SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May
30, 1996
JOTAN INC.
(Exact name of registrant
as specified in its charter)
Florida 0-24188
59-3181162
(State or other (Commission
(I.R.S. Employer
jurisdiction of File Number)
Identification No.)
incorporation)
118 W. Adams Street, STE 900 Jacksonville, FL
32202
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: (904)
355-2592
N/A
(Former name or former address, if changed since last
report.)
<PAGE>
ITEM 5. OTHER EVENTS.
Jotan, Inc. held its annual meeting of stockholders on May
14, 1996, at
which the stockholders authorized the change in the Company's
state of
incorporation through the merger of Jotan, Inc., an Idaho
corporation ("Jotan-
Idaho") into Jotan, Inc., a Florida corporation and wholly owned
subsidiary of
Jotan-Idaho (the "Reincorporation Merger"). The Reincorporation
Merger was
completed on May 16, 1996.
On May 16, 1996, Jotan, Inc. (the "Company") signed an
agreement to sell
up to $6,000,000 in Series A Preferred Stock to an affiliate of
Fairview
Capital L.L.C., a Raleigh, N.C. based private investment company.
The initial
funding closed May 16, 1996, and provided the Company $2,000,000
through the
sale of 1,265,823 shares of Series A Convertible Preferred Stock
to F-Jotan,
L.L.C., the Fairview affiliate. Under the terms of the Series A
Convertible
Preferred Stock Purchase Agreement, the Company may sell an
additional
$4,000,000 of Series A Convertible Preferred Stock to the
investors subject to
certain conditions set forth in the Series A Convertible
Preferred Stock
Purchase Agreement. The Series A Convertible Preferred Stock
carries an 8%
annual dividend, which is payable in additional shares of the
Company's common
stock, representing approximately 28% of the Company on a fully
diluted basis.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
NOT APPLICABLE.
(B) PRO FORMA FINANCIAL INFORMATION
NOT APPLICABLE.
(C) EXHIBITS.
2.1 Articles of Merger dated as of May 14, 1996, including
as Exhibit A
thereto the Plan and Agreement of Reorganization dated
May 14, 1996,
between Jotan, Inc., an Idaho corporation
("Jotan-Idaho") and Jotan,
Inc., a Florida corporation and wholly owned subsidiary
of Jotan-
Idaho (the "Plan of Reorganization").
3.1 Restated Articles of Incorporation, dated April 9, 1996
(which now
govern the Company pursuant to the Plan of
Reorganization).
3.2 Articles of Amendment to Restated Articles of
Incorporation of the
Company dated May 15, 1996 (establishing designations
for the Series
A Convertible Preferred Stock of the Company).
10.1 Series A Convertible Preferred Stock Purchase Agreement
dated May 16,
1996, among the Company and the Investors (as defined
therein).
10.2 Investor Rights Agreement dated May 16, 1996, among the
Company and
the Investors (as defined therein).
10.3 Stockholder Agreement dated May 16, 1996, among the
Company, certain
of the Company's stockholders and the Investors (as
defined therein).
99.1 Press Release dated May 17, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the
Registrant has duly caused this report to be signed on its behalf
by the
undersigned hereunto duly authorized.
JOTAN, INC.
By: /s/ Shea Ralph
Shea Ralph
President and Chief Executive Officer
Dated: May 31, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Page
2.1 Articles of Merger dated as of May 14, 1996, including as
Exhibit A
thereto the Plan and Agreement of Reorganization dated May
14, 1996,
between Jotan, Inc., an Idaho corporation ("Jotan-Idaho")
and Jotan,
Inc., a Florida corporation and wholly owned subsidiary of
Jotan-Idaho
(the "Plan of Reorganization").
3.1 Restated Articles of Incorporation, dated April 9, 1996
(which now govern
the Company pursuant to the Plan of Reorganization).
3.2 Articles of Amendment to Restated Articles of Incorporation
of the Company
dated May 15, 1996 (establishing designations for the Series
A Convertible
Preferred Stock of the Company).
