SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File No. 0-24188
JOTAN, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-3181162
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Issuer's telephone number, including area code (904) 355-2592
-------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS - State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: 21,414,013 shares of common stock, $.01 par value, as of August 10, 1998.
<PAGE>
INDEX
Jotan, Inc.
Part I - Financial Information Page
Item I -- Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months and Six Months ended
June 30, 1998 and 1997 2
Condensed Consolidated Balance Sheets at
June 30, 1998 and 1997 3 and 4
Condensed Consolidated Statements of Cash
Flows for the Six Months ended
June 30, 1998 and 1997 5 and 6
Notes to Condensed Consolidated Financial
Statements 7
Item II -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item III -- Liquidity and Capital Resources 10
Part II - Other Information
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 13
1
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended June 30 Six months ended June 30
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 17,385,462 $ 18,973,980 $ 33,246,946 $ 25,763,187
Cost of sales 12,887,519 13,621,011 24,017,172 18,369,154
------------ ------------ ------------ ------------
Gross profit 4,497,943 5,352,969 9,229,774 7,394,033
Operating expenses 4,977,173 4,590,539 9,848,150 6,531,864
Amortization of goodwill
and non-compete 147,660 793,490 339,981 1,065,998
------------ ------------ ------------ ------------
Operating income (loss) ( 626,890) ( 31,060) ( 958,357) ( 203,829)
Other income 935 215 5,268 10,125
Interest expense (1,146,490) ( 980,869) (2,201,215 (1,301,467)
------------ ------------ ------------ ------------
Income (loss) before
taxes (1,772,445) (1,011,714) (3,154,304) (1,495,171)
Income tax expense - - - -
------------ ------------ ------------ ------------
Net income (loss) (1,772,445) (1,011,714) (3,154,304) (1,495,171)
Amounts attributable to
preferred stock 300,217 220,625 672,194 320,834
------------ ------------ ------------ ------------
Net income (loss)
attributable to common
shareholders $ (2,072,662) $ (1,232,339) $ (3,826,498) $ (1,816,005)
============ ============ ============ ============
Net income (loss)
per share
Basic $ (.11) $ (.22) $ (.31) $ (.32)
======== ======== ======== ========
Diluted $ (.11) $ (.22) $ (.31) $ (.32)
======== ======== ======== ========
Weighted average number
of shares outstanding:
Basic 18,995,951 5,696,611 12,383,020 5,687,964
========== ========== ========== ==========
Diluted 18,995,951 5,696,611 12,383,020 5,687,964
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash $ - $ 536,288
Accounts receivable, net 9,741,518 10,372,866
Inventory 7,636,301 7,786,435
Other current assets 1,738,986 1,056,353
---------- ----------
Total current assets 19,116,805 19,751,942
---------- ----------
Property and equipment, net 4,549,317 5,072,792
Goodwill, net 1,912,780 27,043,921
Non-compete agreements, net 1,648,539 6,162,000
Other assets 534,433 879,113
---------- ----------
Total assets $27,761,874 $58,909,768
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30
1998 1997
---------- ----------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Bank overdraft $ 975,496 $ -
Trade payables 4,417,614 5,779,624
Accrued expenses 3,933,123 4,631,418
Current portion of long-term debt,
and capital leases 9,715,740 3,957,000
Other 1,115,204 329,564
---------- ----------
Total current liabilities 20,157,177 14,697,606
---------- ----------
Capitalized lease obligations 3,800,072 3,907,801
Other liabilities 2,154,785 121,561
Long-term debt, less current maturities
Related parties 9,951,183 8,710,000
Others 17,474,707 20,924,040
---------- ----------
33,380,747 33,663,402
---------- ----------
Redeemable preferred stock with related
parties 12,932,747 9,340,000
Stockholders' equity (deficit)
Preferred stock:
Authorized shares - 10,000,000
Issued and outstanding shares to
related party - 1,435,705 in 1998
and 1,265,823 in 1997 14,357 12,658
Voting common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares -
21,414,013 in 1998 and 5,696,611
in 1997 214,140 56,966
Additional paid-in capital 3,692,211 4,639,611
Retained earnings (deficit) (42,629,505) ( 3,500,475)
----------- -----------
Total stockholders' equity (deficit) (38,708,797) 1,208,760
----------- -----------
Total liabilities and stockholders' equity $27,761,874 $58,909,768
