SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No._____)*
Jotan, Inc.
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
481093 10 2
(CUSIP Number)
James D. Lumsden
F-Jotan, L.L.C.
702 Oberlin Road, Suite 150, Raleigh, North Carolina 27605
(919) 743-2525
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 16, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box _____.
Check the following box if a fee is being paid with the statement X .
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7.)
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE>
CUSIP No. 481093 10 2 13D Page 2 of 8 Pages
1 NAME OF REPORTING PERSONS F-Jotan, L.L.C.
S.S. OR I.R.S. IDENTIFICATION
NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) _____
6 CITIZENSHIP OR PLACE OF ORGANIZATION North Carolina
NUMBER OF 7 SOLE VOTING POWER 2,531,646
SHARES
BENEFICIALLY 8 SHARED VOTING POWER -0-
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 2,531,646
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER -0-
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED 2,531,646
BY EACH REPORTING PERSON
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 30.8%
14 TYPE OF REPORTING PERSON OO*
* Limited Liability Company.
<PAGE>
CUSIP No. 481093 10 2 13D Page 3 of 8 Pages
1 NAME OF REPORTING PERSONS James D. Lumsden
S.S. OR I.R.S. IDENTIFICATION
NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS PF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) _____
6 CITIZENSHIP OR PLACE OF ORGANIZATION United States
NUMBER OF 7 SOLE VOTING POWER 2,531,646
SHARES
BENEFICIALLY 8 SHARED VOTING POWER -0-
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 2,531,646
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER -0-
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 41,076
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 0.5%
14 TYPE OF REPORTING PERSON IN
<PAGE>
CUSIP No. 481093 10 2 13D Page 4 of 8 Pages
INTRODUCTION
This Statement on Schedule 13D (the "Statement") constitutes the initial
filing of F-Jotan, L.L.C. ("F-Jotan") and James D. Lumsden ("Lumsden")
(collectively, the "Reporting Persons") reporting the beneficial ownership of
shares of Common Stock, $.01 par value per share (the "Common Stock") of
Jotan, Inc., a Florida corporation (the "Issuer"), by virtue of the Reporting
Persons' acquisition of shares of Series A Convertible Preferred Stock, $.01
par value per share (the "Preferred Stock") of the Issuer. On May 16, 1996
(the "Closing Date"), pursuant to that certain Series A Convertible Preferred
Stock Purchase Agreement between the Issuer and F-Jotan dated as of the
Closing Date, a copy of which is attached hereto as Exhibit 1 and incorporated
herein by reference (the "Purchase Agreement"), F-Jotan acquired 1,265,823
shares of the Preferred Stock, which is convertible into 2,531,646 shares of
the Common Stock, subject to adjustment as set forth in the Articles of
Amendment of the Articles of Incorporation of the Issuer, a copy of which is
attached hereto as Exhibit 2 and incorporated herein by reference (the
"Articles"). The Common Stock is traded in the Nasdaq over-the-counter
market.
Item 1. Security and Issuer.
This Statement relates to the Common Stock, as described above. The
principal executive offices of the Issuer are located at 118 West Adams
Street, Jacksonville, Florida 32201.
Item 2. Identity and Background.
(a), (b) and (c) The name, state of organization, principal business,
address of principal business, and address of the principal office of F-Jotan
are as follows:
Name: F-Jotan, L.L.C.
State of Organization: North Carolina
Principal Business: Investments
Address of
Principal Business: 702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Address of
Principal Office: 702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
<PAGE>
CUSIP No. 481093 10 2 13D Page 5 of 8 Pages
The name, business address, present principal employment of Lumsden is
listed below.
Name: James D. Lumsden
Business Address: Fairview Capital, L.L.C.
702 Oberlin Road
Raleigh, North Carolina 27605
Present Principal
Employment: Investment Advisory Services
(d) and (e) During the last five (5) years, neither of the Reporting
Persons has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), and neither has been a party to any civil
proceeding of a judicial or administrative body of competent jurisdiction as a
result of which such Reporting Person was or is subject to a judgment, decree
or final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Not applicable for F-Jotan. Lumsden is a citizen of the United
States.
Item 3. Source and Amount of Funds or Other Consideration.
The source of funds used in making the purchases was
the working capital of F-Jotan raised through capital contributions by its
members and a $500,000.00 bridge loan to F-Jotan from William L. Rogers, one
of F-Jotan's members, pursuant to that certain letter agreement dated May 10,
1996, substantially in the form attached hereto as Exhibit 3 and incorporated
herein by reference.
Item 4. Purpose of Transaction.
The purpose of the acquisition of securities of the Issuer is to make an
equity investment in the Issuer to improve the capitalization of the Issuer
and to provide funds for the Issuer to use in the acquisition of other
existing businesses or the development of additional facilities and locations
of the Issuer.
(a) The Articles provide for the annual payment of 8% dividends on the
Preferred Stock, payable in additional shares of the Preferred Stock. In
addition, in accordance with the terms and conditions of the Purchase
Agreement, the Issuer has the option to call within three (3) years of the
date of the Purchase Agreement for up to two (2) additional sales of Preferred
Stock to F-Jotan of approximately $2 million each, provided the Issuer meets
certain financial thresholds during that period.
(b) The Reporting Persons have no plans or proposals which relate to
or would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its
subsidiaries.
(c) The Reporting Persons have no plans or proposals which relate to
or would result in a sale or transfer of a material amount of assets of the
Issuer or any of its subsidiaries.
<PAGE>
CUSIP No. 481093 10 2 13D Page 6 of 8 Pages
(d) The Reporting Persons have no plans or proposals which relate to
or would result in any change to the present Board of Directors or management
of the Issuer, including any plans or proposals to change the number or term
of directors or to fill any existing vacancies on the Board, except that the
Articles provide that F-Jotan may assume control of the Board of Directors of
the Issuer in the event that the Issuer fails to achieve certain financial
goals within three (3) years after the Closing Date.
(e) The Reporting Persons have no plans or proposals which relate to
or would result in any material change in the present capitalization or
dividend policy of the Issuer.
(f) The Reporting Persons have no plans or proposals which relate to
or would result in any other material change in the Issuer's business or
corporate structure.
(g) The Reporting Persons have no plans or proposals which relate to
or would result in changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Issuer by any person.
(h) The Reporting Persons have no plans or proposals which relate to
or would cause a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association.
(i) The Reporting Persons have no plans or proposals which relate to
or would result in a class of equity securities of the Issuer becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934, as amended.
(j) The Reporting Persons have no plans or proposals which relate to
or would result in any action similar to any of those enumerated above in
Items 4(a) - (i).
Item 5. Interest in Securities of the Issuer.
(a) F-Jotan beneficially owns an aggregate of 2,531,646 shares of,
representing an approximate 30.8% interest in, the outstanding Common Stock by
virtue of its acquisition of 1,265,823 shares of the Preferred Stock. Lumsden
beneficially owns, through his wife, who is a member of F-Jotan, an aggregate
of approximately 41,076 shares of, representing an approximate 0.5% interest
in, the outstanding Common Stock by virtue of his ownership interest in F-Jotan.
(b) F-Jotan, and Lumsden as F-Jotan's sole manager, have the sole
power to vote or to direct the vote of, and the sole power to dispose or to
direct the disposition of 2,531,646 shares of the Common Stock.
(c) There have been no transactions in the Common Stock that were
effected in the past sixty days or since the most recent filing on Schedule
13D (SS.240.13d-191), whichever is less, by the Reporting Persons.
(d) No other persons are known to have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale
of, five percent (5%) or more of the outstanding shares of the Common Stock.
(e) Not applicable.
<PAGE>
CUSIP No. 481093 10 2 13D Page 7 of 8 Pages
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
The Reporting Persons have no contract, arrangement, understanding or
relationship (legal or otherwise) with any other person with respect to any
securities of the Issuer, including but not limited to transfer or voting of
any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts, calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies, except for the Purchase Agreement,
that certain Investor Rights Agreement between the Issuer and F-Jotan, dated
May 16, 1996 attached hereto as Exhibit 4 and incorporated herein by
reference, and that certain Stockholder Agreement between the Issuer and
F-Jotan dated May 16, 1996 attached hereto as Exhibit 5.
Item 7. Material to be Filed as Exhibits.
1. Series A Convertible Preferred Stock Purchase Agreement.
2. Articles of Amendment of the Articles of Incorporation of
the Issuer.
3. Letter agreement re bridge loan.
4. Investor Rights Agreement.
5. Stockholder Agreement.
[The next page is the signature page.]
<PAGE>
CUSIP No. 481093 10 2 13D Page 8 of 8 Pages
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: May ____, 1996
F-JOTAN, L.L.C.
By: _____________________________
James D. Lumsden
__________________________________
James D. Lumsden (individually)
<PAGE>
JOTAN, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
May 16, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Authorization and Sale of Series A Preferred
Stock................................................................................ 1
1.1 Authorization............................................................... 1
1.2 Sale........................................................................ 1
Section 2. Closings; Delivery.......................................................... 1
2.1 Closing..................................................................... 1
2.2 Delivery.................................................................... 3
Section 3. Representations and Warranties of the
Company.............................................................................. 3
3.1 Organization and Standing................................................... 3
3.2 Capitalization of the Company............................................... 3
3.3 Subsidiaries................................................................ 4
3.4 Authorization............................................................... 5
3.5 Validity of the Shares...................................................... 5
3.6 Financial Statements; Changes............................................... 5
3.7 Material Agreements......................................................... 7
3.8 Title to Properties and Assets.............................................. 8
3.9 Material Liabilities........................................................ 9
3.10 Obligations to Related Parties................................................. 9
3.11 Employees...................................................................... 9
3.12 Compliance with Other Instruments.............................................. 10
3.13 Litigation..................................................................... 10
3.14 Patents and Trademarks......................................................... 10
3.15 Proprietary Information........................................................ 11
3.16 Taxes.......................................................................... 11
3.17 Insurance...................................................................... 11
3.18 Registration Rights............................................................ 11
3.19 Voting Agreements.............................................................. 11
3.20 Governmental Consents.......................................................... 12
3.21 Offering....................................................................... 12
3.22 Environmental Matters.......................................................... 12
3.23 Finders' Fees.................................................................. 13
3.24 Operating Plan................................................................. 13
3.25 SEC Filings.................................................................... 13
3.26 Disclosure..................................................................... 14
Section 4. Representations and Warranties of the
Investors............................................................................ 14
4.1 Power and Authority............................................................. 14
4.2 Due Execution................................................................... 14
4.3 Investment Representations...................................................... 14
4.4 Government Consents............................................................. 17
4.5 Finders' Fees................................................................... 17
ii
<PAGE>
Section 5. Conditions to Investors' Obligations at
Closing.............................................................................. 17
5.1 Representations and Warranties.................................................. 17
5.2 Performance..................................................................... 17
5.3 Qualifications.................................................................. 17
5.4 Amendment....................................................................... 18
5.5 Legal Investment................................................................ 18
5.6 Freedman Option............................................................. 18
5.7 Opinion of the Company's Counsel................................................ 18
5.8 Proceedings and Documents....................................................... 18
5.9 Rights Agreement................................................................ 18
5.10 Stockholder Agreement.......................................................... 18
5.11 Compliance Certificate......................................................... 18
5.12 Secretary's Certificate........................................................ 18
5.13 Certificates of Good Standing.................................................. 19
Section 6. Conditions to the Company's Obligations at
Closing.............................................................................. 19
6.1 Representations and Warranties.................................................. 19
6.2 Performance..................................................................... 19
6.3 Qualifications.................................................................. 19
6.4 Legal Investment................................................................ 19
6.5 Amendment....................................................................... 19
6.6 Rights Agreement................................................................ 20
6.7 Freedman Option..................................................................20
6.8 Stockholder Agreement........................................................... 20
Section 7. Miscellaneous........................................................................ 20
7.1 Entire Agreement................................................................ 20
7.2 Survival of Representations and Warranties...................................... 20
7.3 Expenses........................................................................ 20
7.4 Headings........................................................................ 20
7.5 Notices......................................................................... 20
7.6 Attorneys' Fees................................................................. 21
7.7 Severability.................................................................... 21
7.8 Delays or Omissions............................................................. 21
7.9 Information Confidential........................................................ 22
7.10 Amendments and Waivers......................................................... 22
7.11 Counterparts................................................................... 22
7.12 Governing Law.................................................................. 22
7.13 Use of Jotan Name.............................................................. 22
7.14 Board of Directors............................................................. 22
</TABLE>
EXHIBITS
A - Schedule of Investors
B - Articles of Amendment
C - Schedule of Exceptions
D - Form of Investor Rights Agreement
E - Form of Opinion of Counsel for Jotan
F - Form of Stockholder Agreement
iii
<PAGE>
JOTAN, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Series A Convertible Preferred Stock Purchase Agreement (the
"Agreement") is entered into as of the 16th day of May 1996, by and among Jotan,
Inc., a Florida corporation (including for relevant periods, all predecessors,
the "Company"), and the persons and entities (hereinafter referred to as the
"Investors") listed on Exhibit A hereto (the "Schedule of Investors").
WHEREAS, the Company desires to enter into this Agreement with the
Investors to raise additional capital through the sale and issuance of shares of
its preferred stock to the Investors; and
WHEREAS, the Investors desire to enter into this Agreement to acquire
shares of preferred stock of the Company on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
1. Authorization and Sale of Series A Preferred Stock.
1.1 Authorization. The Company has authorized the issuance and
sale of up to an aggregate of 3,797,469 shares of its Series A Convertible
Preferred Stock, $.01 par value per share (the "Shares"), having the rights,
preferences, privileges and restrictions set forth in the Company's Articles of
Amendment, a copy of which is attached hereto as Exhibit B (the "Amendment").
1.2 Sale. Subject to the terms and conditions of this
Agreement, the Investors agree to purchase from the Company and the Company
agrees to sell and issue to the Investors the number of Shares specified
opposite each such Investor's name on the Schedule of Investors at the purchase
price of $1.58 per share. The sale of the Shares to each Investor will
constitute a separate sale hereunder.
2. Closings; Delivery.
2.1 Closing. Subject to the terms and conditions of
this Agreement, the purchase and sale of Shares under this
Agreement shall be made in three (3) equal tranches, as set forth
<PAGE>
on the Schedule of Investors. The closing of the purchase and sale of each
tranche of Shares (each a "Closing") shall occur as follows:
(a) First Closing. The closing of the purchase
and sale of the first tranche of Shares (the "First Closing") shall take place
at 10:00 a.m. (ET) on May 16, 1996, at the offices of the Company located at 118
West Adams Street, Jacksonville, Florida, or at such other time and place as the
Company and the Investors may agree.
