UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ______)*
Jotan, Inc.,
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(Name of Issuer)
Common Stock, Par Value $.01 Per Share
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(Title of Class of Securities)
481093 10 2
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(CUSIP Number)
Jeffrey P. Sangalis
Rice Partners II, L.P.
5847 San Felipe
Suite 4350
Houston, Texas 77057
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 10, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Check the following box if a fee is being paid with the statement (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filled" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE>
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1. NAME OF REPORT PERSON
S.S. OF ABOVE PERSON
Rice Partners II, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [x]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF SHARE 7. SOLE VOTING POWER 15,717,402
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BENEFICIALLY OWNED BY 8. SHARED VOTING POWER 22,440,178
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EACH REPORTING PERSON 9. SOLE DISPOSITIVE POWER 15,717,402
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WITH 10. SHARED DISPOSITIVE POWER 22,440,178
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
22,440,178
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES.
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
82.6%
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14. TYPE OF REPORTING PERSON*
PN
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<PAGE>
ITEM 1. SECURITY AND ISSUER
The class of securities to which this statement relates is the
Common Stock, par value $.01 per share (the "Common Stock"), of Jotan,
Inc., a Florida corporation (the "Issuer"), the principal executive
offices of which are located at 118 West Adams Street, Jacksonville,
Florida 33201.
ITEM 2. IDENTITY AND BACKGROUND
1. (a) - (c), (f) Rice Partners II, L.P. This statement is being
filed on behalf of Rice Partners II, L.P., a Delaware limited
partnership ("Rice"). Rice is engaged in the principal business
of acquiring and holding securities for investment purposes. The
principal offices of Rice of located at 5847 San Felipe, Suite
4350, Houston, Texas 77057.
(d) None.
(e) None.
2. (a) Enumerated Persons:
Rice Capital Group IV, L.P., a Delaware limited partnership,
is the general partner of Rice, and is engaged in the
principal business of serving as Rice's general partner and
providing management and consulting services to Rice and
other entities. RMC Fund Management, L.P., a Delaware
limited partnership, is the general partner of Rice Capital
Group IV, L.P., and is engaged in the principal business of
being Rice Capital Group IV, L.P.'s general partner and
providing management and consulting services to Rice Capital
Group IV, L.P. and other entities. Rice Mezzanine
Corporation, a Texas corporation, is the general partner of
RMC Fund Management, L.P., and is engaged in the principal
business of being RMC Fund Management, L.P.'s general
partner and providing management and consulting services to
RMC Fund Management, L.P. The principal offices of Rice
Capital Group IV, L.P., RMC Fund Management and Rice
Mezzanine Corporation are located at 5847 San Felipe, Suite
4350, Houston, Texas 77057. Other than Rice Capital Group
IV, L.P., RMC Fund Management and Rice Mezzanine Corporation
<PAGE>
there are no other persons for whom information is required
to be given by General Instruction C to Schedule 13D with
respect to Rice.
The executive officers and directors of Rice Mezzanine
Corporation are as follows:
<TABLE>
<CAPTION>
Name Position
------------------- -------------------------------------------
<S> <C>
Don K. Rice Director, President, Secretary and Treasurer
Jeffrey P. Sangalis Director, Managing Director,
Vice President and Assistant Secretary
Jeffrey A. Toole Director, Managing Director, Vice
President and Assistant Secretary
James P. Wilson Director, Managing Director, Vice
President and Assistant Secretary
</TABLE>
(b) The address of each of the enumerated executive officers and
directors is the principal offices of Rice Mezzanine
Corporation.
(c) The principal employment, name of employer and principal
business of each of the enumerated Rice Mezzanine
Corporation executive officers and directors is as follows:
Messrs. Rice, Sangalis, Toole and Wilson are employed at
Rice Mezzanine Corporation in the capacities described
above.
(d) None for any of the enumerated persons.
(e) None for any of the enumerated persons.
(f) Each of the individual enumerated persons is a citizen of
the United States.
THE FOLLOWING ITEMS 3 THROUGH 6 ARE PROVIDED AS TO THE INDICATED REPORTING
PERSON AND ALL ENUMERATED PERSONS SET FORTH ABOVE.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Beneficial ownership of the reported securities was acquired by Rice
through the utilization of working capital derived from contributions of
capital by its partners and in consideration for an investment in the
Issuer as more fully described in Item 4.
<PAGE>
ITEM 4. PURPOSE OF TRANSACTION
On September 10, 1997, the Issuer, Rice, F-Southland, L.L.C. ("FS") and
FF-Southland, L.P. ("FFS"), F-Jotan, L.L.C. ("FJ"), Shea Ralph ("Ralph") and
David Freedman ("Freedman") entered in a First Supplemental Preferred Stock
and Warrant Purchase Agreement (the "Preferred Stock Agreement"), pursuant to
which Rice purchased 13,125 shares of the Issuer's Series B Redeemable
Preferred Stock ("Series B Preferred Stock") for a purchase price of two
million six hundred and twenty-five thousand ($2,625,000) and was issued
warrants (the "Rice Warrants") to acquire 3,620,473 shares of Common Stock of
the Issuer. The Preferred Stock Agreement, as supplemented, is attached
hereto as Exhibit 1.
The designation of rights of the Series B Preferred Stock set forth in
Articles of Amendment to the Issuer's Articles of Incorporation, which are
attached hereto as Exhibit 3, provides, among other things, that the holders
of the Series B Preferred Stock have the right to elect a majority of the
members of the Issuer's board of directors. This right is exercisable by
action of the holders of a majority of the issued and outstanding shares of
Series B Preferred Stock.
The Warrants provide that the aggregate exercise price for all of the
Common Stock issuable thereunder will not exceed $100 as to Rice, and that the
Warrants will be exercisable until March 4, 2007. The Warrants are
immediately exercisable. Rice currently intends to hold the Rice Warrants for
investment purposes and has no immediate intention to exercise the Rice
Warrants.
In connection with the above described transactions, Rice, the Issuer,
FS, FFS, FJ, Ralph and Freedman entered into a First Supplemental Shareholder
Agreement (the "Shareholder Agreement"), attached hereto as Exhibit 2,
providing, among other things, that each of Rice, FS, FFS, FJ, Ralph and
Freedman agreed to vote all shares of capital stock of the Issuer owned by
them such that a majority of the board of directors of the Issuer will consist
of persons nominated by Rice, so long as Rice owns, directly or indirectly,
capital stock of the issuer that is equal to or greater than 10% of Rice's
original equity investment in respect of the total capital stock of the Issuer
(subject to certain adjustments), and if Rice owns less than 10% of Rice's
original equity investment in respect of the total capital stock of the
Issuer, to elect one person nominated by Rice to serve as a director of the
Issuer so long as Rice owns any equity interest in the Issuer. The
Shareholder Agreement similarly requires all of the named persons to vote all
shares of capital stock of the Issuer owned by them for the election of one
person designated by both FS and FFS.
The above transaction facilitated the acquisition by the Issuer of
substantially all of the assets of Cove Container Corporation (the "Cove
Acquisition"). Such funds received pursuant to the Preferred Stock Agreement
were applied at closing for repayment of a loan from Issuer's lender used to
consummate the Cove Acquisition.
Rice is engaged in the principal business of acquiring and holding
securities for investment purposes. The above transaction was entered into by
Rice for investment purposes in order to facilitate the financing of the Cove
Acquisition. The described transactions have provided Rice with control of
the Issuer by virtue of its right to acquire, upon exercise of the Rice
<PAGE>
Warrants, a majority of the outstanding Common Stock of the Issuer and its
right to designate, as described above, persons to serve as a majority of the
board of directors of the Issuer.
Except as described above, Rice has no plans or proposals to:
(a) acquire additional securities of the Issuer or to dispose of any
securities of the Issuer;
(b) enter into, or cause the Issuer or any of its subsidiaries to
enter into, any extraordinary corporate transactions, other than that the
Issuer plans to seek other acquisition opportunities as a means of expanding
its business;
(c) enter into or cause the Issuer or any of its subsidiaries to sell
or transfer a material amount of its assets;
(d) change the present board of directors or management of the Issuer,
including any plans or proposals to change the number or term of directors or
to fill any existing vacancies on the board, except as described above and
except that (1) the Issuer may seek to hire a new Chief Executive Officer and
(2) the Issuer may seek to add an independent director to the board of
directors, in which event Rice may exercise its right to designate an
additional director;
(e) change the present capitalization or dividend policy of the
Issuer;
(f) make any other material change in the Issuer's business or
corporate structure;
(g) make any change in the issuer's charter or bylaws or other actions
which may impede the acquisition of control of the Issuer by any person;
(h) cause a class of securities of the Issuer to be desisted from a
national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
<PAGE>
(I) cause a class of equity securities of the Issuer to become
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or
(j) any action similar to those described above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
Rice, Ralph, FS, FFS and FJ may be deemed to be members of a "group" as
a result of the purchase of the Warrants pursuant to the original Preferred
Stock and Warrant Purchase Agreement executed March 4, 1997 and the agreement
contained in the original Shareholder Agreement that the parties thereto will
vote for the election of directors of the Issuer as described above. The
other party to those agreements, Freedman, is not included as a member of such
<PAGE>
group, or as a reporting person, because he does not at this time own
beneficially any voting securities of the Issuer owned by each of the others,
and also disclaims status as a "group" upon any basis, or for any purpose,
other than their being parties to the original Preferred Stock Warrant
Purchase Agreement and the original
Shareholder Agreement.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock that would be issued to Rice, FS and
FFS assuming the immediate exercise of the Warrants, that is owned by Ralph,
and what would be issuable to FJ upon conversion of its shares of Series A
Convertible Preferred Stock of the Issuer.
<TABLE>
<CAPTION>
Rice Partners II, L.P. (Rice Warrants) Shares of Common Stock
- ----------------------------------------------- ----------------------
<S> <C>
(a) Beneficial Ownership: 22,440,178 /(1)/
Percentage Ownership: 82.6% /(2)/
(b) Sole Voting Power: 15,717,402
Shared Voting Power: 22,440,178
Sole Disposition Power: 15,717,402
Shared Disposition Power: 22,440,178
F-Jotan (Series A Convertible Preferred Stock). Shares of Common Stock
- ----------------------------------------------- ----------------------
(a) Beneficial Ownership: 22,440,178
Percentage Ownership: 82.6%
(b) Sole Voting Power: 2,658,714
Shared Voting Power: 22,440,178
Sole Disposition Power: 2,658,714
Shared Disposition Power: 22,440,178
F-Southland, L.L.C. (FS Warrants) Shares of Common Stock
- ----------------------------------------------- ----------------------
(a) Beneficial Ownership: 22,440,178
Percentage Ownership: 82.6%
(b) Sole Voting Power: 1,557,031
Shared Voting Power: 22,440,178
Sole Disposition Power: 1,557,031
Shared Disposition Power: 22,440,178
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FF-Southland, L.L.C. (FFS Warrants) Shares of Common Stock
- ----------------------------------------------- ----------------------
<S> <C>
(a) Beneficial Ownership: 22,440,178
Percentage Ownership: 82.6%
(b) Sole Voting Power: 1,557,031
Shared Voting Power: 22,440,178
Sole Disposition Power: 1,557,031
Shared Disposition Power: 22,440,178
Shea Ralph (Common Stock) Shares of Common Stock
- ----------------------------------------------- ----------------------
(a) Beneficial Ownership: 22,440,178
Percentage Ownership: 82.6%
(b) Sole Voting Power: 950,000
Shared Voting Power: 22,440,178
Sole Disposition Power: 950,000
Shared Disposition Power: 22,440,178
</TABLE>
The remaining enumerated persons listed in Item 2 do not hold any beneficial
ownership of the Issuer, other than through Rice.
(1) Rice Capital Group IV, as the general partner of Rice, RMC Fund
Management, L.P., as the general partner of Rice Capital Group IV,
and Rice Mezzanine Corporation, as the general partner of RMC Fund
Management, L.P. may be deemed to beneficially own the Warrant and
the Common Stock issuable on its exercise.