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended June 30
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $( 3,154,304) $( 1,495,171)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization expense 671,041 1,266,192
Stock compensation expense - 25,800
Changes in operating assets and liabilities:
Accounts receivable, net ( 184,559) ( 2,852,061)
Inventory ( 351,992) ( 334,912)
Other current assets ( 72,486) ( 214,515)
Other assets ( 258,566) 484,249
Trade payables ( 3,010,571) 974,991
Accrued expenses 528,171 920,439
Other current liabilities ( 432,000) ( 592,557)
Other liabilities 31,622 -
------------ ------------
Net cash (used in) provided by operating
activities ( 6,233,644) ( 1,817,545)
Cash flows from investing activities
Proceeds from sale of property and equipment - 1,000,000
Purchase of property and equipment ( 32,494) ( 137,235)
Purchase of business, Cove, net of
cash acquired - ( 2,625,000)
Purchase of business, Southland, net of
cash acquired - ( 37,721,235)
------------ ------------
Net cash used in investing activities ( 32,494) ( 39,483,470)
------------ ------------
Cash flows from financing activities
Conversion of trade payable to notes payable 3,402,460 -
Proceeds from (payments) on line of
credit borrowings ( 504,393) ( 1,594,076)
Payments on long-term debt and capitalized
leases ( 496,556) ( 1,500,219)
Proceeds from senior revolver - 6,080,884
Proceeds from acquisition revolver - 2,625,000
Proceeds from senior term debt - 16,122,500
Proceeds from senior subordinated debt 1,250,000 8,710,000
Proceeds from issuance of redeemable
preferred stock, net of issuance costs 250,000 9,340,000
Proceeds from issuance of warrants - 650,000
------------ ------------
Net cash provided by financing activities 3,901,511 40,434,089
------------ ------------
Net increase (decrease) in cash and
cash equivalents ( 2,364,627) ( 866,926)
Cash and cash equivalents at beginning
of period 1,389,131 1,403,214
------------ ------------
Cash and cash equivalents at end of period $( 975,496) $ 536,288
============ ============
</TABLE>
5
<PAGE>
<TABLE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<CAPTION>
Six months ended June 30
1998 1997
------------- ------------
<S> <C> <C>
Purchase of business, Cove, net of
cash acquired
Inventory $ - $( 383,500)
Property and equipment - ( 278,750)
Other assets - ( 2,850)
Goodwill - ( 2,054,037)
Notes payable and capitalized leases - 94,137
------------- ------------
$ - $( 2,625,000)
============= ==============
</TABLE>
<TABLE>
<S> <C> <C>
Purchase of business, Southland, net of
cash acquired
Accounts receivable $ - $( 5,967,581)
Inventory - ( 5,789,881)
Other current assets - ( 517,889)
Property and equipment - ( 4,069,138)
Other assets - ( 820,802)
Trade payables - 3,278,692
Accrued expenses - 3,488,497
Other current liabilities - 922,121
Other liabilities - 122,486
Non - Compete - ( 6,600,000)
Goodwill - ( 25,500,563)
Notes payable and capitalized leases - 3,732,823
------------- ------------
$ - $(37,721,235)
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Business and Basis of Presentation
Description of Business
The Company is a distributor of packaging and shipping supplies with twenty
distribution centers and two production facilities located throughout the United
States. The Company sells to a broad customer base including industrial, moving
and storage, air freight, and perishable food market segments. Prior to March
1997, Jotan, Inc. was a southeast regional distributor of packaging materials
providing "Just On Time As Needed" delivery service for its industrial
customers.
On March 4, 1997, the Company completed the acquisition of 100% of the stock of
Southland Holding Company ("SHC"). The subsidiaries of SHC and one affiliate of
the Company merged with and into SHC in 1997 which changed its name to Southland
Container Packaging Corp. ("Southland"). Southland is a distributor of packaging
and shipping supplies with eleven distribution centers throughout the United
States. Southland served primarily the moving and storage industry, but also
provided packaging products to the air freight and perishable food markets. As
of June 20, 1997, the Company completed the acquisition of the assets of Cove
Container Corporation ("Cove"). Cove is a distributor of packaging and shipping
supplies with a distribution center located in Pontiac, Michigan, and a
manufacturing facility in West Branch, Michigan. Cove serves both the industrial
and the moving and storage industry segments.