(b) Second and Third Closings. The closing of
the purchase and sale of the second tranche of Shares (the "Second Closing")
shall take place at such time as set by the Company not less than 45 days after
receipt by the Investors of written notice thereof from the Company, provided,
however, that in no case shall such notice be given prior to 120 days after the
First Closing. The closing of the purchase and sale of the third tranche of
Shares (the "Third Closing") shall take place at such time as set by the Company
not less than 45 days after receipt by the Investors of written notice thereof
from the Company, provided, however, that in no case shall such notice be given
prior to 120 days after the Second Closing. The Company may not and shall not
call the Second or Third Closing at any time after any additional equity
financing of the Company in excess of $500,000.00 or at any time: (i) during the
first 12-month period after the date of the First Closing if it has not
achieved, in the calendar month ended immediately prior to the date of the call,
revenue from its ordinary course of business operations ("Revenue") of greater
than $1,700,000.00 and earnings from its ordinary course of business operations
before income taxes, depreciation and amortization ("EBITDA") of at least
$62,497.00; (ii) during the second 12-month period after the date of the First
Closing if it has not achieved, in the calendar month ended immediately prior to
the date of the call, Revenue of greater than $3,000,000.00 and EBITDA of at
least $184,478.00; (iii) during the third 12-month period after the date of the
First Closing if it has not achieved, in the calendar month ended immediately
prior to the date of the call, Revenue of greater than $5,000,000.00 and EBITDA
of at least $676,262.00; or (iv) after the third anniversary hereof. The Second
Closing and the Third Closing shall be held at the offices of the Company
located at 118 West Adams Street, Jacksonville, Florida, or at such other place
as the Company and the Investors may agree. Notwithstanding any of the
foregoing, the parties understand and agree that the Second Closing and the
Third Closing shall occur at the sole option of the Company and if the Company
does not exercise its option to sell Shares at the Second Closing or the Third
Closing by giving notice thereof as set forth above, the Company shall have no
obligation to sell the Shares that otherwise would have been sold at the Second
Closing or the Third Closing. The options to sell Shares at the Second Closing
and Third Closing are separate, and therefore, the Company may
2
<PAGE>
exercise its option to sell Shares at the Second Closing without exercising its
option to sell Shares at the Third Closing.
2.2 Delivery. At each Closing, subject to the terms and
conditions hereof, the Company will deliver to the Investors certificates, in
such denominations and registered in such name or names as the Investors may
designate by notice to the Company, representing the Shares to be purchased by
the Investors from the Company at such Closing, dated the date of such Closing,
against payment of the purchase price therefor by wire transfer, cancellation of
indebtedness, a check or checks made payable to the order of the Company, or any
combination of the above or by such other means as shall be mutually agreeable
to the Investors and the Company.
3. Representations and Warranties of the Company. Subject to and except
as disclosed by the Company in the Schedule of Exceptions attached hereto as
Exhibit C and incorporated herein by reference (the "Schedule of Exceptions"),
the Company represents and warrants to the Investors that:
3.1 Organization and Standing. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Florida, and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as now conducted
and as currently proposed to be conducted. The Company is duly qualified and
authorized to do business, and is in good standing as a foreign corporation, in
each jurisdiction where the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except where the failure
to be so qualified would not have a material adverse effect upon the financial
condition or operations of the Company and its Subsidiaries (as defined below),
taken as a whole.
3.2 Capitalization of the Company. The authorized
capital stock of the Company, immediately prior to the First
Closing, will consist of:
(a) Preferred Stock. Ten Million (10,000,000)
shares of Preferred Stock, $.01 par value per share, Five Million (5,000,000) of
which have been designated Series A Convertible Preferred Stock (the "Series A
Stock"), and none of which will be issued and outstanding.
(b) Common Stock. Forty Million (40,000,000)
shares of Common Stock, $.01 par value per share, of which 5,679,411 shares will
be issued and outstanding. Section 3.2(b) of the Schedule of Exceptions contains
a complete and accurate list of, and the number of shares owned by, the record
holders of the outstanding Common Stock as of the date of this Agreement.
3
<PAGE>
(c) Options. 740,000 shares of Common Stock will
be reserved for issuance under the Company's 1996 Long-Term Incentive Plan (the
"Plan"), and no options to purchase shares of Common Stock will have been
granted by the Company under the Plan.
All the outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws. The Company
has duly and validly reserved (i) the Shares for issuance hereunder, (ii) shares
of Common Stock for issuance upon conversion of the Shares, and (iii) 750,000
shares of Common Stock for issuance under the Plan. Except for the rights
described in the preceding sentence, the conversion rights associated with the
Series A Stock and the rights created under this Agreement and the Investor
Rights Agreement attached hereto as Exhibit D and incorporated herein by
reference (the "Rights Agreement"), there are no outstanding rights of first
refusal, preemptive rights or other rights, options, warrants, conversion rights
or other agreements, either directly or indirectly, for the purchase or
acquisition from the Company of any shares of its capital stock.
3.3 Subsidiaries.
(a) Section 3.3(a) of the Schedule of Exceptions
contains a complete and accurate list of all of the subsidiaries of the Company
(each herein referred to individually as a "Subsidiary" and collectively as the
"Subsidiaries"). Other than the Subsidiaries, the Company does not currently own
a controlling equity interest in or otherwise control, directly or indirectly,
any other corporation, association, or other business entity. The Company is
not, directly or indirectly, a participant in any joint venture or partnership.
(b) Each Subsidiary of the Company is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as now conducted and as currently proposed to be conducted. Each such
Subsidiary is duly qualified and authorized to do business, and is in good
standing as a foreign corporation, in each jurisdiction where the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect upon the financial condition or operations of
such subsidiary or its properties.
(c) The Company owns all of the outstanding
shares of capital stock of each of the Subsidiaries and all such shares of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws.
4
<PAGE>
There are no outstanding rights of first refusal, preemptive rights or other
rights, options, warrants, conversion rights or other agreements, either
directly or indirectly, for the purchase or acquisition of any shares of capital
stock of any of the Subsidiaries.
3.4 Authorization. All corporate action on the part of the
Company and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Rights
Agreement, the performance of all the Company's obligations hereunder and
thereunder, and the authorization, issuance, sale and delivery of the Shares and
the Common Stock issuable upon conversion thereof (the "Underlying Common
Stock") has been taken or will be taken prior to the First Closing. This
Agreement and the Rights Agreement, when executed and delivered by the Company
and the parties hereto and thereto shall constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors, rules and laws governing specific performance, injunctive relief and
other equitable remedies and, with respect to the indemnification agreements set
forth in the Rights Agreement, principles of public policy.
3.5 Validity of the Shares. The sale of the Shares and the
subsequent conversion of the Shares into the Underlying Common Stock are not and
will not be subject to any preemptive rights, rights of first refusal or other
preferential rights that have not been waived, and the Shares when issued, sold
and delivered in accordance with the terms of this Agreement and the Underlying
Common Stock when issued upon conversion of the Shares in accordance with the
Amendment will be validly issued, fully paid and nonassessable and will be free
of any liens or encumbrances (other than those created by the Investors);
provided, however, that the Shares and the Underlying Common Stock may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or in the Rights Agreement.
3.6 Financial Statements; Changes.
(a) The Company has delivered to each of the
Investors copies of the Company's audited consolidated financial statements for
the year ended December 31, 1995 (the "Audited Financial Statements") and the
Company's unaudited consolidated financial statements for the three months ended
March 31, 1996 (the "Unaudited Financial Statements", together with the Audited
Financial Statements, the "Financial Statements"). The Financial Statements,
which were prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the period indicated, are correct and
complete and fairly present the financial position of the Company and the
Subsidiaries at the dates thereof and the results of operations of the Company
and the Subsidiaries for the periods covered
5
<PAGE>
thereby, except that the Unaudited Financial Statements do not contain the notes
normally required by GAAP and are subject to year-end audit adjustments.
(b) Since December 31, 1995, there has not been:
(i) any change in the assets, liabilities, financial
condition or operating results of the Company or the Subsidiaries from that
reflected in the Audited Financial Statements, except (A) changes reflected in
the Unaudited Financial Statements and (B) changes in the ordinary course of
business that have not been, in the aggregate, materially adverse;
(ii) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company or
the Subsidiaries (as such business is presently conducted and as it is currently
proposed to be conducted);
(iii) except for the Company's reincorporation into Florida
(the "Reincorporation") and the amendments to the Company's Articles of
Incorporation contemplated by this Agreement, any amendments or changes in the
Articles of Incorporation or Bylaws of the Company or the Subsidiaries;
(iv) any waiver or compromise by the Company or the
Subsidiaries of a valuable right or of a material debt owed to either the
Company or the Subsidiaries;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or the Subsidiaries,
except in the ordinary course of business and that is not material to the
assets, properties, financial condition, operating results or business of the
Company or the Subsidiaries (as such business is presently conducted and as it
is currently proposed to be conducted);
(vi) any change or amendment to a material contract or
arrangement by which the Company or any Subsidiary or any of their assets or
properties is bound or subject, except for changes in the ordinary course of
business or changes that are not material to the financial condition or
operations of the Company and its Subsidiaries, taken as a whole;
(vii) any declaration or payment of any dividend or other
distribution of the assets of the Company or the Subsidiaries, except dividends
or distributions payable to the Company or one of its Subsidiaries;
(viii) other than the establishment of the Plan and the
grant thereunder contemplated by Section 6.7, any
6
<PAGE>
increase in or modification of the compensation or benefits payable by the
Company or the Subsidiaries to any of their directors or employees, except in
the ordinary course of business consistent with past practice;
(ix) other than establishment of the Plan and the grant
thereunder contemplated by Section 5.6 hereof, any increase in or modification
of any bonus, pension, insurance or other employee benefit plan, payment or
arrangement (including, but not limited to, the granting of stock options,
restricted stock awards or stock appreciation rights) made to, for or with any
employee of the Company or the Subsidiaries, except in the ordinary course of
business consistent with past practice;
(x) any incurrence, assumption or guarantee by the Company
or the Subsidiaries of any material debt for borrowed money; issuance or sale of
any securities convertible into or exchangeable for debt securities of the
Company or the Subsidiaries; or issuance or sale of options or other rights to
acquire from the Company or the Subsidiaries, directly or indirectly, debt
securities of the Company or the Subsidiaries, or any securities convertible
into or exchangeable for any such debt securities;
(xi) any making of any loan, advance or capital
contribution to any person other than a Subsidiary, except travel loans or
advances made in the ordinary course of business;
(xii) any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or representative
thereof to organize any employees of the Company or the Subsidiaries; or
(xiii) any other event or condition of any character that
might materially and adversely affect the assets, properties, financial
condition, operating results or business of the Company and the Subsidiaries (as
such business is presently conducted and as it is currently proposed to be
conducted), taken as a whole.
3.7 Material Agreements. All of the following material
agreements to which the Company or any Subsidiary is a party have been filed by
the Company with the Securities and Exchange Commission (the "SEC") as exhibits
to the Company's filings under the Securities Exchange Act of 1934, as amended
(the "1934 Act") or have been listed on the Schedule of Exceptions and made
available for inspection by the Investors or their representatives: (a) all
contracts, agreements and instruments that involve a commitment by the Company
or the Subsidiaries in excess of $100,000; (b) all stock purchase agreements;
(c) all loan, lease or debt agreements in excess of $100,000; (d) all employment
agreements with Key Employees (as hereinafter defined); (e) all material
licenses of any patent,
7
<PAGE>
trade secret or other proprietary right to or from the Company or any
Subsidiary; (f) any existing or currently effective plan, contract or
arrangement, whether written or oral, providing for bonuses, pensions, deferred
compensation, severance pay or benefits, retirement payments, profit-sharing or
the like; or (g) any other existing or currently effective agreement, contract
or commitment that is material to the Company and the Subsidiaries, taken as a
whole (collectively, the "Material Agreements"). All the Material Agreements are
valid and binding obligations of the Company or the Subsidiaries, in full force
and effect in all material respects. Neither the Company nor any Subsidiary is
in material default under any of the Material Agreements, and the Company is not
aware of any material default by another party, either pending or threatened,
with respect to the Material Agreements. Neither the Company nor any Subsidiary
intends to cancel, withdraw, modify or amend any such Material Agreement and
neither has been notified that any other party to any such Material Agreement
intends to cancel, withdraw, modify or amend such Material Agreement. Other than
the proposed acquisition previously disclosed to the Investors (the
"Acquisition"), neither the Company nor any Subsidiary is presently engaged in
or has any present intention of engaging in any negotiation or discussion that
would, in any transaction or series of transactions, effect (i) the
consolidation or merger of the Company or any Subsidiary into or with any other
corporation or corporations, (ii) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or any Subsidiary, (iii) transfer
of more than 50% of the voting power of the Company or any Subsidiary to any
entity or entities not controlled by the Company, (iv) any similar form of
acquisition or any liquidation, dissolution or winding up of the Company or any
Subsidiary or other transaction that results in the discontinuance of the
Company's or any Subsidiary's business.
3.8 Title to Properties and Assets. Each of the Company and
the Subsidiaries has good and marketable title to its properties and assets as
reflected in the Financial Statements and any properties and assets acquired
after the date of the Financial Statements (except properties and assets held
under capitalized leases) and has good title to all its leasehold interests, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (a) the lien of current taxes not yet due and payable, and (b)
possible minor liens and encumbrances that do not in any case, either
individually or in the aggregate, materially detract from the value of the
property subject thereto or materially impair the operations of the Company or
the Subsidiaries, and that have not arisen other than in the ordinary course of
business. The tangible property and assets held under any material lease by the
Company and each Subsidiary are held by each under leases that remain in force,
and there exists no default or other occurrence or condition that could result
in a material default or termination thereunder.
8
<PAGE>
3.9 Material Liabilities. Neither the Company nor any
Subsidiary has any material liability or obligation, absolute or contingent
(individually or in the aggregate), that is not disclosed in the Financial
Statements, except obligations and liabilities incurred after the date of the
Financial Statements in the ordinary course of business that are not
individually or in the aggregate material. Neither the Company nor any officer
of the Company or any Subsidiary has knowledge of any basis for any other
material claim against or liability or obligation of the Company or any
Subsidiary.
3.10 Obligations to Related Parties. Section 3.10 of the
Schedule of Exceptions includes a list of (a) all the material obligations of
the Company and each Subsidiary to its officers, directors, stockholders and
employees, including any member of their immediate families (other than normal
accrued wages and benefits and travel expense vouchers) and (b) all the
obligations of the officers, directors, stockholders and employees of the
Company and each Subsidiary, including any member of their immediate families
(other than expense advances made in the ordinary course of business) to the
Company and the Subsidiaries, which schedule is complete and correct in all
material respects.
3.11 Employees. To the best of the Company's knowledge, no
employee of the Company or the Subsidiaries is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency that would conflict with such employee's obligation to use his best
efforts to promote the interests of the Company or the Subsidiaries or that
would conflict with the Company's or the Subsidiaries' businesses as conducted
or as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or the Subsidiaries' businesses
by the employees of the Company or the Subsidiaries, nor the conduct of the
Company's or the Subsidiaries businesses as currently proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. To
the best of the Company's knowledge, no employee or consultant of the Company or
the Subsidiaries is in violation of any term of any employment contract,
proprietary information and inventions agreement, noncompetition agreement or
any other contract or agreement relating to the relationship of any such
employee or consultant with the Company or the Subsidiaries or any previous
employer. To the best of the Company's knowledge, no officer of the Company or
any Subsidiary, nor any Key Employee (as hereinafter defined) of the Company or
any Subsidiary, the termination of whose employment, either individually or in
the aggregate, would have a materially adverse effect on the Company or any
Subsidiary, has any present intention of terminating his or her employment with
the Company or any Subsidiary. Neither
9
<PAGE>
the Company nor any Subsidiary has any collective bargaining agreements with any
of its employees and to the best of the Company's knowledge there is no
labor-union-organizing activity pending or threatened with respect to the
Company or any Subsidiary.
For purposes of this Agreement, "Key Employee" means and includes the
Chairman, the Chief Executive Officer, the President, each Vice President and
the Chief Financial Officer of the Company and of each Subsidiary.
3.12 Compliance with Other Instruments. Neither the Company
nor any Subsidiary is in violation of any provisions of its articles of
incorporation (or other charter documents) or its Bylaws, or of any provisions
of any material instrument or contract to which it is a party or any judgment,
decree or order by which it is bound or any statute, rule or regulation
applicable to it. The execution, delivery and performance of this Agreement and
the Rights Agreement, and the issuance and sale of the Shares pursuant hereto
and the Underlying Common Stock pursuant to the Amendment, will not result in
any such violation or be in conflict with or constitute a default under any such
provisions or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any properties or assets of the Company or the Subsidiaries.