10.1 Series A Convertible Preferred Stock Purchase Agreement
dated May 16,
1996, among the Company and the Investors (as defined
therein).
10.2 Investor Rights Agreement dated May 16, 1996, among the
Company and
the Investors (as defined therein).
10.3 Stockholder Agreement dated May 16, 1996, among the Company,
certain of
the Company's stockholders and the Investors (as defined
therein).
99.1 Press Release dated May 17, 1996.
RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
1. The name of this Corporation is Jotan, Inc.
2. The text of its Restated Articles of Incorporation
is as
follows:
ARTICLE I
NAME AND PLACE OF BUSINESS
Section 1.1 Name and Place of Business. The name of
this
Corporation is Jotan, Inc., with its principal place of business
at 118 West
Adams Street, Jacksonville, Florida 32202 with a mailing address
of P.O. Box
836, Jacksonville, Florida 32201.
ARTICLE II
DURATION
Section 2.2 Duration. This Corporation shall exist
perpetually.
ARTICLE III
PURPOSES
Section 3.1 Purposes. This Corporation is organized
for the purpose
of transacting any or all lawful business permitted under the
laws of the
United States and of the State of Florida.
ARTICLE IV
CAPITAL STOCK
Section 4.1 Authorized Capital. The corporation is
authorized to
issue forty million (40,000,000) shares of common stock with a
par value of one
cent ($0.01) per share, and ten million (10,000,000) shares of
preferred stock
having a par value of one cent ($0.01) per share. The Board of
Directors shall
have the authority to establish series of the preferred stock
and, by filing
the appropriate Articles of Amendment with the Department of
State of the State
of Florida, to establish the designation of each series and the
variations in
rights, preferences and limitations for each series.
ARTICLE V
DIRECTORS
Section 5.1 Number. This Corporation shall have three
(3) directors
initially. The number of directors may be increased or
diminished from time to
time by the bylaws, but shall never be less than one, nor more
than ten.
Section 5.2 Indemnification. This Corporation shall
indemnify
directors and officers to the full extent permitted by law.
ARTICLE VI
BYLAWS
Section 6.1 Bylaws. The initial bylaws of this
Corporation shall be
adopted by the board of directors. Bylaws shall be adopted,
altered, amended
or repealed from time to time by either the shareholders or the
board of
directors, but the board of directors shall not alter, amend or
repeal any
bylaw adopted by the shareholders if the shareholders
specifically provide that
such bylaw is not subject to amendment or repeal by the board of
directors.
IN WITNESS WHEREOF, the undersigned President of Jotan,
Inc. has
executed this Restatement of the Articles of Incorporation of
Jotan, Inc. this
9th day of April, 1996 and has caused to be appended hereto the
Certificate
required by Section 607.1007(4) of the Florida Business
Corporation Act.
/s/ Shea Ralph
Shea Ralph, President
ATTEST:
/s/ David Freedman
David Freedman, Secretary of Jotan, Inc.
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.
Shea E. Ralph
President of Jotan, Inc.
ATTEST:
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 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.
"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 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 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
(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 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
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:
(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 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 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:
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
(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
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.
(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 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:
(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
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.
JOTAN, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
May 16, 1996
<PAGE>
TABLE OF CONTENTS
Page
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
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
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
JOTAN, INC.
<PAGE>
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 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 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.
(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. 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 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 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, 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.
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 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, 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
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 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 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 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 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."
(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 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 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.
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:
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.
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 (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]
<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: /s/ Shea Ralph
Title: President
INVESTORS
F-Jotan, L.L.C.
(Printed or typed name)
By: James D. Lumsden
Title: Manager
EXHIBIT A
<PAGE>
SCHEDULE OF INVESTORS
Number of Shares
Purchase
to be Purchased Price
at
Name and Address at each Closing each
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
JOTAN, INC.
INVESTOR RIGHTS AGREEMENT
May 16, 1996
<PAGE>
TABLE OF CONTENTS
Page
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
<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, 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,
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.
(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 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 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 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 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.
