SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Jotan, Inc.
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
481093 10 2
(CUSIP Number)
James D. Lumsden
F-Jotan, L.L.C.
702 Oberlin Road, Suite 150, Raleigh, North Carolina 27605
(919) 743-2525
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 4, 1997
(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 _____.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE>
1 NAME OF REPORTING PERSONS F-Jotan, L.L.C.
S.S. OR I.R.S. IDENTIFICATION
NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) X
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) _____
6 CITIZENSHIP OR PLACE OF ORGANIZATION North Carolina
NUMBER OF 7 SOLE VOTING POWER 2,658,714
SHARES
BENEFICIALLY 8 SHARED VOTING POWER 18,819,705
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 2,658,714
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER 18,819,705
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED 18,819,705
BY EACH REPORTING PERSON
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 79.9%
14 TYPE OF REPORTING PERSON OO*
* Limited Liability Company.
<PAGE>
1 NAME OF REPORTING PERSONS F-Southland, L.L.C.
S.S. OR I.R.S. IDENTIFICATION
NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) X
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ____
6 CITIZENSHIP OR PLACE OF ORGANIZATION North Carolina
NUMBER OF 7 SOLE VOTING POWER 1,557,031
SHARES
BENEFICIALLY 8 SHARED VOTING POWER 18,819,705
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 1,557,031
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER 18,819,705
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 18,819,705
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 79.9%
14 TYPE OF REPORTING PERSON OO*
*Limited liability company.
<PAGE>
1 NAME OF REPORTING PERSONS FF-Southland, L.P.
S.S. OR I.R.S. IDENTIFICATION
NO. OF ABOVE PERSONS
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) X
(b)
3 SEC USE ONLY
4 SOURCE OF FUNDS WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ____
6 CITIZENSHIP OR PLACE OF ORGANIZATION North Carolina
NUMBER OF 7 SOLE VOTING POWER 1,557,031
SHARES
BENEFICIALLY 8 SHARED VOTING POWER 18,819,705
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 1,557,031
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER 18,819,705
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 18,819,705
12 CHECK BOX IF THE AGGREGATE AMOUNT IN
ROW (11) EXCLUDES CERTAIN SHARES
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 79.9%
14 TYPE OF REPORTING PERSON PN
Item 1. Security and Issuer.
This Statement relates to the Common Stock, as described above. The
principal executive offices of the Issuer are located at 118 West Adams
Street, Jacksonville, Florida 32201.
Item 2. Identity and Background.
(a)-(c) and (f) The name, state of organization, principal business,
address of principal business, and address of the principal office of the
Reporting Persons are as follows:
Name: F-Jotan, L.L.C. ("FJ"); F-Southland, L.P. ("FS"); and
FF-Southland, L.L.C. ("FFS")
State of Organization: North Carolina
Principal Business: Investments
Address of
Principal Business: 702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Address of
Principal Office: 702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
<PAGE>
(d) and (e) During the last five (5) years, none of the Reporting
Persons has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), and neither has been a party to any civil
proceeding of a judicial or administrative body of competent jurisdiction as a
result of which such Reporting Person was or is subject to a judgment, decree
or final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Enumerated Persons:
Franklin Street Fairview Capital, L.L.C., a North Carolina limited liability
company, is the manager of FJ and FS, and is engaged in the principal business
of serving as their manager and providing management and consulting services to
FJ, FS and other entities. Franklin Capital, L.L.C., a North Carolina limited
liability company, is the manager of FSFC Associates, L.P., and is engaged in
the principal business of being FSFC Associates, L.P.'s general partner and
providing management and consulting services to FSFC Associates, L.P. and other
entities. FSFC Associates, L.P., a North Carolina limited partnership, is
the general partner of FFS, and is engaged in the principal business of
being FFS's general partner and providing management and consulting services
to FSFC. The principal offices of all of these entities are located at 702
Oberlin Road, Suite 150, Raleigh, North Carolina 27605. Other than the
entities listed in this paragraph there are no other persons for whom
information is required to be given by General Instruction C to Schedule 13D.
The managers of Franklin Capital, L.L.C. and Franklin Street Fairview
Capital, L.L.C. are: Jeremiah M. Callahan, Thomas F. Darden, II and
James D. Lumsden.
The address of each of the enumerated managers is the principal offices of the
Reporting Persons.
The principal employment, name of employer and principal business of each of
the enumerated managers is as follows: Messrs. Callahan and Lumsden are
employed in the capacities described above; and Mr. Darden is Chairman of
Cherokee Industries, a privately held Raleigh-based company which specializes
in acquiring and operating industrial companies.
None for any of the enumerated persons.
None for any of the enumerated persons.
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.
The source of funds used in making the purchases was
the working capital of each of the Entity Reporting Persons raised through
capital contributions by its members.
Item 4. Purpose of Transaction.
On March 4, 1997, the Issuer, Rice Partners, II, L.P. ("Rice"),
FS, FFS, FJ, Shea Ralph ("Ralph") and David Freedman ("Freedman") entered into
a Preferred Stock and Warrant Purchase Agreement (the "Preferred Stock
Agreement"), pursuant to which Rice purchased 40,000 shares of the Issuer's
Series B Redeemable Preferred Stock ("Series B Preferred Stock") for a
purchase price of $8 million and was issued warrants (the "Rice Warrants")
to acquire 12,096,929 shares of Common Stock of the Issuer, FS purchased 5,000
shares of Series B Preferred Stock for a purchase price of $1 million and was
issued warrants (the "FS Warrants") to acquire 1,557,031 shares of Common
Stock of the Issuer and FFS purchased 5,000 shares of Series B Preferred Stock
for a purchase price of $1 million and was issued warrants (the "FFS Warrants")
to acquire 1,557,031 shares of Common Stock of the Issuer. The Rice Warrants,
the FS Warrants and the FFS Warrants are together referred to herein as the
"Warrants." The Preferred Stock Agreement 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.
Also on March 4, 1997, the Issuer, Rice, FS and FFS entered into a Note Purchase
Agreement (the "Note Purchase Agreement") pursuant to which Rice purchased
Senior Subordinated Notes in an aggregate principal amount of $7 million, FS
purchased Senior Subordinated Notes in an aggregate principal amount of $1
million and FFS purchased Senior Subordinated Notes in an aggregate principal
amount of $1 million.
The Warrants provide that the aggregate exercise price for all of the Common
Stock issuable thereunder will not exceed $200 as to any of Rice, FS or
FFS, 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 Shareholder Agreement (the
"Shareholder Agreement") 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 FS and FFS to serve as a director of the Issuer. The
Shareholder Agreement is attached hereto as Exhibit 2.
Pursuant to the rights described above, as of the closing of the Preferred Stock
Agreement and the Note Purchase Agreement, the size of the board of directors
was set at five, and three persons designated by Rice, Phillip A. Davidson,
Jeffrey P. Sangalis and James P. Wilson were elected to serve as directors of
the Issuer. The remaining two directors are Jeremiah M. Callahan, an individual
affiliated with FS, FFS and FJ, and Ralph, both of whom were serving as
directors at the time of closing.
The above transactions facilitated the completion by the Issuer of a $12 million
senior revolving credit facility and $27 million in senior term/acquisition
facilities (the "Senior Credit Facilities"). A portion of these funds, together
with funds received pursuant to the Note Purchase Agreement and the Preferred
Stock Agreement, were applied at closing to consummate the purchase by the
Issuer of all issued and outstanding shares of common stock of Southland
Holding Company ("SHC"), for an aggregate purchase price of approximately
$27.5 million, and the payment to the selling shareholders of non-competition
payments in the amount of approximately $6.5 million (the "Southland
Acquisition").
Each of FJ, FS and FFS is engaged in the principal business of acquiring and
holding securities for investment purposes. The above transactions were
entered into by them for investment purposes in order to facilitate the
financing of the Southland Acquisition and to provide the Issuer with
sufficient capital to pursue additional possible acquisitions in the future.
The described transactions have provided the Reporting Persons with control of
the Issuer by virtue of their right to acquire, along with Rice, upon exercise
of their 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, the Reporting Persons have 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 delisted from a national
securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
(i) 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 Preferred Stock
Agreement and the agreement contained in the 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 group, or as a reporting person, because he
does not at this time own beneficially any voting securities of the Issuer,
but does hold certain incentive stock options that may become exercisable in
the future. Each of Rice, Ralph, FS, FFS and FJ disclaims beneficial ownership
of the Warrants and all other 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 Preferred Stock Agreement and
the Shareholder Agreement as described above.
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 that would be issuable to FJ upon conversation of its shares of
Series A Convertible Preferred Stock of the Issuer.
Rice Partners II, L.P. (Rice Warrants) Shares of Common Stock
(a) Beneficial Ownership: 18,819,705 (1)
Percentage Ownership: 79.9% (2)
(b) Sole Voting Power: 12,096,929
Shared Voting Power: 18,819,705
Sole Disposition Power: 12,096,929
Shared Disposition Power: 18,819,705
F-Jotan (Series A Convertible Preferred Stock) Shares of Common Stock
(a) Beneficial Ownership: 18,819,705
Percentage Ownership: 79.9%
(b) Sole Voting Power: 2,658,714
Shared Voting Power: 18,819,705
Sole Disposition Power: 2,658,714
Shared Disposition Power: 18,819,705
F-Southland, L.L.C. (FS Warrants) Shares of Common Stock
(a) Beneficial Ownership: 18,819,705
Percentage Ownership: 79.9%
(b) Sole Voting Power: 1,557,031
Shared Voting Power: 18,819,705
Sole Disposition Power: 1,557,031
Shared Disposition Power: 18,819,705
FF-Southland, L.L.C. (FFS Warrants) Shares of Common Stock
(a) Beneficial Ownership: 18,819,705
Percentage Ownership: 79.9%
(b) Sole Voting Power: 1,557,031
Shared Voting Power: 18,819,705
Sole Disposition Power: 1,557,031
Shared Disposition Power: 18,819,705
Shea Ralph (Common Stock) Shares of Common Stock
(a) Beneficial Ownership: 18,819,705
Percentage Ownership: 79.9%
(b) Sole Voting Power: 950,000
Shared Voting Power: 18,819,705
Sole Disposition Power: 950,000
Shared Disposition Power: 18,819,705
(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; 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
the Reporting Persons during the sixty days preceding the date of this
filing except as described above at Item 4.
(d) None.
(e) Not applicable.
<PAGE>
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:
(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 or 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
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,
(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 Issuers' 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 that fair market value will be applicable only if there is an active
market at the specified level for the Issuer's Common Stock),
(vi) 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,
(vii) 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
(viii) 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 issuances 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 relationship (legal or otherwise) among the
persons named in Item 2 and 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, put 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. Preferred Stock and Warrant Purchase Agreement dated as of February 28, 1997,
by and between the Issuer, Rice, FS, FFS, FJ, Ralph and Freedman and the related
form of Warrant.
2. Shareholder Agreement dated as of February 28, 1997, by and between the
Issuer, Rice, FS, FFS, FJ, Ralph and Freedman.
3. Articles of Amendment to Restated Articles of Incorporation of Jotan, Inc.
[The next page is the signature page.]
<PAGE>
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: March 14, 1997
F-JOTAN, L.L.C.
By: /s/ James D. Lumsden
James D. Lumsden, Manager
F-Southland, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.
By: /s/ James D. Lumsden
James D. Lumsden, Manager
FF-Southland, L.P.
By: FSFC Associates, L.P.
By: Franklin Capital, L.L.C.
By: /s/ James D. Lumsden
James D. Lumsden, Manager
<PAGE>
WARRANT PURCHASE AGREEMENT
Jotan, Inc.
the "Company"
--------------------
the "Shareholder"
and
Rice Partners II, L.P.
the "Purchaser"
[*], 199[*]
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Article I Definitions................................................................................
Article II The Warrant.......................................................................
2.01 The Warrant.......................................................................
2.02 Legend............................................................................
2.03 Exercise Price....................................................................
2.04 Exercise..........................................................................
2.05 Taxes.............................................................................
2.06 Warrant Register..................................................................
2.07 Transfer and Exchange.............................................................
2.08 Adjustments to Number of Warrant
Shares Purchasable............................................................
2.09 Lost, Stolen, Mutilated, or
Destroyed Warrants............................................................
2.10 Stock Legend......................................................................
Article III Representations and Warranties....................................................
3.01 Representations and Warranties of the
Company [and the Shareholder].................................................