(2) The total number of outstanding shares of Common Stock most
recently reported by the Issuer was 5,679,411; however, the percentage
ownership shown includes as outstanding the shares of Common Stock
issuable pursuant to the Warrants and Series A Convertible
Preferred Stock as described above pursuant to Rule 13d-
3(d)(1)(i).
(c) No transactions in the capital stock of the Issuer were undertaken by
Rice during the sixty days preceding the date of this filing except as
described above at Item 4.
(d) None.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
See Item 4 above. The Preferred Stock Agreement includes provisions
that:
<PAGE>
(i) adjust the number of shares of Common Stock issuable pursuant to
the Warrants in the event of stock splits, combinations, corporate
reorganizations, other similar transactions affecting the Common Stock
and in the event of the issuance of Common Stock or securities
convertible into Common Stock for consideration less than fair market
value of the Common Stock or the exercise price of the Warrants,
(ii) prohibit action by the Issuer to amend its bylaws in a way that
would adversely affect the rights of the holders of Warrants,
(iii) prohibit the payment of dividends or distributions, or the
redemption of securities, without the consent of the holders of the
Warrants,
(iv) prohibit the sale, lease or other transfer of the Issuer's assets
or operating other than in the ordinary course of business, without the
operations other than in the ordinary course of business, without the
consent of the holders of the Warrants,
(v) prohibit the Issuer from entering into any new business without the
consent of the holders of the Warrants,
(vi) prohibit the Issuer from entering into transactions with its
directors, officers, employees or shareholders, or their affiliates or
relatives, except on terms that the holders of the Warrants deem fair
and reasonable,
(vii) except for certain permitted transactions, prohibit the Issuer
from acquiring debt or equity interests in any person without the
consent of the holders of the Warrants, and
(viii) prohibit modifications to the employment agreements of certain
key employees without the consent of the holders of the Warrants.
The Preferred Stock Agreement also provides that if the board of
directors of the Issuer resolves that the Issuer should discontinue
filing reports with the Commission under the Securities Exchange Act of
1934, such action will only become effective if approved by majority
vote of the Issuer's shareholders other than Rice, FS, FFS, and FJ,
provided that such special voting rights will not apply to (a)
transactions in which the Issuer sells all or part of its capital stock,
(b) transactions in which Rice, FS, FFS or FJ sell any of their capital
stock of the Issuer, or (c) any other transaction entered into by Rice,
FS, FFS or FJ.
The Shareholder Agreement includes provisions that:
(i) grant to the holders of the Warrants and FJ preemptive rights to
purchase, with certain exceptions, their pro rata shares of any
issuances by the Issuer of Common Stock or securities convertible into
Common Stock, which preemptive rights have been waived soley for purposes
of this issuance,
(ii) require that the holders of the Warrants be paid a dilution fee to
the extent that dividends are paid on Common Stock of the Issuer while
the Warrants are outstanding,
(iii) subject to the Senior Credit Facilities, grant to the holders of
the Warrants a "put option" to require the Issuer to purchase the
Warrants or the shares of Common Stock issued upon exercise thereof upon
the earliest to occur of (a) February 28, 2005, (b) the repayment of all
indebtedness under the Note Purchase Agreement, (c) a material change in
the ownership of the Issuer other than by Rice, FS or FFS, (d) Rice does
not have the legal right to elect a majority of the board of directors
of the Issuer, (e) except as permitted by the Issuer's senior loan
agreement, the Issuer enters into a material merger, sale of assets or
similar transaction, or (f) an event of default occurs and is continuing
under the Note Purchase Agreement; the put option price is the higher of
the book value or the fair market value of the Common Stock (provided
<PAGE>
that fair market value will be applicable only if there is an active
market at the specified level for the Issuer's Common Stock), (iv) grant
to the Issuer a "call option" to purchase the Warrants, or Common Stock
issued upon exercise thereof, at any time after February 28, 2003 at the
same price as is applicable to the put option described above, (v)
provide as between Rice, FS, FJ (in certain circumstances) and FFS
rights of first refusal and co-sale as to dispositions of their Warrants
or shares of Common Stock issued upon exercise thereof, and (vi) grant
to Rice demand registration rights on two occasions, and grant to Rice,
FS and FFS "piggyback" registration rights, at the expense of the Issuer
and grant FJ demand registration rights on at least one occasion.
The Articles of Amendment containing the designation of rights of
the Series B Preferred Stock provides, among other things, that:
( i) dividends will accrue thereon at an annual rate of 8%, and may be
paid either in cash or in additional shares of Series B Preferred Stock,
(ii) the Issuer may redeem the Series B Preferred Stock at any time, but
only upon the payment of a premium that declines from 12.5% during the
first year after issuance to 0% following the fifth anniversary of
issuance,
(iii) the Issuer is required to redeem the Series B Preferred Stock on
March 4, 2005,
(iv) the consent of the holders of the Series B Preferred Stock is
required for the Issuer to take any of specified actions that would
adversely affect the holders of Series B Preferred Stock, including the
issuance of any senior equity securities and the making of certain
restricted payments to holders of junior securities.
The foregoing is only a summary of the Preferred Stock Agreement,
the Shareholder Agreement and the terms of the Series B Preferred Stock,
and is qualified in its entirety by reference to such Agreements, copies
of which are filed as Exhibits to this Schedule 13D, and are hereby
incorporated by reference.
To the best knowledge of the undersigned, there are no other
contracts, arrangements, understandings or relationships (legal or
otherwise) among the persons named in Item 2 between such persons and
any person with respect to any securities of the Issuer, including but
not limited to, transfer or voting of any of the securities, finder's
fees, joint ventures, loan or option agreements, puts or calls,
guarantees of profits, division of profits or loss, or the giving or
withholding of proxies other than those contained in the Agreements
referenced above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. First Supplementals Preferred Stock and Warrant Purchase Agreement
dated as of September 10, 1997, by and between the Issuer, Rice,
FS, FFS, FJ, Ralph and Freedman and the related form of Warrants.
2. First Supplemental Shareholder Agreement dated as of September 10,
1997, by and between the Issuer, Rice, FS, FFS, FJ, Ralph and
Freedman.
<PAGE>
3. Articles of Amendment to Restated Articles of Incorporation of
Jotan, Inc.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
RICE PARTNERS II, L.P.
By: Rice Capital Group IV, L.P.,
its General Partner
By: RMC Fund Management, L.P.,
its General Partner
By: /s/Jeffrey P. Sangalis
------------------------------
Jeffrey P. Sangalis
Managing Director
<PAGE>
EXHIBIT 1
Preferred Stock & Warrant Purchase Agreement
<PAGE>
FIRST SUPPLEMENTAL PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
FIRST SUPPLEMENTAL PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") made as of September 10, 1997, by and among JOTAN, INC., a
Florida corporation (the "Company"), RICE PARTNERS II, L.P., a Delaware
limited partnership ("Rice" or the "Purchaser"), F-SOUTHLAND, L.L.C., a North
Carolina limited liability company ("F-Southland"), FF-SOUTHLAND, L.P., a
Delaware limited partnership ("FF-Southland" and together with F-Southland,
the "Southland Purchasers"), F-JOTAN, L.L.C., a North Carolina limited
liability corporation ("F-Jotan"), and each of the SHAREHOLDERS named on the
signature pages hereto (individually and collectively, as the context
requires, the "Shareholder").
W I T N E S S E T H:
WHEREAS, Rice, the Southland Purchasers, F-Jotan and the Shareholder
named on the signature pages thereof, executed and delivered the Preferred
Stock and Warrant Purchase Agreement, dated as of February 28, 1997 (the
"Original Purchase Agreement");
WHEREAS, each Shareholder owns beneficially and of record the number of
shares or share equivalents set forth under the signature of such Shareholder
on this Agreement of the issued and outstanding capital stock of the Company;
WHEREAS, F-Jotan is the owner of the 1,329,357 shares of the Series A
Preferred Stock of the Company as of the date hereof;
WHEREAS, SHC Acquisition Corp., a wholly-owned Subsidiary of the
Company, has merged with and into Southland Holding Company, with Southland
Holding Company surviving and assuming all the obligations of SHC Acquisition
Corp. under the Original Purchase Agreement. On July 31, 1997, all of the
subsidiaries of Southland Holding Company and Atlantic Bag & Paper Company, a
Subsidiary of the Company, merged with and into Southland Holding Company
(which concurrently changed its name to Southland Container Packaging Corp.),
with the result that Southland Container Packaging Corp. ("Southland"), as of
July 31, 1997, had no Subsidiaries;
WHEREAS, the Company, Southland, Rice and the Southland Purchasers have
entered into that certain Note Purchase Agreement, dated as of February 28,
1997, as amended by Amendment No. 1, dated as of August 19, 1997 (the "Note
Agreement");
WHEREAS, the Company and the Shareholder have entered into a Shareholder
Agreement, dated as of February 28, 1997 (the "Shareholder Agreement"), with
the Purchaser, the Southland Purchasers and F-Jotan; and
<PAGE>
WHEREAS, on June 23, 1997, Rice unconditionally committed to the Senior
Lender (as defined in the Note Agreement) and FF-Southland committed to the
Senior Lender subject to certain approvals, to purchase up to $2,625,000 (the
"Purchase Price") of Series B Preferred Stock, in cash (the "Cove Acquisition
Investment"), in connection with the acquisition by the Southland Holding
Company (now known as Southland Container Packaging Corp.) of certain of the
assets of Cove Container Corporation (the "Cove Acquisition");
WHEREAS, such commitment requires that the proceeds of such purchase
shall be used by the Company to repay the Senior Lender a like amount advanced
on June 23, 1997 by the Senior Lender under the Senior Loan Agreement on
behalf of the Company to enable the Company to pay the purchase price of the
Cove Acquisition;
WHEREAS, although Rice is willing to enter into and consummate the
transactions contemplated hereby upon the due issuance of its Warrants and
Preferred Stock (as defined below) against the payment of the Purchase Price,
FF-Southland did not receive appropriate approvals for its portion of such
purchase transaction.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser, F-
Jotan, the Shareholder, and the Company, intending to be legally bound, agree
as follows:
Article I
Definitions
As used in this Agreement, all capitalized terms have the meanings
indicated in the Original Purchase Agreement unless otherwise defined herein.
Any such term used in the Original Purchase Agreement, but not defined herein,
shall be interpreted to cover all corresponding terms used herein and relating
to the Warrants and Series B Preferred Stock to be issued pursuant to this
Agreement, as if such terms were set forth at length herein and applied to the
transactions contemplated hereby.
Agreement. This First Supplemental Preferred Stock and Warrant Purchase
Agreement.
Closing Date. With respect to this Agreement, as of September 10, 1997.
Cove Acquisition. This term is defined in the Preamble.
Cove Acquisition Investment. This term is defined in the Preamble.
First Supplemental Documents. This Agreement, the First Supplemental
Series B Preferred Stock, the First Supplemental Warrant and the First
Supplemental Shareholder Agreement and the transactions and documents,
instruments, certificates and agreements contemplated thereby.
<PAGE>
First Supplemental Preferred Shares. Shares of Series B Preferred Stock
(but not any Series A Preferred Stock) to be issued to the Purchaser
hereunder in connection with the Cove Acquisition Investment upon
payment of the applicable purchase price therefor.
First Supplemental Series B Preferred Stock. Series B Preferred Stock
to be issued to the applicable Purchaser hereunder in connection with
the Cove Acquisition Investment upon payment of the applicable Purchase
Price therefor.
First Supplemental Warrant. The First Supplemental Warrant A-2 to be
issued concurrently with the issuance of the First Supplemental Series B
Preferred Stock hereunder in connection with the Cove Acquisition
Investment.
First Supplemental Warrant A-2. The First Supplemental Warrant A-2,
dated September 10, 1997, to be issued by the Company hereunder to Rice
in connection with the Cove Acquisition Investment.
