JOTAN, INC.
118 West Adams Street, Suite 900
P.O. Box 836
Jacksonville, FL 32201
INFORMATION STATEMENT PURSUANT
TO SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE
REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about February 18, 1997,
to holders of the shares of the $.01 par value common stock (the "Common
Stock") and the $.01 par value Series A Convertible Preferred Stock (the
"Series A Preferred Stock") of Jotan, Inc., a Florida corporation (the
"Company"), pursuant to Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder. This
Information Statement is being furnished by the Company in connection with a
series of proposed transactions that will result in, among other things, the
election of individuals designated by Rice Partners II, L.P., a Delaware
limited partnership ("Rice"), as a majority of the members of the Company's
Board of Directors.
The Company has entered into a Share Purchase Agreement, dated as of
December 19, 1996, among the Company, Southland Holding Company ("Southland")
and the shareholders of Southland (the "Share Purchase Agreement") to acquire
all of the issued and outstanding shares of common stock of Southland for an
aggregate purchase price of approximately $27.5 million (subject to
adjustment) (the "Acquisition"). In connection with the Acquisition, Jotan is
paying non-competition fees to the shareholders of Southland in the aggregate
amount of $6,570,249. Southland is a leading supplier of corrugated packaging
products to the moving and storage industry as well as to companies in the air
freight and perishable food markets. In order to obtain financing for this
transaction, the Company has received a proposal by Rice to purchase $9
million of senior subordinated debt and $10 million of senior redeemable
preferred stock. F-Southland, L.L.C., a North Carolina limited liability
company, and FF-Southland Limited Partnership, a North Carolina limited
partnership (collectively, the "Southland Purchasers"), entities affiliated
with Franklin Street/Fairview Capital, L.L.C. ("Fairview"), will purchase an
aggregate amount of $2 million of such senior subordinated debt and $2 million
of such senior redeemable preferred stock in lieu of Rice. Rice and the
Southland Purchasers are using working capital derived from partner or member
contributions as the source of the consideration to be paid by them for the
senior subordinated debt and senior redeemable preferred stock. The Company
has also received a proposal from Banque Paribas to obtain up to $12 million
in a senior revolving credit facility and $27 million in senior
term/acquisition credit facilities. In connection with these transactions,
the Company has agreed to issue to Rice warrants which, if exercised, would
result in Rice owning approximately 50.5% of the issued and outstanding Common
Stock, as of closing, on a fully diluted basis. The Company also has agreed
to issue to the Southland Purchasers warrants, which, if exercised, would
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result in the Southland Purchasers owning approximately 13% of the issued and
outstanding Common Stock as of closing, on a fully diluted basis. Rice has
been granted the right to elect a majority of the members of the Company's
Board of Directors for so long as Rice's investment remains outstanding.
Initially, this will be accomplished through amendments to the Restated
Articles of Incorporation that entitle the Series B Redeemable Preferred Stock
being purchased by Rice and the Southland Purchasers to designate a majority
of the Board of Directors.
The Company has agreed, as a condition to closing, that, prior to the
closing, the Board of Directors of the Company shall have taken all corporate
action necessary to cause the Board of Directors of the Company to consist of
the following persons effective as of the effective time of the closing (the
"Effective Time"): Shea E. Ralph, Jeffrey P. Sangalis, Philip A. Davidson and
James P. Wilson (Mr. Sangalis, Mr. Davidson and Mr. Wilson, collectively the
"Rice Designees") and Jeremiah M. Callahan, an associate of Fairview (the
"Fairview Designee"). Of these individuals, only Mr. Ralph and Mr. Callahan
presently serve as directors of the Company. The election of the Rice
Designees to the Board will result in such individuals constituting a majority
of the Board. This Information Statement is being provided in anticipation
that the proposed transactions will close on February 28, 1997; the closing of
the proposed transactions is subject to the satisfaction of the conditions to
closing stated in the various agreements providing therefor and there is no
assurance that all such conditions will be satisfied or that the proposed
transactions will close.
NO ACTION IS REQUIRED BY THE SHAREHOLDERS OF THE COMPANY IN CONNECTION
WITH THE DESIGNATION AND ELECTION OF THE DIRECTORS TO THE BOARD. However,
Section 14(f) of the Exchange Act requires the mailing to the Company's
shareholders of the information set forth in this Information Statement prior
to the change in a majority of the Company's directors, pursuant to any
arrangement or understanding with the person or persons acquiring securities
in a transaction subject to either Section 13(d) or Section 14(d) of the
Exchange Act. As of February 10, 1997, there were 5,679,411 shares of Common
Stock issued and outstanding. As of February 10, 1997, there were 1,329,357
shares of Series A Preferred Stock outstanding. Each share of Common Stock is
entitled to one vote and each share of Series A Preferred Stock is entitled
to the number of votes equal to the number of shares of Common Stock into
which each share of Series A Preferred Stock could then be converted, which is
two (2) as of February 10, 1997.
