, if Buyer fails or is unable
to provide Seller (i) an equity commitment letter or
letters and updated equity commitment letters from FMC and
SCC no later than January 10, 1996, none of which contains
any conditions other than debt financing and satisfaction
by the parties of the conditions to Closing set forth in
Article IX of this Agreement; (ii) a highly confident
letter from Bear Stearns as to the high yield debt no
later than
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<PAGE> 137
January 15, 1996, which contains no environmental
conditions and, upon the request of Seller, a
reaffirmation after the Financing Date of such highly
confident letter; (iii) an initialed term sheet or sheets
from its bank or banks as to a term loan and revolving
credit facility no later than the Financing Date, in each
case satisfactory to Seller in its sole discretion; and
(iv) evidence satisfactory to Seller that FMC and SCC
shall have duly organized JV, subject only to
capitalization thereof and shall have approved by all
necessary corporate action and executed and delivered
their shareholders' and any other related agreements with
respect thereto no later than the Financing Date; and
provided further that from and after any such failure on
the part of Buyer to provide such letters to Seller when
due, the applicability of Section 6.16 of this Agreement
shall be terminated and be of no further force and effect;
or
"(f) by Buyer no later than January 10, 1996 if an
environmental audit report from an environmental
consultant of national standing indicates either (i) that
the mill facility of SJFP or any of the other Real
Property is (x) subject to any Environmental Liabilities
not identified in Sections 11.07 and 11.08 of the
Disclosure Schedule and (y) subject to On-Site
Environmental Liabilities which could reasonably be
expected to involve aggregate remediation costs in excess
of $2,000,000, not including costs incurred pursuant to
Sections 11.07 and 11.08, or (ii) that Environmental
Permits identified in Disclosure Schedule 4.10(a) cannot
be transferred or assigned to Buyer and that the absence
of any such Environmental Permits would have a material
adverse effect on the properties, business or condition of
Buyer and Buyer Affiliates taken as a whole."
The first sentence of Section 11.06 of the Asset Purchase Agreement is
hereby amended to read as follows:
"Buyer may desire to engage a third party
environmental consulting firm for the purposes of
conducting prior to January 10, 1996 an environmental
audit or survey of the Real Property and the SJLD Property
satisfactory to the Buyer which may include a phase 1 and
phase 2 environmental audit or survey."
No other provisions, terms or conditions of the Asset Purchase Agreement
are hereby amended, and all other provisions, terms and conditions remain in
full force and effect.
Please execute below to evidence your acknowledgement and agreement to this
amendment.
In addition, pursuant to Section 6.03(a) of the Asset Purchase Agreement,
Seller (as defined therein) hereby notifies Buyer (as defined therein) of
Seller's exercise of its election to require the name Port St. Joe Paper Company
to be changed to eliminate the use of "St. Joe" in the company's name.
Sincerely,
ST. JOE FOREST PRODUCTS COMPANY
ST. JOE CONTAINER COMPANY
ST. JOE PAPER COMPANY
By: /s/ Winfred L. Thornton
----------------------------
Winfred L. Thornton
Chairman of the Board and
Chief Executive Officer
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<PAGE> 138
ACKNOWLEDGED AND AGREED:
FOUR M CORPORATION
By: /s/ Dennis Mehiel
----------------------------
Name: Dennis Mehiel
Title: Chairman
PORT ST. JOE PAPER COMPANY
By: Box USA Paper Corporation
By: /s/ Dennis Mehiel
----------------------------
Name: Dennis Mehiel
Title: Chairman
cc: Mr. Leslie T. Lederer
Harvey L. Friedman, Esq.
B-56
<PAGE> 139
[St. Joe Paper Company Letterhead]
January 10, 1996
<TABLE>
<S> <C>
Mr. Dennis D. Mehiel, Chairman Mr. Roger W. Stone, Chairman
Box USA Stone Container Corporation
115 Stevens Avenue 150 N. Michigan Avenue
Valhalla, NY 10595 Chicago, IL 60601-7568
</TABLE>
Dear Messrs. Mehiel and Stone:
St. Joe Paper Company, St. Joe Forest Products Company and St. Joe
Container Company agree with each of you to change the date of January 10, 1996,
appearing in Section 10.01(e) of the Asset Purchase Agreement dated as of
November 1, 1995, to January 12, 1996, and agree that Buyer will continue to
have a right of termination pursuant to Section 10.01(f) to January 12, 1996 but
only with respect to the black liquor issue which we have been discussing the
last few days which Seller acknowledges constitutes a basis for Buyer's
exercising its right of termination under Section 10.01(f).
Please acknowledge your agreement by signing and dating below.