3.02 Representations and Warranties of the
Purchaser.....................................................................
Article IV Covenants.........................................................................
4.01 Financial Statements..............................................................
4.02 Laws..............................................................................
4.03 Inspection........................................................................
4.04 Certain Actions...................................................................
4.05 Records...........................................................................
4.06 Accountants.......................................................................
4.07 Existence.........................................................................
4.08 Notice............................................................................
4.09 Taxes.............................................................................
4.10 Warrant Rights....................................................................
[4.11 Financial Covenants]..........................................................
i
<PAGE>
Page
Article V Conditions.................................................................................
5.01 Opinion...........................................................................
5.02 Note Agreement Conditions.........................................................
5.03 Material Change...................................................................
5.04 Shareholder Agreement.............................................................
5.05 Representations and Agreements....................................................
5.06 Proceedings; Consents.............................................................
Article VI Miscellaneous.....................................................................
6.01 Indemnification...................................................................
6.02 Default...........................................................................
6.03 Integration.......................................................................
6.04 Headings..........................................................................
6.05 Severability......................................................................
6.06 Notices...........................................................................
6.07 Successors........................................................................
6.08 Remedies..........................................................................
6.09 Survivors.........................................................................
6.10 Fees..............................................................................
6.11 Counterparts......................................................................
6.12 Other Business....................................................................
6.13 Choice of Law.....................................................................
6.14 Duties Among Holders..............................................................
ANNEX A Form of Shareholder Agreement
ANNEX B Form of Warrant
ii
<PAGE>
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") made as of February 28, 1997, by and among JOTAN, INC., a Florida
corporation (the "Company"), RICE PARTNERS II, L.P., a Delaware limited
partnership ("Rice"), 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",
which, together with Rice are individually and collectively, as the context
requires, referred to herein as the "Purchaser"), 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, 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, which is the owner of the 1,329,357 shares of the
Series A Preferred Stock of the Company as of the date hereof, will acquire
certain rights and benefits herein and in the Shareholder Agreement in
consideration of terminating certain of its existing contractual rights in
respect of the Company as more fully described in Section 11.18 of the
Shareholder Agreement;
WHEREAS, the Company has entered into a Note Purchase Agreement (the
"Note Agreement") dated of even date with this Agreement with each Purchaser;
WHEREAS, the Company and the Shareholder have entered into a
Shareholder Agreement (the "Shareholder Agreement") dated of even date with this
Agreement with each Purchaser and F-Jotan; and
WHEREAS, each Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company, F-Jotan and each Shareholder enter into, and perform under, this
Agreement and the Shareholder 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,
F-Jotan, the Shareholder, and the Company, intending to be legally bound, agree
as follows:
Page 1
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
Additional Securities. This term is defined in Section
2.08(a)(iv).
Adjustment Event. Any event in which (a) the Company issues
any shares of Capital Stock in an Adjustment Public Offering for
consideration per share that exceeds the amount received per share by
any Holder in connection with the exercise of the Call Option with
respect to such Holder; (b) any Person acquires Capital Stock in
connection with the acquisition of the beneficial ownership of more
than fifty percent (50%) of the voting securities of the Company, or
acquires Capital Stock and the right to elect a majority of the members
of the Company's board of directors for a consideration per share or
unit that exceeds the amount received per share by any such Holder in
connection with the exercise of such Call Option; (c) the Company sells
all or a majority of its assets or revenue or income generating
capacity for such amount of consideration that, if the Company were
liquidated on the date that such sale is consummated, the holders of
any class of Capital Stock would receive per share distributions
exceeding the amount received per share by any such Holder in
connection with the exercise of such Call Option; or (d) the Company
participates in any merger, consolidation, reorganization, share
exchange, recapitalization, or similar transaction or series of related
transactions involving a change of control of the Company or
disposition of all or a majority of its assets or revenue or income
generating capacity, directly or indirectly, in which the holders of
any class of Capital Stock receive per share consideration for, or
distributions with respect to, their shares in an amount that exceeds
the amount received per share by such Holder in connection with the
exercise of such Call Option.
Adjustment Public Offering. Each public offering of shares of
any class of Capital Stock pursuant to a registration statement filed
with the Commission.
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with, such Person; (b) any
Person of which such Person or such Person's spouse is an officer,
director, security holder, partner, or, in the case of a trust, the
beneficiary or trustee, and (c) any Person that is an officer,
director, security holder, partner, or, in the case of a trust, the
beneficiary or trustee of such Person. The term "control" as used with
respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Page 2
<PAGE>
Appraised Value. The value determined in accordance with the
following procedures. For a period of thirty (30) days after the date
of a Valuation Event (the "Negotiation Period"), each party to this
Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date
of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. In the
event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period,
then the Appraised Value of such securities or property will be
determined for purposes of this Agreement by an Appraiser. An
"Appraiser" shall be a recognized appraisal or investment firm with
experience in making determinations of value of the type required to be
made under this definition. If the Holders and the Company cannot agree
on an Appraiser within thirty (30) days after the end of the
Negotiation Period, the Company, on the one hand, and the Holders, on
the other hand, shall each select an Appraiser within forty (40) days
after the end of the Negotiation Period and those two Appraisers shall
select within fifty (50) days after the end of the Negotiation Period
an independent Appraiser to determine the fair market value of such
securities or property, without premium for control or discount for
minority interests. Such independent Appraiser shall be directed to
determine fair market value of such securities or property as soon as
practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by an Appraiser of the fair market
value will be conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when (i) the
Company is not a reporting company under the Exchange Act and (ii) the
Common Stock is not traded in the organized securities markets, will,
in all cases, be calculated by determining the Appraised Value of the
entire Company taken as a whole (plus the exercise price of all
options, warrants and other rights to acquire Capital Stock of the
Company having an exercise price per share less than the Fair Market
Value of such Capital Stock) and dividing that value by the sum of (x)
the number of shares of Common Stock then outstanding plus (y) the
number of shares of Common Stock Equivalents, without premium for
control or discount for minority interests, illiquidity, or
restrictions on transfer. The costs of the Appraiser or Appraisers will
be borne by the Company. In no event will the Appraised Value of the
Common Stock or Other Securities be less than the per share
consideration received or receivable with respect to the Common Stock
or securities or property of the same class as the Other Securities, as
the case may be, in connection with a pending transaction involving a
sale, merger, recapitalization, reorganization, consolidation, share
exchange, dissolution of the Company, sale or transfer of all or a
majority of its assets or revenue or income generating capacity, or
similar transaction. The prevailing market prices for any security or
property will not be dispositive of the Appraised Value thereof.
Appraiser. This term is defined in the definition of
Appraised Value.
Average Market Value. The average of the Closing Prices for
the security in question
Page 3
<PAGE>
for the thirty (30) trading days immediately preceding the date of
determination.
Book Value. With respect to shares of Common Stock, an amount
equal to the quotient determined by dividing (a) the sum of (x) the
total consolidated assets of the Company shown on the most recent
regularly prepared consolidated balance sheet of the Company prior to
the date of the Valuation Event in question minus (y) the total
consolidated liabilities of the Company as shown on the most recent
regularly prepared consolidated balance sheet of the Company prior to
the date of the Valuation Event by (b) the aggregate number of shares
of Common Stock and Common Stock Equivalents as of the date of the
Valuation Event. For the purposes of this Agreement, the Book Value of
the shares of Common Stock will be determined by the independent
certified public accountants then retained by the Company as described
in Section 4.06.
Buyer. This term is defined in Section 6.02(a)(ii) of the
Shareholder Agreement.
Call Option. This term is defined in Section 5.01 of the
Shareholder Agreement.
Call Option Closing. This term is defined in Section 5.04 of
the Shareholder Agreement.
Call Option Period. This term is defined in Section 5.01 of
the Shareholder Agreement.
Capital Stock. As to any Person, its common stock and any
other capital stock of such Person authorized from time to time, and
any other shares, options, interests, participations, or other
equivalents (however designated) of or in such Person, whether voting
or nonvoting, including, without limitation, common stock, options,
warrants, preferred stock (including the Series A Preferred Stock),
phantom stock, stock appreciation rights, convertible notes or
debentures, stock purchase rights, and all agreements, instruments,
documents, and securities convertible, exercisable, or exchangeable, in
whole or in part, into any one or more of the foregoing.
Certificate. This term is defined in Section 2.01(a)(iii).
Closing Date. As of March 4, 1997.
Page 4
<PAGE>
Closing Price.
(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System
-- National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for such day,
or, if there has not been a sale on such trading day, the highest
closing or last bid quotation therefor on such trading day (excluding,
in any case, any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid
or asked quotation by disinterested Persons in the over-the-counter
market on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate from time to time.
Common Stock. The common stock, $0.01 par value, of the
Company.
Common Stock Equivalent. Any option, warrant, right, or
similar security exercisable into, exchangeable for, or convertible to
Common Stock.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Company. Jotan, Inc. and any successor or assign, and, unless
the context requires otherwise, the term Company includes any
Subsidiary.
Co-Sell Shares. This term is defined in Section 6.02(d) of
the Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the
Shareholder Agreement.
Dilution Fee. This term is defined in Article III of the
Shareholder Agreement.
Election Notice. This term is defined in Section 6.02(b) of
the Shareholder Agreement.
Employment Agreements. This term is defined in Section 11.1
of the Note Agreement.
Excess Consideration. The amount that a Holder would have
realized following the Adjustment Event had the Call Option not been
exercised by the Company until such time, minus the amount that such
Holder realized due to the exercise of the Call Option; provided,
however, that the amount of Excess Consideration will in all events be
deemed
Page 5
<PAGE>
to be at least zero.
Exchange Act. The Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12
of the Shareholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03
as adjusted from time to time pursuant to the provisions of this
Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities not regularly traded in the
securities markets and other property, the fair market value of such
securities or property as determined in good faith by disinterested
members of the Board of Directors of the Company at the time it
authorizes the transaction (a "Valuation Event") requiring a
determination of Fair Market Value under this Agreement; provided,
however, that, at the election of the Holders or if there are no
disinterested members of the Board of Directors of the Company, the
Fair Market Value of such securities and other property will be the
Appraised Value.
Holders. Each Purchaser, and all other Persons holding
Registrable Securities so long as such Purchasers or other Person holds
Registrable Securities, except that none of the Company, F-Jotan, any
Shareholder or any Affiliate of the Company, F-Jotan (other than the
Southland Purchasers) or the Shareholder will at any time be a Holder.
Unless otherwise provided in this Agreement, in each instance that any
Purchaser is required to request or consent to or otherwise approve an
action, such Purchaser will be deemed to have requested or consented to
or otherwise approved such action if the Holders of a
majority-in-interest of the Registrable Securities initially issued to
the Southland Purchasers and Rice on the date hereof so request,
consent or otherwise approve.
Indemnified Party. This term is defined in Section 6.01
hereof and in Section 11.01 of the Shareholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of such
Purchaser to which any of the Warrants or any part of or interest in
the Warrants is assigned.
Page 6
<PAGE>
Intellectual Property. This term is defined in Section 3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Negotiation Period. This term is defined in the definition of
Fair Market Value. New Securities. Any Capital Stock other than Warrant
Shares and other than the Permitted Stock.
Notes. All or any portion of any of the Senior Subordinated
Notes (as defined in the Note Agreement) and any and all documents
evidencing the indebtedness under the Notes and any refinancing,
refunding, or replacement of the Notes.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this Agreement
among the Company and each Purchaser and all documents evidencing
indebtedness thereunder or otherwise related to the Note Agreement as
the same may be amended from time to time, and any refinancing,
refunding, or replacements of the indebtedness under the Note
Agreement.
Notice of Sale. This term is defined in Section 6.02(a) of
the Shareholder Agreement.
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the Holders
become entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to
acquire Common Stock, constituting, in the aggregate, 2,000,000 shares
or less of the outstanding Common Stock issued or reserved for issuance
to present and future key management and directors of the Company
pursuant to a stock incentive program approved or to be approved by the
board of directors.
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company,
institution, entity, party, or government (whether national, federal,
state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body, or department
of any of the foregoing).
Preferred Shares. This term is defined in Section 2.01.
Page 7
<PAGE>
Preferred Stock. This term means collectively, Series A
Preferred Stock and Series B Preferred Stock.
Purchase Agreement. This term is defined in the preamble to
the Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the
Shareholder Agreement.
Put Option Closing. This term is defined in Section 4.05 of
the Shareholder Agreement.