Basis of Presentation
The accompanying financial statements are unaudited and, in the opinion of
management, reflect all the adjustments that are necessary for a fair
presentation of the financial position and results of operations for the periods
presented. All such adjustments are of a normal and recurring nature.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the entire year. The financial
statements at June 30, 1998 and June 30, 1997 reflect the combined accounts of
the Company and its subsidiaries. Certain information and footnote disclosure
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
2. Long-Term Debt
Long-term debt consists of the following at June 30, 1998:
<TABLE>
<S> <C>
Senior Secured Term Loan A with interest at LIBOR plus 2.75%. $ 8,159,323
Senior Secured Term Loan B with interest at LIBOR plus 3.25%. 7,615,718
Senior Secured Revolving Line of Credit with interest
at LIBOR plus 2.75%. 7,576,491
Subordinated Debt with related parties, interest at 12.5%. 9,951,183
Senior Subordinated PIK notes with related parties
evidencing accrued interest due for August 1997
and November 1997 on the original subordinated
debt, interest of 12.5%. 508,334
Other 3,138,604
-----------
</TABLE>
7
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Long-Term Debt (continued)
<TABLE>
<S> <C>
36,949,653
Less current maturities ( 9,523,766)
-----------
$27,425,887
===========
</TABLE>
On April 14, 1998, the Company and Southland entered into a Fifth Amendment to
its Credit Agreement with the Banks (the "Fifth Amendment") whereby the Banks
waived the events of default for nonpayment and agreed to defer delinquent
interest payments and other scheduled interest payments through July 31, 1998,
by execution of interest deferral notes. Scheduled principal payments also were
deferred until March 1999. However, the Company agreed that all principal and
interest under loans from the Banks will be due on February 28, 2001. The
Company agreed to give the Banks tighter controls and liens on cash collateral,
and the Banks agreed to relax certain financial covenants, although the
miscellaneous debt restriction was reduced to $100,000. One of the new terms was
that all collections on customer receivables would be used to pay down the
revolving line of credit through a lockbox arrangement. As a result, the amount
outstanding under the revolving line of credit of $7,576,491 at June 30, 1998
has been classified as a current liability. As a result of the Fifth Amendment,
the Company's working capital line of credit with the Banks remains available to
meet the Company's requirements.
As a condition to the Fifth Amendment, the Banks required Rice Capital Partners
II L.P. ("Rice"), a related party by management of Rice being on the Board of
Directors, to loan the Company an additional $1,250,000. In exchange for this
loan which was obtained in April 1998, the Company issued to Rice its 12.5%
priority senior subordinated notes (the "Priority Notes"). Interest payments
under the Priority Notes are payable with PIK notes until the Bank's debt is
repaid. The Priority Notes are junior to the Bank's debt but senior to the
subordinated notes previously issued to Rice and Fairview (the "1997 Senior
Subordinated Notes"). In order to induce Rice to purchase the Priority Notes,
the Company also agreed to issue to Rice immediately exercisable warrants for
the purchase (at a nominal exercise price) of 42,377,173 shares of the Company's
common stock. The Company also agreed to issue to Rice similar warrants to
purchase 8,475,638 shares of the Company's common stock as additional
consideration for Rice's purchase of $250,000 of Series B Preferred Stock in
January, 1998. The total number of shares of common stock provided under these
warrants is subject to reduction after receipt of a fairness opinion from an
independent financial advisor.
On June 2, 1998, the Company and Southland entered into a Sixth Amendment to its
Credit Agreement with the Banks (the "Sixth Amendment") whereby certain
modifications were made to the definition of "eligible accounts" in Section 1.1
of the Credit Agreement. In addition, the bank account structure was clearly
defined.
Long-term debt due matures as follows:
<TABLE>
<S> <C>
1999 $10,436,411
2000 3,095,846
2001 13,631,168
2002 1,670
2003 -
Thereafter 10,758,334
------------
37,923,429
Less discounts ( 973,776)
------------
$36,949,653
============
</TABLE>
8
<PAGE>
Jotan, Inc.
II. Management's Discussion and Analysis of Financial Condition and Results of
Operations
On March 4, 1997, the Company completed the acquisition of 100% of the stock of
Southland Holding Company and its subsidiaries, now known as Southland Container
Packaging Corp. ("Southland"). On June 23, 1997, the Company completed the
acquisition of the assets of Cove Container Corporation ("Cove"). As a result of
these acquisitions, the Company's financial statements for the quarter ended
June 30, 1997 and the quarter ended June 30, 1998 are not comparable in many
respects.