Note Agreement. This term is defined in the preamble and includes the
Note Purchase Agreement, dated as of February 28, 1997, as amended by
Amendment No. 1, dated as of August 19, 1997, among the Company and
First Supplemental Warrant, and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement, as the same may
be further amended from time to time, and any refinancing, refunding or
replacements of the indebtedness under the Note Agreement.
Original Closing Date. The Closing Date with respect to the Original
Purchase Agreement, which occurred as of February 28, 1997 with respect
to the originally issued Warrants and Preferred Shares under the
Original Purchase Agreement and March 4, 1997 with respect to the
initial funding.
Purchaser. For purposes of the First Supplemental Documents, Rice; and
for purposes of the Original Purchase Agreement and the transactions
contemplated thereby, Rice and the Southland Purchasers.
Purchase Price. This term is defined in the preamble.
Preferred Stock or Series B Preferred Stock. For purposes of this
Agreement (except where the context requires a reference to this
Agreement and the Original Purchase Agreement), the First Supplemental
Series B Preferred Stock.
Shareholder Agreement. This term is defined in the preamble and
includes the First Supplemental Shareholder Agreement, dated as of the
date hereof, between the Company, the Shareholder, F-Jotan, the
Southland Purchasers and the Purchaser in substantially the form
attached to this Agreement as Annex A and incorporated in this Agreement
by reference.
Southland. This term is defined in the Preamble.
<PAGE>
Warrants. For purposes of this Agreement (except where the context
requires a reference to this Agreement and the Original Purchase
Agreement), the First Supplemental Warrant.
Warrant Shares. For purposes of this Agreement (except where the
context requires a reference to this Agreement and the Original Purchase
Agreement), the Issued Warrant Shares and the Issuable Warrant Shares
relating to the First Supplemental Warrant.
Article II
The Warrants and the Preferred Shares
2.01 The Warrants and the Preferred Shares. On the Closing Date,
Rice agrees to purchase from the Company at the purchase price set forth
below, and the Company agrees to issue to Rice, all in accordance with the
terms and conditions of this Agreement:
(a) a First Supplemental Warrant A-2 (relating to the Series B
Preferred Stock) in substantially the form attached to this Agreement as
Annex B and incorporated in this Agreement by reference to purchase, at
a purchase price of $100, the number of shares of Common Stock set forth
beneath the name of Rice on the signature page of this Agreement for
such Warrant A-2; and
(b) 13,125 shares of Series B Preferred Stock, at a purchase
price of $200 per share (for a total of $2,625,000) having the rights,
restrictions, privileges, and preferences set forth in the articles of
amendment of the Company's articles of incorporation attached to the
Original Purchase Agreement as Annex H (the "Certificate").
The Company has, on or before the Closing Date, duly authorized the Series B
Preferred Stock being purchased and sold pursuant to the terms of this
Agreement by duly filing the Certificate with the Secretary of State of the
State of Florida. On the Closing Date, the Company will deliver to Rice a
certificate evidencing and representing the shares of Series B Preferred Stock
issued to such Purchaser, which certificate shall be issued in such
Purchaser's name or in the name of its designee.
2.02 Legend. The Company will deliver to the Purchaser on the Closing
Date one or more certificates representing each of (i) First Supplemental
Warrant A-2, and (ii) the First Supplemental Series B Preferred Stock,
purchased by Rice in such denominations as such Purchaser requests. Such
certificates will be issued in such Purchaser's name or, subject to compliance
with transfer and registration requirements under applicable Federal and state
securities laws, in the name or names of its respective designee or designees.
It is understood and agreed that the certificates evidencing the Warrants will
bear the following legends:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION
<PAGE>
WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT
LIMITATION, THE NORTH CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS
SECURITIES ACT OF 1957, AS AMENDED, AND THE GEORGIA SECURITIES ACT OF
1973, AS AMENDED, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF
FEBRUARY 28, 1997, BY AND AMONG JOTAN, INC. (THE "COMPANY"), RICE
PARTNERS II, L.P., F-SOUTHLAND, L.L.C. AND FF-SOUTHLAND, L.P., F-JOTAN,
L.L.C. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO SUCH
SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED,
AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
It is further understood and agreed that the certificates evidencing the First
Supplemental Series B Preferred Stock will bear substantially the same as the
following legends:
"THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE SHARES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT LIMITATION, THE NORTH
CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS SECURITIES ACT OF 1957,
AS AMENDED, AND THE GEORGIA SECURITIES ACT OF 1973, AS AMENDED, AND MAY
NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH
ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THESE SHARES ARE SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH
DATED AS OF FEBRUARY 28, 1997, BETWEEN JOTAN, INC. (THE "COMPANY"), RICE
PARTNERS II, L.P., F-JOTAN, L.L.C., AND F-SOUTHLAND, L.L.C., FF-
SOUTHLAND, L.P. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO
SUCH SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS").
<PAGE>
COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE
COMPANY."
2.03 Exercise Price. The Exercise Price per share will be $0.01 for
each share of Common Stock covered by the Warrants; provided, however, that in
no event the aggregate Exercise Price for all of the shares of Common Stock
covered by the First Supplemental Warrant A-2 exceed $100.00, whether as a
result of any change in the par value of the Common Stock or Other Securities,
as a result of any change in the number of shares purchasable as provided in
this Article II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount or
number of Warrant Shares for which the Warrants may be exercised.
2.04 Exercise of Warrants. Each of the Warrants may be exercised at
any time or from time to time on or after the Closing Date until the tenth
(10th) anniversary of the Original Closing Date (March 4, 2007), on any day
that is a Business Day, for all or any part of the number of Issuable Warrant
Shares purchasable upon its exercise. In order to exercise its Warrant, in
whole or in part, the Holder will comply with the applicable provisions in
Section 2.04 of the Original Purchase Agreement as if such provisions were
incorporated herein at length.
2.05 Stock Legend. Without limiting the provisions of Section 2.02
hereof, the First Supplemental Warrant and the First Supplemental Preferred
Shares have not been registered under the Securities Act or qualified under
applicable state securities laws. Accordingly, unless there is an effective
registration statement and qualification respecting the First Supplemental
Warrant or the First Supplemental Preferred Shares, as the case may be, under
the Securities Act or under applicable state securities laws, the First
Supplemental Preferred Shares and, at the time of exercise of a First
Supplemental Warrant, any stock certificate issued pursuant to the exercise of
a First Supplemental Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS, INCLUDING, WITHOUT LIMITATION, THE NORTH CAROLINA SECURITIES ACT,
AS AMENDED, THE TEXAS SECURITIES ACT OF 1957, AS AMENDED, AND THE
GEORGIA SECURITIES ACT OF 1973, AS AMENDED, AND (B) ARE SUBJECT TO THE
TERMS OF AND PROVISIONS OF A PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF FEBRUARY 28,
1997 AMONG JOTAN, INC. (THE "COMPANY"), RICE PARTNERS II, L.P., F-
SOUTHLAND, FF-SOUTHLAND, L.P., F-JOTAN, L.L.C. AND THE OTHER PARTIES
LISTED ON THE SIGNATURE PAGES OF SUCH SHAREHOLDER AGREEMENT (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME
<PAGE>
TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT
THE OFFICES OF THE COMPANY."
All shares of Capital Stock of the Company subject to the Shareholder
Agreement will bear a legend to such effect.
2.06 Original Purchase Agreement Provisions Incorporated into this
Agreement. Except as set forth above, all other provisions in Article II of
the Original Purchase Agreement shall be incorporated herein as if set forth
at length herein with full application to the First Supplemental Warrant and
the First Supplemental Preferred Shares; and all such Warrants and Preferred
Shares issued pursuant to this Agreement shall be included in all adjustment
and other calculations under Section 2.08 of the Original Purchase Agreement
relating to all Warrants and Preferred Shares issued as of the Original
Closing Date under the Original Purchase Agreement as if the First
Supplemental Warrant and the First Supplemental Preferred Shares were issued
on the Original Closing Date; provided, however, that as a result of the
issuance of securities contemplated by the First Supplemental Documents, there
will be no adjustments under Section 2.08 of the Original Purchase Agreement
(despite the issuance of the First Supplemental Warrant and the First
Supplemental Preferred Stock to Rice).
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company and the Shareholder.
The Company and the Shareholder severally and not jointly represent and
warrant to the Southland Purchasers, the Purchaser and F-Jotan that:
(a) The Company is a corporation duly organized and existing and
in good standing under the laws of its state of incorporation and is
qualified or licensed to do business in all other countries, states, and
jurisdictions the laws of which require it to be so qualified or
licensed. The Company has no Subsidiaries (other than Southland) or
debt or equity investment in any Person. Giving effect to the
transactions contemplated herein, the Shareholder owns beneficially and
of record the number of shares in the aggregate of the issued and
outstanding capital stock or stock equivalents of the Company on a fully
converted and diluted basis as of the Closing Date set forth under the
signature of such Shareholder on this Agreement, all being free and
clear of all liens, claims and encumbrances. Other than the Southland
Purchasers, the Purchaser and F-Jotan, and, except any other stock
issuable under any employee or director stock plan which constitutes
Permitted Stock, no Person has any rights, whether granted by the
Company or any other Person, to acquire any portion of the equity
interest of the Company or the assets of the Company.
(b) Each of the Company and the Shareholder has, and at all
times that this Agreement is in force will have, the right and power,
and is duly authorized, to enter into, execute, deliver, and perform
<PAGE>
this Agreement, the Shareholder Agreement, and, in the case of the
Company, the First Supplemental Warrant, and the officers of Company
executing and delivering this Agreement, the Shareholder Agreement, and
the First Supplemental Warrant are duly authorized to do so. This
Agreement, the Shareholder Agreement, and the First Supplemental Warrant
have been duly and validly executed, issued, and delivered and
constitute the legal, valid, and binding obligations of Company and the
Shareholder, enforceable in accordance with their respective terms.
(c) The execution, delivery, and performance of this Agreement,
the Shareholder Agreement, and the First Supplemental Warrant will not,
by the lapse of time, the giving of notice, or otherwise, constitute a
violation of any applicable provision contained in the charter, bylaws,
or organizational documents of the Company or contained in any
agreement, instrument, or document to which the Company or the
Shareholder is a party or by which any of them is bound.
(d) As of the Closing Date, the authorized capital stock of the
Company consists of (i) 40,000,000 shares of Common Stock, of which
5,679,411 shares are issued and outstanding and (ii) 10,000,000 shares
of Preferred Stock, of which 1,329,357 shares of Series A Preferred
Stock are issued and outstanding and of which 63,125 shares of Series B
Preferred Stock are issued and outstanding. An aggregate of at least
3,620,473 shares of Common Stock are reserved for issuance on exercise
of the First Supplemental Warrant; and notwithstanding Section 3.01(d)
of the Original Purchase Agreement, 15,210,990 shares of Common Stock
have been reserved for issuance of all other Warrants (issued as of the
Original Closing Date of February 28, 1997). All of the issued and
outstanding shares of Common Stock are, and upon issuance and payment
therefor in accordance with the terms of this Agreement, all of the
outstanding First Supplemental Series B Preferred Stock will be, validly
issued, fully paid and nonassessable. The Common Stock and First
Supplemental Preferred Shares have been offered, issued, sold, and
delivered by Company free from preemptive rights, rights of first
refusal, antidilution rights, cumulative voting rights or similar rights
(except as otherwise provided in the Original Purchase Agreement, this
Agreement, the Shareholder Agreement or in the powers, designations,
rights and preferences of the Preferred Stock contained in the
Certificate) and in compliance with applicable federal and state
securities laws. Except pursuant to this Agreement and the Certificate
and except for the Original Purchase Agreement, the Permitted Stock, the
Company is not obligated to issue or sell any Capital Stock, and, except
for this Agreement and the Shareholder Agreement, neither the Company
nor the Shareholder is party to, or otherwise bound by, any agreement
affecting the voting of any Capital Stock. Except for the Shareholder
Agreement, the Company is not, nor will it be, a party to, or otherwise
bound by, any agreement obligating it to register any of its Capital
Stock.