PROPOSED TRANSACTIONS
Acquisition of Southland Holding Company. On December 19, 1996 the
Company entered into a Share Purchase Agreement with Southland and the owners
of Southland to consummate the Acquisition. Southland is a leading supplier
of corrugated packaging products to the moving and storage industry, as well
as to companies in the air freight and perishable food markets, with
operations in eleven strategic markets in the United States. Management
believes that the acquisition of Southland will allow the Company to leverage
its service strategy into additional markets, will allow the Company to market
more attentively to national accounts, will facilitate purchasing efficiency
through increased volume discounts and will provide opportunities to capture
administrative operating efficiencies, as well as providing a base for the
acquisition of further strategic assets focused on the packaging industry.
Southland's revenues (on an audited basis) for the year ended April 30, 1996
were $62.5 million.
In order to obtain financing for the acquisition of Southland and to
provide a funding base for further possible acquisitions, the Company has
obtained a proposal by Rice to purchase $9 million of senior subordinated debt
("Subordinated Debt") and $10 million of Series B Redeemable Preferred Stock
("Series B Preferred Stock"). The Southland Purchasers, affiliates of
Fairview, will purchase an aggregate amount of up to $2 million of
Subordinated Debt and $2 million of Series B Preferred Stock in lieu of Rice.
Another Fairview affiliate, F-Jotan, L.L.C., a North Carolina limited
liability company ("F-Jotan"), owns 1,329,357 shares of Series A Preferred
Stock that were purchased May 16, 1996 and are convertible into 2,658,714
shares of Common Stock. The Company also has obtained a proposal from Banque
Paribas to lend the Company up to $12 million in a senior revolving credit
facility and $27 million in senior term/acquisition credit facilities, of
which approximately $20 million is expected to be drawn in connection with the
Acquisition. (The transactions described in this paragraph, together with the
Acquisition, will be collectively referred to as the "Proposed Transactions").
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The documentation for the Proposed Transactions is in the process of being
prepared and negotiated. Accordingly, the terms of the Proposed Transactions
are subject to change between the date of this Information Statement and the
closing.
Subordinated Debt. The Subordinated Debt will bear interest at a rate of
12.5% per annum, with a default rate of 15.5% per annum. Interest is payable
quarterly for eight years, with principal due in equal quarterly installments
during the seventh and eighth years. Prepayments of the Subordinated Debt are
allowed but are subject to premiums ranging from 12.5% during the first year
to 0% commencing in the sixth year. The Subordinated Debt is subordinated to
the Company's senior debt and is unsecured.
In addition to the Subordinated Debt, Rice and the Southland Purchasers
will also receive pro rata portions of warrants to purchase 3,227,471 shares
of Common Stock, representing 13.5% of the outstanding Common Stock on a fully
diluted basis, which will be exercisable for a term of ten years (the "13.5%
Warrants"). The total exercise price of the 13.5% Warrants is a maximum of
$100. The Common Stock issuable upon exercise of the 13.5% Warrants is
subject to registration rights that will allow the holders to require the
registration of such shares on not more than two occasions, and to include
such shares in other registrations by the Company, subject to certain
restrictions.
The 13.5% Warrants include customary antidilution provisions and allow
the holder to sell ("put") the 13.5% Warrants to the Company at a price equal
to the greater of their book value or their fair market value (the "Put
Price") at any time after the earlier to occur of (i) the fifth anniversary of
closing, (ii) prepayment of the Subordinated Debt in full, (iii) a material
change in the ownership of the Company, (iv) a merger or sale of all or a
majority of the Company's assets, or (v) the Company's default in performing
certain covenants contained in the documents governing the Subordinated Debt.
The Company will have the right to purchase ("call") the 13.5% Warrants at any
time after the sixth anniversary of closing for a price equal to the Put
Price. As long as the Subordinated Debt is outstanding, Rice and Fairview
will each have the right to attend and observe all meetings of the Board of
Directors.
Preferred Stock. The Series B Preferred Stock will accrue dividends at a
rate of 8.0% per annum, payable quarterly in cash or, at the Company's option,
in kind by the issuance of additional shares of Series B Preferred Stock.
Series B Preferred Stock will have a liquidation preference over all other
shares of Common Stock and preferred stock, including the Series A Preferred
Stock that is currently held by F-Jotan, an affiliate of Fairview. The Series
B Preferred Stock may be redeemed by the Company at any time, but subject to
premiums ranging from 12.5% during the first year to 0% commencing in the
sixth year. Redemption of the Series B Preferred Stock is mandatory on the
eighth anniversary of closing. Rice and the Southland Purchasers will be paid
pro rata portions of a fee at closing of $250,000 for providing the Series B
Preferred Stock financing. The Series B Preferred Stock will entitle the
holders thereof at all times that it is outstanding to elect the majority of
the Board of Directors.