To facilitate a meaningful comparison of the Company's operating performance,
the following discussion and analysis is presented on a traditional basis.
Included in the following discussion are comparisons of EBITDA (earnings before
interest, taxes, depreciation, and amortization and other extraordinary and
non-recurring charges). The Company believes EBITDA is helpful in understanding
cash flow generated from operations that is available for taxes, debt service
and capital expenditures. In addition, EBITDA, as redefined in the senior loan
documents to exclude certain extraordinary and non-recurring charges,
facilitates the monitoring of covenants related to certain long-term debt.
EBITDA should not be considered by investors as an alternative to net earnings
as an indicator of the Company's operating performance or to cash flows as a
measure of its overall liquidity.
Jotan, Inc. and its consolidated subsidiaries reported a net loss of $2.1
million for the quarter ended June 30, 1998, compared to a net loss of $1.2
million for the same period in 1997. EBITDA for the quarter ended June 30, 1998
was a loss of $80 thousand compared to $906 thousand profit for the same period
in 1997. For the first six months of 1998, the Company reported an operating
loss of $958 thousand compared to a loss of $204 thousand for the same period in
1997. EBITDA for the six months ended June 30, 1998 was $46 thousand compared to
$1,062 thousand for the same period in 1997.
Quarter to quarter, the reduction in EBITDA was due to the reorganization of the
West Coast operations. This included the closure of three facilities and
retention of new management.
<TABLE>
<CAPTION>
Second Quarter First Six Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
($000's)
Operating Income/(Loss) (627) ( 31) (958) (204)
Amortization 148 793 340 1,066
Depreciation 168 143 331 200
Other Non-recurring 231 - 333 -
----- ----- ----- ------
EBITDA (80) 906 46 1,062
</TABLE>
Net sales for the second quarter of 1998 decreased to $17.4 million from $18.9
million for the second quarter of 1997. Year to date, net sales increased from
$25.8 million in 1997 to $33.2 million in 1998. The year to date increase in net
sales was primarily related to post acquisition revenue generated by the
Southland and Cove operations which is only partially included in 1997 results.
Gross profit was $4.5 million for the second quarter of 1998 compared to $5.3
million the same period in 1997. Year to date, gross profit increased from $7.4
million in 1997 to $9.2 million in 1998. Margins declined from 28.7% to 27.7%
for the first six months. The year to date increase in gross profit was
primarily related to post acquisition revenue generated by the Southland and
Cove operations which is only partially included in 1997 results.
Operating expenses increased to $4.9 million for the second quarter of 1998 from
$4.6 million for the same period in 1997 and from $6.5 million to $9.8 million
for the six months ending June 30, 1998. The major factor contributing to these
increases was the inclusion of Southland operating expenses in the post
acquisition period.
9
<PAGE>
Jotan, Inc.
II. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Amortizations of goodwill and non-compete agreements were $148 thousand and $793
thousand for the second quarters of 1998 and 1997, respectively. Year to date
amortization totaled $340 thousand and $1,066 thousand for 1998 and 1997,
respectively. Post acquisition amortization expense was significantly reduced by
the year-end 1997 write-off of Southland related goodwill.
Interest expense for the second quarters of 1998 and 1997 amounted to $1.1
million and $1.0 million respectively. Year to date, interest expense increased
from $1.3 million in 1997 to $2.2 million in 1998. The major factor contributing
to these increases was the impact of increased borrowings related to the
Southland acquisition.
III. Liquidity and Capital Resources
On April 14, 1998, the Company and Southland entered into a Fifth Amendment to
its Credit Agreement with the Banks (the "Fifth Amendment") whereby the Banks
waived the events of default for nonpayment and agreed to defer delinquent
interest payments and other scheduled interest payments through July 31, 1998,
by execution of interest deferral notes. Scheduled principal payments also were
deferred until March 1999. However, the Company agreed that all principal and
interest under loans from the Banks will be due on February 28, 2001. The
Company agreed to give the Banks tighter controls and liens on cash collateral,
and the Banks agreed to relax certain financial covenants, although the
miscellaneous debt restriction was reduced to $100,000. One of the new terms was
that all collections on customer receivables would be used to pay down the
revolving line of credit through a lockbox arrangement. As a result, the amount
outstanding under the revolving line of credit of $7,576,491 at June 30, 1998
has been classified as a current liability. As a result of the Fifth Amendment,
the Company's working capital line of credit with the Banks remains available to
meet the Company's requirements.