(e) The First Supplemental Preferred Shares and the shares of
Common Stock and other consideration issuable on exercise of the First
Supplemental Warrant have been duly and validly authorized and reserved
for issuance and, when issued in accordance with the terms of this
Agreement or the First Supplemental Warrant, as the case may be, will be
validly issued, fully paid, and nonassessable and free of preemptive
rights, rights of first refusal, or similar rights.
<PAGE>
(f) All other representations and warranties set forth in the
Original Purchase Agreement are true and correct as of the date hereof,
giving effect to the transactions contemplated hereby.
3.02 Representations and Warranties of the Purchaser. Rice represents
and warrants to the Company, F-Jotan, the Southland Purchasers and the
Shareholder:
(a) It is a limited partnership, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.
(b) It has the right and power and is duly authorized to enter
into, execute, deliver, and perform this Agreement and the Shareholder
Agreement, and its officers, managers or agents executing and delivering
this Agreement and the Shareholder Agreement are duly authorized to do
so. This Agreement and the Shareholder Agreement have been duly and
validly executed, issued, and delivered and constitute the legal, valid,
and binding obligation of such Purchaser, enforceable in accordance with
their respective terms.
(c) It (i) is an "accredited investor," as that term is defined
in Regulation D under the Securities Act; (ii) has such knowledge,
skill, and experience in business and financial matters, based on actual
participation, that it is capable of evaluating the merits and risks of
an investment in the Company and the suitability thereof as an
investment for the Purchaser; (iii) has received and reviewed all such
financial and other information and records of the Company as it
considered necessary or appropriate in deciding whether to purchase the
First Supplemental Preferred Shares and the First Supplemental Warrant
and any securities issuable upon exercise of the First Supplemental
Warrant, and the Company and the Shareholder have made available to it
the opportunity to ask questions of, and to receive answers and to
obtain additional information from, representatives of the Company and
the Shareholder; (iv) all such additional information has been provided
to and reviewed by it; and (v) it has the ability to bear the economic
risks of losing its entire investment in the First Supplemental
Preferred Shares and the First Supplemental Warrant and any securities
issuable upon exercise of such Warrants.
(d) Except as otherwise contemplated by this Agreement and the
Shareholder Agreement, the Purchaser is acquiring its First Supplemental
Series B Preferred Stock, the First Supplemental Warrant and any
securities issuable upon exercise of the First Supplemental Warrant for
investment for its own account and not with a view to any distribution
thereof in violation of applicable securities laws.
(e) It agrees that the certificates representing its Preferred
Shares, the First Supplemental Warrant, and any Issued Warrant Shares
will bear the legends referenced in this Agreement or the Original
<PAGE>
Purchase Agreement, as the case may be, and such Preferred Shares,
Warrants or securities issuable upon exercise of such Warrants and
pursuant to the Shareholder Agreement, as the case may be, will not be
offered, sold, or transferred in the absence of registration or
exemption under applicable securities laws.
(f) It is not acquiring the First Supplemental Preferred Shares
or the First Supplemental Warrant or any securities issuable upon
exercise of such Warrants based upon any representation, oral or
written, by the Company or the Shareholder or any representative of the
Company or the Shareholder with respect to the future value of, income
from, or tax consequences relating to, such Preferred Shares or the
Warrants or securities issuable upon exercise of such Warrants, but
rather upon an independent examination and judgment as to the prospects
of the Company. Further, it acknowledges that no federal or state
administrative entity responsible for securities registration or
enforcement has made any recommendation or endorsement of such Preferred
Shares or such Warrants or any securities issuable upon exercise of such
Warrants or any findings as to the fairness of an investment in the
Preferred Shares of such Warrants or any securities issuable upon
exercise of such Warrants.
(g) It has no current contract, undertaking, agreement,
arrangement or understanding with any Person to sell, transfer, grant
any participation in, or otherwise distribute any of the First
Supplemental Preferred Shares, the First Supplemental Warrant or any
securities issuable upon exercise of the First Supplemental Warrant to
any Person.
Article IV
Covenants
4.01 Original Purchase Agreement Covenants Incorporated Into This
Agreement. The Company will comply with all with all covenants in Article IV
of the Original Purchase Agreement as set forth herein at length.
4.02 Payment of Senior Agent. The Company covenants and agrees that it
shall provide written direction to the Purchaser to pay proceeds of the
Purchase Price of $2,625,000 on the Closing Date to the Senior Agent in
repayment of the "Acquisition Loan" (as defined in the Senior Loan Agreement)
made in the same amount by the Senior Lenders to Southland to complete the
Cove Acquisition.
Article V
Conditions
The obligations of the Purchaser to effect the transactions contemplated
by this Agreement are subject to the following conditions precedent:
5.01 Material Change. There will have occurred no material adverse
change in the business, prospects, results of operations, or condition,
financial or otherwise, of the Company.
5.02 Shareholder Agreement. The Company, F-Jotan, the Southland
Purchasers and the Shareholder will have entered into the Shareholder
Agreement with Purchaser.
<PAGE>
5.03 Representations and Agreements. Each representation and warranty
of the Company and the Shareholder set forth in this Agreement will be true
and correct in all material respects when made and as of the Closing Date, and
the Company and the Shareholder will have fully performed all their covenants
and agreements set forth in this Agreement in all material respects.
5.04 Proceedings; Consents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary
to the consummation of this Agreement, will be satisfactory in form and
substance to the Purchaser and its counsel, and the Purchaser and its counsel
will have received certificates of compliance and copies (executed or
certified as may be appropriate) of all documents, instruments, and agreements
that the Purchaser or its counsel reasonably may request in connection with
the consummation of such transactions. All consents of any Person necessary
to the consummation of the transactions contemplated by this Agreement and the
Shareholder Agreement will have been received, be in full force and effect,
and not be subject to any onerous condition.
5.05 Reservation of Common Stock. The Purchaser will have received
evidence satisfactory to the Purchaser that the Company has reserved a
sufficient number of shares of Common Stock for the Purchaser to exercise the
Warrants.
5.06 Government Filings. All filings under (a) the Hart-Scott-Rodino
Act and (b) all applicable state and federal securities laws, rules and
regulations shall have been made and all requirements in connection therewith
shall have been met by the Company, the Purchaser and the Shareholder.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies to
which the Purchaser and the Holders may be entitled, the Company and the
Shareholder (solely with respect to the representations and warranties made by
him) severally and not jointly agree to and will indemnify and hold harmless
the Purchaser, the Southland Purchasers and F-Jotan, the Holders, and their
Affiliates and their respective successors, assigns, officers, directors,
managers, employees, attorneys, and agents (individually and collectively, an
"Indemnified Party") from and against any and all losses, claims, obligations,
liabilities, deficiencies, penalties, causes of action, damages, costs, and
expenses (including, without limitation, costs of investigation and defense,
attorneys' fees, and expenses), including, without limitation, those arising
out of the contributory negligence of any Indemnified Party, that the
Indemnified Party may suffer, incur, or be responsible for, arising or
resulting from, to the extent applicable, any misrepresentation, breach of
warranty, or nonfulfillment of any covenant or agreement on the part of the
Company or the Shareholder (solely with respect to the representations and
warranties made by him) under this Agreement, the Shareholder Agreement, or
under any other agreement to which the Company or the Shareholder is a party
in connection with this transaction, or from any misrepresentation in or
<PAGE>
omission from any certificate or other instrument furnished or to be furnished
to the Purchaser or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nondefaulting party. It
is, therefore, agreed that in the event of any breach or threatened breach by
a party to this Agreement of the terms and conditions set forth in this
Agreement, the nondefaulting party will be entitled, in addition to any and
all other rights and remedies that it may have in law or in equity, to apply
for and obtain injunctive relief requiring the defaulting party to be
restrained from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
6.03 Integration. This Agreement, the Original Purchase Agreement, the
Other Agreements, the First Supplemental Warrant and all other Warrant, and
the Shareholder Agreement (as amended and confirmed as of the date hereof)
constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and supersede all previous written, and all
previous or contemporaneous oral, negotiations, understandings, arrangements,
and agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder, and each Holder.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that
it is not the intention of any of them to violate any public policy, statutory
or common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section, sentence, word,
clause, or combination thereof causing such violation will be inoperative (and
in lieu thereof there will be inserted such provision, sentence, word, clause,
or combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under
the circumstances.
6.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
addressed to the party to be notified as set forth below. Notices shall be
deemed to have been validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon actual receipt thereof with written
<PAGE>
acknowledgment of receipt (whether by noncertified mail, telecopy, telegram,
facsimile, express delivery, hand delivery or otherwise), whichever is
earlier.
If to Rice, at: Address of Rice beneath the name of Rice on the
signature pages of this Agreement
with courtesy copies to: Patton Boggs, L.L.P.
2626 Cole Avenue
Suite 300
Dallas, Texas 75204
Attn: Larry A. Makel, Esq.
FAX: 214-871-2688
If to the Southland
Purchasers, at: Address of the Southland Purchasers
beneath the name of the Southland
Purchasers on the signature pages of this
Agreement
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Facsimile: (919) 781-4865
F-Jotan
If to F-Jotan, at: Address of F-Jotan beneath the name of F-
Jotan on the signature pages of this
Agreement
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Facsimile: (919) 781-4865
the Southland Purchasers
If to the Company, at: Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attn: President
Fax: 904-353-0075
<PAGE>
If to the Shareholder, Address of such Shareholder beneath
his/her name on the signature pages of
this Agreement
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than the Purchaser will be delivered as
set forth above to the address shown on the stock transfer books of the
Company or the Warrant Register unless such Holder has advised the Company in
writing of a different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until
it sets forth all items of information required to be set forth therein
pursuant to the terms of this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns; provided,
however, that no sale, assignment or other transfer by any party to this
Agreement of any of its Capital Stock or rights hereunder to another Person
will be valid and effective unless and until the transferee or assignee first
agrees in writing to be bound by the terms and conditions of this Agreement
and the Shareholders Agreement, and the agreements and instruments related
hereto and thereto, in a form and substance reasonably satisfactory to the
Company.
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will
not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement.
Any waiver of any such right or remedy by any party must be in writing and
signed by the party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
considered to have been relied upon by the party to which it is delivered and
will survive the Closing Date, regardless of any investigation made by such
party or on its behalf. All statements in any such certificate or other
instrument will constitute warranties and representations under this
Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will be borne and paid by
the Company within ten (10) days of demand by the Holders.
<PAGE>
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
6.12 Other Business. It is understood and accepted that the Purchaser,
F-Jotan, the Southland Purchasers, the Holders, and their Affiliates have
interests in other business ventures that may be in conflict with the
activities of the Company and that nothing in this Agreement will limit the
current or future business activities of such parties whether or not such
activities are competitive with those of the Company. The Company and the
Shareholder agree that all business opportunities that may be available to
such parties in any field substantially related to the business of the Company
will be pursued exclusively through the Company.
6.13 Choice of Law. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS
OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF FLORIDA APPLICABLE TO
AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT
TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE
THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give
or withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other
Holder may, in its discretion, elect.
6.15 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.15 WITH ITS
COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY, F-
JOTAN, THE PURCHASER, THE SOUTHLAND PURCHASERS AND EACH SHAREHOLDER HEREBY
KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY DOCUMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE COMPANY, F-
JOTAN, THE PURCHASER, THE SOUTHLAND PURCHASERS AND EACH SHAREHOLDER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PURCHASER TO PURCHASE THE WARRANTS AND
PREFERRED STOCK FROM THE COMPANY.