In addition to the Series B Preferred Stock, Rice and the Southland
Purchasers will also receive pro rata portions of warrants to purchase
shares of Common Stock, representing approximately 50% of the issued and
outstanding Common Stock on a fully diluted basis, which will be exercisable
for a term of ten years (the "50% Warrants"). The total exercise price of the
50% Warrants is a maximum of $100. The portion of the 13.5% and the 50%
warrants being acquired by Rice, in the aggregate, will allow Rice to acquire
upon exercise approximately 50.5% of the outstanding Common Stock on a fully
diluted basis. Through conversion of the Series A Preferred Stock and
exercise of the portion of the 13.5% Warrants and the 50% Warrants being
acquired by the Southland Purchasers, affiliates of Fairview will after the
closing of the Proposed Transactions have the right to acquire approximately
24.12% of the outstanding Common Stock, on a fully diluted basis. The Common
Stock issuable upon exercise of the 50% Warrants is subject to registration
rights that will allow the holders to require the registration of such shares
on not more than two occasions, and to include such shares in other
registrations by the Company, subject to certain restrictions. The put and
call rights associated with the 50% Warrants are identical to the similar
rights of the 13.5% Warrants described above.
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The former holders of Common Stock will collectively own approximately
25.38% of the outstanding shares of Common Stock on a fully diluted basis
after giving effect to the Proposed Transactions. Rice will be the Company's
largest holder, beneficially owning approximately 50.5% of the outstanding
shares of Common Stock on a fully diluted basis after giving effect to the
Proposed Transactions. In addition, the Southland Purchasers will
beneficially own approximately 13% of the outstanding shares of Common Stock
and F-Jotan will beneficially own approximately 11.12% of the outstanding
shares of Common Stock on a fully diluted basis after giving effect to the
Proposed Transactions. Each of Rice and the Southland Purchasers will be
required to file with the Securities and Exchange Commission (the
"Commission") statements reporting their respective beneficial ownership of
Common Stock pursuant to Section 13(d) of the Exchange Act. For purposes of
Section 13(d), each of the Southland Purchasers and F-Jotan will be deemed to
beneficially own the full 24.12% of the outstanding Common Stock on a fully
diluted basis as a result of their affiliate status due to their common
manager.
Conditions to Closing and Effective Time of the Proposed Transactions
The closing of the Proposed Transactions is subject to certain
conditions, including that the senior revolving and senior term/acquisition
loans as described above are obtained, that the Rice Designees are elected to
the Company's Board of Directors and that the due diligence review of the
Company by Rice and the Southland Purchasers is satisfactory. The Company has
agreed to pay Rice and the Southland Purchasers a break-up fee of $500,000 on
a pro rata basis if the Company finances the Acquisition other than as
described above.
If all required governmental and other consents and approvals are
received, and if the other conditions to the obligations of the parties to
consummate the Proposed Transactions are satisfied or waived (as permitted),
the Proposed Transactions will be consummated. Assuming satisfaction of all
conditions to consummation of the Proposed Transactions, the Proposed
Transactions are expected to close February 28, 1997.
Management of the Company After the Proposed Transactions
The Company has agreed, as a condition to closing, that, prior to the
closing, the Board of Directors of the Company shall have taken all corporate
action necessary to cause the Board of Directors of the Company to consist of
the Rice Designees, the Fairview Designee and Shea Ralph. Of these
individuals, only Mr. Ralph and the Fairview Designee presently serve as
directors of the Company.
Agreements with Certain Holders of Series A Preferred Stock
The Company is currently party to certain agreements (the "Prior
Agreements") with the holder of the Series A Preferred Stock pursuant to which
such holder is entitled to certain preferential rights, including rights to
acquire additional shares of capital stock of the Company upon the occurrence
of certain events, to approve or disapprove certain transactions to which the
Company might become a party, including the Proposed Transactions, and to
require that the Company otherwise take or refrain from taking specified
actions. In addition, under the terms of the Series A Preferred Stock, the
holder thereof is entitled to elect two persons to serve on the Company's
seven-person Board and to receive preferential dividends. The Shareholder
Agreement among the Company, F-Jotan, the Southland Purchasers, Rice and
certain other shareholders of the Common Stock (the "Shareholder Agreement")
contains an agreement by the holder of the Series A Preferred Stock providing
for the termination of all rights, remedies, indemnities, benefits, priorities
and privileges with respect to the Company under the Prior Agreements and
releasing the Company from all obligations to such holder thereunder.
Registration Rights
It is a condition to the obligation of Rice to consummate the Proposed
Transactions that the Company shall have executed and delivered the
Shareholder Agreement containing, among other things, registration rights.
Under the terms of the Shareholder Agreement, Rice will be entitled to require
that the Company undertake to register resales of shares of Common Stock held
by Rice under the federal Securities Act of 1933, as amended (the "Securities
Act"), and applicable state securities laws. Subject to certain limitations,
Rice shall be entitled to up to two demand registrations and additional rights
to participate in other registrations undertaken by the Company. In
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connection with any such registrations, the Company has agreed to pay all
expenses of registration, other than underwriters' and brokers' discounts and
commissions.