3.13 Litigation. To the best of the Company's knowledge, there
is no action, proceeding or investigation pending or currently threatened
against the Company or any Subsidiary before any court or administrative agency.
The foregoing includes, without limiting its generality, actions pending or
threatened involving the prior employment of any of the Company's or any
Subsidiary's employees or their use in connection with the Company's or any
Subsidiary's business of any information or techniques allegedly proprietary to
any of their former employers. There is no action, proceeding or investigation
by the Company or any Subsidiary currently pending or that the Company or any
Subsidiary intends to initiate.
3.14 Patents and Trademarks. To the best of the Company's
knowledge, each of the Company and the Subsidiaries has sufficient title and
ownership of or is licensed under all patents, trademarks, service marks, trade
names, copyrights, and all registrations and applications for registration of
any of the foregoing, and all trade secrets, information, inventions, computer
programs owned or licensed by the Company or the Subsidiaries, documentation,
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business as now conducted and as currently proposed to be
conducted without any conflict with or without infringement of the rights of
others. There are no outstanding material options, licenses or agreements
relating to the foregoing nor is the Company or either Subsidiary bound by or a
party to any material options, licenses or agreements with respect to the
patents,
10
<PAGE>
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Neither the Company nor any Subsidiary has received any communications alleging
that it has violated or, by conducting its businesses as currently proposed,
would violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity. The Company does not believe it is or will be necessary to use any
inventions of any of its employees or any Subsidiary's employees (or people it
or any Subsidiary currently intends to hire) made prior to their employment by
the Company or any Subsidiary.
3.15 Proprietary Information. To the best of the Company's
knowledge, neither the Company nor any Subsidiary has done anything to
compromise the secrecy, confidentiality or value of any of its trade secrets,
know-how, inventions, prototypes, designs, processes or technical data required
to conduct its business as now conducted or as proposed to be conducted. The
Company and each Subsidiary has taken in the past and will take in the future
reasonable security measures to protect the secrecy, confidentiality and value
of all its trade secrets, know-how, inventions, prototypes, designs, processes,
and technical data important to the conduct of its business.
3.16 Taxes. The Company has accurately prepared and timely
filed in all material respects all United States income tax returns and all
state and municipal tax returns that are required to be filed by it and has paid
or made provision for the payment of all taxes that have become due pursuant to
such returns. No deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending and the Company
has no knowledge of any liability as of the date of the Financial Statements for
any tax for which there is not an adequate reserve reflected in the Financial
Statements.
3.17 Insurance. The Company and each Subsidiary has fire,
casualty and liability insurance policies customary for the type and scope of
its properties and business.
3.18 Registration Rights. Except as provided in the Rights
Agreement, the Company is not under any obligation to register (as defined in
the Rights Agreement) any of its presently outstanding securities or any of its
securities that may hereafter be issued, nor is any Subsidiary under any such
obligation with respect to its presently outstanding securities or any of its
securities that may hereafter be issued.
3.19 Voting Agreements. Except as set forth in the Rights
Agreement, neither the Company nor any Subsidiary has any agreement, obligation
or commitment with respect to the election of any individual or individuals to
its Board of Directors and, to the best of the Company's knowledge, there is no
voting agreement or other arrangement among its stockholders or any
11
<PAGE>
Subsidiary's stockholders with respect to the election of any individual or
individuals to the Board of Directors of the Company or such Subsidiary, or for
any other purpose.
3.20 Governmental Consents. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations
or filings with any federal or state governmental authority on the part of the
Company required in connection with the valid execution and delivery of this
Agreement and the Rights Agreement, the offer, sale or issuance of the Shares
and the Underlying Common Stock, or the consummation of any other transaction
contemplated hereby have been obtained, or will be obtained prior to any Closing
hereunder, except for notices required to be filed with certain state and
federal securities commissions after the Closing, which notices will be filed on
a timely basis.
3.21 Offering. Assuming the accuracy of the representations
and warranties of the Investors contained in Section 4 hereof, the offer,
issuance and sale of the Shares are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
3.22 Environmental Matters.
(a) The Company and the Subsidiaries have duly
complied with, and, to the best knowledge of the Company, all the real estate
leased by it or the Subsidiaries either currently or in the past (hereinafter
referred to collectively as the "Premises") are in compliance in all material
respects with, the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances and all rules and regulations
promulgated thereunder.
(b) The Company and the Subsidiaries have been issued, and
will maintain, all federal, state and local permits, licenses, certificates and
approvals known to the Company to be required relating to (i) air emissions,
(ii) discharges to surface water or ground water, (iii) noise emissions, (iv)
solid or liquid waste disposal, (v) the use, generation, storage, transportation
or disposal of toxic or hazardous substances or wastes (intended hereby and
hereafter to include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder, as hazardous or potentially hazardous), or (vi) other environmental,
health and safety matters.
(c) The Company has not received notice of, nor does the
Company know of any facts that might constitute, any violation of any federal,
state or local environmental, health or
12
<PAGE>
safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder, that relate to the use, ownership or occupancy of any of the
Premises, and neither the Company nor either Subsidiary is in violation of any
covenants, conditions, easements, rights-of-way or restrictions affecting any of
the Premises or any rights appurtenant thereto.
(d) Except in accordance with a valid governmental permit,
license, certificate or approval, neither the Company nor any Subsidiary has
caused any emission, spill, release or discharge into or upon (i) the air, (ii)
soils or any improvements located thereon, (iii) surface water or ground water,
or (iv) the sewer, septic system or waste treatment, storage or disposal system
servicing any of the Premises, of any toxic or hazardous substances or wastes at
or from any of the Premises.
(e) There has been no complaint, order, directive (other
than directives applicable to the general public), claim, citation or notice by
any governmental authority or any other person or entity with respect to (i) air
emissions, (ii) spills, releases or discharges to soils or any improvements
located thereon, surface water, ground water or the sewer, septic system or
waste treatment, storage or disposal systems servicing any of the Premises,
(iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or wastes or (vi) other environmental, health or safety matters affecting the
Company or any Subsidiary, any of the Premises or any improvements located
thereon, or the businesses thereon conducted.
3.23 Finders' Fees. The Company (i) represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold
the Investor harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its employees or representatives is
responsible.
3.24 Operating Plan. The Company's 1996 Operating Plan and the
projections therein provided to the Investors were prepared in good faith and on
the basis of assumptions believed by management of the Company to be reasonable.
The Company does not have reason to believe that the projections, forecasts and
plans contained in the Operating Plan are not reasonably achievable as a whole
although no assurances can be or are given that the projections, forecasts and
plans will be achieved.
3.25 SEC Filings. The Company has provided the Investors with
true and correct copies of its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 as filed with the SEC on April 24, 1996, its Annual Report
on Form 10-K for the
13
<PAGE>
year ended December 31, 1995 as filed with the SEC on March 26, 1996 and its
proxy solicitation materials as filed with the SEC in preliminary form on March
27, 1996 and in definitive form on April 16, 1996 (collectively, the "Current
SEC Filings"). Other than the Current SEC Filings, the Company has not been
required to file any other reports or documents with the SEC since December 31,
1995. The Current SEC Filings, at the time filed with the SEC, conformed in all
material respects to the requirements of the 1934 Act and the rules and
regulations promulgated thereunder.
3.26 Disclosure. No representation or warranty made by the
Company in this Agreement, nor any financial statement, certificate, schedule or
exhibit prepared and furnished or to be prepared and furnished by the Company or
its representatives pursuant hereto contains or will contain any untrue
statement of material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein no misleading in
light of the circumstances under which they were furnished. There is no event,
fact or condition that has had, or, to the Company's knowledge, that reasonably
would be expected to have, a material adverse effect on the Company or either
Subsidiary (other than general economic or competitive conditions) that has not
been set forth in this Agreement or the Schedule of Exceptions.
4. Representations and Warranties of the Investors. Each
Investor hereby represents and warrants to the Company as
follows:
4.1 Power and Authority. It has the requisite power and
authority to enter into this Agreement, to purchase the Shares subject to all of
the terms hereof, and to carry out and perform its obligations under the terms
of this Agreement.
4.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding agreement of it, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, rules and laws governing specific performance, injunctive relief and
other equitable remedies and, with respect to the indemnification agreements set
forth in the Rights Agreement, principles of public policy.
4.3 Investment Representations.
(a) This Agreement is made with the Investor in
reliance upon the Investor's representation to the Company, which by its
acceptance hereof the Investor hereby confirms, that the Shares to be received
by it will be acquired for investment for its own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that it has
14
<PAGE>
no present intention of selling, granting participation in, or otherwise
distributing the same. By executing this Agreement, the Investor further
represents that it does not have any contract, undertaking, agreement, or
arrangement with any person to sell, transfer or grant participations to such
person, or to any third person, with respect to any of the Shares or any
Underlying Common Stock.
(b) The Investor understands that the Shares and
the Underlying Common Stock have not been registered under the 1933 Act, nor
have they been registered or qualified under applicable State securities or Blue
Sky laws, on the grounds that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration under the 1933 Act
and registration or qualification under applicable State securities or Blue Sky
laws, and that the Company's reliance on such exemptions is predicated in part
on the Investor's representations set forth herein. The Investor realizes that
the basis for the exemption may not be present if, notwithstanding such
representations, the Investor has in mind merely acquiring the Shares for a
fixed or determined period in the future, or for a market rise, or for sale if
the market does not rise. The Investor does not have any such intention.
(c) The Investor represents that it, and each
person who owns an equity interest in it, is an accredited investor, as defined
under Regulation D promulgated under the 1933 Act, experienced in evaluating
early-stage companies such as the Company, is able to fend for itself in the
transactions contemplated by this Agreement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment. The Investor further represents that it has had access, during the
course of the transactions and prior to its purchase of Shares, to all such
information as it deemed necessary or appropriate (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) and that it has had, during the course of the transactions and prior to
its purchase of Shares, the opportunity to ask questions of, and receive answers
from, the Company concerning the terms and conditions of the offering and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access.
(d) The Investor understands that the Shares and
the Underlying Common Stock may not be sold, transferred or otherwise disposed
of without registration under the 1933 Act, or registration or qualification
under applicable State securities or Blue Sky laws, or an exemption therefrom,
and that in the absence of an effective registration statement covering the
Shares (or the Underlying Common Stock) or an available exemption
15
<PAGE>
from registration under the 1933 Act or registration or qualification under
applicable State securities or Blue Sky laws, the Shares (and the Underlying
Common Stock) must be held indefinitely. In particular, the Investor is aware
that the Shares (and the Underlying Common Stock) may not be sold pursuant to
Rule 144 promulgated under the 1933 Act unless all of the conditions of that
Rule are met. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. The Investor represents
that, in the absence of an effective registration statement covering the Shares
(or the Underlying Common Stock) it will sell, transfer, or otherwise dispose of
the Shares (or the Underlying Common Stock) only in a manner consistent with its
representations set forth herein and then only in accordance with the provisions
of Section 4.3(e) hereof and the provisions of the Rights Agreement.
(e) The Investor agrees that in no event will it
make a transfer or disposition of any of the Shares or the Underlying Common
Stock (other than pursuant to an effective registration statement under the 1933
Act and registration or qualification under applicable State securities or Blue
Sky laws, unless and until (i) the Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the disposition, and (ii) if requested by the
Company, at the expense of the Investor or transferee, it shall have furnished
to the Company an opinion of counsel, reasonably satisfactory to the Company, to
the effect that such transfer may be made without registration under the 1933
Act and registration or qualification under applicable State securities or Blue
Sky laws.
(f) Investor understands that each certificate
representing the Shares and the Underlying Common Stock will be endorsed with a
legend in substantially the following form (in addition to any legends required
under applicable State securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE
AGREEMENT AND INVESTOR RIGHTS AGREEMENT PROVIDING FOR RESTRICTIONS ON
TRANSFER OF THESE SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
16
<PAGE>
(g) The primary business address of the Investors
are set forth on the Schedule of Purchasers, and the jurisdictions of the
primary business (or in the case of an individual, primary residence) address of
each person who owns an equity interest in any Investor are as follows:
California, five persons; District of Columbia, two persons; Georgia, one
person; Kentucky, one person; New York, one person; North Carolina, 44 persons;
Texas, one person; Virginia, one person; and the United Kingdom, one person.
4.4 Government Consents. No consent, approval or authorization
of or designation, declaration or filing with any state, federal, or foreign
governmental authority on the part of the Investor because of any special
characteristic of such Investor is required in connection with the valid
execution and delivery of this Agreement or the Rights Agreement by the
Investor, and the consummation by the Investor of the transactions contemplated
hereby and thereby; provided, however, that the Investor makes no
representations as to compliance with applicable state securities laws.
4.5 Finders' Fees. The Investor (i) represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) hereby agrees to indemnify and to hold
the Company and any other Investors, should additional purchasers be included by
the Company, harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Investor or any of its employees or representatives
are responsible.
5. Conditions to Investors' Obligations at Closing. The
obligations of the Investors to purchase the Shares at any
Closing hereunder are subject to the fulfillment on or before any
such Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 shall be true in all material
respects on and as of any Closing hereunder with the same force and effect as if
they had been made at such Closing.
5.2 Performance. The Company shall have performed and complied
in all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by it on or before any
Closing hereunder.
5.3 Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required prior to and in connection with the lawful
issuance and sale of the Shares
17
<PAGE>
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of any Closing hereunder.
5.4 Amendment. The Company shall have obtained the requisite
Board approval of the Amendment and have duly filed with the Secretary of State
of the State of Florida the Amendment, which shall be in full force and effect
at any Closing hereunder.
5.5 Legal Investment. At the time of any Closing hereunder,
the purchase of the Shares by the Investors hereunder shall be legally permitted
by all laws and regulations to which they or the Company are subject.
5.6 Freedman Option. The Company shall have granted to David
Freedman an option to purchase 250,000 shares of the Company's Common Stock.
5.7 Opinion of the Company's Counsel. The Investors shall have
received from counsel to the Company an opinion letter substantially in the form
attached hereto as Exhibit E, addressed to them, dated the date of any Closing
hereunder.
5.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby at any
Closing hereunder and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
Investors and their counsel, and the Investors and their counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
5.9 Rights Agreement. The Company shall have executed and
delivered the Rights Agreement, which shall be in full force and effect at any
Closing hereunder.
5.10 Stockholder Agreement. The Stockholder Agreement in the
form attached hereto as Exhibit F shall have been executed and delivered by the
parties thereto and shall be in full force and effect at any Closing hereunder.
5.11 Compliance Certificate. There shall have been delivered
to the Investors a certificate, dated as of any Closing hereunder, signed by the
Company's President, certifying that (a) the conditions specified in Sections
5.1, 5.2, 5.3, 5.4, 5.5, and 5.6 have been fulfilled, and (b) with respect to
the Second and Third Closings, the Company met, at the time of the call
therefor, and meets, at the Closing thereof, the applicable condition set forth
in Section 2.1(b)(i), (ii) or (iii) hereof.
5.12 Secretary's Certificate. There shall have been delivered
to the Investors a certificate, dated as of any Closing hereunder, signed by the
Company's Secretary or an Assistant Secretary and in form and substance
satisfactory to the
18
<PAGE>
Investors, that shall certify (i) the names of its officers authorized to sign
this Agreement, the certificates for purchased Shares and the other documents,
instruments or certificates to be delivered pursuant to this Agreement by the
Company or any of its officers, together with true signatures of such officers;
(ii) that the copy of the Articles of Incorporation of the Company attached
thereto is true, correct and complete; (iii) that the copy of the Bylaws
attached thereto is true, correct and complete; (iv) that the Board of
Directors' resolutions attached thereto evidencing the approval of this
Agreement, the issuance of the purchased Shares and the other matters
contemplated hereby were duly adopted and are in full force and effect; and (v)
that the stockholders' resolutions evidencing approval of the Reincorporation
were duly adopted and are in full force and effect.