6.16 Continuation of Directors' and Officers' Insurance and
Indemnification. For a period of two (2) years from March 4, 1997, the
<PAGE>
Company shall maintain in effect $1,000,000 of directors' and officers'
insurance for the benefit of directors serving in the capacity of directors of
the Company immediately prior to the Closing Date. Such insurance shall be
provided to the extent that (a) such insurance remains commercially available,
(b) the Company may purchase substantially similar coverage as exists at the
Closing Date and (c) such insurance may be obtained at a reasonable cost to
the Company not to exceed $30,000 per annum. The Company shall also retain, in
effect for the same period, those written indemnification provisions that
exist in the articles of incorporation or bylaws of the Company on such date
for the benefit of such directors (or other written provisions reasonably
equivalent thereto in effect on the Closing Date that are acceptable to
Purchaser). All such insurance and indemnifications shall apply only to the
actual period of service of each director.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
JOTAN, INC.
BY:______________________________
David Freedman
Vice President and Chief
Financial Officer
118 West Adams Street
Jacksonville, Florida 32201
Attn: President
Fax: (904) 343-0075
<PAGE>
RICE:
RICE PARTNERS II, L.P.
By: Rice Capital Group IV, L.P.,
Its general partner
By: RMC Fund Management, L.P.,
Its general partner
By: Rice Mezzanine Corporation,
Its general partner
By:___________________________
Name: Jeffrey P. Sangalis
Its: Managing Director
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: Jeffrey P. Sangalis
Fax: (713) 783-9750
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
40,000 Shares of Series B
Preferred Stock
13,125 Shares of First
Supplemental Series B
Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
3,620,473 First Supplemental
Warrant A-2 Shares
<PAGE>
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its Manager
By: _____________________________
James D. Lumsden, Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
1,329,357 Shares of Series A
Convertible Preferred
Stock
None Shares of Common Stock
None Other Equity Interests
<PAGE>
THE SOUTHLAND PURCHASERS:
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its Manager
By: ____________________________
James D. Lumsden, Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
5,000 Shares of Series B
Preferred Stock
None Shares of Common Stock
359,315 Warrant B-1 Shares
1,197,716 Warrant B-2 Shares
<PAGE>
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: _____________________________
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
5,000 Shares of Series B
Preferred Stock
None Shares of Common Stock
359,315 Warrant C-1 Shares
1,197,716 Warrant C-2 Shares
<PAGE>
SHAREHOLDER:
David Freedman
_______________________________
OWNED ON CLOSING DATE:
None Shares of Common Stock
Owned on Closing Date
275,000 Common Stock Options
Shea E. Ralph
________________________________
OWNED ON CLOSING DATE:
950,000 Shares of Common Stock
Owned on Closing Date
33,000 Other Equity Interests
<PAGE>
EXHIBIT 2
First Supplemental Shareholder Agreement
<PAGE>
FIRST SUPPLEMENTAL SHAREHOLDER AGREEMENT
FIRST SUPPLEMENTAL SHAREHOLDER AGREEMENT (the "Agreement") made as of
September 10, 1997, by and among JOTAN, INC., a Florida corporation (the
"Company"), the SHAREHOLDERS of the Company listed on the signature pages
hereof (individually and collectively, as the context requires, the
"Shareholder"), RICE PARTNERS II, L.P., a Delaware limited partnership ("Rice"
or "Purchaser"), and F-SOUTHLAND, L.L.C., a North Carolina limited liability
company ("F-Southland", FF-SOUTHLAND , L.P., a Delaware limited partnership
("FF-Southland" and together with F-Southland, the "Southland Purchasers"), F-
JOTAN, L.L.C., a North Carolina limited liability company ("F-Jotan") and each
of the shareholders named on the signature pages hereto (individually and
collectively, as the context requires, the "Shareholder").
W I T N E S S E T H:
WHEREAS, each Shareholder owns beneficially and of record the number of
shares or share equivalents, set forth under the signature of such Shareholder
on this Agreement of the issued and outstanding capital stock of the Company;
WHEREAS, F-Jotan is the owner of the 1,329,357 shares of the Series A
Preferred Stock of the Company as of the date hereof;
WHEREAS, SHC Acquisition Corp., a wholly-owned Subsidiary of the
Company, has merged with and into Southland Holding Company, with Southland
Holding Company surviving and assuming all the obligations of SHC Acquisition
Corp. under the Original Purchase Agreement. On July 31, 1997, all of the
subsidiaries of Southland Holding Company and Atlantic Bag & Paper Company, a
Subsidiary of the Company, merged with and into Southland Holding Company
(which concurrently changed its name to Southland Container Packaging Corp.),
with the result that Southland Container Packaging Corp.("Southland"), as of
July 31, 1997, had no Subsidiaries;
WHEREAS, the Company, Southland, Rice and the Southland Purchasers have
entered into that certain Note Purchase Agreement, dated as of February 28,
1997, as amended by Amendment No. 1, dated as of August 19, 1997 (the "Note
Agreement");
WHEREAS, the Company and the Shareholder have entered into a Shareholder
Agreement, dated as of February 28, 1997 (the "Original Shareholder
Agreement"), with each Purchaser and F-Jotan and the First Supplemental
Preferred Stock and Warrant Purchase Agreement as of the date hereof,
(together with the Original Purchase Agreement as therein defined, the
"Purchase Agreement"), by and Company, Rice, F-Southland, FF-Southland and F-
Jotan and each of the Shareholders; and
WHEREAS, on June 23, 1997, Rice unconditionally committed to the Senior
Lender (as defined in the Note Agreement) and FF-Southland committed to the
<PAGE>
Senior Lender subject to certain approvals, to purchase up to $2,625,000 (the
"Purchase Price") of Series B Preferred Stock, in cash, in connection with the
acquisition by the Southland Holding Company (now known as Southland Container
Packaging Corp.) of substantially all of the assets of Cove Container
Corporation (the "Cove Acquisition");
WHEREAS, such commitment requires that the proceeds of such purchase
shall be used by the Company to repay the Senior Lender a like amount advanced
on June 23, 1997 by the Senior Lender under the Senior Loan Agreement on
behalf of the Southland to enable the Southland to pay the purchase price of
the Cove Acquisition;
WHEREAS, although Rice is willing to enter into and consummate the
transactions contemplated hereby upon the due issuance of its Warrants and
Preferred Stock against the payment of the Purchase Price, FF-Southland did
not receive appropriate approvals for its portion of such purchase
transaction; and
WHEREAS, the parties hereto desire to amend and confirm portions of the
Original Shareholder Agreement (as amended and confirmed hereby, this
"Agreement").
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser, the
Shareholder, and the Company, intending to be legally bound, agree as follows:
<PAGE>
Article I
Definitions
All terms used in this Agreement will have the meanings ascribed to them
in the Purchase Agreement unless otherwise specifically defined in this
Agreement.
For purposes of Articles II and VII of this Agreement only, the term
"Holder" (as defined in the Purchase Agreement) shall also mean and include F-
Jotan and the term "Registrable Securities" shall mean and include the Series
A Preferred Stock and the Common Stock issuable upon conversion of the Series
A Preferred Stock.
Article II
Waiver Certain Preemptive Rights of the Holders
2.1 Preemptive Right Waiver. The Company will not issue or sell
any New Securities without first complying with this Article II of the
Original Shareholder Agreement; provided, however, that for purposes of this
Agreement and the Purchase Agreement, each such Holder hereby waives its
preemptive rights with respect to the issuance of the First Supplemental Warrant
and the First Supplemental Preferred Shares.
Article III
Confirmation and Incorporation of Original Shareholder Agreement
3.01 Original Shareholder Agreement Provisions Incorporated into this
Agreement. Except as set forth above, all other provisions of the Original
Shareholder Agreement are hereby confirmed as if incorporated herein at length
herein with full application to the First Supplemental Warrant and the First
Supplemental Preferred Shares (it being agreed that such securities shall
treated in all respects as Capital Stock). Accordingly, the First
Supplemental Warrant and the First Supplemental Preferred Shares shall be
treated as if such securities were issued on the Original Closing Date and are
Registrable Securities hereunder and under the Original Shareholder Agreement
for all purposes.
Article IV
Conditions
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions:
4.01 Purchase Agreement Conditions. All of the conditions precedent to
the obligations of the Purchaser under the First Supplemental Purchase
Agreement will have been satisfied in full or waived.
4.02 Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to
the consummation thereof, will be reasonably satisfactory in form and
<PAGE>
substance to each Purchaser and its counsel, and each Purchaser and its
counsel will have received copies (executed or certified as may be
appropriate) of all documents, instruments, and agreements that such Purchaser
or its counsel may request in connection with the consummation of such
transactions.
Article V
Miscellaneous
5.01 Indemnification. In addition to any other rights or remedies to
which each Purchaser and the Holders may be entitled, the Company and the
Shareholder (solely with respect to the representations and warranties made by
him herein) severally but not jointly agree to and will indemnify and hold
harmless each Purchaser, the Holders, and their Affiliates and their
respective successors, assigns, officers, directors, managers, employees,
attorneys, and agents (individually and collectively, an "Indemnified Party")
from and against any and all losses, claims, obligations, liabilities,
deficiencies, diminutions in value, penalties, causes of action, damages,
out-of-pocket costs, including, without limitation, all such costs of
directors of the Company incurred in performing duties or services for or on
behalf of the Company, reasonable attorneys' fees, and expenses (including,
without limitation, costs and expenses of investigation and defense,
attorneys' fees and expenses) including, without limitation, those arising out
of the contributory negligence of any Indemnified Party, that any Indemnified
Party may suffer, incur, or be responsible for, arising or resulting from, to
the extent applicable, any misrepresentation, breach of warranty, or
nonfulfillment of any agreement made by or on the part of the Company or made
by the Shareholder (solely with respect to the representations and warranties
made by him herein) under this Agreement, the Purchase Agreement, or the other
Purchase Documents, the Acquisition Agreement (each as defined in Section 11.1
of the Note Agreement together with all supplements and amendments to each
such agreement or document as of the date hereof) or under any other agreement
to which the Company or the Shareholder is a party in connection with the
transactions contemplated by this transaction, or from any misrepresentation
in or omission from any certificate or other instrument furnished or to be
furnished by the Company to the Purchaser or the Holders under this Agreement.
The foregoing indemnification includes any such claims, actions, damages,
costs and expenses incurred by reason of the contributory negligence of the
Person to be indemnified, but excludes any of the same incurred by reason of
such Person's gross negligence or willful misconduct and shall survive the
expiration of this Agreement or the irrevocable sale by each Purchaser of its
interests in, or the repayment of its loans to, the Company.
5.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nonbreaching party. It
is, therefore, agreed that in the event of any breach or threatened breach by
a party to this Agreement of the terms and conditions set forth in this
Agreement, the nondefaulting party will be entitled, in addition to any and
all other rights and remedies that it may have in law or in equity, to apply
for and obtain injunctive relief requiring the defaulting party to be
restrained from any such breach, or threatened breach or to refrain from a
continuation of any actual breach.
<PAGE>
5.03 Integration. This Agreement, the Original Shareholder
Agreement, the Other Agreements, the First Supplemental Warrant and all other
Warrants, the Purchase Agreement, and the Original Purchase Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and all previous
or contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder, and each Holder.
5.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
5.05 Severability. The parties to this Agreement expressly agree that
it is not their intention to violate any public policy, statutory or common
law rules, regulations, or decisions of any governmental or regulatory body.
If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such policy, rule,
regulation, or decision, the provision, section, sentence, word, clause, or
combination thereof causing such violation will be inoperative (and in lieu
thereof there will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties to this Agreement, unless the inoperative
provision would cause enforcement of the remainder of this Agreement to be
inequitable under the circumstances.
5.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof with written
acknowledgment of receipt (whether by non-certified mail, telecopy, telegram,
express or hand delivery, or otherwise), whichever is earlier, and addressed
to the party to be notified as follows:
If to the Rice, at: Address of Rice beneath the name of Rice on the
signature pages of this Agreement
with courtesy copies to: Patton Boggs, L.L.P.