Put Option Period. This term is defined in Section 4.01 of
the Shareholder Agreement.
Put Price. This term is defined in Section 4.02 of the
Shareholder Agreement.
Put Shares. The Warrant Shares plus any other shares of Capital Stock
owned from time to time by a Holder which were issued in respect of the
Warrant Shares.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
Registrable Securities. (a) The Issuable Warrant Shares, (b)
the Issued Warrant Shares and (c) the Preferred Shares that have not
been previously sold to the public.
Related Party. An entity wholly owned by a Selling
Shareholder or one or more Related Parties.
Selling Shareholder. This term is defined in Section 6.02 of
the Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Senior Lenders. This term is defined in Section 11.1 of the
Note Agreement.
Series A Preferred Stock. Series A Convertible Preferred
Stock, $0.01 par value, of the Company having the rights, restrictions,
privileges and preferences of the series of preferred stock designated
as "Series A Convertible Preferred Stock" set forth in the Certificate.
Page 8
<PAGE>
Senior Loan Agreement. This term is defined in Section 11.1
of the Note Agreement.
Series B Preferred Stock. Series B Preferred Stock, $0.01 par
value, of the Company having the rights, restrictions, privileges and
preferences of the series of preferred stock designated as "Series B
Preferred Stock" set forth in the Certificate.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble
and includes the Shareholder Agreement dated as of February 28, 1997
between the Company, the Shareholder, F-Jotan and the Purchaser in
substantially the form attached to this Agreement as Annex A and
incorporated in this Agreement by reference.
Senior Subordination Agreement. This term is defined in
Section 11.1 of the Note Agreement.
Subsidiary. Each Person of which or in which the Company or
its other Subsidiaries own directly or indirectly fifty percent (50%)
or more of (i) the combined voting power of all classes of stock having
general voting power under ordinary circumstances to elect a majority
of the board of directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or profits
interest of such Person, if it is a partnership, joint venture, or
similar entity; or (iii) the beneficial interest of such Person, if it
is a trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of
Fair Market Value.
Warrant A-1. Warrant A-1 referred to in Section 2.01(a)(i),
dated as of February 28, 1997, issued to Rice, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
A-1.
Warrant A-2. Warrant A-2 referred to in Section 2.01(a)(ii),
dated as of February 28, 1997, issued to Rice, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
A-2.
Warrant B-1. Warrant B-1 referred to in Section 2.01(b)(i),
dated as of February 28, 1997, issued to F-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant B-1.
Warrant B-2. Warrant B-2 referred to in Section 2.01(b)(ii),
dated as of February 28, 1997, issued to F-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant B-2.
Warrant C-1. Warrant C-1 referred to in Section 2.01(c)(i),
dated as of February 28,
Page 9
<PAGE>
1997, issued to FF-Southland, and all Warrant issued upon the transfer
or division of, or in substitution for, such Warrant C-1.
Warrant C-2. Warrant C-2 referred to in Section 2.01(c)(ii),
dated as of February 28, 1997, issued to FF-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant C-2.
Warrants. Collectively, Warrant A-1, Warrant A-2, Warrant B-1,
Warrant B-2, Warrant C-1, Warrant C-2 and all Warrants issued upon the
transfer or the division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable
Warrant Shares.
ARTICLE II
THE WARRANTS AND THE PREFERRED SHARES
2.01 The Warrants and the Preferred Shares.
(a) 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:
(i) a Warrant A-1 (relating to the Notes) 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-1;
(ii) a Warrant A-2 (relating to the Series B Preferred Stock)
in substantially the form attached to this Agreement as Annex C 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
(iii) 40,000 shares of Series B Preferred Stock, at a purchase
price of $8,000,000, having the rights, restrictions, privileges, and
preferences set forth in the articles of amendment of the Company's
articles of incorporation attached to this Agreement as Annex H (the
"Certificate").
(b) On the Closing Date, F-Southland agrees to purchase from the
Company, and the Company agrees to issue to F-Southland, all in accordance with
the terms and conditions of this Agreement:
(i) a Warrant B-1 (relating to the Notes) in substantially the
form attached to
Page 10
<PAGE>
this Agreement as Annex D 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
F-Southland on the signature page of this Agreement for such Warrant
B-1;
(ii) a Warrant B-2 (relating to the Series B Preferred Stock)
in substantially the form attached to this Agreement as Annex E 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 F-Southland on the signature page of this Agreement for
such Warrant B-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
(c) On the Closing Date, the FF-Southland agrees to purchase from the
Company, and the Company agrees to issue to the FF-Southland, all in accordance
with the terms and conditions of this Agreement:
(i) a Warrant C-1 (relating to the Notes) in substantially the
form attached to this Agreement as Annex F 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
F-Southland on the signature page of this Agreement for such Warrant
C-1;
(ii) a Warrant C-2 (relating to the Series B Preferred Stock)
in substantially the form attached to this Agreement as Annex G 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 F-Southland on the signature page of this Agreement for
such Warrant C-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in 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 each of Rice and the
Southland Purchasers a certificate evidencing and representing the shares of
Series B Preferred Stock issued to each such Purchaser, which certificate shall
be issued in such Purchaser's name or in the name of its designee. The shares of
Series B Preferred Stock and Series A Preferred Stock subject to the terms of
this Agreement are sometimes referred to in this Agreement collectively as the
"Preferred Shares."
2.02 Legend. The Company will deliver to the appropriate Purchaser on
the Closing
Page 11
<PAGE>
Date one or more certificates representing each of (i) Warrant A-1,
(ii) Warrant A-2, (iii) Warrant B-1, (iv) Warrant B-2, (v) Warrant C-1, (vi)
Warrant C-2 and (vii) the Series B Preferred Stock, purchased by Rice or the
Southland Purchasers, as the case may be, in such denominations as such
Purchaser requests. Such certificates will be issued in the respective
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 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."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF
1973,' AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
It is further understood and agreed that the certificates evidencing the
Preferred Stock will bear substantially the same as the following legends:
Page 12
<PAGE>
"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 SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF
1973,' AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
"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").
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 will either (i) the aggregate Exercise Price for all of the shares of
Common Stock covered by Warrant A-1 exceed $100.00, (ii) the aggregate Exercise
Price for all of the shares of Common Stock covered by Warrant A-2 exceed
$100.00, (iii) the aggregate Exercise Price for all of the shares of Common
Stock covered by Warrant B-1 exceed $100.00, (iv) the aggregate Exercise Price
for all of the shares of Common Stock covered by Warrant B-2 exceed $100.00, (v)
the aggregate Exercise Price for all of the shares of Common Stock covered by
Warrant C-1 exceed $100.00 or (vi) the aggregate Exercise Price for all of the
shares of Common Stock covered by Warrant C-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.
Page 13
<PAGE>
2.04 Exercise of Warrants.
(a) 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 Closing Date, 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 deliver to the Company at the address designated
by the Company pursuant to Section 6.06, (i) a written notice of such
Holder's election to exercise its Warrant, which notice will specify
the number of Issuable Warrant Shares to be purchased pursuant to such
exercise, (ii) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Issuable Warrant Shares to be
purchased pursuant to such exercise, and (iii) the Warrant. Such notice
will be substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the Company will,
as promptly as practicable, and in any event within ten (10) business
days, execute, or cause to be executed, and deliver to such Holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock and Other Securities issuable upon such
exercise, as provided in this Agreement. The stock certificate or
certificates so delivered will be in such denominations as may be
specified in such notice and will be registered in the name of such
Holder, or, subject to compliance with transfer and
registration requirements under applicable Federal and state securities
laws, such other name as designated in such notice. A Warrant will be
deemed to have been exercised, such certificate or certificates will be
deemed to have been issued, and such Holder or any other Person so
designated or named in such notice will be deemed to have become a
holder of record of such shares for all purposes, as of the date that
such notice, together with payment of the Exercise Price and the
Warrant is received by the Company. If the Warrant has been exercised
in part, the Company will, at the time of delivery of such certificate
of certificates, deliver to such Holder a new Warrant evidencing the
rights of such Holder to purchase the number of Issuable Warrant Shares
with respect to which the Warrant has not been exercised, which new
Warrant will, in all other respects, be identical with the Warrants,
or, at the request of such Holder, appropriate notation may be made on
the original Warrant and the original Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at the option
of the Holder, by (i) company or individual check, certified or
official bank check, (ii) cancellation of any debt owed by the Company
to the Holder, or (iii) cancellation of Warrant Shares, valued at Fair
Market Value. If the Holder surrenders a combination of cash or
cancellation of any debt owed by the Company to the Holder or Warrants,
the Holder will specify the respective number of shares of Common Stock
to be purchased with each form of consideration, and the foregoing
provisions will be applied to each form of consideration with the same
effect as if the Warrant were being separately exercised with respect
to each form of consideration; provided, however, that a Holder may
designate that any cash to be remitted to a Holder in payment of debt
be applied, together with
Page 14
<PAGE>
other monies, to the exercise of the portion of the Warrant being
exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other Securities upon
the exercise of any of the Warrants will be made without charge to any Holder
for any tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Register. The Company will, at all times while any of the Warrants
or Preferred Shares remain outstanding, keep and maintain at its principal
office a register in which the registration, transfer, and exchange of the
Warrants and Preferred Shares will be provided for. The Company will not at any
time, except upon the dissolution, liquidation, or winding up of the Company,
close such register so as to result in preventing or delaying the exercise or
transfer, as the case may be, of any of the Warrants or Preferred Shares.
2.07 Transfer and Exchange. The Warrants, all options and rights under
the Warrants, and the Preferred Shares are transferable, in whole or in part, in
person or by duly authorized attorney, on the books of the Company upon
surrender of the Warrants or the Preferred Shares, as the case may be, at the
principal offices of the Company, together with the form of transfer
authorization attached to the Warrants duly executed or by endorsement of the
certificates representing the Preferred Shares; provided, however, that such
transfers of the Warrants and Preferred Shares will be made only to Persons that
the transferor in good faith believes to be an "accredited investor" as such
term is defined in Regulation D under the Securities Act. Absent any such
transfer and subject to the Shareholder Agreement, the Company may deem and
treat the registered Holders of the Warrants or the Preferred Shares, as the
case may be, at any time as the absolute owners of the Warrants or the Preferred
Shares, as the case may be, for all purposes and will not be affected by any
notice to the contrary. If any of the Warrants or Preferred Shares are
transferred in part, the Company will, at the time of surrender of such Warrant
or Preferred Shares, as the case may be, issue to the transferee a Warrant or a
certificate for Preferred Shares, as the case may be, covering the number of
shares transferred and to the transferor a Warrant or a certificate for
Preferred Shares, as the case may be, covering the number of shares not
transferred. Notwithstanding the foregoing, each Purchaser agrees that it will
not effect a transfer of any of the Warrants to any Person or Affiliate of such
Person engaged in the type of business set forth on Annex I attached hereto and
incorporated herein by reference unless such transfer is made in connection with
a transaction resulting in a change of control of the Company.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of shares
of Common Stock in such manner that, following the complete and full
exercise of the Warrants of each Holder, the amount of Common Stock
issued to all Holders will equal the aggregate number of shares of
Common Stock set forth beneath the name of the Purchaser on the
signature pages of this Agreement, as adjusted, to the extent
necessary, to give effect to the following events:
Page 15
<PAGE>
(i) In case at any time or from time to
time, the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date
fixed for the determination of shareholders eligible to
receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by way of
dividend or distribution; or
(B) consideration (including cash) by way of
spin-off, split-up, reclassification (including any
reclassification in connection with a consolidation
or merger in which the Company is the surviving
corporation), recapitalization, combination of shares
into a smaller number of shares, or similar corporate
restructuring;
other than additional shares of Common Stock issued
as a stock dividend or in a stock-split (adjustments in
respect of which are provided for in Sections 2.08(a)(ii) and
(iii)), then, and in each such case, the Holders, on the
exercise of Warrants, will be entitled to receive for each
share of Common Stock issuable under the Warrants as of the
record date fixed for such distribution, the greatest per
share amount of consideration received by any holder of any
class of Common Stock or Common Stock Equivalent or to which
such Holder is entitled less the amount of any Dilution Fee
actually and irrevocably paid to such Holders. All such
consideration receivable upon exercise of such Warrant with
respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of
determining the amount of consideration to which
such Holder is entitled upon exercise of the Warrant with
respect to any subsequent distribution.