5.13 Certificates of Good Standing. Certificates, as of a
recent date, as to the good standing of the Company and each Subsidiary in its
respective jurisdiction of incorporation shall have been delivered to the
Investors at each Closing hereunder.
6. Conditions to the Company's Obligations at Closing. The
obligations of the Company to issue and sell the Shares at any Closing hereunder
are subject to the fulfillment on or before any such Closing of each of the
following conditions:
6.1 Representations and Warranties. The representations and
warranties made by the Investors in Section 4 shall be true in all material
respects on and as of any Closing hereunder with the same force and effect as if
they had been made at such Closing.
6.2 Performance. The Investors shall have performed and
complied in all material respects with all agreements and conditions contained
in this Agreement required to be performed or complied with by them on or before
any Closing hereunder.
6.3 Qualifications. All authorizations, approvals or permits,
if any, to be obtained from any governmental authority or regulatory body of the
United States or of any state that are required prior to and in connection with
the lawful issuance and sale of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of any Closing hereunder.
6.4 Legal Investment. At the time of any Closing hereunder,
the purchase of the Shares by the Investors hereunder shall be legally permitted
by all laws and regulations to which they or the Company are subject.
6.5 Amendment. The Secretary of State of the State of Florida
shall have accepted the Amendment for filing, and they shall be in full force
and effect at any Closing hereunder.
19
<PAGE>
6.6 Rights Agreement. The Investors shall execute and deliver
the Rights Agreement, which shall be in full force and effect at any Closing
hereunder.
6.7 Freedman Option. The Company shall have granted to David
Freedman an option to purchase 250,000 shares of the Company's Common Stock.
6.8 Stockholder Agreement. The Stockholder Agreement in the
form attached hereto as Exhibit F shall have been executed and delivered by the
parties thereto and shall be in full force and effect at any Closing hereunder.
7. Miscellaneous.
7.1 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
third party any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided in this Agreement.
7.2 Survival of Representations and Warranties. All
agreements, representations and warranties contained herein shall survive
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
7.3 Expenses. The Company shall pay the reasonable costs and
expenses incurred in connection with the Investors' examination of the Company
and the Subsidiaries, the preparation of this Agreement and the closing of the
transactions contemplated hereby, including an administrative services fee of
$80,000 payable to Fairview Capital L.L.C. at each Closing hereunder and the
other reasonable fees and expenses of the Investors' professional advisors.
7.4 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
7.5 Notices. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid, or sent by confirmed telecopy,
addressed (a) if to the Company, at:
20
<PAGE>
Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attention: Chief Executive Officer
or at such other address as the Company shall have furnished to the Investors in
writing, and (b) if to a Investor, at such Investor's address as is set forth on
the Schedule of Investors, or at such other address as such Investor shall have
furnished to the Company in writing.
7.6 Attorneys' Fees. Should any litigation or arbitration be commenced
between the parties hereto concerning this Agreement, the party prevailing in
such litigation or arbitration shall be entitled, in addition to such other
relief as may be granted, to a reasonable sum for attorneys' fees and costs in
such litigation or arbitration, which fees and costs shall be determined by the
court or arbitrator, as the case may be.
7.7 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Investor of any one or more of the provisions
of this Agreement, or any part thereof, whether arising by reason of the law of
any such Investor's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of this Agreement with respect to other
Investors. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
7.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or any Investor or any subsequent holder
of any Shares upon any breach, default or noncompliance of any Investor, any
subsequent holder of any Shares or the Company under this Agreement or under the
Amendment, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
any breach, default or noncompliance under this Agreement or under the Amendment
or any waiver on the Company's or the Investors' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement or the Amendment, by law, or otherwise afforded to the
Company and the Investors, shall be cumulative and not alternative.
21
<PAGE>
7.9 Information Confidential. Each Investor acknowledges that this
Agreement and all attachments hereto are confidential and for such Investor's
use only, and it will refrain from using such information or reproducing,
disclosing or disseminating such information to any other person (other than its
employees, affiliates, agents or partners having a need to know the contents of
such information and its attorneys), except in connection with the enforcement
of rights under this Agreement, unless the Company has made such information
available to the public generally or it is required by a governmental body to
disclose such information.
7.10 Amendments and Waivers. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and Investors (or their
transferees) holding at least two-thirds of the outstanding Shares, voting
together as a single group (treated as if converted at the conversion rate then
in effect and including, for such purposes, shares of Underlying Common Stock
into which any Shares shall have been converted); provided, however, that no
such amendment or waiver shall reduce the aforesaid percentage of Shares and
Underlying Common Stock, the holders of which are required to consent to any
waiver or supplemental agreement, without the consent of the holders of all of
such Shares and Underlying Common Stock. Any amendment or waiver effected in
accordance with this Section 7.10 shall be binding upon each Investor and each
transferee of the Shares and Underlying Common Stock. Upon the effectuation of
each such amendment or waiver, the Company shall promptly give written notice
thereof to the Investors (or their transferees) who have not previously
consented thereto in writing.
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.12 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Florida as applied to agreements among Florida
residents, made and to be performed entirely within the State of Florida.
7.13 Use of Jotan Name. The Investors agree to take any and all actions
reasonably requested by the Company in order to allow the Company to use the
name "Jotan" in the State of North Carolina and in any other jurisdiction where
the Investors have any prior or conflicting right to such name.
7.14 Board of Directors. As soon as practicable following the First
Closing, (a) the Board of Directors of the Company shall consist of a total of
seven (7) directors, including two
22
<PAGE>
(2) representatives of the Investors, and (b) the Compensation Committee of the
Board of Directors of the Company shall consist of two (2) current outside
directors and one (1) representative of the Investors. Except as otherwise
provided in the Amendment, immediately following the Second Closing and the
Third Closing, the representation of the Investors on the Board of Directors of
the Company shall be adjusted to reflect their percentage ownership of the
capital stock of the Company.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Series A Convertible
Preferred Stock Purchase Agreement as of the date first above written.
JOTAN, INC.
By:________________________________
Title:_____________________________
INVESTORS
F-Jotan, L.L.C.
(Printed or typed name)
By:________________________________
Title:_____________________________
24
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Number of Shares Purchase
to be Purchased Price at
Name and Address at each Closing ach Closing
F-Jotan, L.L.C. 1,265,823 $2,000,000.30
c/o Fairview Capital, L.L.C.
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
TOTALS: 1,265,823 $2,000,000.30
25
<PAGE>
ARTICLES OF AMENDMENT
TO RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
1. The name of the corporation is Jotan, Inc.
2. Article IV of the Restated Articles of Incorporation of the
Corporation is amended by adding at the end thereof a new Section 4.2 in the
form attached as Exhibit A hereto and incorporated herein by reference.
3. These Articles of Amendment were duly adopted by the Board
of Directors of the Corporation, without shareholder action, on May 14, 1996.
Shareholder action was not required for the adoption of these Articles of
Amendment.
IN WITNESS WHEREOF, the undersigned President of Jotan, Inc. has
executed these Articles of Amendment this 15th day of May 1996.
/s/ Shea E. Ralph
Shea E. Ralph
President of Jotan, Inc.
ATTEST:
/s/ David Freedman
David Freedman
Secretary of Jotan, Inc.
<PAGE>
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
Section 4.2. Series A Convertible Preferred Stock. Pursuant to the
authority set forth in Section 4.1 of these Restated Articles of Incorporation
of Jotan, Inc., the Board of Directors of the Corporation has established a
series of the authorized preferred stock of the Corporation, designated as
Series A Convertible Preferred Stock, consisting of 5,000,000 shares, and having
the powers, preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as follows:
1. Definitions. Unless the context otherwise
requires, the terms defined in this paragraph 1 shall have, for all
purposes of this Section 4.2, the meanings herein specified (with terms
defined in the singular having comparable meanings when used in the
plural).
"45-Day Average Price" shall mean the average of the closing
prices of the Common Stock over a period of 45 consecutive days on the
primary securities exchange or market on which the Common Stock is
traded.
"Business Day" shall mean a day other than a Saturday, a
Sunday or any other day on which banking institutions in Florida
generally are not open for business.
"Event of Default" shall mean any of the following: (a) a
consolidation, merger or share exchange of the Corporation with or into
any other corporation or business entity in which the stockholders of
the Corporation immediately prior to the transaction do not own at
least fifty percent (50%) of the outstanding voting power of the
surviving corporation or business entity immediately after such
consolidation, merger or share exchange, or a sale by the Corporation
of all or substantially all of its assets (other than to a corporation
or other business entity in which the stockholders of the Corporation
immediately prior to the transaction own at least fifty percent (50%)
of the outstanding voting power of the purchasing corporation or
business entity immediately after the sale), unless such consolidation,
merger, share exchange or sale of assets is approved by the holders
("Holders") of a majority of the then outstanding Series A Convertible
Preferred Stock; (b) failure by the Corporation to comply in all
materials respects with its post-closing covenants as set forth in that
certain
1
<PAGE>
Series A Convertible Preferred Stock Purchase Agreement dated May 16,
1996 (the "Stock Purchase Agreement") or the Investor Rights Agreement
attached thereto as Exhibit D; (c) failure of the Corporation to
achieve on a cumulative consolidated basis for the three- year period
ending December 31, 1998, EBITDA (as defined in the Stock Purchase
Agreement) equal to at least $3,000,000; provided, however, that for
purposes of this clause (c), the three-year cumulative consolidated
EBITDA target shall be adjusted downward from time to time by amounts
necessary to reflect the negative effects of any adjustments or actions
specifically approved in writing by a majority of the representatives
of the Holders on the Corporation's Board of Directors; and (d) default
under any Corporation credit facility that gives the creditor the right
to accelerate the date of payment of the facility and which results in
an actual acceleration of the payment of outstanding principal and
accrued interest in an amount exceeding $1,000,000.
"Initial Issue Date" shall mean the date that shares of Series
A Convertible Preferred Stock are first issued by the Corporation.
"Initial Purchase Price Per Share" shall mean $1.58.
"PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in paragraph 2 of this Section 4.2.
"PIK Dividend Payment Date" shall mean the first day of each
January in each year during the PIK Dividend Payment Period.
"PIK Dividend Payment Period" shall mean the period from, and
including, the Initial Issue Date to, but not including, the date all
the outstanding Series A Convertible Preferred Stock is (a) converted
into Common Stock or (b) redeemed and the redemption price is paid in
full pursuant to paragraph 6 of this Section 4.2.
"PIK Dividend Period" shall mean the period from, and
including, the Initial Issue Date to, but not including, the first PIK
Dividend Payment Date and thereafter, each annual period, including any
PIK Dividend Payment Date to, but not including, the next PIK Dividend
Payment Date.
"PIK Record Date" shall mean the date that is fifteen (15)
Business Day prior to any PIK Dividend Payment Date.
"Annual Per Share PIK Dividend Amount" shall mean a fraction
of one share of Series A Convertible Preferred Stock equal to eight
percent (8.0%) per annum of one share of the Series A Convertible
Preferred Stock, pro rated for any partial year.
2
<PAGE>
"Series A Preferential Amount" shall mean, with respect to
each share of Series A Convertible Preferred Stock outstanding
(including shares issued or accrued as PIK Dividends), the amount equal
to the Initial Purchase Price Per Share (as adjusted for any
combinations, consolidations, recapitalizations, reorganizations,
reclassifications, stock distributions, stock splits, stock dividends
and the like) plus all declared but unpaid dividends thereon (excluding
PIK Dividends), and no more.
2. Dividends.
(a) Series A Convertible Preferred Stock.
(i) The record holders of the outstanding Series A
Convertible Preferred Stock shall receive on each PIK Dividend Payment
Date during the PIK Dividend Payment Period per share dividends in
additional fully paid and nonassessable shares of Series A Convertible
Preferred Stock legally available therefor (such dividend being herein
called "PIK Dividends"). The PIK Dividends shall be paid by delivering
to each record holder of Series A Convertible Preferred Stock a number
of shares of Series A Convertible Preferred Stock (which number of
shares shall be rounded to the nearest one-thousandth of a share) equal
to the number of shares of Series A Convertible Preferred Stock held by
such holder on the applicable PIK Record Date, multiplied by the Annual
Per Share PIK Dividend Amount. Any additional shares of Series A
Convertible Preferred Stock issued pursuant to this paragraph shall be
governed by this Section 4.2 and shall be subject in all respects,
except as to the date of issuance and date from which PIK Dividends
accrue and cumulate as set forth in paragraph 2(a)(ii) of this Section
4.2, to the same terms as the shares of Series A Convertible Preferred
Stock issued on the Initial Issue Date.
(ii) On the PIK Record Date immediately preceding
each PIK Dividend Payment Date, the Board of Directors of the
Corporation shall be deemed to have declared PIK Dividends on the
Series A Convertible Preferred Stock in accordance with paragraph
2(a)(i) of this Section 4.2, payable on the next PIK Dividend Payment
Date. PIK Dividends on shares of Series A Convertible Preferred Stock
shall accrue at a rate per annum equal to eight percent (8.0%) of one
share of Series A Convertible Preferred Stock, cumulated annually, and
be cumulative from the date of issuance of such shares through the PIK
Dividend Payment Period. PIK Dividends shall be payable in arrears
during the PIK Dividend Payment Period on each PIK Dividend Payment
Date, commencing on the first PIK Dividend Payment Date, and for shares
issued as PIK Dividends, commencing on the first PIK Dividend Payment
Date occurring after such shares are issued. If any PIK Dividend
Payment Date occurs on a day that is not a Business Day, any
3
<PAGE>
accrued PIK Dividends otherwise payable on such PIK Dividend Payment
Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid to holders of record of the Series A Convertible
Preferred Stock on each PIK Dividend Payment Date as their names shall
appear on the share register of the Corporation on the PIK Record Date
immediately preceding such PIK Dividend Payment Date. PIK Dividends on
PIK Dividends that are in arrears for any past PIK Dividend Periods
shall accumulate as if the earlier PIK Dividends had been issued as
provided above, and shall be accrued. Unpaid PIK Dividends may be paid
at any time to holders of record on the PIK Record Date therefor.
(iii) So long as any shares of Series A Convertible
Preferred Stock shall be outstanding, the Corporation shall not
declare, pay or set apart for payment on any Common Stock any dividends
or distributions whatsoever, whether in cash, property or otherwise
(other than dividends payable in shares of Common Stock with respect to
the outstanding Common Stock), nor shall any Common Stock be purchased,
redeemed or otherwise acquired by the Corporation, nor shall any monies
be paid or made available for a sinking fund for any purchase or
redemption not permitted by the foregoing, unless and until there shall
also have been declared and paid on each share of Series A Convertible
Preferred Stock a corresponding amount, treating the Series A
Convertible Preferred Stock as if converted to Common Stock for this
purpose.
(b) Common Stock. Subject to compliance with
paragraph 2(a) of this Section 4.2, the holders of the outstanding
Common Stock shall be entitled, when and if declared by the Board of
Directors of the Corporation, consistent with Florida law, to cash
dividends and distributions out of any assets of the Corporation at the
time legally available for that purpose. The right to dividends on any
class of Common Stock shall not be cumulative.