As a condition to the Fifth Amendment, the Banks required Rice Capital Partners
II L.P. ("Rice"), a related party by management of Rice being on the Board of
Directors, to loan the Company an additional $1,250,000. In exchange for this
loan which was obtained in April 1998, the Company issued to Rice its 12.5%
priority senior subordinated notes (the "Priority Notes"). Interest payments
under the Priority Notes are payable with PIK notes until the Bank's debt is
repaid. The Priority Notes are junior to the Bank's debt but senior to the
subordinated notes previously issued to Rice and Fairview (the "1997 Senior
Subordinated Notes"). In order to induce Rice to purchase the Priority Notes,
the Company also agreed to issue to Rice immediately exercisable warrants for
the purchase (at a nominal exercise price) of 42,377,173 shares of the Company's
common stock. The Company also agreed to issue to Rice similar warrants to
purchase 8,475,638 shares of the Company's common stock as additional
consideration for Rice's purchase of $250,000 of Series B Preferred Stock in
January, 1998.
On June 2, 1998, the Company and Southland entered into a Sixth Amendment to its
Credit Agreement with the Banks (the "Sixth Amendment") whereby certain
modifications were made to the definition of "Eligible Accounts" in Section 1.1
of the Credit Agreement. In addition, the bank account structure was clearly
defined.
Negotiations were held with certain key vendors to hold in abeyance amounts due
while a repayment plan was implemented and bank negotiations were completed. A
plan has been developed and implemented, with the approval of the creditors
involved, to accomplish the repayment of past due amounts while providing for
the uninterrupted supply of materials for the business.
10
<PAGE>
Jotan, Inc.
Part II -- Other Information
Item 5--Other Information
The deadline for submission of shareholder proposals
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
as amended ("Rule 14a-8"), for inclusion in the Company's proxy
statement for its 1999 Annual Meeting of Shareholders is February
22, 1999. After May 8, 1999, notice to the Company of a
shareholder proposal submited otherwise than pursuant to Rule
14a-8 will be considered untimely; and the persons named in
proxies solicited by the Company's Board of Directors for its
1999 Annual Meeting of Shareholders may exercise discretionary
voting power with respect to any such proposal as to which the
Company does not receive timely notice.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
Sixth Amendment to Credit Agreement dated as of June 2, 1998.
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K Current Report, Item 5, Other Events, filed May 4, 1998.
11
<PAGE>
<TABLE>
Jotan, Inc.
Exhibit 11 Statement Re: Computation of Per Share Earnings
<CAPTION>
Three months ended June 30 Six months ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic and Diluted:
Average shares
outstanding 18,995,951 5,696,611 12,383,020 5,687,964
=========== =========== =========== ===========
Net income (loss) $(1,772,445) $(1,011,714) $(3,154,304) $(1,495,171)
Amount attributable to
preferred stock 300,217 220,625 672,194 320,834
----------- ----------- ----------- -----------
Net income (loss)
attributable to common
shareholders $(2,072,662) $(1,232,339) $(3,826,498) $(1,816,005)
=========== =========== =========== ===========
Per share amount basic
and diluted $ (.11) $ (.22) $ (.31) $ (.32)
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
Jotan, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Jotan, Inc.
By: /s/ Raleigh Minor
______________________________
Raleigh Minor, President
and Chief Executive Officer
By: /s/ Edward Lipscomb
________________________________
Edward Lipscomb, Vice President
and Chief Financial Officer
August 13, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921381
<NAME> Jotan, Inc
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,464,865
<ALLOWANCES> 723,347
<INVENTORY> 7,636,301
<CURRENT-ASSETS> 19,116,805
<PP&E> 5,798,825
<DEPRECIATION> 1,249,508
<TOTAL-ASSETS> 27,761,874
<CURRENT-LIABILITIES> 20,157,177
<BONDS> 0
12,932,747
14,357
<COMMON> 214,140
<OTHER-SE> (38,937,294)
<TOTAL-LIABILITY-AND-EQUITY> 27,761,874
<SALES> 33,246,946
<TOTAL-REVENUES> 33,246,946
<CGS> 24,017,172
<TOTAL-COSTS> 24,017,172
<OTHER-EXPENSES> 10,182,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,201,215)
<INCOME-PRETAX> (3,154,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,154,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,154,304)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
May 29, 1998, is among JOTAN, INC. ("Holding"), SOUTHLAND CONTAINER PACKAGING
CORP. (formerly Southland Holding Company, successor in interest by merger to
SHC Acquisition Corp., each of its own subsidiaries and Atlantic Bag & Paper
Company and herein the "Borrower"), each of the banks or other lending
institutions which are signatories hereto (collectively, the "Banks") and BANQUE
PARIBAS, individually as a Bank, and as agent for the Banks (the "Agent").