(ii) If at any time there occurs any stock
split, stock dividend or distribution, reverse stock split, or
other subdivision of the Common Stock, then the number of
shares of Common Stock to be received by the Holder of the
Warrant and the Exercise Price, subject to the limitations set
forth in this Agreement, will be proportionately adjusted.
(iii) In case of any reclassification or
change of outstanding shares of any class of Common Stock or
Common Stock Equivalent (other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any consolidation of the Company
with, or merger or share exchange of the Company with or into,
another Person, or in case of any sale of all or a majority of
the property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide
that the Holder of this
Page 16
Warrant will thereafter be entitled to receive the highest per
share kind and amount of consideration received or receivable
(including cash) upon such reclassification, change,
consolidation, merger, share exchange, or sale by any holder
of any class of Common Stock or Common Stock Equivalent that
this Warrant entitles the Holder to receive immediately prior
to such reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section 2.08(a)(i)
and otherwise in this Agreement). Any such successor Person,
which thereafter will be deemed to be the Company for purposes
of the Warrants, will provide for adjustments that are as
nearly equivalent as may be possible to the adjustments
provided for by this Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common Stock
Equivalent at a per unit or share consideration (which
consideration will include the price paid upon issuance plus
the minimum amount of any exercise, conversion, or similar
payment made upon exercise or conversion of any Common Stock
Equivalent) less than the Exercise Price or the then current
Fair Market Value per share of Common Stock immediately prior
to the time such Common Stock or Common Stock Equivalent is
issued or sold (the "Additional Securities"), then:
(A) the Exercise Price will be reduced (but not
increased) to the lower of the prices calculated by:
(I) dividing (x) an amount equal
to the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted
basis immediately prior to such issuance or
sale multiplied by the then existing
Exercise Price plus (2) the aggregate
consideration, if any, received by the
Company upon such issuance or sale, by (y)
the total number of shares of Common Stock
outstanding immediately after such issuance
or sale on a fully diluted basis; and
(II) multiplying the then existing
Exercise Price by a fraction, the numerator
of which is (x) the sum of (1) the number of
shares of Common Stock outstanding on a
fully diluted basis immediately prior to
such issuance or sale, multiplied by the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration
received by the Company upon such issuance
or sale, (y) divided by the total number of
shares of Common Stock outstanding on a
fully diluted basis immediately after such
issuance or sale, and the denominator of
which is the Fair Market Value per share of
Common Stock immediately prior to such
issuance or
Page 17
<PAGE>
sale (for purposes of this subsection (II),
the date as of which the Fair Market
Value per share of Common Stock
will be computed will be the earlier of the
date upon which the Company will (aa) enters
into a firm contract for the issuance of
such shares, or (bb) issues such shares);
and
(B) the number of shares of Common Stock for
which any of the Warrants may be exercised at the
Exercise Price resulting from the adjustment
described in subsection (A) above will be equal to
the product of the number of shares of Common Stock
purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the
numerator of which is the Exercise Price in effect
immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting
from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and
principles of this Agreement, then, in each such case, the
Holders may appoint an independent investment bank or firm of
independent public accountants, which will give its opinion as
to the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Agreement,
necessary to preserve the purchase rights represented by the
Warrants. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holders and
will make the adjustments described in such opinion. The fees
and expenses of such investment bank or independent public
accountants will be borne equally by the Holders and the
Company.
(b) The Company and the Shareholder will not by any action
including, without limitation, amending, or permitting the amendment
of, the charter documents, bylaws, or similar instruments of the
Company or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities, or any other similar voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without limiting the generality
of the foregoing, each of the Company and the Shareholder will (i) take
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock and Other Securities, free and clear of all
liens, encumbrances, equities, and claims and (ii) use its best efforts
to obtain all such authorizations, exemptions, or consents from any
public regulatory body having
Page 18
<PAGE>
jurisdiction as may be necessary to enable the Company to perform its
obligations under the Warrants. Without limiting the generality of the
foregoing, the Company represents and warrants that the board of
directors of the Company has determined the Exercise Price to be
adequate and the issuance of the Warrants to be in the best interests
of the Company.
(c) Any calculation under this Section 2.08 will be made to
the nearest one ten-thousandth of a share and the number of Issuable
Warrant Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock or Other Securities comprising
Issuable Warrant Shares.
(d) The Company will not, and will not permit any Subsidiary
to, issue any Capital Stock other than Common Stock and Common Stock
Equivalents.
2.09 Lost, Stolen, Mutilated, or Destroyed Instruments. If any of the
Warrants or certificates for Preferred Shares are lost, stolen, mutilated, or
destroyed and if the Company receives a lost security affidavit containing an
indemnification from the Holder of such Warrant or Preferred Shares and
containing such other terms and providing for such bonding as may be reasonably
requested by the Company, the Company will issue a new Warrant or certificate
for Preferred Shares, as the case may be, of like denomination, tenor, and date
as the Warrant or certificate for Preferred Shares, as the case may be, so lost,
stolen, mutilated, or destroyed. Any such new Warrant or certificate for
Preferred Shares, as the case may be, will constitute an original obligation of
the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed
Warrant or certificate for Preferred Shares, as the case may be, is at any time
enforceable by any Person.
2.10 Stock Legend. Without limiting the provisions of Section 2.02
hereof, the Warrants, the Warrant Shares and the 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 Warrants, the Warrant Shares or the
Preferred Shares, as the case may be, under the Securities Act or under
applicable state securities laws, the Preferred Shares and, at the time of
exercise of a Warrant, any stock certificate issued pursuant to the exercise of
a 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
Page 19
<PAGE>
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 TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE
AT THE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,'
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
All shares of Capital Stock of the Company subject to the Shareholder Agreement
will bear a legend to such effect.
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 each 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 except as disclosed in
Schedule 4.16 to the Note Agreement 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 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
Page 20
<PAGE>
into, execute, deliver, and perform this Agreement, the Shareholder
Agreement, and, in the case of the Company, the Warrants, and the
officers of Company executing and delivering this Agreement, the
Shareholder Agreement, and the Warrants are duly authorized to do so.
This Agreement, the Shareholder Agreement, and the Warrants 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 Warrants 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 50,000 shares of Series B
Preferred Stock are issued and outstanding. An aggregate of at least
14,960,003 shares of Common Stock are reserved for issuance on exercise
of the Warrants. 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 Series B Preferred
Stock will be, validly issued, fully paid and nonassessable. The Common
Stock and 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 this 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 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 Preferred Shares and the shares of Common Stock and
other consideration issuable on exercise of the Warrants have been duly
and validly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement or the Warrants, 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.
(f) The Company has good, indefeasible, merchantable, and
marketable title
Page 21
<PAGE>
to, and ownership of, all of its assets necessary for the conduct of
its business free and clear of all liens, pledges, security interests,
claims, or other encumbrances except those of Senior Lender and those
Liens set forth in Schedule 11.1(b) to the Note Agreement.
(g) The Company has the exclusive right to use all patents,
patent rights, patent applications, licenses, inventions, trade
secrets, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names, and copyrights used
in or necessary to its business as presently, or presently proposed to
be, conducted (the "Intellectual Property"), and the use by the Company
of the Intellectual Property does not infringe the rights of any other \
Person except that Southland Holding Company has a non-exclusive right
to use the names "Southland" and "Southland Container" and similar
trade names. No other Person is infringing the rights of the Company
in any of the Intellectual Property in any material respect. The
Company owes no royalties, honoraria, or fees to any Person by reason
of its use of any of the Intellectual Property.
(h) There is not now, and at no time during the term of this
Agreement or the Shareholder Agreement will there be, any agreement,
arrangement, or understanding involving the Company or the Shareholder,
other than this Agreement, the Shareholder Agreement, and the documents
contemplated hereby and thereby, modifying, restricting, or in any way
affecting the rights of any security holder to vote securities of the
Company.
(i) Each of the representations and warranties made by the
Company pursuant to the Note Agreement and the Shareholder Agreement
and the Shareholder pursuant to the Shareholder Agreement is true and
correct in all material respects.
(j) None of the documents, instruments, or other information
furnished to the Purchaser by the Company or the Shareholder, contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make any statements made therein not
misleading. No representation, warranty, or statement made (i) by the
Company in this Agreement, the Note Agreement, or the Shareholder
Agreement, or (ii) by the Shareholder made in this Agreement or the
Shareholder Agreement, or in any applicable document, certificate,
exhibit or schedule attached hereto or thereto or delivered in
connection herewith or therewith, contains or, at the Closing Date,
will contain any untrue statement of a material fact, or, at the
Closing Date, omits or will omit to state a material fact necessary to
make any statements made herein or therein not misleading; provided,
however, that neither the Company nor the Shareholder make any
representation or warranty of any information of any type or kind
whatsoever which, at the time it was created, was forward-looking or
projected except as expressly required by the Note Agreement. There is
no fact that materially and adversely affects the condition (financial
or otherwise), results of operations, business, properties, or
prospects of the Company or any of its Subsidiaries that has not been
disclosed in the documents
Page 22
<PAGE>
provided to the Purchaser.
(k) All required filings have been, or, when required, will
be, made and all exemptions under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, remain in full force and effect
under applicable federal and state securities laws, to consummate the
transactions contemplated hereby.
3.02 Representations and Warranties of the Purchaser. Each Purchaser
represents and warrants severally and not jointly to the Company, F-Jotan and
the Shareholder:
(a) It is a limited partnership or limited liability company,
as the case may be, 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 each 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 Preferred Shares and the Warrants and any securities
issuable upon exercise of the Warrants, 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 Preferred Shares and the Warrants and any securities
issuable upon exercise of the Warrants.
(d) Except as otherwise contemplated by this Agreement and the
Shareholder Agreement, each Purchaser is acquiring its Series B
Preferred Stock, its portion of the Warrants and any securities
issuable upon exercise of the Warrants 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, its portion
Page 23
<PAGE>
of the Warrants, and any Issued Warrant Shares will bear the legends
referenced in this Agreement, and such Preferred Shares, Warrants or
securities issuable upon exercise of the 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 Preferred Shares or the Warrants
or any securities issuable upon exercise of the 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, the
Preferred Shares or the Warrants or securities issuable upon exercise
of the 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 the Preferred
Shares or the Warrants or any securities issuable upon exercise of the
Warrants or any findings as to the fairness of an investment in the
Preferred Shares of the Warrants or any securities issuable upon
exercise of the 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 Preferred
Shares, the Warrants or any securities issuable upon exercise of the
Warrants to any Person.
3.03 Representation and Warranties of F-Jotan. F-Jotan represents and
warrants to the Company, the Shareholder and each Purchaser that, from and after
the Closing Date, it has no written or oral agreement with any Person with
respect to the Series A Preferred Stock that would be inconsistent with, or
otherwise limit or impair, the provisions or intent of this Agreement, the
Certificate or the Shareholder Agreement.
ARTICLE IV
COVENANTS
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books of account and
prepare financial statements and will cause to be furnished to each Purchaser
and each other Holder (all of the foregoing and following to be kept and
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis):
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company,
beginning with the fiscal year ending December 31, 1996, (i) a copy of
the financial statements of the Company for
Page 24
<PAGE>
such fiscal year containing a consolidated and consolidating balance
sheet, statement of income, statement of shareholders' equity, and
statement of cash flows, each as at the end of such fiscal year and for
the period then ended and in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by Ernst & Young, or other independent
certified public accountants of recognized standing selected by the
Company and consented to by the Holders and (ii) a comparison of the
actual results during such fiscal year to those originally budgeted by
the Company prior to the beginning of such fiscal year and a narrative
description and explanation of any budget variances. The annual audit
report required by this Agreement will not be qualified by or make
reference to any disclosure that the Company may not continue as a
going concern or otherwise be qualified or limited because of
restricted or limited examination by the accountant of any portion of
any of the records of the Company.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of unaudited
consolidated and consolidating financial statements of the Company as
of the end of such calendar month and for the portion of the fiscal
year then ended, containing a balance sheet, a statement of retained
earnings, statement of income, and statement of cash flows, in each
case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year and all in
reasonable detail, including, without limitation, a comparison of the
actual results during such period to those originally budgeted by the
Company prior to the beginning of such fiscal period and for the fiscal
year to date.
(c) Within forty-five (45) days after the beginning of each
fiscal year, an annual budget or business plan for such fiscal year,
including a projected consolidated and consolidating balance sheet,
income statement, and cash flow statement for such year, and, promptly
during each fiscal year, all revisions thereto approved by the board of
directors of the Company.