3. Liquidation Preference.
(a) Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of the Series A Convertible
Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Stock by reason of their ownership
thereof, the Series A Preferential Amount. If upon the occurrence of
such event, the assets and funds to be distributed among the holders of
Series A Convertible Preferred Stock shall be insufficient to permit
the payment to such holders of the full Series A Preferential Amount,
then the entire remaining assets and funds of the
4
<PAGE>
Corporation legally available for distribution shall be distributed
ratably among the holders of Series A Convertible Preferred Stock based
upon the number of shares of Series A Convertible Preferred Stock then
held by them. Upon any liquidation, dissolution or winding up of the
Corporation and after the holders of the Series A Convertible Preferred
Stock shall have been paid the full Series A Preferential Amount, the
entire remaining assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the
Common Stock.
(b) Consolidation, Merger. A consolidation, merger or
share exchange of the Corporation with or into any other corporation or
other business entity in which the stockholders of the Corporation
immediately prior to the transaction do not own at least fifty percent
(50%) of the outstanding voting power of the surviving corporation or
other business entity immediately after such consolidation, merger or
share exchange, or a sale by the Corporation of all or substantially
all of its assets (other than to a corporation or other business entity
in which the stockholders of the Corporation immediately prior to the
transaction own at least fifty percent (50%) of the outstanding voting
power of the purchasing corporation or other business entity
immediately after the sale), shall, upon the receipt of written
election by the Holders of at least two thirds (2/3) of the outstanding
shares of Series A Convertible Preferred Stock, be deemed to be a
liquidation, dissolution or winding up within the meaning of this
paragraph 3 of this Section 4.2.
(c) Valuation of Securities. Any securities to be
delivered upon liquidation, dissolution or winding up pursuant to this
paragraph 3 of this Section 4.2 shall be valued as follows:
(i) securities not subject to investment letter or
other similar restrictions on free marketability covered by paragraph
3(c)(ii) of this Section 4.2
(A) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending three
business days prior to the date of the Notice, as defined in paragraph
3(d) of this Section 4.2,
(B) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices
(whichever are applicable) over the 30-day period ending three business
days prior to the date of the Notice, and
5
<PAGE>
(C) if there is no active public market, the value
shall be the fair market value thereof, as reasonably determined by the
Board of Directors in good faith; and
(ii) the method of valuation of securities subject to
investment letter or other restrictions on free marketability other
than restrictions arising solely by virtue of a shareholder's status as
an affiliate or former affiliate of the issuer or other participant in
a transaction subject to Rule 145 promulgated under the Securities
Exchange Act of 1934, as amended, shall be to make an appropriate
discount from the market value determined as provided in clauses (A),
(B) or (C) of paragraph 3(c)(i) of this Section 4.2, to reflect the
adjusted fair market value thereof, as reasonably determined by the
Board of Directors in good faith.
(d) Notice. Written notice (the "Notice") of any such
liquidation, dissolution or winding up of the Corporation within the
meaning of this paragraph that states the proposed effective date of
any such transaction and the date on which Conversion Rights (as
defined in paragraph 5) terminate as to such shares (which date shall
be not more than five days in advance of the effective date of such
transaction), shall be given by first class mail, postage prepaid, or
by telecopy or facsimile, not less than 30 days prior to the effective
date stated therein to the then holders of record of Series A
Convertible Preferred Stock, such Notice to be addressed to each such
holder at its address as shown on the records of the Corporation. Such
Notice shall be deemed given upon confirmed transmission by facsimile
or telecopy or five days after deposit in the United States mail,
postage prepaid, and addressed as set forth above.
4. Voting Rights.
(a) Series A Convertible Preferred Stock. Except as
otherwise expressly provided herein or as required by law, the holder
of each share of Series A Convertible Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock
into which such share of Series A Convertible Preferred Stock could
then be converted and shall have voting rights and powers equal to the
voting rights and powers of the Common Stock (except as otherwise
expressly provided herein or as required by law, voting together with
the Common Stock as a single class) and shall be entitled to notice of
any shareholders' meeting in accordance with the Bylaws of the
Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after
aggregating all shares of Common Stock into which shares of Series A
Convertible Preferred Stock held by each holder could be converted)
shall be
6
<PAGE>
rounded to the nearest whole number (with one-half being rounded
upward).
(b) Common Stock. Except as otherwise required by law
or as hereinafter provided, the Common Stock shall have one vote per
share.
(c) Election of Directors in Case of Default. So long
as at least 316,456 shares of Series A Convertible Preferred Stock
remain outstanding (as adjusted for any combinations, consolidations,
recapitalizations, reorganizations, reclassifications, stock
distributions, stock splits, stock dividends [other than PIK Dividends]
and the like), upon the occurrence of any Event of Default, and the
failure of the Company to cure such Event of Default within thirty (30)
days after written notice of such Event of Default by the Holders of at
least a majority of the outstanding Series A Convertible Preferred
Stock, the Holders notifying the Company of such default shall have the
right to call a special meeting of the stockholders of the Company, and
the Holders shall have the right, voting together as a single class, to
designate and elect such number of nominees to serve as directors as
constitutes a majority of the Board of Directors.
5. Conversion. The holders of Series A Convertible Preferred
Stock shall have conversion rights as follows (the "Conversion
Rights").
(a) Right to Convert. Each share of Series A
Convertible Preferred Stock (including those issued pursuant to PIK
Dividends) shall be convertible, at the option of the holder thereof,
at any time after the date of issuance of such share (but prior to (i)
the date(s) that Conversion Rights terminate as set forth in the Notice
issued pursuant to paragraph 3(d) of this Section 4.2, if any, and (ii)
the redemption of such share by the Corporation pursuant to paragraph 6
of this Section 4.2), at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Initial
Purchase Price Per Share, plus all declared but unpaid dividends on
each such share other than PIK Dividends, by the Series A Conversion
Price (as defined below), determined as hereinafter provided, in effect
on the date the share is surrendered for conversion. The initial
conversion price per share for the Series A Convertible Preferred Stock
(the "Series A Conversion Price") shall be $0.79. Such initial Series A
Conversion Price shall be adjusted as hereinafter provided.
(b) Automatic Conversion. Each share of Series A
Convertible Preferred Stock shall automatically be converted, at the
then
7
<PAGE>
applicable conversion rate, into shares of Common Stock immediately
upon the vote or written consent thereto of the holders of at least a
majority of the then-outstanding shares of Series A Convertible
Preferred Stock.
(c) Mechanics of Voluntary Conversion. Before any
holder of Series A Convertible Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at
the office of the Corporation or of any transfer agent for such stock,
and shall give written notice to the Corporation at such office that it
elects to convert the same and shall state therein the name or names in
which it wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation shall, as soon as practicable
thereafter and at its expense, issue and deliver at such office to such
holder a certificate or certificates for the number of shares of Common
Stock to which it shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business
on the date of surrender of the shares of Series A Convertible
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(d) Adjustments for Combinations or Subdivisions of
Common Stock. In the event that the Corporation at any time or from
time to time after the Initial Issue Date shall declare or pay any
dividend on the Common Stock payable in Common Stock or in any right to
acquire Common Stock, or shall effect a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock
(by stock split, stock dividend, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, in each case without a corresponding adjustment
to the Series A Convertible Preferred Stock, then the Series A
Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate.
(e) Adjustments to Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of this
paragraph 5(e) of this Section 4.2, the following definitions apply:
8
<PAGE>
(A) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities, as hereinafter defined.
(B) "Convertible Securities" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(C) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to paragraph 5(e)(iii)
of this Section 4.2, deemed to have been issued) by the Corporation
after the Initial Issue Date, other than shares of Common Stock issued
or issuable:
(1) upon conversion of shares of Series A
Convertible Preferred Stock;
(2) by way of dividend or other distribution on
shares excluded from the definition of Additional Shares of Common
Stock by the foregoing clauses (1) or this clause (2); or
(3) by way of any other issues consented to by the
holders of at least two-thirds (2/3) of the then outstanding shares of
Series A Convertible Preferred Stock.
(ii) No Adjustment of Conversion Price. No adjustment
in the Series A Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration
per share for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the Series A Conversion Price
in effect on the date of, and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of Common
Stock. In the event the Corporation at any time or from time to time
after the Initial Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders
of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall
9
<PAGE>
have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined
pursuant to paragraph 5(e)(v) of this Section 4.2) of such Additional
Shares of Common Stock would be less than the Series A Conversion Price
in effect on the date of and immediately prior to such issue, or such
record date, as the case may be. In any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the Series A Conversion
Price shall be made upon the subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any
change in the consideration payable to the Corporation, or change in
the number of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such change becoming effective, be recomputed to reflect such
change insofar as it affects such Options or the rights of conversion
or exchange under such Convertible Securities (provided, however, that
no such adjustment of the Series A Conversion Price shall affect Common
Stock previously issued upon conversion of the Series A Convertible
Preferred Stock);
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities that
shall not have been exercised, the Series A Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if
(1) in the case of Convertible Securities or Options,
the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities
that actually were converted or exchanged, plus the additional
10
<PAGE>
consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was
the consideration actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined pursuant to
paragraph 5(e)(v) of this Section 4.2) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to clauses (B) or (C)
above shall have the effect of increasing the Series A Conversion Price
to an amount that exceeds the lower of (1) such Series A Conversion
Price on the original adjustment date, or (2) such Series A Conversion
Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such
readjustment date;
(E) in the case of any Options that expire by their
terms not more than 30 days after the date of issue thereof, no
adjustment of the Series A Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment
shall be made in the same manner provided in clause (C) above; and
(F) if any such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Series A Conversion
Price that became effective on such record date shall be cancelled as
of the close of business on such record date, and shall instead be made
on the actual date of issuance, if any.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to paragraph 5(e)(iii) of
this Section 4.2) without consideration or for a consideration per
share less than the Series A Conversion Price in effect on the date of
and immediately prior to such issue, then and in such event, such
Series A Conversion Price shall be reduced concurrently with such issue
to a price (calculated to the nearest cent) determined by the following
formula:
11
<PAGE>
N + C
CP' = CP * N + AS
where:
CP' = the Conversion Price as so adjusted;
CP = the former Conversion Price;
N = the number of shares of Common
Stock outstanding immediately prior
to such issuance (or deemed
issuance) assuming exercise or
conversion of all outstanding
securities exercisable for or
convertible into Common Stock;
C = the number of shares of Common
Stock that the aggregate
consideration received or deemed to
be received by the Corporation for
the total number of additional
securities so issued or deemed to be
issued would purchase if the
purchase price per share were equal
to the then existing Conversion
Price;
AS = the number of shares of Common Stock
so issued or deemed to be issued.
Notwithstanding the foregoing, the Series A Conversion Price shall not
be so reduced at such time if the amount of such reduction would be an
amount less than $0.01, but any such amount shall be carried forward
and deduction with respect thereto made at the time of and together
with any subsequent reduction that, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.01 or
more.
(v) Determination of Consideration. For purposes of
this paragraph 5(e) of this Section 4.2, the consideration received by
the Corporation for the issue of any Additional Shares of Common Stock
shall be computed as follows:
(A) Cash and Property. Such consideration shall
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation
12
<PAGE>
(before commissions or expenses) excluding amounts paid or payable for
accrued interest or accrued dividends,
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue,
as reasonably determined in good faith by the Board of Directors, and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of
the Corporation for consideration that covers both, be the proportion
of such consideration so received, computed as provided in clauses (1)
and (2) above, as reasonably determined in good faith by the Board of
Directors; and
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued pursuant to paragraph
5(e)(iii) of this Section 4.2 relating to Options and Convertible
Securities shall be determined by dividing
(1) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such number) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(f) Other Distributions. In the event the Corporation
shall at any time or from time to time make or issue, or fix a record
date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation or any of its subsidiaries, other than additional shares of
Common Stock, then in each such event provision shall be made so that
the holders of Series A
13
<PAGE>
Convertible Preferred Stock shall receive, upon the conversion thereof,
the securities of the Corporation that they would have received had
their stock been converted into Common Stock immediately prior to such
event.
(g) No Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the holders
of Series A Convertible Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Series A
Conversion Price pursuant to this paragraph 5 of this Section 4.2, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of
any holder of Series A Convertible Preferred Stock furnish or cause to
be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property that at the time would be
received upon the conversion of Series A Convertible Preferred Stock.
(i) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, any security or
right convertible into or entitling the holder thereof to receive
additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A Convertible Preferred
Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
14
<PAGE>
(j) Issue Taxes. The Corporation shall pay any and
all issue and other taxes that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of shares of Series
A Convertible Preferred Stock pursuant hereto; provided, however, that
the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with
any such conversion.
(k) Reservation of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A
Convertible Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of
all outstanding shares of Series A Convertible Preferred Stock; and if
at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A Convertible Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any necessary
amendment to the Corporation's Articles of Incorporation.
Before taking any action that would cause an
adjustment reducing the Series A Conversion Price below the then par
value of the shares of Common Stock, as applicable, issuable upon
conversion of the Series A Convertible Preferred Stock or that would
cause the effective purchase price for the Series A Convertible
Preferred Stock to be less than the par value of the shares of Series A
Convertible Preferred Stock, the Corporation will take any corporate
action that may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Series A
Conversion Price or effective purchase price, as the case may be.
(l) Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Series A
Convertible Preferred Stock. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than one share of
Series A Convertible Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder
15
<PAGE>
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors).
(m) Notices. Any notice required by the provisions of
this paragraph 5 of this Section 4.2 to be given to the holders of
shares of Series A Convertible Preferred Stock shall be deemed given
upon confirmed transmission by facsimile or telecopy or five days after
deposit in the United States mail, postage prepaid, and addressed to
each holder of record at its address appearing on the books of the
Corporation. Notwithstanding the foregoing, if a shareholder to whom
notice is to be given has an address of record that is outside of the
United States, then any notice to such shareholder hereunder shall be
deemed given upon confirmed transmission by facsimile or telecopy or
ten days after deposit in the United States mail, postage prepaid, and
addressed to such holder at its address appearing on the books of the
Corporation.
(n) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any
consolidation or merger of the Corporation with or into another entity
or entities or the conveyance of all or substantially all of the assets
of the Corporation, each share of Series A Convertible Preferred Stock
(other than shares of Series A Convertible Preferred Stock for which
the holder thereof has elected to receive the Series A Preferential
Amount pursuant to paragraph 3 above) shall thereafter be convertible
into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series A Convertible
Preferred Stock would have been entitled upon the record date of (or
date of, if no record date is fixed) such reorganization,
reclassification, consolidation, merger or conveyance; and, in any
case, appropriate adjustment (as reasonably determined by the Board of
Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the
holders of such Series A Convertible Preferred Stock, to the end that
the provisions set forth herein shall thereafter be applicable, as
nearly as equivalent as is practicable, in relation to any shares of
stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of such Series A
Convertible Preferred Stock.