The Company's Reasons for the Proposed Transactions
In reaching its conclusion to approve the Proposed Transactions, the
Board of Directors of the Company consulted with the management of the
Company, as well as with the Company's financial and legal advisors, and
considered various factors, including the following:
(a) The financial terms of the Proposed Transactions. Based upon the
financial information developed by the Company's Board of Directors and
management, and consultations with its financial advisor, the Board of
Directors has concluded that the Proposed Transactions will be fair to and in
the best interests of the Company and its shareholders.
(b) The strategic benefits of the Proposed Transactions. The Board of
Directors of the Company believes that the Proposed Transactions present a
number of strategic benefits to the Company. Upon consummation of the
Proposed Transactions, the Company, among other things, (i) will offer a
broader array of products and services than does the Company alone, (ii) will
have a more broad-based management team than the Company currently possesses,
(iii) will serve a larger customer base with a larger revenue base than the
Company could generate on its own in the near future, which also provides
greater cross-marketing opportunities, and (iv) will have a larger and more
experienced consulting and related services staff than the Company now
employs. Management also considered a number of negative factors, including
but not limited to (i) the time required to fully integrate Southland's
operations, (ii) the impact of increased debt service and (iii) the potential
impact of increased competition due to the Company's nationwide presence.
Management also took into account that the Proposed Transactions should
increase the opportunity for the Company to successfully raise funds in the
public market.
(c) Certain financial and other information about the Company and
Southland. Such information included, but was not limited to, information
with regard to relative valuation analyses, pro forma analyses, comparative
financial and operating performance data, contribution analyses, and
comparable transactions. The Board of Directors of the Company also
considered the results of the due diligence reviews of Southland.
The foregoing discussion of the information and factors considered by the
Board of Directors and management of the Company is not intended to be an
exhaustive list or discussion. In reaching its determination to approve the
Proposed Transactions, the Board of Directors did not assign any relative or
specific weights to different factors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
Current and Proposed Management and Beneficial Owners. The following
table provides information regarding beneficial ownership of Common Stock,
Series A Preferred Stock and Series B Preferred Stock, both before and after
consummation of the Proposed Transactions, with respect to (i) any person
known to the Company to be the beneficial owner of more than five percent of
Common Stock, Series A Preferred Stock, or the Series B Preferred Stock,
either before or after consummation of the Proposed Transactions, (ii) all
current directors of the Company and all persons who are designated to become
directors of the Company and who are not currently directors of the Company,
(iii) all executive officers of the Company, (iv) all current directors and
executive officers of the Company, as a group, (v) all proposed new beneficial
owners and persons designated to become directors of the Company, as a group,
and (vi) all current directors and executive officers and all persons
designated to become directors of the Company, as a group. Except as
otherwise indicated, the shareholders listed below have sole voting and
investment power with respect to the shares of Common Stock, Series A
Preferred Stock, or Series B Preferred Stock.
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<CAPTION>
Prior to Closing After Closing
____________________ ____________________
Amount and Percent Amount and Percent
Nature of of Nature of of
Name and Address of Title of Beneficial Class(2) Beneficial Class(2)
of Beneficial Owner Class Ownership(1) Ownership(3)
______________________ ___________ ___________ ________ ___________ ________
<S> <C> <C> <C> <C> <C>
F-Jotan (4)
702 Oberlin Rd., Common 2,658,714 31.9% 5,766,649 50.4%
Suite 150 A Preferred 1,329,357 100% 1,329,357 100%
Raleigh, NC 27605 B Preferred 0 0% 10,000 20%
Shea E. Ralph
118 West Adams St Common 950,000 16.7% 950,000 16.7%
Jacksonville, FL 32201
Sheila F. Bonnett(5)
6822 Commerce Avenue Common 930,000 16.4% 930,000 16.4%
Port Richey, FL 34688
Suzi A. Hernandez(5)
53 Jackson Avenue Common 950,000 16.7% 950,000 16.7%
Ponte Vedra Beach,
FL 32082
Sidney Ralph (5)
70 Fishermans Lane Common 456,611 8% 456,611 8%
Ponte Vedra Beach,
FL 32082
Richard M. Gray
1649 Atlantic Blvd. Common 7,400 * 7,400 *
Jacksonville, FL 32207
William A. Hightower
24609 Deertrace Dr. Common 7,400 * 7,400 *
Ponte Vedra Beach,
FL 32082
Gert Schumann
3170 Timberlake Point Common 2,600 * 2,600 *
Ponte Vedra, FL 32082
James D. Lumsden(6)
702 Oberlin Rd., Common 2,658,714 31.9% 5,766,649 50.4%
Suite 150 A Preferred 1,329,357 100% 1,329,357 100%
Raleigh, NC 27605 B Preferred 0 0% 10,000 20%
Jeremiah M. Callahan (6)
702 Oberlin Rd., Common 2,658,714 31.9% 5,766,649 50.4%
Suite 150 A Preferred 1,329,357 100% 1,329,357 100%
Raleigh, NC 27605 B Preferred 0 0% 10,000 20%
Alton E. Thompson
118 West Adams Street Common 15,000 * 15,000 *
Jacksonville, FL 32201
David Freedman
118 West Adams Street Common 0 * 0 *
Jacksonville, FL 32201
John P. Moore
118 West Adams Street Common 5,000 * 5,000 *
Jacksonville, FL 32201
Rice Partners II,L.P.