(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 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 (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 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 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 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.
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 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
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 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;
(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.
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
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]
<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: /s/ Shea Ralph
Title: President
INVESTORS:
F-Jotan, L.L.C.
By: /s/ James D. Lumsden
Title: Manager
<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
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 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 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 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.
This Agreement shall be governed by the laws of
the State of
Florida without regard to choice of law provisions.
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.
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.
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.
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.
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.
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.
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.
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]
<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: /s/ Shea Ralph (Printed or Typed Name)
118 West Adams Street
Jacksonville, Florida 32202
By: /s/ James D. Lumsden
Title: Manager
c/o Fairview Capital L.L.C.
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
COMMON HOLDERS (OFFICERS AND DIRECTORS INDICATED BY *)
/s/ Shea Ralph
Shea E. Ralph* David Freedman*
9221 Inverrary Court 11664 Hamrick Place
Jacksonville, Florida 32256 Jacksonville, Florida 32223
/s/ Sidney Ralph
Sidney Ralph Richard M. Gray*
76 Fishermans Cove 1649 Atlantic Boulevard
Ponte Vedra Beach, Florida 32082 Jacksonville, Florida 32202
/s/ Sheila F. Bonnett
Sheila F. Bonnett William A. Hightower*
12313 Macab Drive c/o Telematics International
Jacksonville, Florida 32273 1201 West Cypress Road
Fort Lauderdale, Florida 33309
/s/ Suzi A. Hernandez
Suzi A. Hernandez Gert E. Schumann*
53 Jackson Avenue
Ponte Vedra Beach, Florida 32082
Ronald W. Drucker* Alton E. Thompson, Jr.*
11427 Harlan Drive
Jacksonville, Florida 32218
Sibbald Drucker*
251 Crandon Boulevard, #143
Key Biscayne, Florida 33149
JACKSONVILLE, FLORIDA -- May 17, 1996 -- JOTAN, INC. (OTC
BULLETIN BOARD: JTAN)
today signed an agreement to sell up to $6,000,000 in Series A
Preferred Stock
to an affiliate of Fairview Capital L.L.C., a Raleigh, N.C. based
private
investment company. The initial funding closed today and
provided the Company
$2,000,000 through the sale of 1,265,823 shares of Series A
Preferred Stock to
F-Jotan, L.L.C., the Fairview affiliate. Under the terms of the
Series A
Preferred Stock Purchase Agreement, the Company may sell an
additional
$4,000,000 of Series A Preferred Stock to the investors subject
to certain
conditions set forth in the Series A Preferred Stock Purchase
Agreement. The
Series A Preferred Stock carries an 8% annual dividend, which is
payable in
additional shares of Series A Preferred Stock, and is convertible
into
2,531,646 shares of the Company's common stock, representing
approximately 28%
of the Company on a fully diluted basis.
Jotan's President and Chief Executive Officer, Shea Ralph, said,
"We are very
excited about this investment and look forward to deploying the
funds in a
manner that increases shareholder value primarily by expanding
our business
through both internal growth and strategic acquisitions. We
welcome Fairview
Capital as a shareholder and partner and look forward to working
with them to
develop our business."
Jotan, Inc. is a regional provider of commercial shipping
supplies and services
with operations throughout Florida, Georgia, North Carolina,
South Carolina and
Tennessee.
ARTICLES OF MERGER OF
JOTAN, INC.,
AN IDAHO CORPORATION, WITH AND INTO
JOTAN, INC.,
A FLORIDA CORPORATION UNDER THE NAME OF
JOTAN, INC.
Pursuant to Section 607.1105 of the Florida Business
Corporation Act and
Section 30-1-74 of the Idaho Business Corporation Act, the
undersigned
corporations, Jotan, Inc., a Florida corporation ("Jotan"), and
Jotan, Inc., an
Idaho corporation (the "Company"), adopt the following Articles
of Merger for
the purpose of merging the Company into Jotan:
PLAN AND AGREEMENT OF MERGER
1. The Plan and Agreement of Merger setting forth the
terms and
conditions of the merger of the Company into Jotan is attached to
these
Articles as Exhibit A and is incorporated herein by reference.