6. Redemption. The Corporation, at its sole option,
may redeem all, but not less than all, of the then-outstanding shares
of the Series A Convertible Preferred Stock (including those issued
pursuant to PIK Dividends), upon 60 days' advance written notice to the
holders of the Series A Convertible Preferred Stock at a price per
share equal to the Series A Preferential Amount, after any time when
(a) the 45-Day Average Price reflects a 25% premium over the initial
Series A Conversion Price (as adjusted for any combinations,
consolidations, recapitalizations, reorganizations, reclassifications,
stock dividends [other than PIK Dividends], stock splits and the like)
and (b) a credible financial advisor either underwrites the redemption
of the Series A Convertible Preferred Stock or opines that such
redemption and/or voluntary conversion of the Series A Convertible
Preferred Stock prior thereto pursuant to paragraph 5(a) of this
Section 4.2 and the sale of all the Common Stock issued upon such
conversion in a commercially reasonable manner would not significantly
impact the market price of the Common Stock. On or prior to the date of
redemption, the Corporation may deposit in trust with a bank or trust
company, for the account of the holders of the shares of Series A
Convertible Preferred Stock to be redeemed, an amount of funds
sufficient for such redemption. If (i) the redemption notice has been
duly given and (ii) funds necessary for such redemption have been (1)
deposited in trust in accordance with the foregoing sentence or (2)
paid to the Holders by the Corporation, then all shares of Series A
Convertible Preferred Stock with respect to which such deposit or
payment has been made shall forthwith, whether or not the redemption
date shall have occurred or the certificates evidencing such shares
shall have been surrendered for cancellation, be deemed no longer to be
outstanding for any purpose, and all rights with respect to such shares
shall thereupon cease and terminate, provided, however, that in the
event the redemption funds were deposited with a bank or trust company,
each holder of shares of Series A Convertible Preferred Stock to be
redeemed shall be entitled (I) to convert, on or prior to the
redemption date, such shares of Series A Convertible Preferred Stock
into shares of Common Stock in accordance with the terms of these
Articles of Incorporation or (II) to receive, from the funds so
deposited in trust, the redemption funds (without interest) in respect
of such Series A Convertible Preferred Stock. Any interest in respect
of funds deposited by the Corporation with a bank or trust company
shall be paid to the Corporation.
7. Protective Provisions. Except as otherwise
required by law, so long as at least 316,456 shares of the Series A
Convertible Preferred Stock remain outstanding (as adjusted for any
combinations, consolidations, recapitalizations, reorganizations,
reclassifications, stock distributions, stock splits, stock dividends
[other than PIK Dividends] and the like), the Corporation shall not,
without the vote or written consent by the holders of at least a
majority of the outstanding shares of Series A Convertible Preferred
Stock:
17
<PAGE>
(a) take any action that materially and adversely
alters or changes the rights, preferences or privileges of the Series A
Convertible Preferred Stock;
(b) increase or decrease the total number of
authorized shares of Preferred Stock of the Corporation or the total
number of such shares of Preferred Stock designated as Series A
Convertible Preferred Stock;
(c) enter into any transaction or series of
transactions (i) resulting in a merger, consolidation or share exchange
of the Corporation with or into any other corporation or other business
entity after which the stockholders of the Corporation immediately
prior to the transaction would own less than fifty percent (50%) of the
voting power of the surviving corporation or other business entity, or
(ii) in which all or substantially all of the assets of the Corporation
are sold, transferred or otherwise disposed of (other than to a
corporation or other business entity in which the stockholders of the
Corporation immediately prior to the transaction would own at least
fifty percent (50%) of the voting power of the purchasing corporation
or other business entity after the sale);
(d) authorize any dividend or other distribution to
shareholders at a time when the Corporation's retained earnings do not
reflect an increase, from the Initial Issue Date, of at least the
Series A Preferential Amount, excluding any increase attributable to
acquisitions in which shares of the Corporation's capital stock were
issued;
(e) create or authorize any class or series of equity
securities having a preference over or being on a parity with the
Series A Convertible Preferred Stock with respect to redemption,
voting, dividends or liquidation preference;
(f) except for the sale of, or the grant of options
with respect to, up to 740,000 shares of the Corporation's Common Stock
to officers, directors or employees of or consultants to the
Corporation, authorize the issuance of the Corporation's equity
securities at a price per share of less than (i) the initial Series A
Conversion Price, determined, to the extent applicable, on an as fully
converted into Common Stock basis (taking into consideration payments
made upon sale of the security as well as any payments due upon its
exercise or conversion, if applicable and any appropriate adjustments
for any combinations, consolidations, recapitalizations,
reorganizations, reclassifications, stock distributions, stock splits,
stock dividends [other than PIK Dividends] and the like) or (ii) the
fair market value of such equity securities as of the date of the sale
or grant, as
18
<PAGE>
determined in good faith by the Board of Directors (taking into
consideration the terms of such sale or grant, the amount of securities
involved in the transaction, the liquidity of the investment, and such
other factors as the Board of Directors deems in good faith to be
appropriate); or
(g) in any manner, whether by amendment hereof or of
its Bylaws, merger, reorganization, recapitalization, consolidation,
sales of assets, sale of stock, tender offer, dissolution or otherwise,
take any action, or permit any action to be taken, solely or primarily
for the purpose of increasing the value of any class of stock of the
Corporation if the effect of such action is to reduce the value or
security of the Preferred Stock.
19
<PAGE>
(Logo of Fairview Capital LLC appears here)
Fairview Capital LLC
Friday, May 10, 1996
Bill:
We are grateful for your willingness to assist us in finalizing the Jotan
transaction. I hope the following is a correct and acceptable representation
of the terms for a bridge loan to F-Jotan, L.L.C. (or, the "Company"), the
entity which will be making the investment in the preferred shares, and which
is controlled by me as the only manager:
1. You will make a loan to F-Jotan of up to $500,000 which will be considered
a true bridge loan, carrying interest at a compounding 10% rate until
repayment, and an option (for $100 purchase price) for the right to receive
an amount equal to 5% of the cash and any other consideration proceeds above
the return of the $2,000,000 principal. If the loan is less than the maximum,
the 5% option above will be pro-rated accordingly (but not below 4%).
2. For a period of 30 days after the closing of the Jotan transaction, which
is scheduled to be May 15th (next Wednesday), you, Tom Darden, Bill Moore
and I will determine if it is desirable and appropriate to have the SBIC
replace your loan with a more permanent one, perhaps therewith taking a 10%
profit participation (instead of the 5% you would have received for the
shorter loan). During the initial period post closing, you may convert any
portion of your interest to equity in the Company at your option.
3. If the answer to #2 above is negative and less than 100% of the loan is
converted to equity by you, then beginning on the 31st day from closing
F-Jotan will have 45 days to repay the balance of your loan, without
additional penalty, on the terms outlined above in item #1. If the
repayment is not made in that time, then F-Jotan will have another
45 days to repay the loan, but the option participation shall be 10%
rather than 5%.
4. If the repayment is still not made after the time allowed above, then
you shall have additional rights in the Company:
For up to six months from the end of the 30 + 90 days described above,
you may convert any or all of your loan to equity in the Company.
*You will be named as the only additional manager of the Company and
therefore have a 50% voice in the commitment of capital decisions of
Jotan, Inc.,
(* You will also have this option from day one until you convert or
are repaid.)
<PAGE>
through the Letter Agreement between the Company and F-Jotan. You will be
named to the Board of Jotan, Inc. if you so wish.
- The option participation becomes 25%.
5. As additional consideration for your willingness to make the loan, and
to the extent of the Company's power to control it, the Company will give
you a right of first refusal to acquire and/or co-lead the financing of
the acquisition previously discussed. (Due to the size of this deal the
Company's ability to enforce terms on both, Jotan and/or outside
financing sources is probably limited to its veto powers. I expect,
however, that we will have control of this transaction.)
Bill, I hope this captures your intent. If so, please let me know by
signing below. We will construct a note reflecting these terms. If all is
well, then I will need funds Wednesday (Tuesday wire). I am going to
"pre-sell" the loan amount on the assumption that you will not wish to
stay involved. I do not expect to have difficulty with this except for time.
Sincerely,
(Signature of James D. Lumsden appears here)
James D. Lumsden
Manager, F-Jotan, L.L.C.
Agreed and Accepted as of the date above:
(Signature of William L. Rogers appears here)
William L. Rogers
<PAGE>
JOTAN, INC.
INVESTOR RIGHTS AGREEMENT
May 16, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. RESTRICTIONS ON TRANSFER................................................................... 1
1.1 Restrictive Legend................................................................... 1
1.2 Notice of Proposed Transfers......................................................... 2
Section 2. REGISTRATION RIGHTS........................................................................ 3
2.1 Certain Definitions.................................................................. 3
2.2 Demand Registration.................................................................. 4
2.3 Piggyback Registration............................................................... 6
2.4 Expenses of Registration............................................................. 7
2.5 Obligations of the Company........................................................... 8
2.6 Indemnification....................................................................... 9
2.7 Information by Holder................................................................ 12
2.8 Transfer of Rights................................................................... 13
2.9 Form S-3............................................................................. 13
2.10 Delay of Registration................................................................ 13
2.11 Limitations on Subsequent Registration Rights........................................ 13
2.12 Rule 144 Reporting................................................................... 14
2.13 "Market Stand-Off" Agreement......................................................... 14
2.14 Termination of Rights................................................................ 15
Section 3. RIGHTS OF FIRST REFUSAL.................................................................... 15
3.1 Certain Definitions.................................................................. 15
3.2 Right of First Refusal............................................................... 16
3.3 Required Notices..................................................................... 16
3.4 Company's Right to Sell.............................................................. 16
Section 4. COMPANY COVENANTS.......................................................................... 16
4.1 Financial Information................................................................ 16
4.2 Inspection........................................................................... 17
4.3 Additional Affirmative Covenants..................................................... 17
Section 5. MISCELLANEOUS.............................................................................. 20
5.1 Governing Law........................................................................ 20
5.2 Successors and Assigns............................................................... 20
5.3 Entire Agreement..................................................................... 20
5.4 Severability......................................................................... 20
5.5 Amendment and Waiver................................................................. 20
5.6 Delays or Omissions.................................................................. 21
5.7 Notices, etc......................................................................... 21
5.8 Titles and Subtitles................................................................. 21
5.9 Counterparts......................................................................... 21
</TABLE>
-i-
<PAGE>
JOTAN, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is entered into as of
May 16, 1996, by and among Jotan, Inc., a Florida corporation (the "Company"),
and those holders of the Company's Series A Convertible Preferred Stock,
including without limitation any shares of Series A Convertible Preferred Stock
issuable as a dividend on the Series A Convertible Preferred Stock pursuant to
the Company's Articles of Incorporation, as amended (the "Series A Stock"),
listed on Exhibit A attached hereto (each individually an "Investor" and
collectively the "Investors").
WHEREAS, in connection with the issuance and sale of shares of Series A
Stock to the Investors pursuant to that certain Series A Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof, by and between the
Company and the Investors (the "Series A Agreement"), the Company desires to
provide the Investors certain rights with respect to registration of the shares
of stock held by them and certain other rights with respect to such shares as an
inducement to the Investors to purchase shares of the Series A Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and each of the Investors hereby
agree as follows.
Section 1.
RESTRICTIONS ON TRANSFER
1.1 Restrictive Legend. Each certificate representing (i) the Series A
Stock, (ii) the Common Stock of the Company (the "Common Stock") issued upon
conversion of the Series A Stock, and (iii) any other securities issued in
respect of the Series A Stock or Common Stock issued upon conversion of the
Series A Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 1.2 below) be stamped or otherwise imprinted with a legend
in substantially the following form (in addition to any legend required under
applicable state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
<PAGE>
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE AGREEMENT AND
INVESTOR RIGHTS AGREEMENT PROVIDING FOR RESTRICTIONS ON TRANSFER OF
THESE SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
Each Holder (as defined below) consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Series A Stock or the Common Stock in order to implement the restrictions on
transfer established in this Section 1. Such legend shall be removed by the
Company from any certificate at such time as the holder of the shares
represented by the certificate satisfies the requirements of Rule 144(k) under
the Securities Act of 1933, as amended (the "1933 Act"), provided that Rule
144(k) as then in effect does not differ substantially from Rule 144(k) as in
effect as of the date of this Agreement, and provided further that the Company
has received from the Holder a written representation that (i) such Holder is
not an affiliate of the Company and has not been an affiliate during the
preceding three months, (ii) such Holder has beneficially owned the shares
represented by the certificate for a period of at least three years, (iii) such
Holder otherwise satisfies the requirements of Rule 144(k) as then in effect
with respect to such shares, and (iv) such Holder will submit the certificate
for any such shares to the Company for reapplication of the legend at such time
as the holder becomes an affiliate of the Company or otherwise ceases to satisfy
the requirements of Rule 144(k) as then in effect.
1.2 Notice of Proposed Transfers. The holder of each certificate
representing Registrable Securities (as defined below) by acceptance thereof
agrees to comply in all respects with the provisions of this Section 1.2. Prior
to any proposed sale, assignment, transfer or pledge of any Registrable
Securities, unless there is in effect a registration statement under the 1933
Act covering the proposed transfer, the holder thereof shall give written notice
to the Company of such holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied at such holder's expense by a written opinion
of legal counsel who shall, and whose legal opinion shall, be reasonably
satisfactory to the Company addressed to the Company, to the effect that the
proposed transfer of the Registrable Securities may be effected without
registration under the 1933 Act. Each certificate evidencing the Registrable
Securities transferred as above provided shall bear,
-2-
<PAGE>
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 1.1 above, except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for such
holder and the Company such legend is not required in order to establish
compliance with any provisions of the 1933 Act.
Section 2.
REGISTRATION RIGHTS
The Company hereby grants to each of the Holders (as defined below) the
registration rights set forth in this Section 2, with respect to the Registrable
Securities (as defined below) owned by such Holders. The Company and the Holders
agree that the registration rights provided herein set forth the sole and entire
agreement, and supersede any prior agreement, between the Company and the
Holders with respect to registration rights for the Company's securities.
2.1 Certain Definitions. As used in this Section 2:
(a) The terms "register," "registered" and "registration"
refer to a registration effected by filing with the SEC a registration statement
(the "Registration Statement") in compliance with the 1933 Act, and the
declaration or ordering by the Securities and Exchange Commission (the "SEC") of
the effectiveness of such Registration Statement.
(b) The term "Registrable Securities" means (i) Common Stock
issued or issuable upon conversion of the shares of Series A Stock held by
Investors or any transferee as permitted by Section 2.8 hereof, and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of, such
Registrable Securities; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as (A)
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) they have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, and (C) the registration rights associated with such
securities have not been terminated pursuant to Section 2.14 hereof.
(c) The term "Holder" (collectively, "Holders") means any
Investor (and any transferee as permitted by Section 2.8 hereof) holding
Registrable Securities, securities exercisable or convertible into Registrable
Securities or securities exercisable for securities convertible into Registrable
Securities.
-3-
<PAGE>
(d) The term "Initiating Holders" means any Holder or Holders
of at least fifty percent (50%) of the Registrable Securities then outstanding
and not registered at the time of any request for registration made pursuant to
Section 2.2 of this Agreement.
2.2 Demand Registration.
(a) Demand for Registration. If the Company shall receive from
Initiating Holders a written demand that the Company effect any registration (a
"Demand Registration") of at least 50% of the Registrable Securities (other than
a registration on Form S-3 or any related form of registration statement, such a
request being provided for under Section 2.9 hereof) having an anticipated net
aggregate offering price (after deduction of underwriter commissions and
discounts) of at least $2,500,000, the Company will:
(i) promptly (but in any event within 10 days) give
written notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such
registration as soon as practicable and as will permit or facilitate the sale
and distribution of all or such portion of such Initiating Holders' Registrable
Securities as are specified in such demand, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in such demand as
are specified in a written demand received by the Company within 15 days after
such written notice is given, provided that the Company shall not be obligated
to take any action to effect any such registration pursuant to this Section 2.2:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the 1933 Act;
(B) After the Company has effected one (1)
such registration pursuant to this Section 2.2 and the sales of the shares of
Common Stock under such registration have closed;
(C) If the Company shall furnish to such
Holders a certificate signed by the President of the Company, stating that in
the good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its shareholders for such Registration
Statement to be filed at the date filing would be required, in which case the
Company shall have an additional period or periods of not more than 180 days
within which to file such Registration Statement; provided, however, that the
Company shall not use this right to delay the
-4-
<PAGE>
filing for more than 180 days in the aggregate in any 12-month
period; or
(D) Prior to the first anniversary of the
date of this Agreement, unless the Company shall have sent the Holders notice of
its intention to redeem the Series A Stock pursuant to the Company's Articles of
Incorporation.