5847 San Felipe, Common 0 0 12,073,132 68%
Suite. 4350 B Preferred 40,000 80%
Houston, Texas 77057
F-Southland, L.L.C.(7)
702 Oberlin Road, Common 0 0 5,766,649 50.4%
Suite 150 B Preferred 10,000 20%
Raleigh, NC 27605
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FF-Southland
Limited Partnership(8) Common 0 0 5,766,649 50.4%
702 Oberlin Road, B Preferred 10,000 20%
Suite 150
Raleigh, NC 27605
Jeffrey P. Sangalis(9)
5847 San Felipe, Common 0 0 12,073,132 68%
Suite. 4350 B Preferred 40,000 80%
Houston, Texas 77057
Philip A. Davidson(9)
5847 San Felipe, Common 0 0 12,073,132 68%
Suite. 4350 B Preferred 40,000 80%
Houston, Texas 77057
James P. Wilson (9)
5847 San Felipe, Common 0 0 12,073,132 68%
Suite. 4350 B Preferred 40,000 80%
Houston, Texas 77057
All current
directors and Common 4,596,114 55.1% 7,704,049 67.3%
executive officers A Preferred 1,329,357 100% 1,329,357 100%
as a group (10 persons) B Preferred 0 0% 10,000 20%
All proposed new
beneficial owners Common 0 0 17,839,781 75.9%
and directors as a B Preferred 50,000 100%
group (6 persons)
All current and Common 4,596,114 55.1% 18,809,781 80%
proposed directors A Preferred 1,329,357 100% 1,329,357 100%
and executive B Preferred 0 0% 50,000 100%
officers as a group
(8 persons)
<FN>
*Less than 1% of outstanding shares of Common Stock.
(1) Reflects stock ownership as of February 10, 1997. Pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) and/or the
sole or shared investment power (including the power to dispose or direct
the disposition) with respect to a security. The number of shares of
Common Stock includes the number of shares of Common Stock that are
subject to the exercise of options or warrants within 60 days of the date
of this Information Statement and the number of shares of Common Stock
issuable upon conversion of such beneficial owner's shares of Series A
Preferred Stock (each of which is immediately convertible into two shares
of Common Stock), excluding accrued dividends thereon.
(2) Percent of Class of Common Stock with respect to each beneficial owner of
Common Stock was calculated based on the ratio of the number of shares of
Common Stock beneficially owned by such beneficial owner as of the date
of this Information Statement or to be beneficially owned by such
beneficial owner as of the date of consummation of the Proposed
Transactions, as the case may be, to the sum of (a) the total number of
outstanding shares of Common Stock as of the date of this Information
Statement, (b) the number of shares of Common Stock issuable upon
conversion of shares of Series A Preferred Stock (each of which is
immediately convertible into two shares of Common Stock) held by the
applicable beneficial owner and (c) the number of shares of Common Stock
issuable upon exercise of options or warrants held by the applicable
beneficial owner exercisable within 60 days of the date of this
Information Statement. Percent of Class of Series A Preferred Stock was
calculated based on the ratio of the number of shares of Series A
Preferred Stock beneficially owned by such beneficial owner as of the
date of this Information Statement to the total number of outstanding
shares of Series A Preferred Stock. Percent of Class of Series B
Preferred Stock was calculated based on the ratio of the number of shares
of Series B Preferred Stock beneficially owned by such beneficial owner
immediately following the closing of the Proposed Transactions to the
total number of outstanding shares of Series B Preferred Stock at that
time.
(3) Reflects stock ownership immediately following the closing of the
Proposed Transactions.
(4) Includes, after the closing of the Proposed Transactions, 3,107,935
shares of Common Stock beneficially owned by the Southland Purchasers,
which are deemed to be beneficially owned by F-Jotan due to its status as
an affiliate of the Southland Purchasers by virtue of having a common
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manager and by Messrs. Lumsden and Callahan due to their ability to
control the Southland Purchasers with regard to the voting and
disposition of such shares.
(5) Sheila F. Bonnett, Susan A. Hernandez and Sidney Ralph are the two
sisters and father, respectively, of Shea E. Ralph, President of the
Company.
(6) James D. Lumsden and Jeremiah M. Callahan, who are directors of the
Company, are members of Franklin Street/Fairview Capital, L.L.C., the
manager of F-Jotan and the Southland Purchasers. The shares shown as
owned by Messrs. Lumsden and Callahan are the same shares and consist in
each case of the shares beneficially owned by F-Jotan and, after the
closing of the Proposed Transactions, the Southland Purchasers, which are
deemed to be beneficially owned by Messrs. Lumsden and Callahan due to
their ability to control F-Jotan and the Southland Purchasers with regard
to the voting and disposition of such shares. The address of Mr.