RECITALS:
A. Holding, SHC Acquisition Corp., Agent and Banque Paribas, in its
individual capacity, entered into that certain Credit Agreement dated as of
February 28, 1997 (as amended by that certain letter amendment dated April 30,
1997, that certain Second Amendment to Credit Agreement dated as of June 20,
1997, that certain Third Amendment to Credit Agreement dated as of August 19,
1997, that certain Fourth Amendment dated as of November 6, 1997, and that
certain Fifth Amendment dated as of April 14, 1998, as so amended, the "Credit
Agreement").
B. SHC Acquisition Corp. has merged with and into Southland Holding
Company, with Southland Holding Company surviving and assuming all the
obligations of SHC Acquisition Corp. under the Credit Agreement and the Loan
Documents (as defined in the Credit Agreement).
C. Banque Paribas has assigned certain of its rights and interests
under the Credit Agreement and the other Loan Documents to the other Banks
pursuant to those certain Assignment and Acceptances, each dated April 18, 1997.
D. Southland Holding Company has changed its name to Southland
Container Packaging Corp. and each Obligated Party (as defined in the Credit
Agreement) other than Holding has merged with and into Southland Container
Packaging Corp. with Southland Container Packaging Corp. as the surviving
entity. Southland Container Packaging Corp. is the only Subsidiary (as defined
in the Credit Agreement).
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E. The Borrower and Holding have requested that the Agent and the Banks
amend certain provisions of the Credit Agreement. The Banks have agreed to do so
subject to and on the terms and conditions of this Amendment and the Credit
Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Credit Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment of Section 1.1. The definition of "Eligible
Accounts" contained in Section 1.1 of the Credit Agreement is hereby amended by
deleting clause (xii) and replacing it in its entirety with the following:
(xii) during the period from April 14, 1998 through
July 31, 1998, not more than fifty percent (50%) of the
aggregate amount of the accounts owed by the account debtor
and its Affiliates to Holding and the Subsidiaries on an
aggregate basis, are more than sixty (60) days past due; and
after July 31, 1998, not more than twenty-five percent (25%)
of the aggregate amount of the accounts owed by the account
debtor and its Affiliates to Holding and the Subsidiaries on
an aggregate basis, are more than sixty (60) days past due.
Section 2.2 Amendment of Section 6.6. Section 6.6 of the Credit
Agreement is hereby amended by inserting after the words "Libor Accounts" in the
first sentence thereof the phrase "and the Interest Deferral Notes".
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Section 2.3 Amendment of Section 11.15.
(a) Section 11.15 of the Credit Agreement is hereby amended by
deleting Schedule 11.15(b) and replacing it in its entirety with the Schedule
which is annexed hereto as Exhibit A.
(b) Section 11.15 is further amended by adding a new
subsection (f) at the end thereof, as follows:
(f) Other Accounts. Borrower and Holding shall not maintain
any bank accounts other than (i) the Concentration Account, (ii) the
Local Accounts, (iii) the Operating Account, (iv) the accounts set
forth on Schedule 11.15(f) (collectively, the "Petty Cash Accounts"),
(v) account number 9930041378 located at Bank One, Corsicana, Texas
(the "Tax Account"), and (vi) account number 0490005139 located at Bank
One, Corsicana, Texas (the "Employee Benefit Plan Account"). The
Borrower and Holding covenant and agree that they shall deposit into
the Tax Account only the amount necessary from time to time to make
payments of sales and use taxes to state and local authorities in
Texas, and that the amounts deposited in the Tax Account shall be
utilized solely for such tax payments. The Borrower and Holding
covenant and agree that they shall deposit into the Employee Benefit
Plan Account only the amount necessary from time to time to fund their
employees' health and medical claims. If at any time the amount in any
Petty Cash Account exceeds $5,000, the Borrower or Holding promptly
shall transfer such excess by wire transfer to the following Local
Account: account number 2090002759859 located at First Union National
Bank.