(b) Underwriting. If reasonably required to maintain an
orderly market in the Common Stock, the Holders shall distribute the Registrable
Securities covered by their demand by means of an underwriting. If the
Initiating Holders intend to distribute the Registrable Securities covered by
their demand by means of an underwriting, they shall so advise the Company as
part of their demand made pursuant to this Section 2.2, including the identity
of the managing underwriter; and the Company shall include such information in
the written notice referred to in Section 2.2(a)(i). In such event, the right of
any Holder to registration pursuant to this Section 2.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders of Registrable Securities that have
requested to participate in such offering, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated pro rata among such Holders thereof in proportion, as nearly
as practicable, to the amounts of Registrable Securities held by such Holders at
the time of filing the Registration Statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other shareholders) in
-5-
<PAGE>
such registration if the underwriter so agrees and if the number of Registrable
Securities would not thereby be limited.
2.3 Piggyback Registration.
(a) Company Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or for the account of security holders, other than the initial
public offering of the Company's securities, a registration relating solely to
employee benefit plans, a registration on Form S-4 relating solely to an SEC
Rule 145 transaction or a registration pursuant to Section 2.2 or 2.9 hereof,
the Company will:
(i) promptly (but in any event within 10 days) give
to each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 15 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by the Company.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such underwriting shall, together with the Company and the other parties
distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting subject to the terms of this Section
2.3. The Company shall so advise all holders of the Company's securities that
would otherwise be registered and underwritten pursuant hereto, and the number
of shares of such
-6-
<PAGE>
securities, including Registrable Securities, that may be included in the
registration and underwriting shall be allocated in the following manner:
shares, other than Registrable Securities and other securities that have
contractual rights with respect to registration similar to those provided for in
this Section 2.3, requested to be included in such registration by shareholders
shall be excluded, and if a limitation on the number of shares is still
required, the number of Registrable Securities and other securities that have
contractual rights with respect to registration that may be included shall be
allocated among the holders thereof in proportion, as nearly as practicable, to
the amounts of Registrable Securities and such other securities held by each
such holder at the time of filing the Registration Statement. For purposes of
any such underwriter cutback, all Registrable Securities and other securities
held by any holder that is a partnership, limited liability company or
corporation shall also include any Registrable Securities held by the partners,
retired partners, members, shareholders or affiliated entities of such holder,
or the estates and family members of any such partners, retired partners,
members and any trusts for the benefit of any of the foregoing persons, and such
holder and other persons shall be deemed to be a single "selling holder," and
any pro rata reduction with respect to such "selling holder" shall be based upon
the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling holder," as defined in this
sentence. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
Nothing in this Section 2.3(b) is intended to diminish the number of securities
to be included by the Company in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
(c) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.4 Expenses of Registration. All expenses incurred in connection with
all registrations effected pursuant to Sections 2.2, 2.3 and 2.9, including
without limitation all registration, filing and qualification fees (including
state securities law fees and expenses), printing expenses, escrow fees, fees
and disbursements of counsel for the Company (and, if it is reasonably
determined that a separate special counsel for the participating Holders is
necessary, the reasonable fees and disbursements of one such counsel) and
expenses of any special audits incidental to or required by such registration
shall be borne by the Company; provided, however, that the Company shall
-7-
<PAGE>
not be required to pay stock transfer taxes or underwriters' discounts or
selling commissions relating to Registrable Securities. Notwithstanding anything
to the contrary above, the Company shall not be required to pay for any expenses
of any registration proceeding under Section 2.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to have been registered, in which event the Holders of
Registrable Securities to have been registered shall bear all such expenses pro
rata on the basis of the Registrable Securities to have been registered.
Notwithstanding the preceding sentence, however, if at the time of the
withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this Section 2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its diligent efforts to
cause such Registration Statement to become effective, and keep such
Registration Statement effective for the lesser of 120 days or until the Holder
or Holders have completed the distribution relating thereto.
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by such registration
statement.
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) use its diligent efforts to register or otherwise qualify
the securities covered by such Registration Statement under such other
securities laws of such states and other jurisdictions as shall be reasonably
requested by the Holders or the managing underwriter, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.
-8-
<PAGE>
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) notify each Holder of Registrable Securities covered by
such Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) use its diligent efforts to list the Registrable
Securities covered by such Registration Statement with any securities exchange
on which the Common Stock is then listed.
(h) make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter participating in
any distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(i) cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, such certificates to be in such denominations and
registered in such names as such Holders or the managing underwriters may
request at least two business days prior to any sale of Registrable Securities.
(j) permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
2.6 Indemnification.
(a) The Company will, and does hereby undertake to,
indemnify and hold harmless each Holder of Registrable
-9-
<PAGE>
Securities, each of such Holder's officers, directors, managers, partners,
members and agents, and each person controlling such Holder, with respect to any
registration, qualification or compliance effected pursuant to this Section 2,
and each underwriter, if any, and each person who controls any underwriter, of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereto) to which
they may become subject under the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act"), or other federal or state law arising out of or
based on (i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other similar document
(including any related Registration Statement, notification, or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, (ii) any violation or
alleged violation by the Company of any federal, state or common law rule or
regulation applicable to the Company in connection with any such registration,
qualification or compliance, or (iii) any failure to register or qualify
Registrable Securities in any state where the Company or its agents have
affirmatively undertaken or agreed in writing that the Company (the undertaking
of any underwriter chosen by the Company being attributed to the Company) will
undertake such registration or qualification on behalf of the Holders of such
Registrable Securities (provided that in such instance the Company shall not be
so liable if it has undertaken its best efforts to so register or qualify such
Registrable Securities) and will reimburse, as incurred, each such Holder, each
such underwriter and each such director, manager, officer, partner, member agent
and controlling person, for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission made in conformity
with written information furnished to the Company by an instrument duly executed
by such Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
directors, managers, partners, members and agents and each person controlling
such other Holder, against all claims, losses, damages and liabilities
-10-
<PAGE>
(or actions in respect thereof) arising out of or based on (i) any failure of
such Holder or its agents or representatives to comply with the prospectus
delivery requirements of the 1933 Act or any other applicable securities or Blue
Sky law, or (ii) any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made, and will reimburse, as incurred, the Company, each such underwriter,
each such other Holder, and each such director, officer, manager, partner,
member and controlling person of the foregoing, for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of each Holder hereunder (unless such
Holder's liability hereunder is based upon such Holder's willful misconduct as
determined by the non-appealable final decision of a court) shall be limited to
the proportion of any such claim, loss, damage or liability that is equal to the
proportion that the public offering price of the shares sold by such Holder
under such Registration Statement bears to the total public offering price of
all securities sold thereunder, but in any event not to exceed the net proceeds
received by such Holder from the sale of securities under such Registration
Statement. It is understood and agreed that the indemnification obligations of
each Holder pursuant to any underwriting agreement entered into in connection
with any Registration Statement shall be limited to the obligations contained in
this subsection 2.6(b).
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to provide
such indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, and shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting therefrom; provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any
-11-
<PAGE>
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2, except to the extent
that such failure to give notice shall materially adversely affect the
Indemnifying Party in the defense of any such claim or any such litigation. An
Indemnifying Party, in the defense of any such claim or litigation, may, without
the consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement that includes as an unconditional term thereof the giving by
the claimant or plaintiff therein, to such Indemnified Party, of a release from
all liability with respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.6; then, and in each such case,
the Company and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of the securities
offered by such Holder pursuant to the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement,
and the Company will be responsible for the remaining portion; provided,
however, that, in any case, (A) no such Holder will be required to contribute
any amount in excess of the public offering price of all securities offered by
it pursuant to such Registration Statement, after deduction of underwriting
discounts and commissions (unless such Holder's liability hereunder is based
upon such Holder's willful misconduct as determined by the non-appealable final
decision of a court); and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(e) The indemnities provided in this Section 2.6 shall survive
the transfer of any Registrable Securities by such Holder.
2.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders
-12-
<PAGE>
and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 2.
2.8 Transfer of Rights. The rights contained in Sections 2 and 3 hereof
may be assigned or otherwise conveyed to a transferee or assignee of Registrable
Securities, who shall be considered a "Holder" for purposes hereof, provided
that such transfer is effected in compliance with Section 1.2 hereof.
2.9 Form S-3. The Company shall use its diligent efforts to qualify for
registration on Form S-3. After the Company has qualified for the use of Form
S-3, the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 thereafter under this Section 2.9. The Company shall
give notice to all Holders of Registrable Securities of the receipt of a request
for registration pursuant to this Section 2.9 and shall provide a reasonable
opportunity for other Holders to participate in the registration. Subject to the
foregoing, the Company will use its best efforts to effect as soon as
practicable the registration of all shares of Registrable Securities on Form S-3
to the extent requested by the Holder or Holders thereof for purposes of
disposition; provided, however, that the Company shall not be obligated to
effect any such registration if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $250,000. Notwithstanding the
foregoing, nothing herein shall restrict, prohibit or limit in any way a
Holder's ability to exercise its registration rights under Sections 2.2 or 2.3
hereof. The Company shall have no obligation to take any action to effect any
registration pursuant to this Section 2.9 for any of the reasons set forth in
Section 2.2(a)(ii)(A), (B), (C) or (D), (which shall be deemed to apply to the
obligations under this Section 2.9 with equal force. In addition, any
registration pursuant to this Section 2.9 shall be subject to the provisions of
Section 2.2(b), which shall be deemed to apply to the obligations under this
Section 2.9 with equal force, except that any reference therein to Section 2.2
or a subsection thereof shall, for these purposes only, be deemed to be a
reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least two-thirds (2/3) of the Registrable Securities then
outstanding and not registered, enter into any agreement with any holder or
-13-
<PAGE>
prospective holder of any securities of the Company that would allow such holder
or prospective holder to (i) require the Company to effect a registration or
(ii) include any securities in any registration filed under Section 2.2, 2.3 or
2.9 hereof, unless, under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of such securities will not diminish the amount of
Registrable Securities that are included in such registration.
2.12 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC that may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its diligent efforts to:
(a) Make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule promulgated under
the 1933 Act, at all times after it has become subject to the reporting
requirements of the 1934 Act;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the 1933 Act and 1934 Act (after
it has become subject to such reporting requirements);
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time commencing 90 days after the effective date of the first registration filed
by the Company for an offering of its securities to the general public), the
1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One Percent
Shareholder," as defined below, hereby agrees that during a period, not to
exceed 180 days, following the effective date of a registration statement of the
Company filed under the 1933 Act, it shall not, to the extent requested by the
Company and any underwriter, sell, pledge, transfer, make any short sale of,
loan, grant any option for the purchase of, or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any Common Stock held by
it at any time during such period except Common Stock included in such
registration; provided, however, that all other "One Percent Shareholders" with
registration rights (whether or not pursuant to this Agreement) and all officers
and directors of the Company enter into similar agreements.
-14-
<PAGE>
For purposes of this Section 2.13, the term "One Percent Shareholder"
shall mean a shareholder of the Company who holds at least one percent of the
outstanding Common Stock of the Company (assuming conversion of all outstanding
Series A Stock of the Company).
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.14 Termination of Rights. The rights of any particular Holder under
Sections 2 and 3 hereof shall terminate as to any Holder on the date such Holder
is able to dispose of all of its Registrable Securities in any 90-day period
pursuant to SEC Rule 144 (or any similar or analogous rule promulgated under the
1933 Act).
Section 3.
RIGHTS OF FIRST REFUSAL
3.1 Certain Definitions. As used in this Section 3:
(a) The term "New Securities" shall mean any capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include: (i) the Series A Stock; (ii) securities issuable upon
conversion of or with respect to Series A Stock; (iii) securities issued
pursuant to the acquisition of another corporation or business entity by the
Company or one or more of its wholly-owned subsidiaries by merger,
consolidation, share exchange, purchase of substantially all the assets or other
reorganization whereby the shareholders of the Company immediately prior to the
transaction own in the aggregate more than 50% of the voting power of the
Company or other surviving entity after the transaction; (iv) up to 750,000
shares of Common Stock, and options, warrants or rights convertible into such
Common Stock, issued to employees, consultants or directors of the Company
pursuant to any incentive agreement or arrangement approved by the Board of
Directors of the Company; or (v) securities issued pursuant to any stock
dividend, stock split, combination or other reclassification by the Company of
any of its capital stock.
(b) The term "Pro Rata Share" means the ratio (A) the
numerator of which is the number of shares of Common Stock held by such Holder,
or issuable to such Holder upon the conversion of shares of Series A Stock held
by such Holder, on the date of the Company's written notice pursuant to Section
3.4 hereof, and (B) the denominator of which is the number of shares of Common
Stock outstanding, assuming for this purpose conversion or exercise of
-15-
<PAGE>
all securities convertible into or exercisable for Common Stock
of the Company.
3.2 Right of First Refusal. The Company hereby grants to the Holders,
subject to the terms and conditions specified in this Section 3, the right of
first refusal to purchase, on the terms and conditions set forth in the
Company's notice pursuant to Section 3.3 hereof, up to all New Securities that
the Company may, from time to time, propose to sell and issue. The New
Securities to be purchased by the Holders shall be apportioned amongst the
Holders ratably in accordance with their respective holdings of Company stock.
3.3 Required Notices. In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Holder written notice of its
intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Holder shall have
15 days from the date of any such notice to exercise its right of first refusal
under Section 3.1 hereof for the price and upon the general terms specified in
the notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased.
3.4 Company's Right to Sell. The Company shall have 90 days after the
15-day period described in Section 3.3 hereof to sell all such New Securities
respecting which the Holders' rights of first refusal hereunder were not
exercised, at a price and upon terms no more favorable in any material respect
to the purchasers thereof than specified in the Company's notice. In the event
the Company has not sold all such New Securities within such 90-day period, the
Company shall not thereafter issue or sell any New Securities without first
notifying the Investors in the manner provided herein.
Section 4.
COMPANY COVENANTS
The Company hereby covenants and agrees as follows:
4.1 Financial Information. The Company will furnish each
Holder the following reports:
(a) As soon as practicable after the end of each
fiscal year, and in any event within 120 days thereafter, (1) audited
consolidated balance sheets of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and audited consolidated statements of income and
losses, shareholders' equity and cash flows of the Company and its subsidiaries,
if any, for such fiscal year, prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, if any, all in reasonable detail and
-16-
<PAGE>
accompanied by a report and opinion thereon by independent auditors selected by
the Company's Board of Directors; and (2) a copy of such auditors' management
letter prepared in connection therewith, if any, (as soon as such management
letter is available, which may be greater than the aforesaid 120-day period);
and
(b) As soon as practicable after the end of each
of the first three quarters of the fiscal year, but in any event within 45 days
after the end of each such quarter, the unaudited consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such quarter, and its
unaudited consolidated statements of income and losses, shareholders' equity and
cash flows for such quarter, setting forth in each case in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, except that such financial statements may not contain notes and will
be subject to year-end adjustment, and certified by the principal financial or
accounting officer of the Company.
4.2 Inspection. The Company shall permit each Investor and each
transferee (provided such transfer is effected in compliance with Section 1.2
hereof), its attorney or its other representative to visit and inspect the
Company's properties, to examine the Company's books of account and other
records, to make copies or extracts therefrom and to discuss the Company's
affairs, finances and accounts with its officers, management employees and
independent auditors all at such reasonable times and as often as such Investor
or transferee may reasonably request; provided, however, that the Company shall
not be obligated pursuant to this Section 4.2 to provide trade secrets or
confidential information or to provide information to any person whom the
Company reasonably believes is a competitor of the Company; provided, further,
that such Investor shall bear any costs or expenses of such investigations or
inquiries.