Lumsden, Mr. Callahan, F-Jotan and the Southland Purchasers is 702
Oberlin Road, Suite 150, Raleigh, North Carolina 27605.
(7) Includes (i) 5,000 shares of Series B Preferred Stock beneficially owned
by FF-Southland Limited Partnership, which are deemed to be beneficially
owned by F-Southland, L.L.C. due to its status as an affiliate of FF-
Southland Limited Partnership by virtue of a common manager and (ii)
4,212,681.5 shares of Common Stock beneficially owned collectively by FF-
Southland Limited Partnership and F-Jotan which are deemed to be
beneficially owned by F-Southland, L.L.C. due to its status as an
affiliate of each of FF-Southland Limited Partnership and F-Jotan by
virtue of a common manager.
(8) Includes (i) 5,000 shares of Series B Preferred Stock beneficially owned
by F-Southland, L.L.C., which are deemed to be beneficially owned by FF-
Southland Limited Partnership due to its status as an affiliate of
F-Southland, L.L.C. by virtue of a common manager and (ii) 4,212,681.5
shares of Common Stock beneficially owned by F-Southland, L.L.C. and F-
Jotan which are deemed to be beneficially owned by FF-Southland Limited
Partnership due to its status as an affiliate of F-Southland, L.L.C. and
F-Jotan by virtue of a common manager.
(9) Jeffrey P. Sangalis and James P. Wilson are principals of Rice, Sangalis,
Toole & Wilson, the manager of Rice Partners II, L.P. Philip A. Davidson
is a Managing Director of Rice, Sangalis, Toole & Wilson, the manager of
Rice Partners II, L.P. The shares shown as owned by Messrs. Sangalis,
Davidson and Wilson are the same shares and consist in each case of the
shares owned by Rice Partners II, L.P., which are deemed to be
beneficially owned by Messrs. Sangalis, Davidson, and Wilson due to their
ability to control Rice Partners II, L.P. with regard to the voting and
disposition of such shares. The address of Rice Partners II, L .P. and
Messrs. Sangalis, Davidson and Wilson is 5847 San Felipe, Suite 4350,
Houston, Texas 77057.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Directors
The following sets forth the names of (a) current directors of the
Company and (b) persons designated to serve as directors of the Company (to
the extent not a current director of the Company) as of the Closing, their
ages, the year in which they were first elected a director, their positions
with the Company, their principal occupations and employers for at least the
last five years, and any other directorships held by them in certain other
companies. The term of the current directors expires on the date of the 1997
Annual Meeting. For information concerning membership on Committees of the
Board of Directors, see "Meetings of the Board of Directors and Committees"
below. For information concerning directors' ownership of capital stock, see
"Security Ownership of Certain Beneficial Owners" above.
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<PAGE>
<TABLE>
Current Directors
<CAPTION>
Name Age Positions with the Company
_____________________ ___ __________________________________
<S> <C> <C>
Jeremiah M. Callahan 41 Director
Richard M. Gray 64 Director
Susan A. Hernandez 34 Director
William A. Hightower 53 Director
James D. Lumsden 43 Director
Shea E. Ralph 37 Chairman, Chief Executive Officer,
President and Director
Gert E. Schumann 56 Director
</TABLE>
JEREMIAH M. CALLAHAN is a Principal of Fairview Capital, L.L.C. and has
been a director of the Company since July 1996. He has been President of Blue
Rhino Corp., a propane distribution company, from June 1994 to December 1995.
From 1992 to 1994, Mr. Callahan was also President of DynaPower/Stratopower, a
unit of General Signal Corporation and a manufacturer of hydraulic pumps,
motors and equipment for the aerospace and industrial markets from 1992 to
1994.
RICHARD M. GRAY, CPA, is currently, and has been for the past 23 years, a
Partner and Founder of the accounting firm Gray & Kelly, and he has been a
director of the Company since June 1995. He is a member of the Board of
Directors of Family Steak House of Florida, Inc. He is a past President and
Board member of Universal Marion Corp., Daylight Industries, and Chapman &
Scott Contractors.
SUSAN A. HERNANDEZ has been a director of the Company since May, 1996.
Since October 1994, Ms. Hernandez has been a full-time homemaker. Ms.
Hernandez served as the Credit Manager for Atlantic Bag & Paper Company, a
wholly-owned subsidiary of the Company, from January 1990 to October 1994.
Ms. Hernandez is the sister of Mr. Shea E. Ralph, President of the Company.
WILLIAM A. HIGHTOWER has been President of Cadnet, Inc. and a director of
the Company since June 1995. Cadnet is a developer of network software for
CAD systems. He is a member of the Board of Directors of Silicon Valley
Group. He was President and Chief Executive Officer of Telematics
International, Inc. from 1990 to 1995. Telematics is a computer hardware
sales company.
JAMES D. LUMSDEN has been President and Managing Principal of Fairview
Capital, L.L.C. since 1995 and has been a director of the Company since July
1996. Prior to 1995, Mr. Lumsden was a private investor for his own account
and for other investors.