2626 Cole Avenue
Suite 300
Dallas, Texas 75204
Attn: Larry A. Makel, Esq.
Fax: 214-871-2688
<PAGE>
If to F-Jotan, at: Address of F-Jotan beneath the name of F-Jotan
on the signature pages of this Agreement
with courtesy copies to: The Southland Purchasers
If to the Company, at: Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attn: President
Fax: (904) 353-0075
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Fax: (919) 781-4865
If to the Shareholder, at: Address of such Shareholder beneath the
name of such Shareholder on the signature
pages of this Agreement
If to the Southland
Purchasers: Address of such Southland Purchasers under
their respective names on the signature
pages of this Agreement
with courtesy copies to: F-Jotan
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than the Purchaser will be delivered as
set forth above to the address shown on the stock transfer books of the
Company or the Warrant Register unless such Holder has advised the Company in
writing of a different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering the courtesy copies of any notice,
demand, request, consent, approval, declaration, or other communication to the
persons designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration, or other
communication will be deemed to have been given or received unless and until
it sets forth all items of information required to be set forth therein
pursuant to the terms of this Agreement.
5.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns;
<PAGE>
provided, however, that no sale, assignment or other transfer by any party to
this Agreement of any of its Capital Stock or rights hereunder to another
Person will be valid and effective unless and until the transferee or assignee
first agrees in writing to be bound by the terms and conditions of this
Agreement and the Purchase Agreement, and the agreements and instruments
related hereto and thereto, in a form and substance reasonably satisfactory to
the Company.
5.08 Remedies. The failure of any party to enforce any right or remedy
under this agreement, or to enforce any such right or remedy promptly, will
not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement.
Any waiver of any such right or remedy by any party must be in writing and
signed by the party against which such waiver is sought to be enforced.
5.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
considered to have been relied upon by the party to which it is delivered and
will survive the Closing Date, regardless of any investigation made by such
party or on its behalf. All statements in any such certificate or other
instrument will constitute warranties and representations under this
Agreement.
5.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will, to the extent
provided in this Agreement, be borne and paid by the Company within ten (10)
days of demand by the Holders.
5.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
5.12 Other Business. It is understood and accepted that each
Purchaser, the Holders, and their Affiliates have interests in other business
ventures that may be in conflict with the activities of the Company and that
nothing in this Agreement will limit the current or future business activities
of such parties whether or not such activities are competitive with those of
the Company. The Company and the Shareholder agree that all business
opportunities available to them in any field substantially related to the
business of the Company will be pursued exclusively through the Company.
5.13 Choice of Law. THIS AGREEMENT WILL BE DEEMED TO HAVE BEEN MADE IN
JACKSONVILLE, FLORIDA AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO
AND THE INTERNAL LAWS OF THE STATE OF FLORIDA APPLICABLE TO AN AGREEMENT
EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-
OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION
OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
<PAGE>
5.14 Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner of such Registrable
Securities, the beneficial owner of Registrable Securities may, at its
election, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders
of Registrable Securities contemplated by this Agreement. If the beneficial
owner of any Registrable Securities so elects, the Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership
of such Registrable Securities. In no event will a Holder be required to
exercise its Warrant as a condition to the registration of such Warrant or
Registrable Securities thereunder.
5.15 Fiduciary Duties. The Company acknowledges and agrees that, for
so long as any Warrant is outstanding and regardless of whether the Holder has
exercised any portion of this its Warrant, (a) the officers and directors of
the Company will owe the same duties (fiduciary and otherwise) to the Holder
as are owed to a stockholder of the Company and (b) the Holder will be
entitled to all rights and remedies with respect to such duties or that are
otherwise available to a stockholder of the Company under the Florida General
Corporation Law, as amended from time to time.
5.16 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give
or withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other
Holder may, in its discretion, elect.
5.17 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement that
the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 5.17 will prevent such Holder
from disclosing such information (a) to any Affiliate of such Holder or any
actual or potential purchaser, participant, assignee, or transferee of such
Holder's rights or obligations hereunder that agrees to be bound by the terms
of this Section 5.17, (b) upon order of any court or administrative agency,
(c) upon the request or demand of any regulatory agency or authority having
jurisdiction over such Holder, (d) that is in the public domain, (e) that has
been obtained from any Person that is not a party to this Agreement or an
Affiliate of any such party without breach by such Person of a confidentiality
obligation known to such Holder, (f) in connection with the exercise of any
remedy under this Agreement, or (g) to the certified public accountants for
such Holder. The Company agrees that such Holder will be presumed to have met
its obligations under this Section 5.17 to the extent that it exercises the
same degree of care with respect to information provided by the Company as it
exercises with respect to its own information of similar character.
5.18 Confirmation of Original Shareholder Agreement. Except as amended
and supplemented hereby, the Original Shareholder Agreements shall remain in
full force and effect, and, as so amended and supplemented, such agreement is
hereby confirmed in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
JOTAN, INC.
BY: ____________________________
NAME: ____________________________
TITLE:____________________________
118 West Adams Street
Jacksonville, Florida 32201
Attn: President
Fax: (904) 343-0075
<PAGE>
RICE:
RICE PARTNERS II, L.P.
By: Rice Capital Group IV, L.P.,
Its general partner
By: RMC Fund Management, L.P.,
Its general partner
By: Rice Mezzanine Corporation,
Its general partner
By: __________________________
Name: Jeffrey P. Sangalis
Its: Managing Director
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: Jeffrey P. Sangalis
Fax: (713) 783-9750
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
40,000 Shares of Series B
Preferred Stock
13,125 Shares of First
Supplemental Series B
Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
3,620,473 First Supplemental
Warrant
A-2 Shares
<PAGE>
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.,
its manager
By: Franklin Capital, L.L.C.,
its manager
By: ____________________________
James P. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
1,329,357 Shares of Series A
Convertible Preferred
Stock
None Shares of Common Stock
None Other Equity Interests
<PAGE>
THE SOUTHLAND PURCHASERS:
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.,
its manager
By: Franklin Capital, L.L.C,
its manager
By: ____________________________
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
5,000 Shares of Series B
Redeemable Preferred
Stock
None Shares of Common Stock
359,315 Warrant B-1 Shares
1,197,716 Warrant B-2 Shares
<PAGE>
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: _______________________________
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred
Stock
5,000 Shares of Series B
Redeemable Preferred
Stock
None Shares of Common Stock
359,315 Warrant C-1 Shares
1,197,716 Warrant C-2 Shares
<PAGE>
SHAREHOLDER:
David Freedman
______________________________________
OWNED ON CLOSING DATE:
None Shares of Common Stock
Owned on Closing Date
275,000 Common Stock Options
Shea E. Ralph
______________________________________
OWNED ON CLOSING DATE:
950,000 Shares of Common Stock
Owned on Closing Date
33,000 Common Stock Options
<PAGE>
EXHIBIT 3
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 deleting Section 4.2 therefrom in its entirety and
substituting therefor 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 February 27, 1997
and shall be effective as of February 28, 1997. 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 28th day of February, 1997.
/s/ Shea E. Ralph
----------------------------------
Shea E. Ralph, Director
President of Jotan, Inc.
ATTEST:
/s/ David Freedman
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David Freedman
Secretary of Jotan, Inc.
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EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
[Series A Convertible Preferred Stock and Series B Redeemable Preferred Stock]
A. Series A Convertible Preferred Stock
1. Designation and Amount. 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 established a series of the authorized
preferred stock of the Corporation on May 14, 1996, designated as Series A
Convertible Preferred Stock ("Series A Convertible Preferred Stock"),
consisting of 5,000,000 shares, and having the powers, preferences and
relative participating, option or other special rights, and qualifications,
limitations or restrictions thereof, as set forth herein. Such number of
shares may be increased or decreased form time to time by resolution of the
Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series A Convertible Preferred Stock to a number less than
the number of shares of such series then issued and outstanding, plus the
number of shares of such series reserved for issuance upon the exercise of
outstanding rights, options or warrants or upon the conversion or exchange of
outstanding securities issued by the Corporation.
2. Dividends on Series A Convertible Preferred Stock.
(a) The record holders of the outstanding Series A Convertible
Preferred Stock shall receive on each Series A PIK Dividend Payment Date
during the Series A 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 "Series A PIK Dividends"). The Series A 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 Series
A PIK Record Date, multiplied by the Series A 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 Series A PIK Dividends accrue and
cumulate as set forth in paragraph A.2(b) of this Section 4.2, to the
same terms as the shares of Series A Convertible Preferred Stock issued
on the Initial Issue Date.
(b) On the Series A PIK Record Date immediately preceding each
Series A PIK Dividend Payment Date, the Board of Directors of the
Corporation shall be deemed to have declared Series A PIK Dividends on
the Series A Convertible Preferred Stock in accordance with paragraph
A.2(a) of this Section 4.2, payable on the next Series A PIK Dividend
Payment Date. Series A 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 Series A PIK Dividend Payment Period. Series A PIK
Dividends shall be payable in arrears during the Series A PIK Dividend
Payment Period on each Series A PIK Dividend Payment Date, commencing on
the first Series A PIK Dividend Payment Date, and for shares issued as
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Series A PIK Dividends, commencing on the first Series A PIK Dividend
Payment Date occurring after such shares are issued. If any Series A
PIK Dividend Payment Date occurs on a day that is not a Business Day,
any accrued Series A PIK Dividends otherwise payable on such Series A
PIK Dividend Payment Date shall be paid on the next succeeding Business
Day. Series A PIK Dividends shall be paid to holders of record of the
Series A Convertible Preferred Stock on each Series A PIK Dividend
Payment Date as their names shall appear on the share register of the
Corporation on the Series A PIK Record Date immediately preceding such
Series A PIK Dividend Payment Date. Series A PIK Dividends on Series A
PIK Dividends that are in arrears for any past Series A PIK Dividend
Periods shall accumulate as if the earlier Series A PIK Dividends had
been issued as provided above, and shall be accrued. Unpaid Series A
PIK Dividends may be paid at any time to holders of record on the Series
A PIK Record Date therefor.
(c) Each share of Series A Convertible Preferred Stock shall
rank junior to each share of Series B Redeemable Preferred Stock (the
"Series B Redeemable Preferred Stock") but prior to each share of Common
Stock with respect to the payment of dividends.
3. Liquidation Preference.
(a) Liquidation Preference. Each share of Series A Convertible
Preferred Stock shall be treated as being pari passu with each share of
Series B Redeemable Preferred Stock and prior to each share of Common
Stock with respect to the distribution of assets or surplus funds upon
any Liquidation. In the event of any Liquidation, the assets and funds
of the Corporation shall be ratably distributed among the holders of the
Series A Convertible Preferred Stock and the Series B Redeemable
Preferred Stock based on the total number of shares of such Preferred
Stock then held by all such holders. Upon any Liquidation and after
both the holders of the Series A Convertible Preferred Stock shall have
been paid the full Series A Preferential Amount and the Series B
Redeemable Preferred Stock shall have been paid the full Series B
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 shall be treated as a Liquidation in
accordance with paragraph B.3(b) of Section 4.2.
(c) Valuation of Securities. Any securities to be delivered
upon Liquidation shall be valued as follows:
(i) securities not subject to investment letter or other
similar restrictions on free marketability covered by paragraph
A.3(c)(ii) of this Section 4.2:
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(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 C.5 of this Section 4.2),
(B) if actively trade 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 of any Liquidation shall state the
proposed effective date of any such transaction and the date on which
Conversion Rights (as defined in paragraph A.5 of this Section 4.2)
terminate as to such shares. Such notice shall be given not more than
thirty (30) days prior to the effective date stated therein to the then
holders of record of the Preferred Stock.
4. Voting Right of 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 shares
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).
<PAGE>
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 Series A 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 A.3(d) of this Section 4.2, if any, and
(ii) the redemption of such share by the Corporation pursuant to
paragraph A.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
Series A Initial Purchase Price Per Share, plus all declared but unpaid
dividends on each such share other than Series A PIK Dividends, by the
Series A Conversion Price (as defined below), determined as hereinafter
provided, in effect on the date the share is surrended for conversion.