(d) Concurrently with the delivery of each of the financial
statements referred to in Section 4.01(a) and, on the request of any
Purchaser, Section 4.01(b), a certificate of an authorized officer of
the Company in form and substance satisfactory to the Holders (i)
certifying that the financial statements attached to such certificates
have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly and accurately present
(subject to year-end audit adjustments) the consolidated and
consolidating financial condition and results of operations of the
Company at the date and for the period indicated therein, and (ii)
containing a narrative report of the business and affairs of the
Company that includes, but is not limited to, a discussion of the
results of operations compared to those originally budgeted for such
period by the Company prior to the beginning of such period.
(e) As soon as available, a copy of each (i) financial
statement, report, notice,
Page 25
<PAGE>
or proxy statement sent by the Company to its shareholders; (ii)
regular, periodic, or special report, registration statement, or
prospectus filed by the Company with any securities exchange, state
securities regulator, or the Commission; (iii) material order issued by
any court, governmental authority, or arbitrator in any material
proceeding to which the Company is a party or to which any of its
assets is subject; (iv) press release or other statement made available
generally by the Company or the Shareholder to the public generally
concerning material developments in the business of the Company; and
(v) a copy of all correspondence, reports, and other information sent
by the Company to any holder of any indebtedness, including, without
limitation the Senior Lender.
(f) Promptly, such additional information concerning the
Company as any Holder may request, including, without limitation,
auditor management reports and audit "waive" lists.
4.02 Laws. The Company will comply, in all material respects, with all
applicable statutes, regulations, and orders of the United States, domestic and
foreign states, and municipalities, agencies, and instrumentalities of the
foregoing applicable to the Company.
4.03 Inspection. The Company will permit any representative designated
by a Holder to (a) visit and inspect any of the properties of the Company; (b)
examine the corporate and financial records of Company and make copies thereof
or extracts therefrom; and (c) discuss the affairs, finances, and accounts of
the Company with the directors, officers, key employees, and independent
accountants of the Company. The inspections, examinations and discussions
provided for in the preceding sentence shall be conducted during normal business
hours, shall be reasonable in scope and shall not disrupt or adversely affect
any aspect of the operations of the Company.
4.04 Certain Actions. Without the prior written consent of the Holders,
which consent may be withheld in the sole discretion of the Holders, the Company
will not, and will not permit any Subsidiary to:
(a) permit to occur any amendment, alteration, or modification
of the Bylaws of the Company, as constituted on the date of this
Agreement, the effect of which, in the sole judgment of the Holders,
would be to alter, impair, or affect adversely, either the rights and
benefits of the Holders or the duties and obligations of the Company
under this Agreement, the Warrants, the Certificate or the Shareholder
Agreement or permit to occur any amendment, alteration, or modification
of the Restated Articles of Incorporation or other charter or
organizational documents of the Company, as constituted on the date of
this Agreement except to the extent necessary to comply with Section
4.04(j) or 4.10;
(b) except as otherwise permitted in the Certificate or
required by the Shareholder Agreement, (i) declare or make any
dividends or distributions of its cash,
Page 26
<PAGE>
stock, property, or assets or redeem, retire, purchase, or otherwise
acquire, directly or indirectly, any of the Capital Stock or capital
stock or securities of any Affiliate or any Subsidiary of the Company,
or any securities convertible or exchangeable into Capital Stock or
capital stock or securities of any Affiliate or any Subsidiary of the
Company or otherwise make any distribution on account of the purchase,
repurchase, redemption, put, call or other retirement of any shares of
Capital Stock of the Company or any Subsidiary thereof or of any
warrant, option or other right to acquire such shares (except pursuant
to the Purchase Documents or the Certificate) (each as defined in
Section 11.1 of the Note Agreement), or (ii) make any payment or
distribution on account of any Indebtedness of the Company which is
subordinate to the Senior Subordinated Notes (except that Subsidiaries
may make distributions to the Company), and (iii) except as otherwise
provided for in the Note Agreement, pay any professional consulting or
management fees or any other payments to any shareholders of Parent or
any Subsidiary; provided, however, that the following shall be
permitted as exceptions to the preceding provisions of this clause (b):
declare and make payments of (A) dividends in cash from Subsidiaries of
the Company to the Company to the extent necessary to permit the
Company or its Subsidiaries to pay the Senior Subordinated Obligations
(as defined in Section 11.1 of the Note Agreement) due and payable from
the Company or its Subsidiaries to each Purchaser, (B) dividends or
stock repurchases permitted by the Senior Loan Agreement (as defined in
Section 11.1 of the Note Agreement), and (C) dividends on the Preferred
Stock as provided in the Certificate and payments made pursuant to the
Purchase Documents (as defined in Section 11.1 of the Note Agreement);
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any material portion of the assets or operations or the
revenue or income generating capacity of the Company (other than
inventory in the ordinary course of business and other assets
reasonably and in good faith determined by the Company to be obsolete
or no longer necessary to the business of the Company and other asset
dispositions permitted by the Senior Loan Agreement including the Asset
Transfer (as defined in the Senior Loan Agreement)) or to take any such
action that has the effect of any of the foregoing;
(d) except for issuances of stock permitted by the Senior Loan
Agreement, the Permitted Stock, the Acquisition Merger, the Subsidiary
Mergers (each as defined in Section 11.1 of the Note Agreement) and the
other mergers permitted by the Senior Loan Agreement or pursuant to the
express terms of this Agreement or the Shareholder Agreement, issue or
sell, or otherwise dispose of any Capital Stock (including the Series B
Preferred Stock) or Capital Stock of any Subsidiary, dissolve or
liquidate, or effect any consolidation or merger involving the Company
or any Subsidiary or any reclassification, corporate reorganization,
stock split or reverse stock split, or other change of any class of
Capital Stock of the Company or of any Subsidiary;
(e) enter into any business that the Company or any Subsidiary
is not conducting on the date of this Agreement or acquire any
substantial business operation
Page 27
<PAGE>
or assets (through a stock or asset purchase or otherwise except for
businesses and acquisitions permitted by the Senior Loan Agreement);
(f) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement and except for Permitted Stock, enter into
any transaction or transactions with any director, officer, employee,
or shareholder of the Company, or any Affiliate or relative of the
foregoing except upon terms that, in the opinion of the Holders, are
fair and reasonable and that are, in any event, at least as favorable
as would result in a comparable arm's-length transaction with a Person
not a director, officer, employee, shareholder, or Affiliate of the
Company or any Affiliate or related party of the foregoing, or advance
any monies to any such Persons, except for travel advances in the
ordinary course of business;
(g) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement, increase the amount of remuneration
permitted under Section 7.10 of the Note Agreement;
(h) except for (i) acquisitions permitted under the Note
Agreement and Section 9.2 of the Senior Loan Agreement, (ii) Permitted
Indebtedness (as defined in Section 11.1 of the Note Agreement), and
(iii) other capital contributions, permitted purchases, advances and
loans permitted by the Senior Loan Agreement, acquire any debt or
equity interest in any Person or establish or acquire a Subsidiary or
make any additional capital contribution or purchase any additional
equity in any Subsidiary or make any advances or loans to any
Subsidiary or transfer any technology or assets to any Subsidiary;
(i) except for the employment agreements disclosed in
Schedule 7.10 of the Note Agreement, modify, amend, terminate or
waive any material provision of the Employment Agreements;
(j) allow the aggregate par value of the Capital Stock subject
to the Warrants from time to time to exceed the price payable upon
exercise of the Warrants, as adjusted from time to time; or
(k) obligate itself or otherwise agree to take, permit or
enter into any of the events described in subsections (a) through (j)
above.
4.05 Records. The Company and each of its Subsidiaries will keep books
and records of account in which full, true, and correct entries will be made of
all dealings and transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a consistent
basis.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated and, at Purchaser's request,
consolidating financial statements of the
Page 28
<PAGE>
Company and its Subsidiaries at the end of each fiscal year, and in the event
that the services of the independent public accountants so selected, or any firm
of independent public accounts hereafter employed by Company or any Subsidiary,
are terminated, the Company will promptly thereafter notify each Holder and upon
the Holders' request, the Company will request the firm of independent public
accountants whose services are terminated to deliver (without liability for such
firm) to each Holder a letter of such firm setting forth the reasons for the
termination of their services and in its notice to each Holder the Company or
such Subsidiary will state whether the change of accountants was recommended or
approved by the board of directors of the Company or any Subsidiaries or any
committee thereof.
4.07 Existence. Except as otherwise expressly required or permitted by
the Note Agreement or this Agreement, the Company will maintain in full force
and effect its corporate existence, rights, and franchises and all licenses and
other rights to use Intellectual Property.
Page 29
<PAGE>
4.08 Notice.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of Capital Stock for the
purpose of determining which of such holders are entitled to dividends,
repurchases of securities or other distributions, or any right to
subscribe for, purchase or otherwise acquire any shares of Capital
Stock or other property or to receive any other right; or (ii) any
capital reorganization of the Company, or reclassification or
recapitalization of the Capital Stock or any transfer of all or a
majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of
the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock (other than the issue of Issuable
Warrant Shares upon exercise of the Warrants), then, in each such
event, the Company will deliver or cause to be delivered to the Holders
a notice specifying, as the case may be, (A) the date on which any such
record is to be set for the purpose of such dividend, distribution, or
right, and stating the amount and character of such dividend,
distribution, or right; (B) the date as of which the holders of record
will be entitled to vote on any reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding-up; (C) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, share exchange, conveyance,
dissolution, liquidation, or winding-up is to take place and the time,
if any is to be fixed, as of which the holders of record of any class
of Capital Stock will be entitled to exchange their shares of Capital
Stock for securities or other property deliverable upon such event; and
(D) the amount and character of any Capital Stock, property, or rights
proposed to be issued or granted, the consideration to be received
therefor, and, in the case of rights or options, the exercise price
thereof, and the date of such proposed issue or grant and the Persons
or class of Persons to whom such proposed issue or grant will be
offered or made. Any such notice will be deposited in the United States
mail, postage prepaid, at least thirty (30) days prior to the date
therein specified, and notwithstanding anything in this Agreement or
the Warrants to the contrary the Holders may exercise the Warrants
within thirty (30) days from the mailing of such notice. The Company
shall, promptly on request of a Holder, provide such other information
as the Holders may reasonably request.
(b) If there is any adjustment as provided above in Article
II, or if any Other Securities become issuable in lieu of shares of
such Common Stock upon exercise of the Warrants, the Company will
immediately cause written notice thereof to be sent to each Holder,
which notice will be accompanied by a certificate of the independent
public accountants of the Company setting forth in reasonable detail
the basis for the Holders' becoming entitled to receive such Other
Securities, the facts requiring any such adjustment
in the number of shares receivable after such adjustment, or the kind
and
Page 30
<PAGE>
amount of any Other Securities so purchasable upon the exercise of
the Warrants, as the case may be. At the request of any Holder and upon
surrender of the Warrant of such Holder, the Company will reissue such
Warrant of such Holder in a form conforming to such adjustments.
4.09 Taxes. The Company will, and will cause its Subsidiaries to, file
all required tax returns, reports, and requests for refunds on a timely basis
and will, and will cause its Subsidiaries to, pay on a timely basis all taxes
imposed on either it or its Subsidiaries, as the case may be, or upon any of its
assets, income or franchises or those of its Subsidiaries, as the case may be;
provided, however, that neither the Company nor any Subsidiary shall be required
to pay or discharge any tax, levy, assessment, or governmental charge (a) which
is being contested in good faith by appropriate proceedings diligently pursued,
and for which adequate reserves in accordance with GAAP (as defined in Section
11.1 of the Note Agreement) have been established or (b) if the failure to pay
the same would not (i) result in a material Lien (as defined in Section 11.1 of
the Note Agreement) on the property of the Company or any Subsidiary and (ii)
would not otherwise result in a Material Adverse Effect (as defined in Section
11.1 of the Note Agreement).