SHEA E. RALPH has been President, Chief Executive Officer and a director
of the Company since March 1994. He has served as Chairman of the Board of
the Company since 1994 and served as Vice President of Atlantic Bag & Paper
Company from 1988 to 1993. Mr. Ralph founded Jotan in 1993.
GERT E. SCHUMANN has been non-executive Chairman of Frantschach AG since
1986 and a consultant to the pulp, paper, and packaging industries. He has
been a director of the Company since June 1995.
<TABLE>
Persons Designated to Serve as Directors
<CAPTION>
Name Age Positions with the Company
________________________ ___ ____________________________________
<S> <C> <C>
Philip A. Davidson 32 None prior to the Proposed
Transactions. After consummation of
the Proposed Transactions, Mr.
Davidson will serve as a Director.
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<PAGE>
Jeffrey P. Sangalis 38 None prior to the Proposed
Transactions. After consummation of
the Proposed Transactions, Mr.
Sangalis will serve as a Director.
James P. Wilson 38 None prior to the Proposed
Transactions. After consummation of
the Proposed Transactions, Mr.
Wilson will serve as a Director.
</TABLE>
PHILIP A. DAVIDSON has been a Managing Director since 1993 of Rice,
Sangalis, Toole & Wilson, a private investment firm based in Houston, Texas,
which manages Rice Partners II, L.P., a private investment fund organized to
invest in subordinated debt and equity securities of middle market companies.
Prior to 1993, Mr. Davidson was completing his Masters of Business
Administration at the University of Texas in Austin.
JEFFREY P. SANGALIS is a founding principal of Rice, Sangalis, Toole &
Wilson, a private investment firm based in Houston, Texas, which manages Rice
Partners II, L.P., a private investment fund organized to invest in
subordinated debt and equity securities of middle market companies, and has
served in that capacity since 1989. Mr. Sangalis serves as a director of
Bayou Steel Corporation, a producer of light structural steel products.
JAMES P. WILSON is a founding Principal of Rice, Sangalis, Toole &
Wilson, a private investment firm based in Houston, Texas, which manages Rice
Partners II, L.P., a private investment fund organized to invest in
subordinated debt and equity securities of middle market companies, and has
served in that capacity since 1989.
Executive Officers
The following table sets forth the names of the executive officers of
the Company, their ages, their positions with the Company and their principal
occupations and employers for at least the last five years, and any other
directorships held by them in certain other companies. The term of the
current executive officers expires on the date of the first meeting of the
Board of Directors held following the 1997 Annual Meeting of shareholders.
For information concerning executive officers' ownership of Common Stock, see
"Security Ownership of Certain Beneficial Owners" above.
<TABLE>
Current Executive Officers
<CAPTION>
Name Age Positions with the Company
________________________ ___ ___________________________________
<S> <C> <C>
David Freedman 47 Vice President and Chief Financial
Officer
Alton E. Thompson, Jr. 36 Vice President of Sales & Operations
John P. Moore 37 Controller
</TABLE>
DAVID FREEDMAN has been Vice President and Chief Financial Officer of
Jotan since May 1994. From October 1993 to May 1994, he was founder and
President of Tax Concepts, a tax research and consulting company. From 1979
to October 1993, Mr. Freedman was Assistant Vice President-Tax, CSX
Corporation.
ALTON E. THOMPSON, JR. was promoted to Vice President of Sales &
Operations in August 1995. He joined Jotan, Inc. as General Manager of its
Auburndale distribution center in September 1993. Prior to joining Jotan he
worked for over 19 years with Jefferson Smurfit Corp., a producer of
corrugated products, in various manufacturing and sales capacities.
JOHN P. MOORE was hired as corporate controller April 1, 1995. Prior to
joining Jotan, he was controller of Connerty & Associates, a regional
franchiser of Outback Steakhouse and Hooters restaurants.
-10-
<PAGE>
Meetings of the Board of Directors and Committees
The Board of Directors of the Company held 14 meetings during the year
ended December 31, 1996. Each director attended at least 75% of the total
number of Board and Committee meetings that they were eligible to attend. The
Company's Board of Directors has two standing committees -- the Audit
Committee and the Compensation Committee. The Board of Directors does not
have a standing nominating committee, such function being reserved to the full
Board of Directors.
The Audit Committee presently consists of Mr. Ralph and Mr. Gray. The
Audit Committee has been assigned the principal functions of: (i) recommending
the independent auditors; (ii) reviewing and approving the annual report of
the independent auditors; (iii) approving the annual financial statements; and
(iv) reviewing and approving summary reports of the auditors' findings and
recommendations. The Audit Committee held two meetings during the year ended
December 31, 1996.
The Compensation Committee consists of Mr. Lumsden and Mr. Hightower.
The Compensation Committee has been assigned the functions of approving and
monitoring the remuneration arrangements for senior management. In addition,
the Compensation Committee administers the Company's stock option plans. The
Compensation Committee held three meetings during the year ended December 31,
1996.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation paid by
the Company for services rendered for the fiscal years ended December 31,
1996, 1995 and 1994, to the Company's Chief Executive Officer (the "Named
Executive Officer"). No other executive officer of the Company received a
salary in excess of $100,000 annually for the periods depicted. No options or
SARs were granted during the periods depicted.