ADOPTION OF PLAN
2. There are 5,679,411 shares of common stock, $.01 par
value, of the
Company issued and outstanding that were entitled to vote on the
Plan and
Agreement of Merger, 3,778,570 shares were voted in favor of the
Plan and
Agreement of Merger, 5,800 shares were voted against the Plan and
Agreement of
Merger and 1,895,041 shares did not vote on the Plan and
Agreement of Merger at
a meeting of the shareholders of the Company held on May 14,
1996. No class
voting was required in connection with the Company's approval of
the Plan and
Agreement of Merger.
3. There are 4,750,000 number of shares of common stock,
$.01 par value,
of Jotan issued and outstanding that were entitled to vote on the
Plan and
Agreement of Merger. 4,750,000 shares were voted in favor of the
Plan and
Agreement of Merger, and no shares were voted against the Plan
and Agreement of
Merger pursuant to a written consent of the sole shareholder of
Jotan effective
as of May 14, 1996. No class voting was required in connection
with Jotan's
approval of the Plan and Agreement of Merger.
EFFECTIVE DATE
4. The Plan and Agreement of Merger shall be effective on
the filing of
these Articles with the Department of State of Florida and the
Secretary of
State of Idaho.
FOREIGN LAW
5. The laws of the State of Idaho, the jurisdiction of
organization of
the Company, and the laws of the State of Florida, the
jurisdiction of
organization of Jotan, each permit the merger contemplated by the
Plan and
Agreement of Merger, and the laws of the State of Idaho, and the
laws of the
State of Florida on fulfillment of all filing and reporting
requirements set
forth by their respective applicable laws, will have been
complied with.
SERVICE OF PROCESS, APPOINTMENT OF IDAHO
SECRETARY OF STATE AS AGENT AND PAYMENT OF DISSENTERS' RIGHTS
6. Pursuant to Section 30-1-77 of the Idaho Business
Corporation Act,
Jotan, which is a Florida corporation and is the surviving
corporation in the
merger effected by these Articles, does hereby:
(A) agree that it may be served with process in Idaho in
any proceeding
for the enforcement of any obligation of the Company
and in any
proceeding for the enforcement of the rights of a
dissenting
shareholder of the Company against Jotan as the
surviving
corporation; and
(B) irrevocably appoint the Secretary of State of Idaho as
its agent to
accept process in any such preceding; and
(C) agree that it will promptly pay to the dissenting
shareholders of the
Company, the amount, if any, to which they shall be
entitled under
the provisions of the Idaho Business Corporation Act
with respect to
the rights of dissenting shareholders.
IN WITNESS WHEREOF, each of the undersigned corporations has
caused these
Articles to be signed as of May 14, 1996.
JOTAN, INC., an Idaho
Corporation
By: /s/ Shea Ralph
Its: President
Attest:
/s/ David Freedman
Secretary
JOTAN, INC., a Florida
Corporation
By: /s/ Shea Ralph
Its: President
Attest:
/s/ David Freedman
Secretary
<PAGE>
Exhibit A
PLAN AND AGREEMENT OF REORGANIZATION
By merger of
Jotan, Inc., an Idaho Corporation,
with and into
Jotan, Inc., a Florida Corporation
under the name of
Jotan, Inc.
This is a Plan and Agreement of Merger (Agreement) between
Jotan, Inc., an
Idaho corporation (the "Company"), and Jotan, Inc., a Florida
corporation and
the subsidiary of the Company ("Jotan" or the "Surviving
Corporation").
ARTICLE 1. PLAN OF MERGER
PLAN ADOPTED
1.01. A plan of merger of the Company and Jotan pursuant to
Section 607.1101
of the Florida Statutes, Sections 30-1-71 and 30-1-77 of the
Idaho Statutes,
and Section 368(a)(1)(A) of the Internal Revenue Code, is adopted
as follows:
(a) the Company shall be merged with and into Jotan, to
exist and be
governed by the laws of the State of Florida.