4.10 Warrant Rights. The Company covenants and agrees that during the
term of this Agreement and so long as any of the Warrants are outstanding, (a)
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock and Other Securities, to provide for the exercise in
full of the rights represented by the Warrants and the exercise in full of the
rights of the Holders under the Shareholder Agreement; (b) the Company will not
increase or permit to be increased the par value per share or stated capital of
the Issuable Warrant Shares or the consideration receivable upon issuance of its
Issuable Warrant Shares; and (c) in the event that the exercise of the Warrants
would require the payment by the Holder of consideration for the Common Stock or
Other Securities receivable upon such exercise of less than the par or stated
value of such Issuable Warrant Shares, the Company and the Shareholder will
promptly take such action as may be necessary to change the par or stated value
of such Issuable Warrant Shares to an amount less than or equal to such
consideration.
4.11 Board Observation and Membership. The Company will deliver to each
Holder a copy of the minutes of and all materials distributed at or prior to all
meetings of the board of directors (including the executive, compensation or
other committee thereof) or shareholders of the Company, certified as true and
accurate by the Secretary of the Company, promptly following each such meeting.
The Company will (a) permit each Holder to designate one (1) person to attend
all meetings of the Company's board of directors (including executive,
compensation or other committee meetings), (b) provide such designees not less
than twenty-one (21) calendar days' actual notice of all regular meetings and
seven (7) calendar days' actual notice of all special meetings of the Company's
board of directors (including the executive, compensation or other committees
thereof) or shareholders, (c) permit such designees to attend such meetings as
an observer, (d) permit Rice (or Rice's representatives), so long as Rice is a
Holder or owns any stock, warrants or other equity interest in the Company, to
designate not
Page 31
<PAGE>
more than a majority in number of the members of the board of
directors and a majority in number of the members of each
committee thereof, (e) permit the Southland Purchasers (or the Southland
Purchasers' representative which may be F-Jotan or its representatives), so long
as the Southland Purchasers are Holders or otherwise own, directly or
indirectly, any Common Stock, Warrants or other beneficial or equity interest in
respect of the Capital Stock of the Company, to designate one (1) individual to
serve as a member of the Company's board of directors, and provide to such
designees a copy of all materials distributed at such meetings or otherwise to
the board of directors of the Company.
For so long as any Purchaser is a Holder or owns any stock, warrants or
other equity interest in the Company, at all times the board of directors will
consist of no more than seven (7) members (at least one of whom will be an
independent director selected by the board of directors); provided, however,
that if a majority of the board of directors shall at any time not consist of
Rice designees, the board of directors shall, on Rice's request, immediately be
increased in size so as to permit Rice to elect a majority of the board of
directors as contemplated herein and in paragraph B.4 of Section 4.2 of Article
IV of the Articles of Amendment of the Restated Articles of Incorporation of the
Company as in effect as of the Closing Date (as amended from time to time with
the approval of the board of directors) ("Articles"). Rice may designate one or
more of its designees (but not necessarily all of its designees at any one time)
to serve on the Board of Directors at such time or times as its shall determine
in its sole discretion (such appointments, if Rice so determines, at all times,
to constitute at least a majority of the board of directors).
Notwithstanding anything contained herein or in the Articles, if Rice
shall at any time own, directly or indirectly, less than ten (10%) percent of
the beneficial or other equity interest in respect of the Capital Stock of the
Company (subject to adjustments therein as contemplated by Section 2.08(a)(ii)
and (iii) hereof) that it acquires on the Closing Date, then the rights of Rice,
set forth in this Agreement, the Shareholder Agreement and the Articles (as a
Holder of Series B Preferred Stock), to designate a majority in number of the
board of directors shall expire and terminate on the first day of the month next
following such change in ownership, except that Rice may designate one (1)
individual to continue to serve as a member of the Company's board of directors
and as a member of each committee thereof, with all rights and privileges
attendant thereto, as contemplated herein, so long as Rice owns, directly or
indirectly, any beneficial or other equity interest in respect of the Capital
Stock of the Company.
Such meetings shall be held in person at least quarterly, and the
Company will cause its board of directors to call a meeting at any time upon the
request of any such designated observer on not more than two (2) occasions per
calendar year upon seven (7) calendar days' actual notice to the Company. The
Company agrees to compensate designees of Rice referred to in Subsection (d) and
designees of the Southland Purchasers referred to in Subsection (e) above in the
same manner as each of the other members of the Company's board of directors and
agrees to reimburse each individual referred to in Subsections (a), (d) and (e)
above for all reasonable expenses incurred in traveling to and from such
meetings and attending such meetings.
4.12 Going Private Vote. If the Board of Directors shall resolve that
it is in the best interests of the Company to discontinue reporting to the
Securities and Exchange Commission as a public company in accordance with the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder ("going private"), such resolution shall take effect if
and only if the majority of the shareholders of the Company exclusive of Rice,
the Southland Purchasers and F-Jotan (the "Non-Purchaser Shareholders") shall
also approve such action. Notwithstanding the foregoing, such special voting
rights of the Non-Purchaser Shareholders shall not apply to any transaction in
which (a) the Company may sell all or any part of its assets or Capital Stock,
(b) Rice, the Southland Purchasers and/or F-Jotan may sell all or any part of
their respective Capital Stock of the Company, or (c) any of Rice, the Southland
Purchasers and/or F- Jotan may enter into any similar or related transaction of
any kind or description, it being the intent of the parties hereto to address,
in this Section 4.12, only the vote required by the Non- Purchaser Shareholders
for the consummation by the Company of a going private transaction.
ARTICLE V
CONDITIONS
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions
precedent:
5.01 Opinion. Each Purchaser will have received favorable opinions,
dated the Closing Date, from Alston & Bird and Foley & Lardner counsel for
Company covering matters raised by this Agreement, the Shareholder Agreement,
and such other matters as any Purchaser or its counsel may request, and
otherwise in form and substance satisfactory to each Purchaser and its counsel.
5.02 Note Agreement Conditions. All of the conditions precedent to the
obligations of Purchaser under the Note Agreement will have been satisfied in
full.
5.03 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.
5.04 Shareholder Agreement. The Company, F-Jotan and the Shareholder
will have entered into the Shareholder Agreement with Purchaser.
5.05 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.
5.06 Proceedings; Consents. All proceedings taken in connection with
the transactions
Page 33
<PAGE>
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.
5.07 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 and convert the Preferred Shares.
5.08 Origination Fee. The Company shall have paid to Rice an
origination fee of $200,000.00, F-Southland an origination fee of $25,000 and
FF-Southland an origination fee of $25,000, in immediately available funds, on
the Closing Date, which fee shall be deemed fully earned and nonrefundable on
the Closing Date.
5.09 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, each 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 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 omission from any certificate or other instrument
furnished or to be furnished to the Purchaser or the Holders under this
Agreement.
Page 34
<PAGE>
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 Warrants and the Shareholder
Agreement 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
acknowledgment of receipt (whether by noncertified mail, telecopy, telegram,
facsimile, express delivery, hand delivery or otherwise), whichever is earlier.
Page 35
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
If to Rice, at: Address of Rice beneath the name of Rice on the signature
pages of this Agreement
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
If to F-Jotan, at: Address of F-Jotan beneath the name of F-Jotan on the
signature pages of this Agreement
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
FAX: 214-939-6100
If to the Company, at: Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attn: President
Fax: 904-353-0075
with courtesy copies to: Alston & Bird
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Stephen A. Opler, Esq.
Fax: 404-881-7777
If to the Shareholder, Address of such Shareholder beneath his/her name on the
signature pages of this Agreement
</TABLE>
or to such other address as each party may designate for itself by like notice.
Notice to any
Page 36
<PAGE>
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.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
Page 37
<PAGE>
6.12 Other Business. It is understood and accepted that the Purchaser,
F-Jotan, 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, EACH PURCHASER 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, EACH PURCHASER AND EACH SHAREHOLDER IN
THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH 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 the Closing Date, the
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
Page 38
<PAGE>
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 the Closing 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 39
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
JOTAN, INC.
BY:.................................
Shea E. Ralph
Chief Executive Officer
118 West Adams Street
Jacksonville, Florida 32201
Attn: President
Fax: (904) 343-0075
Page 40
<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
Redeemable Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
Page 41
<PAGE>
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.,
its Manager
By: _____________________________
Jeremiah M. Callahan,
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 42
<PAGE>
THE SOUTHLAND PURCHASERS:
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.,
its Manager
By: _______________________________
Jeremiah M. Callahan, 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 43
<PAGE>
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: .........................
Jeremiah M. Callahan,
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 44
<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 45
<PAGE>
ANNEX H
[NON-PERMITTED TRANSFERS]
[To be completed by Jotan]
Page 46
============================================================================
SHAREHOLDER AGREEMENT
JOTAN, INC.
the "Company"
the Shareholders as set forth on the signature pages hereof
the "Shareholder"
and
[*]
Rice Partners II, L.P.
and
F-Jotan
the "Purchaser"
February __, 1997
============================================================================
<PAGE>
TABLE OF CONTENTS
Article I Definitions..................................................
Article II. Holders' Preemptive Rights...................................
2.01 Preemptive Right.............................................
2.02 Notice to Holders............................................
2.03 Allocation of Unsubscribed New Securities....................
2.04 [Expiration].................................................
Article III Dilution Fee................................................
Article IV Put Option...................................................
4.01 Grant of Option..............................................
4.02 Put Price....................................................
4.03 Exercise of Put Option.......................................
4.04 Certain Remedies.............................................
4.05 Closing......................................................
4.06 Certain Rights Regarding Puts By Rice........................
Article V Call Option..................................................
5.01 Grant of Option..............................................
5.02 Call Price...................................................
5.03 Exercise of Call Option......................................
5.04 Call Option Closing..........................................
Article VI First Refusal and Co-Sale Rights............................
6.01 Rights of Co-Sale...........................................
6.02 Method of Electing Sale; Allocation of Sales................
6.03 Sales to Related Parties....................................
Article VII Liquidity..................................................
7.01 Required Registration.......................................
7.02 Incidental Registration.....................................
7.03 Form S-3 Registrations......................................
[7.04. Rule 144 Availabi
7.05 Registration Procedures.....................................
Page i
<PAGE>
7.06 Allocation of Expenses......................................
7.07 Listing on Securities Exchange............................
7.08 Holdback Agreements.......................................
7.09 Rule 144..................................................
7.10 Rule 144A.................................................
7.11 Take Along................................................
7.12 Limitation on Subsequent Registration Rights..............
7.13 Exchange Rights...........................................
Article VIII Directors...................................................
8.01 Voting Agreement............................................
8.02 Board of Directors...........................................
Article IX Representations and Warranties; Covenants
9.01 Representations and Warranties and Covenants of the
Company [and the Shareholder]...............................
9.02 Representations and Warranties of the Purchaser............
Article X Conditions.................................................
10.01 Note Agreement and Purchase Agreement Conditions............
10.02 Proceedings
Article XI Miscellaneous
11.01 Indemnification.............................................
11.02 Default....................................................
11.03 Integration..................................................
11.04 Headings....................................................
11.05 Severability................................................
11.06 Notices......................................................
11.07 Successors..................................................
11.08 Remedies......................................................
11.09 Survival...................................................
11.10 Fees........................................................
11.11 Counterparts................................................
11.12 Other Business................................................
11.13 Choice of Law.................................................
11.14 Nominees for Beneficial Owners ...............................
11.15 Fiduciary Duties..............................................
11.16 Duties Among Holders...........................................
11.17 [Confidentiality]..............................................
Page ii
<PAGE>
11.18 [Termination].................................................
Page iii
<PAGE>
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (the "Agreement") made as of February 28, 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"), 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", which, together with Rice are individually and
collectively, as the context requires, referred to herein as the "Purchaser"),
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, which is the owner of the 1,329,357 shares of the Series
A Preferred Stock of the Company as of the date hereof, will acquire certain
rights and benefits herein and in the Purchase Agreement (as defined below) in
consideration of terminating certain of its existing contractual rights in
respect of the Company as more fully described in Section 11.18 of this
Agreement;
WHEREAS, the Company has entered into a Note Purchase Agreement (the "Note
Agreement") dated of even date with this Agreement with the Purchaser;
WHEREAS, the Company, each Purchaser, F-Jotan and the Shareholder have
entered into a Preferred Stock and Warrant Purchase Agreement (the "Purchase
Agreement") dated of even date with this Agreement with the Purchaser;
WHEREAS, the Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Purchase 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 1
<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
Holders' Preemptive Rights
2.01 Preemptive Right. The Company will not issue or sell any New
Securities without first complying with this Article II. The Company hereby
grants to each Holder the preemptive right to purchase, pro rata, all or any
part of the New Securities that the Company may, from time to time, propose to
sell or issue. In the event New Securities are offered or sold as part of a unit
with other New Securities, the preemptive right granted by this Article II will
apply to such units and not to the individual New Securities composing such
units. Each Holder's pro rata share for purposes of Article II is the ratio that
the number of shares of Common Stock issuable to such Holder upon exercise of
its Warrant and, in the case of F-Jotan, the number of shares of Common Stock
issuable upon conversion of its Series A Preferred Stock, plus the number of
shares of Common Stock that are Issued Warrant Shares or, in the case of
F-Jotan, converted Series A Preferred Stock, owned by such Holder immediately
prior to the issuance of the New Securities, bears to the sum of (x) the total
number of shares of Common Stock then outstanding, plus (y) the number of shares
of Common Stock issuable upon (1) exercise of all Warrants and (2) the
conversion of the Series A Preferred Stock then outstanding.