Sincerely yours,
/s/ W.L. Thornton
W.L. Thornton, Chairman
ACKNOWLEDGED AND AGREED:
<TABLE>
<S> <C>
FOUR M CORPORATION PORT ST. JOE PAPER COMPANY
By: /s/ Dennis Mehiel By:/s/ Leslie T. Lederer
------------------------- ---------------------------
Name Dennis D. Mehiel Name Leslie T. Lederer
Title Chairman Title Vice President
</TABLE>
cc: Mr. Leslie T. Lederer
Mr. Harvey L. Friedman
B-57
<PAGE> 140
[St. Joe Paper Company Letterhead]
January 12, 1996
<TABLE>
<S> <C>
Mr. Dennis D. Mehiel, Chairman Mr. Roger W. Stone, Chairman
Box USA Stone Container Corporation
115 Stevens Avenue 150 N. Michigan Avenue
Valhalla, NY 10595 Chicago, IL 60601-7568
</TABLE>
Re: Amendment Number 3 to Asset Purchase Agreement dated as of November 1, 1995
(the "Agreement"), by and between St. Joe Forest Products Company ("SJFP"), St.
Joe Container Company ("SJCC") and St. Joe Paper Company ("SJPC"), on the one
hand and Four M Corporation ("FMC") and Port St. Joe Paper Company ("JV"), on
the other hand.
Dear Messrs. Mehiel and Stone:
Pursuant to our negotiations on Saturday, January 6, 1996, SJFP, SJCC and
SJPC on the one hand and FMC and JV on the other hand agree to the following
with respect to and in connection with the Agreement:
1. Section 1.01(a) of the Agreement is amended to add the following
definitions:
"Consigned Inventory" shall mean the Inventory of completed linerboard
stock identified by FMC from the list provided by Seller to FMC as provided
in clause (i) below by written notice to the Seller at least two Business
Days prior to the Closing, which identification shall be sufficient to
track such linerboard and maintain its separate identity from other
linerboard held by FMC, provided that the aggregate tonnage of all such
linerboard shall not exceed the lesser of (i) the Seller's good faith
estimate, delivered to FMC in writing at least five Business Days prior to
the Closing Date which writing shall identify the linerboard which may be
consigned in a manner sufficient to track such linerboard and maintain its
separate identity, of the amount by which the aggregate tons of all such
linerboard stock included in Inventory of SJFP and SJCC at the Closing Date
will exceed 45,000 tons and (ii) an aggregate tonnage of linerboard having
a market value not to exceed $21,000,000 based on the most current Pulp and
Paper Week Price Watch as of the Closing Date.
"Consignment Agreement" shall mean an agreement between Seller and FMC
in form reasonably satisfactory to Seller which provides for the
consignment of the Consigned Inventory to FMC and the use or sale of the
Consigned Inventory by FMC and the purchase thereof at the rate of at least
one sixth of the value of the Consigned Inventory Amount per month and the
payment for the Consigned Inventory in an amount equal to the Consigned
Inventory Amount.
"Consigned Inventory Amount" shall mean the value of the Consigned
Inventory, which value shall be the market value of the Consigned Inventory
based on the most current Pulp and Paper Week Price Watch at the time of
Closing.
2. Clause (v) of Section 2.01 is amended to read as follows:
(v) the Inventories, other than the Consigned Inventory;
3. A new clause (xvii) is added to Section 2.01 as follows:
(xvii) cash, in addition to the cash required by clause (xiv), in the
amount of $10,000,000.
4. Clause (i) of Section 2.02 is amended to change the reference to "clause
(xiv)" therein to "clauses (xiv) and (xvii)".
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<PAGE> 141
5. A new clause (xiii) is added to Section 2.02 as follows:
(xiii) the Consigned Inventory;
6. Section 3.01(b) is amended to delete the word "of" after the word
"amount" and add the following:
equal to the sum of (i) the Consigned Inventory Amount and (ii)
7. Section 3.03 is amended to add the following new clause (vii) and
redesignate clauses (vii) through (xi) as clauses (viii) through (xii):
(vii) the Consignment Agreement;
8. The definition of "Net Working Capital" in Section 3.05 is amended to
add the following proviso at the end thereof:
, provided that Net Working Capital as of the Closing Date shall be
increased by the amount of cash transferred to Buyer pursuant to clause
(xvii) of Section 2.01.
9. Seller agrees that at least seven days prior to the Closing Date, Seller
will change the terms for payment of intercompany accounts payable for rail
freight and wood fiber to payment in no shorter a period than seven days.