(b) The name of the Surviving Corporation shall be "Jotan,
Inc."
(c) When this agreement shall become effective, the
separate corporate
existence of the Company shall cease, and the Surviving
Corporation shall
succeed, without other transfer, to all the rights and property
of the Company
and shall be subject to all the debts and liabilities of the
Company in the
same manner as if the Surviving Corporation had itself incurred
them. All
rights of creditors and all liens on the property of each
constituent
corporation shall be preserved unimpaired.
(d) The Surviving Corporation will carry on business with
the assets of
the Company, as well as with the assets of Jotan.
(e) Upon the effective date of the merger, each issued and
outstanding
share of the Company's stock ("Company Common Stock") and all
rights in respect
thereof shall be converted into one fully paid and nonassessable
share of the
identical class and series of Jotan's stock ("Jotan Common
Stock"), and on the
basis set forth in Article 4 below.
(f) The Articles of Incorporation of Jotan, as existing on
the effective
date of the merger, shall continue in full force as the Articles
of
Incorporation of the Surviving Corporation until altered,
amended, or repealed
as provided in the Articles or as provided by law.
EFFECTIVE DATE
1.02. The effective date of the merger (the "Effective Date")
shall be the
date when the Articles of Merger are filed with the Department of
State which
shall be as soon as practicable following the approval of this
Plan by the
Company's stockholders.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
OF CONSTITUENT CORPORATIONS
THE COMPANY
2.01. As a material inducement to the Surviving Corporation to
execute this
Agreement and perform its obligations under this Agreement, the
Company
represents and warrants to the Surviving Corporation as follows:
(a) The Company is a corporation duly organized, validly
existing, and in
good standing under the laws of the State of Idaho, with
corporate power and
authority to own property and carry on its business as it is now
being
conducted.
(b) The Company has an authorized capitalization of
$1,000,000.00
consisting of 10,000,000 shares of common stock, each of $.01 par
value, of
which 5,679,411 shares are validly issued and outstanding, fully
paid, and
nonassessable on the date of this Agreement.
(c) The Company has furnished the Surviving Corporation
with the audited
balance sheet of the Company as of December 31, 1995, and the
related audited
statement of income for the twelve months then ended, and an
interim unaudited
balance sheet (the "Balance Sheet") as of December 31, 1995, (the
"Balance
Sheet Date") and the related statement of income for the
twelve-month period
then ended. These financial statements (i) are in accordance
with the books
and records of the Company; (ii) fairly present the financial
condition of the
Company as of those dates and the results of its operations as of
and for the
periods specified, all prepared in accordance with generally
accepted
accounting principles applied on a basis consistent with prior
accounting
periods; and (iii) contain and reflect, in accordance with
generally accepted
accounting principles consistently applied, reserves for all
liabilities,
losses, and costs in excess of expected receipts and all
discounts and refunds
for services and products already rendered or sold that are
reasonably
anticipated and based on events or circumstances in existence or
likely to
occur in the future with respect to any of the contracts or
commitments of the
Company. Specifically, but not by way of limitation, the Balance
Sheet
discloses, in accordance with generally accepted accounting
principles, all of
the debts, liabilities, and obligations of any nature (whether
absolute,
accrued, contingent, or otherwise, and whether due or to become
due) of the
Company at the Balance Sheet Date, and includes appropriate
reserves for all
taxes and other liabilities accrued or due at that date but not
yet payable.
(d) All required federal, state, and local tax returns of
the Company
have been accurately prepared and duly and timely filed, and all
federal,
state, and local taxes required to be paid with respect to the
periods covered
by the returns have been paid. The Company has not been
delinquent in the
payment of any tax or assessment.
SURVIVING CORPORATION
2.02. As a material inducement to the Company to execute this
Agreement and
perform its obligations under this Agreement, Jotan represents
and warrants to
the Company as follows:
(a) Jotan is a corporation duly organized, validly
existing, and in good
standing under the laws of the State of Florida, with corporate
power and
authority to own property and carry on its business as it is now
being
conducted.