2.02 Notice to Holders. In the event the Company proposes to issue or
sell New Securities, it will give each Holder written notice of its intention,
describing the type of New Securities and the price and terms upon which the
Company proposes to issue or sell the New Securities. Each Holder will have
fifteen (15) days from the date of receipt of any such notice and such
information as the Holders may reasonably request to facilitate their investment
decision to agree to purchase up to its respective pro rata share of the New
Securities for the price (valued at Fair Market Value for any noncash
consideration) and upon the terms specified in the notice by giving written
notice to the Company stating the quantity of New Securities agreed to be
purchased.
2.03 Allocation of Unsubscribed New Securities. In the event a Holder
fails to exercise such preemptive right within such fifteen (15) day period, the
other Holders, if any, will have an additional five (5) day period to purchase
such Holder's portion not so agreed to be purchased in the same proportion in
which such other Holders were entitled to purchase the New Securities (excluding
for such purposes such nonpurchasing Holder). Thereafter, the
Page 2
<PAGE>
Company will have ninety (90) days to sell the New Securities not elected to be
purchased by the Holders at the same price and upon the same terms specified in
the Company's notice described in Section 2.02. In the event the Company has not
sold the New Securities within such ninety (90) day period, the company will not
thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
Article III
Dilution Fee
In the event that, during the term of the Warrants, the Company pays
any cash dividend or makes any cash distribution to any holder of any class of
its Capital Stock with respect to such Capital Stock, each Holder of the
Warrants will be entitled to receive in respect of its Warrant a dilution fee in
cash (the "Dilution Fee") on the date of payment of such dividend or
distribution, which Dilution Fee will be equal to the difference between (a) the
highest amount per share paid to any class of Capital Stock times the number of
Issued Warrant Shares then owned by such Holder plus the number of Issuable
Warrant Shares then owned by such Holder, and (b) the amount of such dividend or
distribution otherwise paid to such Holder as a result of its ownership of
Common Stock. This provision shall not apply to the payment of cash dividends on
the Series B Preferred Stock.
Article IV
Put Option
4.01 Grant of Option. The Company hereby grants to each Holder an
option to sell to the Company, and the Company is obligated to purchase from
each Holder under such option (the "Put Option"), all (or such portion as is
designated by any such Holder pursuant to Section 4.03 below) of the Put Shares,
subject to Section 4.06 below. The Put Option will be effective at any time or
times after the eighth (8th) anniversary of the date of this Agreement, or at
any time or times after the occurrence of any of the following events (the "Put
Option Period"):
(a) the payment or prepayment of all indebtedness, liabilities
and obligations owing by the Company to the Purchaser under the Note
Agreement;
(b) (i) a material change in the ownership in the Company other
than by Rice and the Southland Purchasers (for purposes of this
subsection a "change of ownership" means the circumstance that F-Jotan
shall own, directly or indirectly, five percent (5%) (subject to
adjustments therein as contemplated in Section 2.08(a) (ii) and (iii)
of the Purchase Agreement) less than (A) the Registrable Securities so
owned by such party on the Closing Date or (B) the number of shares of
issued and outstanding voting stock of the Company (without giving
effect to the issuance of any shares of Common Stock under the
Warrants) so owned by such party on the Closing Date, or (ii) Rice
shall not have the legal right or ability, directly or through its
Subsidiaries, to elect a majority of the members of the board of
directors of the Company); or
Page 3
<PAGE>
(c) except as permitted by the Senior Loan Agreement as in effect on
the date hereof, a merger, consolidation, share exchange, or similar
transaction involving the Company or sale in one or more related
transactions of all or a substantial portion of the assets, business,
or revenue or income generating operations of the Company or any
substantial change in the type of business conducted by the Company;
or
(d) after the occurrence and during the continuance of an Event of
Default (as defined in the Note Agreement) pursuant to Sections
8.1(a), (b), (f) or (h) of the Note Agreement or any failure of the
Company in any material respect to perform any of its obligations
hereunder or under the Purchase Agreement; provided, however, that the
Put Option Period will continue with respect to such Event of Default
or other failure, even after the same has been cured, if notice of
exercise of the Put Option by such Holder is provided pursuant to this
Article IV during the continuance of such Event of Default or such
other failure, as the case may be.
The Company's obligations under this Article IV and the notes issued
pursuant to Section 4.04 hereof are subject to the provisions of the
Senior Subordination Agreement (as defined in Section 11.1 of the Note
Agreement).
4.02 Put Price. In the event that any Holder exercises the Put
Option, the price (the "Put Price") to be paid to each such Holder
pursuant to this Agreement will be cash in the sum of the amount
determined by multiplying the higher of (a) the Book Value or (b) the
Fair Market Value per share of Common Stock as of the end of the month
immediately preceding the date notice is given of the exercise of the
Put Option pursuant to Section 4.03 times the number of shares of
Common Stock for which the Put Option is being exercised by such Holder
plus the higher of (a) the Book Value or (b) the Fair Market Value of
the Other Securities issuable upon exercise of the portion of the
Warrants subject to the Put Option; provided, however, the Fair Market
Value (as opposed to the Book Value) shall only be utilized in
determining such Put Price if, for the thirty (30) consecutive days
prior to the exercise of the Put Option, the Common Stock has been
trading on a national securities exchange as its primary market (as
contemplated in clause (a) of the definition of Closing Price) with an
average trading volume of at least 150,000 shares per day and an
average market capitalization of the Company of at least $50,000,000
(calculated on the basis of the product of (i) the number of shares of
registered Common Stock outstanding on the date of determination and
(ii) the reported closing prices of Common Stock quoted on such
exchange over the period of thirty (30) days prior to the date of
determination).
4.03 Exercise of Put Option. The Put Option may be exercised during
the Put Option Period with respect to all or any portion of the Put
Shares. Such option shall be exercised by such Holder giving notice to
the Company and each other Holder during the Put Option Period of the
Holder's election to exercise the Put Option, and the date of the Put
Option Closing, which will be not less than fifteen (15) nor more than
ninety (90) days after the date of such notice. The Company will
provide each Holder desiring to exercise its Put Option the name and
address of each other Holder. Notwithstanding the foregoing, if a
Holder receives such notice
Page 4
<PAGE>
of another Holder's exercise of such other Holder's Put Option, the
Holder receiving such notice may elect to exercise its Put Option and
designate a Put Option Closing simultaneous and pari passu with that of
such other Holder.
4.04 Certain Remedies. In the event that the Company defaults in its
obligation to purchase all or any portion of the Put Shares upon
exercise of the Put Option, in addition to any other rights or remedies
of each Holder, the unpaid portion of the Put Price will bear interest
at the highest rate permitted by applicable law. The Company will, upon
the request of any Holder, execute and deliver to such Holder a
promissory note in form and substance satisfactory to such Holder
evidencing such obligation.
4.05 Put Option Closing. The closing for the purchase and sale of
all or such portion of the Put Shares as to which the Holder has
notified the Company of its intention to exercise the Put Option, will
take place at the office of the Company on the date specified in such
notice of exercise (a "Put Option Closing"). At any Put Option Closing,
to the extent applicable, the Holder of the Put Shares will deliver the
certificate or certificates evidencing the Put Shares being purchased,
duly endorsed in blank. In consideration therefor, the Company will
deliver to the Holder the Put Price, which will be payable in cash.
4.06 Limitations on Puts. No Holder other than Rice may, without the
prior written consent of Rice, exercise its Put Option unless and until
Rice shall also exercise its Put Option under this Article IV. Rice
shall have the right, but not the obligation, if it does exercise its
Put Option under this Article IV, to require each other Holder, on
twenty (20) days prior written notice to such Holder, to exercise such
Holder's Put Option on a pro rata basis, with respect to all of the
shares of Put Shares then owned, directly or indirectly, by such
Holder, on the same terms and at the same Put Option Closing to be set
forth in such notice.
Article V
Call Option
5.01 Grant of Option. Each Holder hereby severally grants to the
Company an option to require such Holder to sell to the Company, and
each Holder is obligated to sell to the Company under this option (the
"Call Option"), all (but not less than all) of its Warrant and its
Warrant Shares. The Call Option will be effective after the sixth (6th)
anniversary of the date of this Agreement (the "Call Option Period").
5.02 Call Price. In the event that the Company exercises the Call
Option, the exercise price to be paid in cash to each Holder will be
equal to the Put Price determined in accordance with Section 4.02,
except that the Call Option will be exercised with respect to all of
the Warrants and all Warrant Shares, and will be increased by an amount
in cash equal to any Excess Consideration received within one hundred
eighty (180) days following the exercise of the Call Option due to an
Adjustment Event.
5.03 Exercise of Call Option. The Call Option may be exercised
during the Call
Page 5
<PAGE>
Option Period with respect to all of the Warrants and the Warrant Shares of the
Holders, by the Company giving notice to each Holder during the Call Option
Period of the election of the Company to exercise the Call Option, and the date
of the Call Option Closing (as defined below), which in all events will be
within at least ten (10) days after the date of such notice.
5.04 Call Option Closing. The closing for the purchase and sale of all
of the Warrants and Warrant Shares that the Company has elected to purchase
under this Agreement, will take place at the office of the Company, on the date
specified in such notice of exercise (the "Call Option Closing"). At the Call
Option Closing, the Holders of the Warrants will deliver the Warrants and the
certificate or certificates representing the Warrant Shares, duly endorsed in
blank. In consideration therefor, the Company will deliver to each Holder the
purchase price, which will be payable in immediately available funds.
Article VI
First Refusal; and Co-Sale Rights
6.01 Rights of Co-Sale. In the event that any Shareholder intends to
sell or transfer, directly or indirectly, any shares of any class of Capital
Stock held by it to any Person other than a Related Party, each Holder will have
the right to participate in such sale or transfer on the terms set forth in this
Article VI; provided, however, none of the provisions of this Agreement will
apply to any sale by a Shareholder of shares of Capital Stock in a bona fide
underwritten public offering under the Securities Act, so long as all Holders
have had an opportunity to participate in such offering pursuant to the
registration rights under this Agreement.
6.02 Method of Electing Sale; Allocation of Sales. No sale or transfer
by any Shareholder of any shares of Capital Stock will be valid unless the
transferee of such Capital Stock first agrees in writing to be bound by the same
terms and conditions that apply to the Shareholder under this Agreement and the
Purchase Agreement. In addition, before any shares of Capital Stock held,
directly or indirectly, by any Shareholder may be sold or transferred to a
Person other than a Related Party, the Shareholder (as such, the "Selling
Shareholder") will comply with the following provisions:
(a) The Selling Shareholder will deliver or cause to be
delivered a written notice (the "Notice of Sale") to each Holder and
F-Jotan at least fifteen (15) days prior to making any such sale or
transfer. The Company agrees to provide the Selling Shareholder with a
list of the names and addresses of each such Holder and F- Jotan for
such purpose. The Notice of Sale will include (i) a statement of the
Selling Shareholder's bona fide intention to sell or transfer; (ii) the
name and address of the prospective transferee (the "Buyer"); (iii) the
number of shares of Capital Stock of the Company to be sold or
transferred; (iv) the terms and conditions of the contemplated sale or
transfer; (v) the purchase price in cash that the Buyer will pay for
such shares of Capital Stock; (vi) the expected closing date of the
transaction; and (vii) such other information as the Holders may
reasonably request to facilitate their decision as to
Page 6
<PAGE>
whether or not to exercise the rights granted by this Article VI.