Section 2.4 Amendment of Section 11.16. Section 11.16 of the Credit
Agreement is hereby amended by deleting the date "April 30, 1998" and inserting
the date "June 5, 1998" in lieu thereof.
ARTICLE 3
Conditions
Section 3.1 Conditions Precedent. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent:
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(a) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct
as of the date hereof as if made on the date hereof except to the
extent such representations and warranties expressly relate solely to
another date;
(b) After giving effect to this Amendment, no Default or Event
of Default shall exist;
(c) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments, and
other legal matters incident thereto, shall be reasonably satisfactory
to Agent and its legal counsel, Weil, Gotshal & Manges LLP;
(d) Holding and the Borrower shall have paid all fees and
expenses of Agent and the Banks incurred in the preparation,
negotiation and execution of this Amendment; and
(e) The Agent shall have received a letter agreement executed
by the signatories thereto, substantially in the form of Exhibit B
hereto.
ARTICLE 4
Ratifications, Representations and Warranties, Release
Section 4.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Credit Agreement. The terms and provisions of the Credit Agreement,
as amended and modified by this Amendment, and the terms and provisions of the
other Loan Documents are ratified and confirmed and shall continue in full force
and effect. Borrower, Holding, Agent and each Bank agree that the Credit
Agreement, as amended hereby, and the other Loan Documents shall continue to be
legal, valid, binding and enforceable in accordance with their respective terms.
Without in any way limiting any of the foregoing, Holding hereby ratifies and
confirms all of the terms and provisions of the Holding Guaranty and the Holding
Security Agreement, and Borrower hereby ratifies and confirms all of the terms
and provisions of the Borrower Security Agreement.
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Section 4.2 Representations and Warranties. Borrower and Holding
represent and warrant to Agent and each Bank that (i) the execution, delivery
and performance of this Amendment and all documents required hereby or related
hereto have been authorized by all requisite action on the part of Borrower and
Holding and will not violate the articles of incorporation, bylaws or any
similar governing document of any such parties, (ii) the representations and
warranties contained in the Credit Agreement, as amended hereby, and any other
Loan Document are true and correct on and as of the date hereof as though made
on and as of the date hereof except to the extent those representations and
warranties expressly relate solely to another date, and (iii) Borrower and
Holding are in full compliance with all covenants, agreements, terms and
provisions contained in the Credit Agreement, as amended hereby, and the other
Loan Documents.
Section 4.3 RELEASE. EACH OF BORROWER AND HOLDING HEREBY
ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT,
CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE
OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE OBLIGATIONS OR TO
SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM THE AGENT OR THE
BANKS. EACH OF BORROWER AND HOLDING, FOR ITSELF AND ITS SUBSIDIARIES AND EACH OF
ITS SUCCESSORS, ASSIGNS, AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS, CONSULTANTS AND ADVISORS OF OR TO ANY OF THE FOREGOING (COLLECTIVELY,
THE "RELEASORS") HEREBY ACQUITS, WAIVES, RELEASES AND DISCHARGES THE AGENT, EACH
BANK AND EACH OF THEIR RESPECTIVE SUCCESSORS, ASSIGNS, AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, CONSULTANTS AND ADVISORS OF OR TO ANY OF
THE FOREGOING (COLLECTIVELY, THE "RELEASEES"), OF AND FROM ANY AND ALL CLAIMS
(INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, DAMAGES, DEMANDS AND CAUSES OF
ACTION TO THE EXTENT ARISING THEREFROM) WHATSOEVER, IN LAW OR IN EQUITY, WHETHER
KNOWN OR UNKNOWN, WHICH THE RELEASORS EVER HAD, NOW HAVE, OR HEREINAFTER CAN,
SHALL OR MAY HAVE AGAINST ANY RELEASEE BY REASON OF ANY MATTER ARISING OUT OF OR
RELATED TO THE CREDIT AGREEMENT, THE OTHER LOAN DOCUMENTS, AND ANY AND ALL OTHER
ACTIONS OR OMISSIONS RELATING IN ANY WAY THERETO, IN EACH CASE LIMITED TO THE
EXTENT ORIGINATING PRIOR TO THIS AMENDMENT BECOMING EFFECTIVE.