4.3 Additional Affirmative Covenants. Without limiting any other
covenant or provision hereof, the Company covenants and agrees that, so long as
at least 316,456 shares of Series A Stock remain outstanding, it will, and will
cause each subsidiary (to the extent applicable thereto) of the Company, if and
when such subsidiary exists, to:
(a) Payment of Taxes. Pay, and cause each subsidiary to pay,
and discharge all taxes, assessments and governmental charges or levies
imposed upon it or upon its income, profits or business, or upon any
properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims that, if unpaid, might become a lien or
charge upon any properties of the Company or any subsidiary, provided
that neither the Company nor any subsidiary shall be required to pay
any such tax, assessment, charge, levy or claim that is being contested
in
-17-
<PAGE>
good faith and by appropriate proceedings if the Company or any
subsidiary shall have set aside on its books sufficient reserves, if
any, with respect thereto;
(b) Payment of Trade Debt. Pay, and cause each subsidiary to
pay, when due, or in conformity with customary trade terms but not
later than ninety (90) days from the due date, all lease obligations,
all trade debt, and all other indebtedness incident to the operations
of the Company or its subsidiaries, except such as are being contested
in good faith and by proper proceedings if the Company or subsidiary
concerned shall have set aside on its books sufficient reserves, if
any, with respect thereto;
(c) Maintenance of Insurance. Maintain, and cause each
subsidiary to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is customarily carried by companies engaged in similar
businesses and owning similar properties in the same general areas in
which the Company or such subsidiary operates;
(d) Preservation of Corporate Existence. Preserve and
maintain, and, unless the Company reasonably deems it not to be in its
best interests, cause each subsidiary (other than Heron, Inc.) to
preserve and maintain, its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and
remain qualified, and cause each subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and
operations or the ownership or lease of its properties, except when the
failure to be so qualified would not have a material adverse effect on
the Company and its subsidiaries taken as a whole; provided that
nothing in this Section 4.3(d) shall prohibit the Company or any of its
subsidiaries from engaging in a corporate transaction contemplated by
Section 3.1(a)(iii) hereof;
(e) Intellectual Property. Secure, preserve and maintain, and
cause each subsidiary to secure, preserve and maintain, all licenses
and other rights to use patents, processes, licenses, permits,
trademarks, trade names, inventions, intellectual property rights or
copyrights owned or used by it to the extent necessary to the conduct
of its business or the business of any subsidiary;
(f) Compliance with Laws. Comply, and cause each subsidiary to
comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance
with which could materially adversely affect its business or condition,
financial or otherwise;
-18-
<PAGE>
(g) Records and Books of Account. Keep, and cause each
subsidiary to keep, adequate records and books of account in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and any subsidiary, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, returns
of merchandise, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made;
(h) Maintenance of Properties. Maintain and preserve, and
cause each subsidiary to maintain and preserve, all of its properties
and assets necessary for the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted;
(i) Regulatory Compliance. Comply, and cause each subsidiary
to comply, with all minimum funding requirements applicable to any
pension, employee benefit plans, or employee contribution plans that
are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or to the Internal Revenue Code of 1986, as amended
(the "Code"), and comply, and cause each subsidiary to comply, in all
other material respects with the provisions of ERISA and the Code, and
the rules and regulations thereunder, which are applicable to any such
plan; provided further that neither the Company nor any subsidiary will
permit any event or condition to exist that would permit any such plan
to be terminated under circumstances that would cause any material lien
provided for in section 4068 of ERISA to attach to the assets of the
Company or any subsidiary;
(j) Financings. Promptly, fully and in detail, inform the
Board of Directors of any discussions, offers or contracts relating to
possible financings of any nature for the Company, whether initiated by
the Company or any other person, except for arrangements with trade
creditors;
(l) Use of Proceeds. Cause the proceeds of the sale of the
Series A Stock to be expended for the general expansion of the business
of the Company, either through smaller acquisitions or the
establishment of de novo operations in new markets;
(m) Fairview Consultation. Consult with Fairview Capital
L.L.C. regarding acquisitions; and
(n) Nature of Business. Continue to conduct its business
without material change from the nature of the business contemplated in
the written materials delivered to the investors prior to the date
hereof.
-19-
<PAGE>
Section 5.
MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with the laws of the State of Florida as applied
to agreements among North Carolina residents made and to be performed entirely
within the State of Florida.
5.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
5.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto and their successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
5.4 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Investor of any one or more of the provisions
of this Agreement, or any part thereof, whether arising by reason of the law of
any such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of this Agreement with respect to other
Investors. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
5.5 Amendment and Waiver. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and Investors (or their
transferees) holding at least two-thirds (2/3) of the shares of Series A Stock,
voting together as a single group (treated as if converted at the conversion
rate then in effect and including, for such purposes, shares of Common Stock
into which any shares of Series A Stock shall have been converted that are held
by a Holder); provided, however, that no such amendment or waiver shall reduce
the aforesaid percentage of Series A Stock and Common Stock issued upon
conversion thereof, the holders of which are required to consent to any waiver
or supplemental agreement, without the consent of the holders of all of such
Series A Stock and Common Stock. Any amendment or waiver
-20-
<PAGE>
effected in accordance with this Section 5.5 shall be binding upon each Investor
and each transferee of the Registrable Securities. Upon the effectuation of each
such amendment or waiver, the Company shall promptly give written notice thereof
to the Investors who have not previously consented thereto in writing.
5.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company, any Investor, or any transferees upon
any breach, default or noncompliance of any Investor or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company,
the Investors of any breach, default or noncompliance under this Agreement or
any waiver on the Company's, the Investors' part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under this
Agreement, by law, or otherwise afforded to the Company and the Investors, shall
be cumulative and not alternative.
5.7 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return receipt
requested, postage prepaid, addressed: (a) if to an Investor, at such Investor's
address as set forth on the schedule attached hereto, or at such other address
as such Investor shall have furnished to the Company in writing, or (b) if to
the Company, at its address first above written, or at such other address as the
Company shall have furnished to the Investors in writing.
5.8 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-21-
<PAGE>
IN WITNESS WHEREOF, this Investor Rights Agreement has been duly
executed and delivered by the parties as of the date first above written.
JOTAN, INC.
By: ______________________________
Title:_____________________________
INVESTORS:
F-Jotan, L.L.C.
By:________________________________
Title:_____________________________
-22-
<PAGE>
EXHIBIT A
Schedule of Investors
Name and Address
F-Jotan, L.L.C.
c/o Fairview Capital L.L.C.
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
<PAGE>
JOTAN, INC.
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT is made this 16th day of May 1996 by and
among Jotan, Inc., a Florida corporation (the "Company"), the holders of the
Company's Common Stock (the "Common Stock") listed on the signature page hereto
(the "Common Holders") and the purchasers (the "Investors") of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock") listed on the
Schedule of Investors attached as Exhibit A to the Company's Series A
Convertible Preferred Stock Purchase Agreement dated as of May 16, 1996 (the
"Purchase Agreement"). Capitalized terms not otherwise defined herein shall have
the meanings given to them in the Purchase Agreement unless otherwise defined
herein.
WHEREAS, each Common Holder is (a) an officer or director of the
Company as so indicated on the signature page hereto (an "Officer or Director")
and/or (b) the holder of five percent or more of the outstanding shares of
Common Stock of the Company;
WHEREAS, the Company is proposing to obtain equity financing from the
Investors pursuant to the Purchase Agreement, which financing the Company and
the Common Holders believe to be in the best interests of the Company and its
shareholders; and
WHEREAS, the Investors have requested, as a condition to entering into
the Purchase Agreement, that the Common Holders enter into this Agreement, and
the Common Holders, as an inducement to the Investors to enter into the Purchase
Agreement, are willing to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and terms hereof, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows.
1. Prohibited Transfers. The Common Holders shall not sell, assign,
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or
in any way encumber, all or any part of the Shares (as hereinafter defined)
owned by them during the term of this Agreement other than in compliance with
the terms of this Agreement. For purposes of this Agreement, the term "Shares"
shall mean and include all shares of Common Stock of the Company owned by the
Common Holders, whether presently held or hereafter acquired.
2. Rights of First Refusal and Co-Sale.
(a) Right of First Refusal. If at any time any Common
Holder (the "Seller") desires (or is required) to sell or
<PAGE>
transfer in any manner any Shares pursuant to the terms of a bona fide offer
received from a third party (the "Buyer"), each Investor shall have the right to
require, as a condition to such sale or transfer, that the Seller sell to such
Investor at the same price per share and on the same terms and conditions as
involved in such sale or disposition that percentage of the Shares proposed to
be sold or transferred by the Seller (the "Offered Shares") expressed by a
fraction, the numerator of which is the number of shares of Preferred Stock and
Common Stock issued upon conversion of Preferred Stock then held by such
Investor on an as-converted into Common Stock basis (the "Investor's Shares")
and the denominator of which is the aggregate number of all of the Investors'
Shares.
(b) Right of Co-Sale. If the Seller is an Officer or Director
(the "O&D Seller") desires (or is required) to sell or transfer in any manner
any Shares pursuant to the terms of a bona fide offer received from the Buyer,
each Investor shall have the right, in lieu of exercise of its right of first
refusal, to require, as a condition to such sale or transfer, that the Buyer
purchase from the Investor at the same price per share and on the same terms and
conditions as involved in such sale or disposition that percentage of the
Offered Shares expressed by a fraction, the numerator of which is the Investor's
Shares and the denominator of which is the sum of all of the Investors' Shares
plus all shares of Common Stock then held by the O&D Seller.
(c) Notice. In the event the Seller proposes to undertake a
transfer of Shares, it shall give each Investor written notice of its intention,
describing the price and general terms upon which the Seller proposes to
transfer Shares. Each Investor shall have 15 days from the date of any such
notice to either (i) exercise its right of first refusal under Section 2(a) for
the price and upon the general terms specified in the notice by giving written
notice to the Seller and stating therein the quantity of Shares to be purchased,
or (ii) if applicable, exercise its right of co-sale under Section 2(b) hereof
by giving written notice to the Seller and stating therein the quantity of
shares to be included in the transfer.
(d) Ralph Sellers. Notwithstanding any of the foregoing to the
contrary, if the Seller is either Sidney Ralph, Sheila F. Bonnett, Suzi A.
Hernandez or a transferee or any of the foregoing permitted under Section 3
(collectively a "Ralph Seller"), then, prior to the right of the Investors to
exercise their rights under Section 2(a) or 2(b), Shea E. Ralph shall have the
right to acquire all or a portion of the Offered Shares at the same price per
share and on the same terms and conditions as proposed in such sale. In the
event that a Ralph Seller proposes to undertake a transfer of Shares, it shall,
in addition to the notice provided in Section 2(c), give to Shea E. Ralph
written notice of its intention, describing the price and general terms upon
which the Ralph Seller proposes to transfer Shares. Shea E. Ralph shall have 15
days from the date of such notice to exercise
-2-
<PAGE>
his right of first refusal under this Section 2(d) by giving written notice to
the applicable Ralph Seller and stating therein the quantity of shares to be
included in such purchase. If and to the extent that Shea E. Ralph fails to
exercise this right of first refusal under this Section 2(d), the Investors
shall have the right to acquire the remaining Offered Shares pursuant to the
provisions of Section 2(a) or to exercise a right of co-sale pursuant to Section
2(b) with respect thereto, which right shall be exercisable within 15 days after
the end of Shea E. Ralph's 15-day election period provided in this Section 2(d).
3. Permitted Transfers. The right of co-sale contained in this
Agreement shall not apply to: (a) any transfer of Shares by a Common Holder by
gift or bequest or through inheritance to, or for the benefit of, any spouse,
ancestor or descendant of either Common Holder; (b) any transfer of Shares by a
Common Holder to a trust for the benefit of any spouse, ancestor or descendant
or either Common Holder; (c) any sale of Common Stock in a public offering
pursuant to a registration statement filed by the Company with the Securities
and Exchange Commission; or (d) any transfer of Shares subject to a notice
pursuant to Section 2(c) consummated, pursuant to the terms set forth in such
notice, in the 90 days following expiration of the 15-day period under Section
2(c), to the extent Investors do not exercise their rights under Sections 2(a)
or (b) with respect thereto. In the event of any transfer pursuant to (a) or (b)
the transferee of the Shares shall hold the Shares so acquired with all the
rights conferred by, and subject to all the restrictions imposed by, this
Agreement.
4. Termination. The rights of co-sale granted hereby shall terminate,
with respect to each Investor, upon the date on which all of that Investor's
Shares are sold in a registered public offering or can be sold in any 90-day
period pursuant to Rule 144 (or any analogous rule) promulgated under the
Securities Act.
5. Specific Performance. The rights of the parties under this Agreement
are unique and, accordingly, the parties shall, in addition to such other
remedies as may be available to any of them at law or in equity, have the right
to enforce their rights hereunder by actions for specific performance to the
extent permitted by law.
6. Legend. Each certificate held by or issued to the
Investors or the Common Holders, whether now outstanding or
subsequently issued, shall be surrendered to the Company for
endorsement or be endorsed by the Company prior to its issuance
with substantially the following legend.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A STOCKHOLDER AGREEMENT AMONG THE HOLDER OF
THESE SECURITIES AND CERTAIN OTHER HOLDERS OF THE
ISSUER'S SECURITIES. BY ACCEPTING ANY INTEREST IN SUCH
-3-
<PAGE>
SECURITIES, THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE
TO AND SHALL BECOME BOUND BY ALL OF THE PROVISIONS OF SUCH AGREEMENT.
COPIES OF SUCH VOTING AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
Nothing in this Agreement should be construed as a modification or
amendment of any restrictions on transfer under applicable federal or state
securities laws.
7. General Provisions.
(a) This Agreement shall be governed by the laws of
the State of Florida without regard to choice of law provisions.
(b) This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between them or any of them as to such subject
matter.
(c) Except as otherwise expressly provided herein, this
Agreement may be amended only upon the written consent of the Common Holder
against whom this Agreement is sought to be enforced, the Company and the
holders of at least two-thirds (2/3) of the outstanding Preferred Stock.
(d) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors, legal
representatives, successors and permitted transferees, except as may be
expressly provided otherwise herein.
(e) In the case any one or more of the provisions contained in
this Agreement shall for any reason to be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
(f) Any notice, demand or request required or permitted to be
given by either the Company or the Common Holder pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, first class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing. Notices to the Investors shall be given by similar means at
the address of the Investors on the records of the Company.
-4-
<PAGE>
(g) Any party's failure to enforce any provision or provisions
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted both parties
herein are cumulative and shall not constitute a waiver of either party's right
to assert all other legal remedies available to it under the circumstances.
(h) The Common Holders agree to execute upon request any
further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
(i) This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stockholder
Agreement as of the day and year first set forth above.
JOTAN, INC. INVESTORS
By: F-Jotan, L.L.C.
Title: (Printed or Typed Name)
118 West Adams Street
Jacksonville, Florida 32202
By:
Title:
c/o Fairview Capital L.L.C.
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
COMMON HOLDERS (Officers and Directors indicated by *)
Shea E. Ralph* David Freedman*
9221 Inverrary Court 11664 Hamrick Place
Jacksonville, Florida 32256 Jacksonville, Florida 32223
Sidney Ralph
76 Fishermans Cove
Ponte Vedra Beach, Florida 32082
Sheila F. Bonnett
12313 Macab Drive
Jacksonville, Florida 32273
Suzi A. Hernandez
53 Jackson Avenue
Ponte Vedra Beach, Florida 32082
-6-
<PAGE>