<TABLE>
Summary Compensation Table
Annual Compensation
<CAPTION>
All Other
Name and Principal Position Year Salary($) Bonus($) Compensation ($)
_____________________________ ____ _________ ________ __________________
<S> <C> <C> <C> <C>
Shea E. Ralph, Chairman, 1996 $70,519 $-0- $3,600(1)
President and Chief Executive 1995 $60,599 $-0- $720(1)
Officer 1994 $70,484 $-0- $-0-
<FN>
(1) Car allowance.
</TABLE>
Grant of Stock Options
No grants of stock options were made to the Named Executive Officer
during the fiscal year ended December 31, 1996.
Stock Options and Fiscal Year Stock Option Value
No stock options were exercised by the Named Executive Officer during the
fiscal year ended December 31, 1996. The Named Executive Officer held no
unexercised stock options at the end of the fiscal year ended December 31,
1996.
Director Compensation
All directors are reimbursed for expenses incurred in connection with
board and committee meetings attended. No other cash compensation is paid to
directors for their services as directors. In lieu of cash compensation, each
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<PAGE>
director receives 1,800 shares of Common Stock annually plus 100 additional
shares of Common Stock for each meeting of the Board attended. The director
Common Stock compensation is based on the period between annual meetings of
the shareholders of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors is currently
comprised of Mr. Lumsden and Mr. Hightower. None of the members of the
Compensation Committee served as an officer or employee of the Company or any
of its subsidiaries during the year ended December 31, 1996. Except as set
forth herein, there were no material transactions between the Company and any
of the members of the Compensation Committee during the year ended December
31, 1996.
EMPLOYMENT AGREEMENTS
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
During 1996, the Company entered into a three-year employment agreement with
Shea E. Ralph pursuant to which he will receive an annual salary of $85,000
subject to adjustment by the Board of Directors. The employment agreement
prohibits the employee from directly or indirectly competing with the Company
during and for a period of two years following termination of his employment
with the Company. In addition, the employment agreement requires the Company
to pay Mr. Ralph his salary for the remaining portion of the three-year term
in the event Mr. Ralph's employment is terminated without cause (as such term
is defined in the employment agreement). In connection with the Proposed
Transactions, Mr. Ralph and certain other members of management may enter into
employment agreements that may alter their existing compensation arrangements
and duties and include non-competition and confidentiality restrictions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the Company's last three fiscal years, there have been no
transactions between the Company and any officer, director, nominee for
election as director, or any shareholder owning greater than five percent (5%)
of any class of the Company's voting securities, nor any member of any such
person's immediate family, except as set forth below and as described above at
"Proposed Transactions."
Mr. Sidney Ralph, father of the Company's President, Shea E. Ralph owns
all of the outstanding shares of common stock of Total Supply Systems, Inc.
("Total Supply"), a private corporation. Total Supply has made certain
financial advances to the Company pursuant to an arrangement similar to a line
of credit with interest charged at prime plus one percent.
On December 31, 1993, the Company purchased all of the outstanding
capital stock of Atlantic Bag and Paper Company ("Atlantic Bag") from Total
Supply in exchange for a $750,000 note payable with Total Supply. On
September 8, 1994, the Company refinanced its short-term line-of-credit
arrangement and the $750,000 note payable with Total Supply into a convertible
subordinated debenture. On February 22, 1995, the Company entered into an
agreement with Total Supply whereby the old previous debt agreements
(convertible debenture, security, etc.) were canceled and a new agreement put
in their place. The revised agreement converts a portion of the face value
($919,833) into shares of Common Stock at fair value (determined to be $3.00
by valuation) and the balance of $750,000 was payable over an 81-week period
at $10,000 per week including interest at 9.25%. The balance due under the
agreement was paid in full during September 1996.
The Company also leases two warehouses from Sidney Ralph. The two leases
have a term until 2004 and a monthly lease payment of $4,000 and $2,000,
respectively.
As described above at "Proposed Transactions," on May 16, 1996, F-Jotan
invested $2,000,000 in the Company in exchange for 100% of the outstanding
Series A Preferred Stock. Mr. Lumsden and Mr. Callahan are members of
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<PAGE>
Fairview Management Group, the manager of F-Jotan and were elected to the
Company's Board of Directors in connection with the investment by F-Jotan.
In the opinion of management the terms of the aforementioned related
transactions are comparable to the terms that would be obtained with
unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and beneficial owners of more than 10% of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission ("SEC") and the National Association of Securities
Dealers, Inc. ("NASD") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and greater than 10% beneficial owners are
required by SEC regulations to furnish to the Company copies of all Section
16(a) forms which they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 1996, the Company believes that all Section
16(a) filing requirements applicable to its directors, executive officers and
greater than 10% beneficial owners were complied with.
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