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ARTICLE 5
Miscellaneous
Section 5.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Bank, or any closing shall
affect the representations and warranties or the right of Agent and the Banks to
rely upon them.
Section 5.2 Reference to Agreement. Each of the Loan Documents, including
the Credit Agreement and any and all other agreements, documents, or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement as amended hereby, are hereby amended so
that any reference in such Loan Documents to the Credit Agreement shall mean a
reference to the Credit Agreement as amended hereby.
Section 5.3 Expenses of Agent and Banks. As provided in the Credit
Agreement, Borrower agrees to pay on demand all reasonable out-of-pocket costs
and expenses incurred by Agent and the Banks in connection with the preparation,
negotiation, and execution of this Amendment (including attorneys' fees and
expenses).
Section 5.4 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 5.5 Applicable Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas.
Section 5.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Agent, the Banks, Borrower and Holding and their
respective successors and assigns, except neither Borrower nor Holding may
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Banks.
Section 5.7 Counterparts. This Amendment may be executed in one or
more counterparts and on telecopy
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counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
agreement.
Section 5.8 Effect of Waiver. No consent or waiver, express or implied,
by Agent or any Bank to or for any breach of or deviation from any covenant,
condition or duty by Borrower or Holding shall be deemed a consent or waiver to
or of any other breach of the same or any other covenant, condition or duty.
Section 5.9 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
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BORROWER and HOLDING:
JOTAN, INC.
SOUTHLAND CONTAINER PACKAGING CORP., formerly Southland Holding Company and
successor in interest to SHC Acquisition Corp. and each Obligated Party (other
than Holding)
By: /s/ Edward L. Lipscomb
---------------------------------
Edward L. Lipscomb,
Vice President and Chief Financial Officer for both
companies
AGENT:
BANQUE PARIBAS, as Agent and as a Bank
By:
Name:
Title:
By:
Name:
Title:
BANKS:
BANKBOSTON, N.A.,
formerly The First National Bank of Boston, as
Administrative Agent and as a Bank
By:
Name:
Title:
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ANTARES LEVERAGED CAPITAL CORP
By:
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
Name:
Title:
By:
Name:
Title:
CREDITANSTALT CORPORATE FINANCE, INC., successor in interest to CREDITANSTALT
AG, formerly known as CREDITANSTALT-BANKVEREIN
By:
Name:
Title:
By:
Name:
Title:
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STATE OF GEORGIA ss.
ss.
COUNTY OF CAMDEN ss.
This instrument was acknowledged before me on June 2, 1998, by Edward L.
Lipscomb, Vice President and Chief Financial Officer of Jotan, Inc., on behalf
of said corporation.
/s/ Kelley M. Cooke
---------------------------------
Notary Public, State of Georgia
Commission Expires: April 23, 2001
Printed Name: Kelley M. Cooke
STATE OF GEORGIA ss.
ss.
COUNTY OF ss.
This instrument was acknowledged before me on June 2, 1998, by Edward L.
Lipscomb, Vice President and Chief Financial Officer of Southland Container
Packaging Corp., on behalf of said corporation.
/s/ Kelley M. Cooke
---------------------------------
Notary Public, State of Georgia
Commission Expires: April 23, 2001
Printed Name: Kelley M. Cooke
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EXHIBIT A
<PAGE>
Schedule 11.15(f)
Bank Account Name Account Number
Nations Bank Southland Container - Orlando 3603327683
Tampa FL
Nations Bank Southland Container - Atlanta 0109001173
Atlanta GA
Nations Bank Southland Container - Charlotte 0303765556
Charlotte NC
Nations Bank Southland Container - Maryland 6063607170
Richmond VA
Fleet Bank Southland Container - New Jersey 8103181306
Edison NJ
Fleet Bank Southland Container - Massachusetts 2017342056
Edison NJ
Fleet Bank Southland Container - New York 2017342056
Edison NJ
Bank of America Southland Container - Los Angeles 1219806181
Norwalk CA
<PAGE>
Schedule 11.15(b)
Account Name Bank Account Number
Jotan Inc. First Union National Bank 2090000588080
Jotan/Southland SE First Union National Bank 2080000715876
Jotan/Southland First Union National Bank 2090002759859
Jotan/Southland NE First Union National Bank 2090002759846