10. Seller agrees that up to $10,000,000 of the Purchase Price may be paid
by a senior subordinated note from JV to Seller in the amount of $10,000,000,
bearing interest at a rate which is one half of one percent higher than the per
annum rate of interest on the senior secured notes issued by JV in connection
with the Closing and which shall be payable in a single installment on the 11th
anniversary date thereof, will provide for quarterly payment of interest but
will permit interest to be added to the principal of the note on each interest
payment date, will contain covenants and default provisions similar to the
senior secured note, including the furnishing of quarterly financial
information, the right of inspection and to receive information pertaining to
the business on request and will contain negative covenants prohibiting the JV
from incurring senior debt other than the senior secured notes issued by the JV
in connection with the Closing, and prohibiting the JV from granting any
additional security interests in fixed assets acquired from the Seller. In
addition, the JV will agree that if it refinances the senior secured notes, the
maximum amount of debt which will be secured by the collateral securing the
senior secured notes after giving effect to such refinancing will not exceed the
principal amount of the senior secured notes that is refinanced, plus any
applicable fees charged in connection with such refinancing.
11. The real property along the west side of the state drainage ditch which
shall be more particularly described on Exhibit A which shall be attached to
this third amendment shall not be conveyed to Buyer and Buyer shall grant
easements as identified on such Exhibit A across the property conveyed to Buyer
so that Seller will have access to the property described on Exhibit A.
12. Section 11.08 of the Agreement is amended to add the following
subparagraph (b):
(b) Subject to the cost sharing set forth in the next sentence, SJFP
shall reimburse JV for up to $1,000,000 of the expenses incurred to
remediate suspected black liquor spills in the vicinity of the No. 7
Recovery Boiler if that remedial work is required under Environmental Laws
(the "Black Liquor Matter"), provided that (i) JV shall present a
reasonable description of the work to be performed prior to undertaking the
work, (ii) JV shall provide to SJFP all invoices for which reimbursement is
sought within 60 days of incurring the related expense, and (iii) JV shall
provide all other reasonable information requested by SJFP to (w) permit a
determination that the work performed was directly related to and required
for completion of work on the Black Liquor Matter, (x) permit a
determination that the costs incurred were reasonable, (y) permit a
determination that the work was reasonably required to comply with all
Environmental Laws, or otherwise required to comply with any directive from
a governmental entity and (z) permit a determination that the work was
performed in accordance with all Environmental Laws. Seller and Buyer agree
that SJFP shall be responsible for the first $200,000 of such expenses,
Buyer shall be responsible for the next $300,000, SJFP shall be responsible
for the next $300,000, Buyer shall be responsible for the next $300,000,
SJFP shall be responsible for the next $500,000, the Buyer
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<PAGE> 142
shall be responsible for the next $500,000 of expenses and any remaining
expenses shall be treated as On-Site Environmental Liabilities under
Section 11.05(a). If SJFP and JV are unable to agree on whether the costs
incurred were reasonable, or whether the work was done in compliance with
all Environmental Laws, either party may on ten (10) days' written notice
refer the matter to arbitration as specified on Exhibit I.
13. Except as provided in the following sentence, Seller shall retain and
not transfer the 443 acres real property adjacent to the fresh water canal which
shall be more particularly described on Exhibit B which shall be attached to
this third amendment. The Seller will transfer approximately 60 acres being all
land from the center line of the canal to a point 200 feet west of the center
line to the JV and Buyer and Seller shall mutually agree on a 75 acre tract
which shall be transferred to Buyer as a site for a clarifier. In addition,
Seller shall deed to the JV, without further consideration, non wetlands land
located within two miles of such canal which is chosen by Seller and approved by
JV on which JV may deposit dredged material of the same nature and amount as is
currently being dredged from such canal for the purpose of maintaining the canal
in its current condition. Dredging and disposal operations will be the
responsibility of the JV as will transporting the dredged material to the
disposal site. Seller will grant to the JV an easement to move the dredged
material to the disposal site and an easement to the nearest public road. Buyer
shall have the right to construct a pipeline and obtain necessary permits to
transport the material to the disposal site prior to the Closing. The Seller
shall have the option to reacquire such land for one dollar ($1) two years after
the Closing Date. Buyer acknowledges that the foregoing relieves Seller of all
obligations under Section 6.12(b) of the Agreement.
14. Seller will transfer to the JV for no additional consideration the 100
acres of real property from that portion of the Highland View area on which the
City of Port St. Joe currently has a permit to dispose of its sludge which
property shall be more particularly described on Exhibit C which shall be
attached to this third amendment and will give to the JV an option, at a price
of $1,500 per acre, to purchase at any time prior to December 31, 2002, all or
any portion of the remaining approximately 1,500 acres that are contiguous to
the 100 acres described on Exhibit C, are part of the Highland View area and
shall be more particularly described on Exhibit D which shall be attached to
this third amendment. Seller will enter into a lease agreement through 2002 with
the City of Port St. Joe covering any part of the 1,500 acres not purchased by
the JV similar to the current lease agreement to allow disposal of sludge if so
requested by the City of Port St. Joe. The JV shall give easements to the Seller
over all of the woodland roads on all such real property transferred to the JV.