(b) Jotan has an authorized capitalization of $500,000.00,
divided into
two classes of shares, namely, 10,000,000 shares of preferred
stock, each of
$.01 par value, and 40,000,000 shares of common stock, each of
$.01 par value.
As of the date of this Agreement, no shares of the preferred
stock and
4,750,000 shares of the common stock are validly issued and
outstanding, fully
paid, and nonassessable.
SECURITIES LAW
2.03. The parties will mutually arrange for and manage all
necessary
procedures under the requirements of federal, Idaho and Florida
securities laws
and the related supervisory commissions to the end that this plan
is properly
processed to comply with registration formalities, or to take
full advantage of
any appropriate exemptions from registration, and to otherwise be
in accord
with all antifraud restrictions in this area.
ARTICLE 3. COVENANTS, ACTIONS, AND
OBLIGATIONS PRIOR TO THE EFFECTIVE DATE
INTERIM CONDUCT OF BUSINESS; LIMITATIONS
3.01. Except as limited by this Paragraph 3.01, pending
consummation of the
merger, each of the constituent corporations will carry on its
business in
substantially the same manner as before and will use its best
efforts to
maintain its business organization intact, to retain its present
employees, and
to maintain its relationships with suppliers and other business
contacts.
Except with the prior consent in writing of Jotan, pending
consummation of the
merger, the Company shall not:
(a) declare or pay any dividend or make any other
distribution on its
shares;
(b) create or issue any indebtedness for borrowed money; or
(c) enter into any transaction other than those involved in
carrying on
its ordinary course of business.
SUBMISSION TO SHAREHOLDERS
3.02. This Agreement shall be submitted separately to the
shareholders of the
constituent corporations in the manner provided by the laws of
the State of
Idaho and the State of Florida for approval.
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE NONSURVIVOR
3.03. Except as may be expressly waived in writing by the
Company, all of the
obligations of the Company under this Agreement are subject to
the
satisfaction, prior to or on the Effective Date, of each of the
following
conditions by Jotan:
(a) The representations and warranties made by Jotan to the
Company in
Article 2 of this Agreement and in any document delivered
pursuant to this
Agreement shall be deemed to have been made again on the
Effective Date and
shall then be true and correct in all material respects. If
Jotan shall have
discovered any material error, misstatement, or omission in those
representations and warranties on or before the Effective Date,
it shall report
that discovery immediately to the Company and shall either
correct the error,
misstatement, or omission or obtain a written waiver from the
Company.
(b) Jotan shall have performed and complied with all
agreements and
conditions required by this Agreement to be performed and
complied with by it
prior to or on the Effective Date.
(c) Jotan shall have delivered to the Company an opinion of
counsel for
Jotan, dated the Effective Date in form and substance reasonably
acceptable to
the Company customary for transactions such as the Merger.
(d) Jotan shall have delivered to the Company a certificate
dated the
Effective Date executed in its corporate name by its President or
any Vice
President, certifying to the satisfaction of the conditions
specified in
Subparagraphs (a) and (b) of this Paragraph 3.03.
(e) No action or proceeding by any governmental body or
agency shall have
been threatened, asserted, or instituted to restrain or prohibit
the carrying
out of the transactions contemplated by this Agreement.
(f) All corporate and other proceedings and action taken in
connection
with the transactions contemplated by this Agreement and all
certificates,
opinions, agreements, instruments, and documents shall be
satisfactory in form
and substance to counsel for the Company.
CONDITIONS PRECEDENT TO OBLIGATIONS
OF JOTAN
3.04. Except as may be expressly waived in writing by Jotan, all
of the
obligations of Jotan under this Agreement are subject to the
satisfaction,
prior to or on the Effective Date, of each of the following
conditions by the
Company:
(a) The representations and warranties made by the Company
to Jotan in
Article 2 of this Agreement and in any document delivered
pursuant to this
Agreement shall be deemed to have been made again on the
Effective Date and
shall then be true and correct. If the Company shall have
discovered any
material error, misstatement, or omission in those
representations and
warranties on or before the Effective Date, it shall report that
discovery
immediately to Jotan and shall either correct the error,
misstatement, or
omission or obtain a written waiver from Jotan.