The initial conversion price per share for the Series A Convertible
Preferred Stock (the "Series A Conversion Price") shall be $0.78. 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 given
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 expenses, 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 Series A Initial Issue Date shall declare or pay any
<PAGE>
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 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
A.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
evidence 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
A.5(e) (iii) of this Section 4.2, deemed to have been
issued) by the Corporation after the Series A 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 of other distribution
on shares excluded from the definition of Additional
Shares of Common Stock by the foregoing clause (1);
(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 the Preferred Stock;
(4) upon the issuance of the Series B
Redeemable Preferred Stock; or
<PAGE>
(5) upon the issuance of Capital Stock in
respect of any Warrant (as defined in the Preferred
Stock and Warrant Purchase Agreement dated as of
February 28, 1997, among the Corporation, Rice
Partners II, L.P., F - Jotan, L.L.C., F - Southland,
L.L.C., FF - Southland, L.P. and the shareholders
which are party signatories thereto).
(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 of the Corporation at any time or from time to time
after the Series A 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
A.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 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) is 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
<PAGE>
Corporation, or change in the number of Common Stock
issuable, upon the exercise, conversion or exchange thereof,
the Series A Conversion Price computer 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 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 the exercise thereof were
issued at the time of the 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 A.5(e)(v) of this
Section 4.2) upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised;
<PAGE>
(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 canceled 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 A.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 Series A Conversion Price as so adjusted;
CP = the former Series A Conversion Price;
CP = the former Series A Conversion Price;
<PAGE>
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 A.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
<PAGE>
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock received by the
Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to paragraph A.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 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 provisions contained
therein for a subsequent adjustment of such number)
issuable 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) 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
<PAGE>
holder thereof has elected to receive the Series A Preferential Amount
pursuant to paragraph A.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.
(h) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Series A Conversion Price
pursuant to this paragraph A.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 or readjustments, (ii)
the Series A Conversion Price at such adjustments and readjustments,
(iii) 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) 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, stamp or income
taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(j) 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
<PAGE>
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 the 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.
(k) Fractional Shares. No fractional shares 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).
6. Redemption.
(a) After (but only after) the redemption of all Series B
Redeemable Preferred Stock (as hereafter provided) or with the prior
written consent of two-thirds (2/3) of the holders of the Series B
Redeemable Preferred Stock, 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 as Series A
PIK Dividends) upon sixty (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
Average Price reflects as 25% premium over the initial Series A
Conversion Price (as adjusted for any combinations, consolidations,
recapitalizations, reorganizations, reclassifications, stock dividends
other than Series A 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
<PAGE>
and/or voluntary conversion of the Series A Convertible Preferred Stock
prior thereto pursuant to paragraph A.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. If the redemption notice has been duly
given, each holder of shares of Series A Convertible Preferred Stock to
be redeemed shall be entitled 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 Restated Articles of
Incorporation.
(b) The Company shall mail an appropriate Redemption Notice
stating the information to be set forth therein.
B. Series B Redeemable Preferred Stock
1. Designation of Amount. 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 established a series of the authorized
preferred stock of the Corporation, designated as Series B Redeemable
Preferred Stock ("Series B Redeemable 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 set forth herein. Such number of
shares may be increased or decreased from time to time by resolution of the
Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series B Redeemable Preferred Stock to a number less than
the number of shares of such series then issued and outstanding, plus the
number of shares of such series reserved for issuance upon the exercise of
outstanding rights, options or warrants or upon the conversion or exchange of
outstanding securities issued by the Corporation.
2. Dividends Series B Redeemable Preferred Stock.
(a) The record holders of the outstanding Series B Redeemable
Preferred Stock shall receive be entitled to receive, as and when
declared by the Board of Directors out of funds legally available
therefor, on each Series B Dividend Payment during each Series B
Dividend Payment Period, cumulative cash dividends equal to the
applicable Series B Dividend Amount for such period. Past due payments
of the applicable Series B Dividend Amount shall bear interest at a rate
of 8% per annum or, if less, the highest rate then permitted by
applicable law. Notwithstanding the foregoing, the Board of Directors
in its discretion may decide to pay the accrued Series B Dividend Amount
in the form of Series B PIK Dividends as set forth below.
(b) If and to the extent that cash dividends are not declared
and paid as set forth in paragraph B.2(a) of this Section 4.2:
<PAGE>
(i) The record holders of the outstanding Series B
Redeemable Preferred Stock shall receive on each Series B Dividend
Payment Date during the Series B Dividend Payment Period per share
dividends in additional fully paid and nonassessable shares of
Series B Redeemable Preferred Stock legally available therefor
(such dividend being herein called "Series B PIK Dividends"). The
Series B PIK Dividends shall be paid by delivering to each record
holder of Series B Redeemable Preferred Stock a number of shares
of Series B Redeemable 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 B Redeemable Preferred Stock
held by such holder on the applicable Series B Record Date,
multiplied by the applicable Series B Dividend Amount. Any
additional shares of Series B Redeemable 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 Series B PIK Dividends accrue and
cumulate as set forth in paragraph B.2(b) of this Section 4.2, to
the same terms as the shares of Series B Redeemable Preferred
Stock issued on the Initial Issue Date.
(ii) On the Series B Record Date immediately preceding
each Series B Dividend Payment Date, the Board of Directors of the
Corporation shall be deemed to have declared Series B PIK
Dividends on the Series B Redeemable Preferred Stock in accordance
with paragraph B.2(a) of this Section 4.2, payable on the next
Series B Dividend Payment Date. Series B PIK Dividends on shares
of Series B Redeemable Preferred Stock shall accrue at the
applicable Series B Dividend Amount through the Series B Dividend
Payment Period. Series B PIK Dividends shall be payable in
arrears during the Series B Dividend Payment Period on each Series
B Dividend Payment Date, commencing on the first Series B Dividend
Payment Date, and for shares issued as Series B PIK Dividends,
commencing on the first Series B Dividend Payment Date occurring
after such shares are issued.
(c) If any Series B Dividend Payment Date occurs on a day that
is not a Business Day, any accrued Series B Dividend Amount otherwise
payable on such Series B Dividend Payment Date shall be paid on the next
succeeding Business Day. The applicable Series B Dividend Amount shall
be paid to holders of record of the Series B Redeemable Preferred Stock
on each Series B Dividend Payment Date as their names shall appear on
the share register of the Corporation on the Series B Record Date
immediately preceding such Series B Dividend Payment Date. Series B PIK
Dividends on Series B PIK Dividends that are in arrears for any past
Series B Dividend Periods shall accumulate as if the earlier Series B
PIK Dividends had been issued as provided above, and shall be accrued.
Unpaid Series B PIK Dividends may be paid at anytime to holders of
record on the Series B Record Date therefor.
<PAGE>
(d) If in respect of any past quarterly dividend period or
periods full dividends upon the outstanding shares of Series B
Redeemable Preferred Stock shall not have been paid, the amount of the
deficiency shall be fully paid or declared and set apart for payment
before any dividend shall be paid or set apart for payment upon any
shares of Junior Stock.
(e) Each share of Series B Redeemable Preferred Stock shall
rank prior to each share of Junior Stock, including Series A Convertible
Preferred Stock and Common Stock, with respect to the payment of
dividends.
3. Liquidation Preference.
(a) Liquidation Preference. Except as provided in paragraph
A.3(a) of this Section 4.2, each share of Series B Redeemable Preferred
Stock shall rank prior to each share of Junior Stock with respect to the
distribution of assets or surplus funds of the Corporation upon any
Liquidation,. In the event of any Liquidation the holders of the Series
B Redeemable Preferred Stock shall be entitled to receive any
distribution of the assets or surplus finds of the Corporation as
provided in paragraph A.3(a) of this Section 4.2.
(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 shareholders 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
shareholders 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 the Series B
Redeemable Preferred Stock, be deemed to be a Liquidation .
(c) Valuation of Securities. Any securities to be delivered
upon Liquidation shall be valued as set forth in paragraph A.3(c) of
this Section 4.2.
(d) Notice. Notice of any Liquidation shall be given in
accordance with paragraph A.3(d) of this Section 4.2.
4. Election of Directors by Holders of Series B Redeemable Preferred Stock.
(a) The holders of the Series B Redeemable Preferred Stock
shall have at all times the exclusive right (voting separately as a
<PAGE>
class) to elect a majority in number of the directors of the Corporation
(the "Series B Directors"). Such right may be exercised by action of
the holders of a majority of the issues and outstanding shares of Series
B Redeemable Preferred Stock at a duly called meeting of the holders of
the Series B Redeemable Preferred Stock or by written consent of at
least a majority of the issued and outstanding Series B Redeemable
Preferred Stock. Upon written notice of exercise of the right to elect
Series B Directors pursuant to this paragraph B.4 of this Section 4.2
signed by the holders of a majority of the issued and outstanding Series
B Redeemable Preferred Stock, or upon such action taken at a meeting of
the holders of the Series B Redeemable Preferred Stock, that action has
been taken to elect Series B Directors, the maximum authorized number of
members of the Board of Directors shall, to the extent necessary,
automatically be increased by the number of directors so elected (but
not more than a majority of the resulting number of directors) and the
designees so elected shall be deemed elected to fill the vacancies so
created by vote of the holders of the Series B Redeemable Preferred
Stock.
(b) The President of the Corporation shall, within twenty (20)
days after delivery to the Corporation at its principal office of a
written request for a special meeting signed by the holders of a
majority of the issued and outstanding Series B Redeemable Preferred
Stock, call a special meeting of the holders of Series B Redeemable
Preferred Stock to be held as promptly as is practicable within ninety
(90) days after the delivery of such request for the purpose of electing
Series B Directors.
(c) Each Series B Director shall hold office until the earliest
to occur of (i) the time at which no shares of Series B Preferred stock
are outstanding, (ii) his or her death, (iii) his or her resignation,
(iv) his or her removal, (v) his or her disqualification, (vi) his or
her retirement, or (vii) election by the holder of Series B Redeemable
Preferred Stock of a duly qualified successor at any annual or special
meeting of shareholders. Subject to the limitations of the preceding
sentence, Series B Directors shall serve until the next annual meeting
of the shareholders of the Corporation at which time the holders of
Series B Redeemable Preferred Stock may elect successors to the Series B
Directors.
(d) If the office of any Series B Director becomes vacant by
reason of death, resignation, retirement, disqualification, removal from
office or otherwise, the remaining Series B Director or Directors may
choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. An Series B Director may be
removed by, and shall not be removed otherwise than by, vote of the
Series B Redeemable Preferred Stock,. Until the exercise by the holder
of the Series B Redeemable Preferred Stock of the rights and privileges
set forth in this paragraph provided for in the Bylaws, in a resolution
of the Board of Directors adopted in accordance with the Bylaws or by
any action or agreement under a shareholder or similar agreement.
5. Redemptions.
<PAGE>
(a) Optional Redemption. The Series B Redeemable a
Preferred Stock may be redeemed at the Company's option (subject to the
legal availability of funds) at any time and from time to time, in whole
or in part, but in any event in increments of not less than the lesser
of (a) $500,000.00 or (b) the amount necessary to redeem all Series B
Redeemable Preferred Stock, at a redemption price per share equal to the
following amounts, determined on the date of redemption:
(i) On or after the Initial Issue 112.5% of the Series B
Date and before the first Preferential Amount.
anniversary of the Initial Issue
Date
(ii) On or after the first anniversary 110.71% of the Series B
of the Initial Issue Date and Preferential Amount.
before the second anniversary of
the Initial Issue Date.
(iii) On or after the second 108.92% of the Series B
anniversary of the Initial Issue Preferential Amount.
Date and before the third
anniversary of the Initial Issue
Date.