15. Seller and the City of Port St. Joe will execute the lease which has
already been negotiated to allow the City of Port St. Joe to conduct spreading
operations on the real property on which such spreading now occurs through 2002.
Seller will grant the JV a first right of refusal in the event the Seller
desires to sell the land subject to such lease prior to the termination of the
lease and will grant the JV an option, which must be exercised within the first
30 days after the term of such lease, to purchase the land subject to the lease
at its then fair market value. The JV shall have the right to assign to the City
of Port St. Joe, but to no other person, the first right of refusal and the
option.
16. Seller and Buyer agree that Section 8 of the Wood Fiber Supply
Agreement attached as Exhibit E to the Agreement shall be amended to read as
follows:
Seller shall invoice Buyer on a weekly basis for deliveries made
during each week and for all deliveries made during the first year of this
Agreement, Buyer shall pay Seller within 30 days from the date of such
invoices, which date shall not be earlier than the Friday of the week
during which the deliveries were made, for the next four years of the term
of this Agreement, Buyer shall pay Seller within 14 days from the date of
such invoices and for the remainder of the term of this Agreement, Buyer
shall pay Seller within seven days from the date of such invoices.
17. Seller agrees to extend the time for delivery of the equity commitment
letters and the highly confident letters to 8:00 a.m., Eastern Standard Time,
January 16, 1996.
No other provisions, terms or conditions of the Agreement are hereby
amended and all other provisions, terms and conditions remain in full force and
effect.
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<PAGE> 143
In respect to issues relating to Real Estate contained in Exhibit C and
Exhibit D, Buyers have the right to approve the designation of such Real Estate.
Please execute below to evidence your acknowledgement of and agreement to
this amendment.
Very truly yours,
ST. JOE PAPER COMPANY
ST. JOE FOREST PRODUCTS COMPANY
ST. JOE CONTAINER COMPANY
By: /s/ W. L. Thornton
--------------------------------
Name: W. L. Thornton
Title: Chairman
Acknowledged and Agreed to this
January 12, 1996:
<TABLE>
<S> <C>
FOUR M CORPORATION PORT ST. JOE PAPER COMPANY
By: /s/ Dennis Mehiel By: /s/ Leslie T. Lederer
------------------------- -------------------------
Name: Dennis D. Mehiel Name: Leslie T. Lederer
Title: Chairman Title: Vice President
</TABLE>
cc: Mr. Leslie T. Lederer
Mr. Harvey L. Friedman
Mr. Michael W. Conlon
B-61
<PAGE> 144
PROXY ST. JOE PAPER COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 24, 1996
The undersigned, having received the Notice of Special Meeting and Proxy
Statement dated April 11, 1996, appoints Jacob C. Belin, Richard H. Dent and
Frank S. Shaw, Jr. and each of them as Proxies with full power of substitution
to represent the undersigned and to vote all shares of common stock of St. Joe
Paper Company, which the undersigned is entitled to vote at the Special Meeting
of Shareholders, to be held on April 24, 1996 at 10:00 A.M., local time, in the
Admiralty Room at the Radisson Riverwalk Hotel at St. Johns Place, 1515
Prudential Drive, Jacksonville, Florida and at any adjournment or adjournments
thereof, with discretionary authority as provided in the Proxy Statement.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting, hereby revoking all prior
proxies to vote the same shares.
Your vote is important! Please sign and date on the reverse and return
promptly to First Union National Bank, Shareholders Services Group, Two First
Union Center, M-12, Charlotte, North Carolina 28288-1154, in the enclosed
envelope, so that your shares can be represented at the meeting.
(Continued and to be signed on the reverse)
(Continued from other side)
Please mark votes as in this example: /X/
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH BELOW. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THE FOLLOWING PROPOSAL.
1.A proposal to approve the sale by the Company of those assets of St. Joe
Forest Products Company ("SJFP") that are related to its paper mill business
to PSJ Paper Company L.L.C. ("JV") (a joint venture organized by Four M
Corporation ("FMC") and Stone Container Corporation) and of St. Joe Container
Company ("SJCC") that are related to its container business to FMC pursuant to
an Asset Purchase Agreement dated as of November 1, 1995, as amended, among
the Company, SJFP, and SJCC on the one hand, and FMC and JV on the other hand.
Approval of such proposal will in effect constitute approval of the pro rata
distribution of the net proceeds of such sale to holders of the Company's
common stock.
/ / FOR / / AGAINST / / ABSTAIN
X
----------------------------------
X
----------------------------------
DATE:
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PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. JOINT OWNERS
SHOULD EACH SIGN. WHEN SIGNING AS
A FIDUCIARY OR FOR AN ESTATE,
TRUST, CORPORATION OR PARTNERSHIP,
YOUR TITLE OR CAPACITY SHOULD BE
STATED.