(b) The Company shall have performed and complied with all
agreements or
conditions required by this Agreement to be performed and
complied with by it
prior to or on the Effective Date.
(c) The Company shall have delivered to Jotan an opinion of
counsel for
the Company in form and substance reasonably acceptable to Jotan
customary for
transactions such as the Merger.
(d) The Company shall have delivered to Jotan a
certificate, dated the
Effective Date, executed in its corporate name by the President
and Secretary
of the Company and certifying to the satisfaction of the
conditions specified
in Subparagraphs (a) and (b) of this Paragraph 3.04.
(e) No action or proceeding by any governmental body or
agency shall have
been threatened, asserted, or instituted to restrain or prohibit
the carrying
out of the transactions contemplated by this Agreement.
ARTICLE 4. MANNER OF CONVERTING SHARES
MANNER
4.01. After the Effective Date, each holder of an outstanding
certificate
representing shares of the Company Common Stock may, at such
stockholder's
option, surrender the same to the registrar and transfer agent of
the Company
for cancellation, and each such holder shall be entitled to
receive in exchange
therefor a certificate(s) evidencing the ownership of the same
number of shares
of the Surviving Corporation's Stock, to which such holder is
entitled under
this Article 4, and as are represented by the Company
certificate(s)
surrendered to the registrar and transfer agent.
BASIS
4.02. Upon the Effective Date, each issued and outstanding share
of the
Company Common Stock and all rights in respect thereof shall be
converted into
one fully paid and nonassessable share of the identical class and
series of the
Jotan Common Stock, and each certificate representing shares of
the Company
Common Stock shall for all purposes be deemed to evidence the
ownership of the
same number of shares of the Jotan Common Stock as are set forth
in such
certificate. The shareholders of the Company Common Stock are
not entitled to
preemptive rights upon the effectiveness of the merger.
SHARES OF SURVIVING CORPORATION
4.03 The currently outstanding capital stock of Jotan
comprising 4,750,000
shares of common stock, each of $.01 par value, shall be canceled
such that
upon consummation of the merger, the only outstanding capital
stock of Jotan
shall be those shares of its common stock described in Section
4.02 hereof.
ARTICLE 5. DIRECTORS AND OFFICERS
DIRECTORS AND OFFICERS OF SURVIVOR
5.01. (a) The present Board of Directors of the Company shall
continue to
serve as the Board of Directors of the Surviving Corporation
until the next
annual meeting or until their successors have been elected and
qualified.
(b) If a vacancy shall exist on the Board of Directors of
the Surviving
Corporation on the Effective Date of the merger, the vacancy may
be filled by
the shareholders as provided in the bylaws of the Surviving
Corporation.
(c) All persons who as of the Effective Date of the merger
shall be
executive or administrative officers of the Company shall remain
as officers of
the Surviving Corporation until the Board of Directors of the
Surviving
Corporation shall determine otherwise. The Board of Directors of
the Surviving
Corporation may elect or appoint additional officers as it deems
necessary.
ARTICLE 6. BYLAWS
BYLAWS
6.01. The bylaws of Jotan, as existing on the Effective Date of
the merger,
shall continue in full force as the bylaws of the Surviving
Corporation until
altered, amended, or repealed as provided in the bylaws or as
provided by law.
ARTICLE 7. NATURE AND SURVIVAL
OF WARRANTIES, INDEMNIFICATION,
AND EXPENSES OF NONSURVIVOR
NATURE AND SURVIVAL
OF REPRESENTATIONS AND WARRANTIES
7.01. All statements contained in any memorandum, certificate,
letter,
document, or other instrument delivered by or on behalf of the
Company, Jotan,
or the stockholders pursuant to this Agreement shall be deemed
representations
and warranties made by the respective parties to each other under
this
Agreement. The covenants, representations, and warranties of the
parties and
the stockholders shall survive for a period of three years after
the Effective
Date. No inspection, examination, or audit made on behalf of the
parties or
the stockholders shall act as a waiver of any representation or
warranty made
under this Agreement.