(iv) On or after the third anniversary 107.14% of the Series B
of the Initial Issue Date and Preferential Amount.
before the fourth anniversary of
the Initial Issue Date
(v) On or after the fourth 105.36% of the Series B
anniversary of the Initial Issue Preferential Amount.
Date and before the fifth
anniversary of the Initial Issue
Date
(vi) On or after the fifth anniversary 100% of the Series B
of the Initial Issue Date Preferential Amount.
(b) Mandatory Redemptions. On the eighth (8th) anniversary of
the Initial Issue Date, the Company shall redeem (subject to the legal
availability of funds) all shares of the Series B Redeemable Preferred
Stock issued and outstanding from time to time; provided, however, that
if the Company fails to redeem any such shares at such anniversary, the
holders of such shares shall be entitled to all rights and remedies at
law or in equity.
(c) Continuing Obligations. In the event any redemption
required by this paragraph 5 is not completed for any reason, the
obligation of the Company to redeem all or a portion of the Series B
Redeemable Preferred Stock will continue until the earliest time as the
<PAGE>
circumstance preventing such redemption no longer exists, at which time
the Company will redeem the Series B Redeemable Preferred Stock. The
Company will use its best efforts to make funds legally available for
such redemptions, including, without limitation, revaluing assets of the
Company.
(d) Redemption Notice. The Company shall mail an appropriate
Redemption Notice stating the information to be set forth therein.
(e) Surrender of Stock. On or before the Redemption Date, each
holder of Series B Redeemable Preferred Stock to be redeemed shall
surrender the certificate or certificates (if any) representing such
shares to the Company, in the manner and at the place designated in the
Redemption Notice, and thereupon the Series B Preferential Amount for
such shares shall be payable to the order of the person whose name
appears on such certificate or certificates (or that is entitled to such
payment if there is no certificate) as the owner thereof or such
person's designee, and each surrendered certificate shall be canceled
and retired. In the event fewer surrendered certificate shall be
canceled and retired. In the event fewer than all of the shares
represented by such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(f) Termination of Rights. If the Redemption Notice is duly
given, and if by the Redemption Date the Series B Preferential Amount is
either paid or made irrevocably available for payment, then
notwithstanding that the certificates evidencing any of the shares of
Series B Redeemable Preferred Stock so called for redemption have not
been surrendered, all rights with respect to such shares shall forthwith
after the Redemption Date cease, except only the right of the holders to
receive the Series B Preferential Amount without interest upon surrender
of their certificates therefor.
(g) Redemption Pro Rata. In the event that fewer than all
of the outstanding shares of Series B Redeemable Preferred Stock are to
be redeemed, such shares to be redeemed shall be redeemed pro rata among
all holders thereof in accordance with the number of shares of Series B
Redeemable Preferred Stock owned.
(h) No Reissuance of Series B Redeemable Preferred Stock. No
Series B Redeemable Preferred acquired by the Company by reason of
redemption, purchase, or otherwise will be reissued, and all such shares
will be canceled, retired and eliminated from the shares that the
Company will be authorized to issue.
(i) Priority of Series B Redeemable Preferred Stock. Each
share of Junior Stock (including the Series A Convertible Preferred
Stock and Common Stock) shall rank junior to each share Series B
Redeemable Preferred Stock of with respect to the payment of
redemptions, purchases or other acquisitions of shares of stock and no
monies shall be paid into or set aside or made available for a sinking
fund for such redemptions, purchases or other acquisitions until and
<PAGE>
unless the Series B Preferential Amount has been paid in full in
connection with the redemption of all issued and outstanding Series B
Redeemable Preferred Stock.
C. Restrictive and General Provisions
1. Protective Provisions. Notwithstanding paragraph B.4 of this
Section 4.2, except as otherwise required by law, so long as any Preferred
Stock remains outstanding (as adjusted, to the extent applicable, for any
combinations, consolidations, recapitalizations, reorganizations,
reclassifications, stock distributions, stock splits, stock dividends other
than Series A PIK Dividends and Series B PIK Dividends, if any, and the like),
the Corporation shall not, without the vote or written consent by the holders
of at least 2/3 (two-thirds) of the outstanding shares of Preferred Stock
(voting as one class):
(a) take any action that adversely alters or changes the
rights, preferences or privileges of the Preferred Stock as set forth in
this Amendment;
(b) increase or decrease the total number of authorized shares
of the preferred stock of the Corporation or the total number of such
shares of Preferred Stock designated as Series A Convertible Preferred
Stock and Series B Redeemable Preferred Stock;
(c) authorize or make any Restricted Payment except
repurchases of stock in accordance with the permissions granted in the
Note Purchase Agreement dated as February 28, 1997 among the Company,
SHC Acquisition Corp., and other parties named therein (as the same may
be amended, modified or supplemented from time to time);
(d) create or authorize any class or series of Capital Stock
ranking prior to or pari passu with the Series B Redeemable Preferred
Stock with respect of the payment of dividends or the distribution of
assets upon a Liquidation, or create or authorize any rights, options or
warrants exercisable for, or securities convertible into or exchangeable
for, shares of any such class or series of Capital Stock;
(e) except for Permitted Stock (as defined below), authorize
the issuance of the Corporation's equity securities at a price per share
of less than any of (i) the Series B Initial Purchase Price Per Share,
(ii) the Series A Initial Purchase Price Per Share or (iii) the Average
Price 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
(f) 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
<PAGE>
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 of the
Preferred stock.
For purposes of clause (e) above, "Permitted Stock" means Common Stock or
options or warrants to acquire Common Stock, constituting, in the aggregate,
of 2,000,000 shares or less of such stock as of February 28, 1997, issued or
reserved for issuance to present and future key management and directors of
the Corporation pursuant to a stock incentive program approved or to be
approved by the Board of Directors.
2. Common Stock Dividends. Subject to compliance with paragraph
A.2(a) and B.2 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. Voting of Common Stock Holders. Except as otherwise required
by law or as hereinafter provided, the Common Stock shall have one vote per
share.
4. No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, 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 4.2 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 and
other rights of the Preferred Stock set forth herein against impairment.
5. Communications; Other Notices. Any notice or communication
("Notice" required by the provisions of this Section 4.2 to be given to the
holders of shares of the Preferred Stock shall be deemed given upon confirmed
transmission by facsimile or telecopy or five (5) 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, than any notice to such
shareholder hereunder shall be deemed given upon confirmed transmission by
facsimile or telecopy or seven (7) 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.
6. Notice 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
<PAGE>
of any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date (including the Series A PIK Record Date or the Series B Record 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.
7. General Priority. Except as provided in paragraph A.3 of this
Section 4.2, Series B Redeemable Preferred Stock shall rank senior to all
other Capital Stock.
D. Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph D 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).
"Average Price" shall mean the average of the closing prices of the
Common Stock over a period of thirty (30) 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 on which banking institutions in Florida generally are not open for
business.
"Capital Stock" shall mean any and all shares, interests and
participations or other equivalents (however designated) of capital stock of
the Corporation, and includes all Common Stock and Preferred Stock.
"Junior Stock: shall mean Common Stock and any other class or series of
capital stock of the Corporation which ranks junior to the Series B Redeemable
capital stock of the Corporation which ranks junior to the Series B Redeemable
Preferred Stock with respect to the payment of dividends or the distribution
of assets upon a Liquidation.
"Liquidation" shall mean any liquidation, dissolution or winding up of
the affairs of the Corporation (voluntary or involuntary).
"Preferred Stock" shall mean, collectively, the Series A Convertible
Preferred Stock and the Series B Redeemable Preferred Stock.
"Redemption Notice" shall mean a notice in writing, to be sent by the
Company not less than seven (7) days nor more than fourteen (14) days prior to
the date fixed for any redemption pursuant to paragraph A.6 or B.5(a) of this
Section 4.2, with postage prepaid, return receipt requested, to each holder of
shares of record of Series A Convertible Preferred Stock and/or Series B
Redeemable Preferred Stock to be redeemed, as the case may be, at such
holder's address last shown on the records of the Company. Such notice shall
state:
<PAGE>
(1) The total number of shares of Series A Convertible
Preferred Stock and/or Series B Redeemable Preferred Stock, as the case
may be, that the Company intends to redeem;
(2) The number of shares of Series A Convertible Preferred
Stock and/or Series B Redeemable Preferred Stock, as the case may be,
held by the holder thereof that the Company intends to redeem;
(3) The Redemption Date of the Series A Convertible Preferred
Stock and/or Series B Redeemable Preferred Stock, as the case may be,
and the Series A Preferential Amount and Series B Preferential Amount,
as the case may be; and
(4) The time, place and manner in which the holder is to
surrender to the Company the certificate or certificates representing
the shares of Series A Convertible Preferred Stock and/or Series B
Redeemable Preferred Stock to be redeemed, as the case may be.
"Restricted Payment" means any purchase, redemption, retirement or other
acquisition for value by the Corporation of its Capital Stock, except as
expressly permitted in this Amendment.
"Series A 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,
prorated for any partial year.
"Series A Initial Issue Date" shall mean May 16, 1996, which is the date
that shares of Series A Convertible Preferred Stock were first issued by the
Corporation.
"Series A PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in paragraph A.2 of this Section 4.2.
"Series A PIK Dividend Payment Date" shall mean the first day of each
January in each year during the Series A PIK Dividend Payment Period.
"Series A 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.
"Series A PIK Dividend Period" shall mean the period from and including,
the Initial Issue Date to, but not including, the first Series A PIK Dividend
Payment Date and thereafter, each annual period, including any Series A PIK
Dividend Payment Date to, but not including, the next Series A PIK Dividend
Payment Date.
<PAGE>
"Series A PIK Record Date" shall mean the date that is fifteen (15)
Business Days prior to any Series A PIK Dividend Payment Date.
"Series A Preferential Amount" shall mean, with respect to each share of
Series A Convertible Preferred Stock outstanding (including shares issued or
accrued as Series A PIK Dividends), the amount equal to the Series A 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 Series A PIK Dividends), and no more.
"Series B Dividend Amount" shall mean, (i) with respect to Series B PIK
Dividends, a fraction of one share of Series B Redeemable Preferred Stock
equal to eight percent (I.0%) per annum of one share of the Series B
Redeemable Preferred Stock prorated for any partial year, and (ii) with
respect to Series B Redeemable Preferred Stock cash dividends, a cash amount
equal to eight percent (8.0%) per annum of the Series B Initial Purchase Price
Per Share of all issued and outstanding shares of the Series B Redeemable
Preferred Stock, in each case computed on the basis of the actual days elapsed
in a year 360 days and cumulated quarterly.
"Series B Dividend Payment Date" shall mean the first day of each
January, March, June and September in each year during the Series B Dividend
Payment Period, commencing March 1, 1997.
"Series B Dividend Payment Period" shall mean the period from, and
including, the Initial Issue Date of such series to, but not including, the
date all the outstanding Series B Redeemable Preferred Stock is redeemed and
the redemption price is paid in full pursuant to paragraph B.6 of this Section
4.2.
"Series B Dividend Period" shall mean the period from and including, the
Series B Initial Issue Date of such series to, but not including, the first
Dividend Payment Date and thereafter, each calendar quarter period, including
any Series B Dividend Payment Date to, but not including, the next Series B
Dividend Payment Date.
"Series B Initial Issue Date" shall mean the date that shares of Series B
Redeemable Preferred Stock are first issued by the Corporation.
"Series B Initial Purchase Price Per Share" shall mean $200 per share of
Series B Redeemable Preferred stock.
"Series B PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in paragraph B.2 of this Section 4.2.
"Series B Record Date" shall mean the date that is fifteen (15) Business
Days prior to any Dividend Payment Date.
<PAGE>
"Series B Preferential Amount" shall mean, with respect to each share of
Series B Redeemable Preferred Stock outstanding (including shares issued or
accrued as PIK Dividends), the amount equal to the Series B Initial Purchase
Price Per Share plus all accrued but unpaid dividends thereon (excluding
Series B PIK Dividends).
<PAGE>