ARTICLE 8. TERMINATION
CIRCUMSTANCES
8.01. This Agreement may be terminated and the merger may be
abandoned at any
time prior to the filing of the Articles of Merger with the
applicable state
governmental authorities, notwithstanding the approval of the
shareholders of
either of the constituent corporations:
(a) by mutual consent of the Board of Directors of the
constituent
corporations;
(b) at the election of the Board of Directors of either
constituent
corporation if:
(1) The number of shareholders of either constituent
corporation, or
of both, dissenting from the merger shall be so
large as to make
the merger, in the opinion of either Board of
Directors,
inadvisable or undesirable,
(2) any material litigation or proceeding shall be
instituted or
threatened against either constituent corporation,
or any of its
assets, that, in the opinion of either Board of
Directors,
renders the merger inadvisable or undesirable,
(3) any legislation shall be enacted that, in the
opinion of either
Board of Directors, renders the merger inadvisable
or
undesirable, or
(4) between the date of this Agreement and the
Effective Date, there
shall have been, in the opinion of either Board of
Directors,
any materially adverse change in the business or
condition,
financial or otherwise, of either constituent
corporation.
NOTICE OF AND LIABILITY ON TERMINATION
8.02. If an election is made to terminate this Agreement and
abandon the
merger:
(a) The President or any Vice President of the constitution
corporation
whose Board of Directors has made the election shall give
immediate written
notice of the election to the other constituent corporation.
(b) On the giving of notice as provided in the immediately
preceding
Subparagraph (a), this Agreement shall terminate and the proposed
merger shall
be abandoned, and except for payment of its own costs and
expenses incident to
this Agreement, there shall be no liability on the part of either
constituent
corporation as a result of the termination and abandonment.
ARTICLE 9. INTERPRETATION AND
ENFORCEMENT
FURTHER ASSURANCES
9.01. The Company agrees that from time to time, as and when
requested by the
Surviving Corporation or by its successors or assigns, it will
execute and
deliver or cause to be executed and delivered all deeds and other
instruments.
The Company further agrees to take or cause to be taken any
further or other
actions as the Surviving Corporation may deem necessary or
desirable to vest
in, to perfect in, or to conform of record or otherwise to the
Surviving
Corporation title to and possession of all the property, rights,
privileges,
powers, and franchises referred to in Article 1 of this
Agreement, and
otherwise to carry out the intent and purposes of this Agreement.
NOTICES
9.02. Any notice or other communication required or permitted
under this
Agreement shall be properly given when delivered by hand,
addressed as follows:
(a) In the case of the Company, to: Jotan, Inc., 118 W.
Adams Street,
Jacksonville, Florida 32202, or to such other person or address
as the Company
may from time to time request in writing.
(b) In the case of Jotan, to: Jotan, Inc., 118 W. Adams
Street,
Jacksonville, Florida 32202, or to such other person or address
as Jotan may
from time to time request in writing.
ENTIRE AGREEMENT; COUNTERPARTS
9.03. This Agreement and the exhibits to this Agreement contain
the entire
agreement between the parties with respect to the contemplated
transaction.
This Agreement may be executed in any number of counterparts, all
of which
taken together shall be deemed one original.
CONTROLLING LAW
9.04. The validity, interpretation, and performance of this
Agreement shall be
governed by, construed, and enforced in accordance with the laws
of the State
of Florida.
IN WITNESS WHEREOF, this Agreement was executed on May 14,
1996.
JOTAN, INC., AN IDAHO CORPORATION
By: /s/ Shea Ralph
ATTEST:
/s/ David Freedman
Secretary
JOTAN, INC., A FLORIDA CORPORATION
By: /s/ Shea Ralph
ATTEST:
/s/ David Freedman
Secretary