(b) Any Holder receiving the Notice of Sale may elect to
participate in the contemplated sale or transfer by exercising either
(i) its right of first refusal to purchase such Capital Stock pursuant
to Section 6.02(c) or (ii), its right to co-sell its Capital Stock
pursuant to Section 6.02(d). Either of such rights may be exercised in
the sole discretion of the Holder by delivering a written notice (an
"Election Notice") to the Company and the Selling Shareholder within
fifteen (15) days after receipt of such Notice of Sale stating the
election of the Holder to exercise either its right of first refusal
pursuant to Section 6.02(c) or its right of co-sale pursuant to Section
6.02(d).
(c) Each Holder may elect to treat the Notice of Sale as an
irrevocable offer to sell to the Holder up to its pro rata share
(determined in a manner consistent with Article II, and including the
pro rata share of Capital Stock not purchased by other Holders) of the
number of shares of Capital Stock proposed to be sold to the Buyer on
the same per share terms and conditions as stated in the Notice of
Sale. Such offer will remain open for a period of fifteen (15) days
from delivery to the Shareholder of the Election Notice. Within such
fifteen (15) day period, the Holder may elect to accept such offer in
whole or in part by delivering to the Selling Shareholder written
notice of its irrevocable election to accept such offer. If the Holder
irrevocably accepts such offer, the closing of the purchase and sale
will occur on or before the twentieth (20th) business day following
delivery of the notice of acceptance. At such closing, the Holder will
deliver the consideration payable to the order of the Selling
Shareholder, against delivery by the Selling Shareholder of the Capital
Stock being so purchased, free and clear of all liens, claims, and
encumbrances, other than this Agreement, endorsed in good form for
transfer to the Holder or its designees. If a Holder does not accept
such offer within the fifteen (15) day period specified above, the
offer to such Holder will be deemed to have been rejected, and the
Selling Shareholder, subject to Section 6.02(d), will be free to sell
or transfer such Capital Stock not purchased by the Holders to the
Buyer on the same terms set forth in the Notice of Sale within ninety
(90) days of the expiration of such fifteen (15) day period. If the
sale to the Buyer is not so consummated, the terms of this Article VI
will again be applicable to any sale or transfer of Capital Stock by
the Shareholder.
(d) Each Holder may elect to sell or transfer in the
contemplated transaction up to the total of the number of shares of
Capital Stock then held by it (including the Issuable Warrant Shares).
Promptly after the receipt of an Election Notice exercising such right,
the Selling Shareholder will use its best efforts to cause the Buyer to
amend its offer so as to provide for the Buyer's purchase, upon the
same terms and conditions as those contained in the Notice of Sale, of
all of the shares of Capital Stock (including the Issuable Warrant
Shares) elected to be sold (the "Co-Sell Shares") in such Election
Notices. In the event that the Buyer is unwilling to amend its offer to
purchase all of the Co-Sell Shares in addition to the shares of Capital
Stock described in the related Notice of Sale, if the Selling
Shareholder desires to proceed with the sale, the total number of
Page 7
<PAGE>
shares that such Buyer is willing to purchase will be allocated to the
Selling Shareholder and each Holder having given an Election Notice
exercising its right pursuant to this Section 6.02(d) (the
"Co-Sellers") in proportion to the aggregate number of shares of
Capital Stock (including Issuable Warrant Shares) held by each such
Person; provided, however, that no such Person will be so allocated a
number of shares greater than the number of shares that it has sought
to sell to such Buyer in the related Notice of Sale or Election Notice.
All Capital Stock sold or transferred by the Selling Shareholder and
the Co-Sellers with respect to a single Notice of Sale under Section
6.02(b) will be sold or transferred to the Buyer in a single closing on
the terms described in such Notice of Sale, and each such share will
receive the same per share consideration. In the event that the Buyer
for whatever reason, declines to purchase any shares from any Holder
delivering an Election Notice, then (x) the Selling Shareholder will
not be permitted to sell or transfer any shares of Capital Stock to
such Buyer and (y) the shares of Capital Stock of the Selling
Shareholder that were to have been sold or transferred to the Buyer
will be subject to the Holders' right of first refusal pursuant to
Section 6.02(c) for a period of fifteen (15) days thereafter on the
terms and conditions that the Buyer would have purchased such shares of
Capital Stock from the Selling Shareholder had it not declined to
purchase shares from the Co-Seller under this Section 6.02(d).
6.03 Sales to Related Parties. No sale or transfer of shares of Capital
Stock by the Shareholder to a Related Party will be subject to the provisions of
Section 6.02; provided, however, that such Related Party first agrees to assume
the obligations of the Shareholder (without relieving the Shareholder of any
obligations under this Agreement) under this Agreement with respect to the
shares of Capital Stock thereby acquired by it and to be bound by the same terms
and conditions that apply to the Shareholder under this Agreement and the
Purchase Agreement in a written instrument in a form and substance satisfactory
to the Holders.
6.04 Limitations on Co-Sales; F-Jotan Participation.
(a) Notwithstanding the foregoing, no Holder other than Rice
may, without the prior written consent of Rice, exercise its rights to
co-sell all or any part of its Capital Stock under this Article VI
unless and until Rice shall have been given any notice described in
Section 6.01 hereof (the "co-sale notice") prior to or concurrently
with any other Holder and shall have been given at least ten (10) days
from receipt of the co-sale notice to consult with the other Holders
about consummating the contemplated sale of their respective Capital
Stock on a pro rata basis.
(b) During such consultations, each Holder shall use
reasonable efforts to inform F-Jotan whether such Holder intends to
offer its Co-Sell Shares for sale; and, as soon as practicable, such
Holder shall advise F-Jotan in writing if it determines not to sell all
of the Co-Sale Shares which it is entitled to so sell (such shares to
not be sold, the "Opt-Out Shares") under this Article VI. F-Jotan shall
then be afforded the opportunity to sell a portion of its shares of
Capital Stock to the extent of such Opt-Out Shares as though F-Jotan is
a Holder under this Article IV with respect thereto and solely
Page 8
<PAGE>
for the purposes contemplated in this Section 6.04(b);
6.05 Termination. This Article VI shall terminate solely with respect
to any Shareholder who is an employee of the Company on the first day of the
month next following the date that the Company terminates the employment of such
Shareholder, as such an employee, without cause.
Article VII
Liquidity
7.01 Required Registration. At any time, Rice may, upon not more than
two (2) occasions, make a written request to the Company requesting that the
Company effect the registration of a certain number of Registrable Securities
pro rata for the accounts of Rice and the Southland Purchasers based upon the
respective number of Registrable Securities held by them. If and when Rice makes
any such request for registration, it shall use its best efforts to also have
included therein the Registrable Securities held by F-Jotan; provided, however,
that if the managing underwriter or underwriters, if any, of the offering of the
Registrable Securities for which registration has been demanded by Rice advises
the Holders that the success of the offering would be materially and adversely
affected by the inclusion of Registrable Securities of F-Jotan, then the amount
of securities to be registered for the accounts of the Holders shall be reduced
first by reducing the Registrable Securities of F-Jotan to be so included in
such registration and then by reducing pro rata the Registrable Securities held
by Rice and the Southland Purchasers. Notwithstanding the first sentence of this
Section 7.01, the Southland Purchasers or F-Jotan may, by such a written
request, exercise any such demand that Rice has not so requested for the benefit
of Rice and the Southland Purchasers under this Section 7.01 on the earliest
date to occur (the "Cut-Off Date") of (i) the date that Rice no longer owns,
directly or indirectly, any beneficial or other equity interest in respect of
the Capital Stock of the Company, (ii) the date which is one hundred eighty
(180) days after all of Rice's Issuable Warrant Shares have been duly registered
to permit disposition thereof in the public equity markets, and (iii) March 1,
2002. F-Jotan may, upon not more than one (1) occasion, make an independent
written request to the Company requesting that the Company effect the
registration of a certain number of Registrable Securities; provided, however,
that the Cut-Off Date shall have occurred prior to making such request.
After receipt of any such a request, the Company will, as soon as
practicable, notify all Holders of such request and use its best efforts to
effect the registration of all Registrable Securities that the Company has been
so requested to register by Rice or F-Jotan for sale, all to the extent required
to permit the disposition (in accordance with the intended method or methods
thereof) of the Registrable Securities so registered. In no event will any
Person other than a Holder be entitled to include any shares of Capital Stock in
any registration statement filed pursuant to this Section 7.01.
7.02 Incidental Registration. If the Company at any time proposes to
file on its behalf or on behalf of any of its security holders a registration
statement under the Securities Act on
Page 9
<PAGE>
any form (other than a registration statement on Form S-4 or S-8 or any
successor form unless such forms are being used in lieu of or as the functional
equivalent of, registration rights) for any class that is the same or similar to
Registrable Securities, it will give written notice setting forth the terms of
the proposed offering and such other information as the Holders may reasonably
request to all holders of Registrable Securities at least thirty (30) days
before the initial filing with the Commission of such registration statement,
and offer to include in such filing such Registrable Securities as any Holder
may request. Each Holder of any such Registrable Securities desiring to have
Registrable Securities registered under this Section 7.02 will advise the
Company in writing within thirty (30) days after the date of receipt of such
notice from the Company, setting forth the amount of such Registrable Securities
for which registration is requested. The Company will thereupon include in such
filing the number of Registrable Securities for which registration is so
requested, and will use its best efforts to effect registration under the
Securities Act of such Registrable Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each Holder
of such Registrable Securities that the success of the offering would be
materially and adversely affected by the inclusion of the Registrable Securities
requested to be included, then the amount of securities to be offered for the
accounts of Holders will be reduced first by reducing the Registrable Securities
of F-Jotan to be registered in such offering and second pro rata (according to
the Registrable Securities proposed for registration) to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter or underwriters; provided,
however, that if securities are being offered for the account of other Persons
as well as the Company, then with respect to the Registrable Securities intended
to be offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced will not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons (other than the Company) is reduced.
7.03 Form S-3 Registrations. In addition to the registration rights
provided in Sections 7.01 and 7.02 above, if at any time the Company is eligible
to use Form S-3 (or any successor form) for registration of secondary sales of
Registrable Securities, Rice or, after the Cut-Off Date, any Holder of
Registrable Securities may request in writing that the Company register shares
of Registrable Securities on such form. Upon receipt of such request, the
Company will promptly notify all holders of Registrable Securities in writing of
the receipt of such request and each such Holder may elect (by written notice
sent to the Company within thirty (30) days of receipt of the Company's notice)
to have its Registrable Securities included in such registration pursuant to
this Section 7.03. Thereupon, the Company will, as soon as practicable, use its
best efforts to effect the registration on Form S-3 of all Registrable
Securities that the Company has so been requested to register by such Holder for
sale. The Company will use its best efforts to qualify and maintain its
qualification for eligibility to use Form S-3 for such purposes.
7.04 Rule 144 Availability. Notwithstanding the foregoing, the Company
will not be obligated to register any Registrable Securities as to which counsel
acceptable to the Holders
Page 10
<PAGE>
renders an opinion in form and substance satisfactory to the Holders to the
effect that such Registrable Securities are freely saleable without limitation
as to volume, manner of sale, or otherwise under Rule 144 under the Securities
Act.
7.05 Registration Procedures. In connection with any registration of
Registrable Securities under this Article VII, the Company will, as soon as
practicable:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective until the earlier of such time as all Registrable Securities
subject to such registration statement have been disposed of or the
expiration of one hundred eighty (180) days.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement until the earlier of
such time as all of such Registrable Securities have been disposed of
or the expiration of one hundred eighty (180) days (except with respect
to registrations effected on Form S-3 or any successor form, as to
which no such period shall apply);
(c) furnish to each Holder such number of copies of the
registration statement and prospectus (including, without limitation, a
preliminary prospectus) in conformity with the requirements of the
Securities Act (in each case including all exhibits) and each amendment
or supplement thereto, together with such other documents as any Holder
may reasonably request;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder reasonably requests, and
do such other acts and things as may be reasonably required of it to
enable such holder to consummate the disposition in such jurisdiction
of the securities covered by such registration statement;
(e) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securities holders, as soon as practicable, an earnings
statement covering the period of at least twelve months beginning with
the first month after the effective date of such registration
statement, which earnings statement will satisfy the provisions of
Section 11(a) of the Securities Act;
(f) provide and cause to be maintained a transfer agent and
registrar for Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
Page 11
<PAGE>
(g) if requested by the underwriters for any underwritten
offering of Registrable Securities on behalf of a Holder of Registrable
Securities pursuant to a registration requested by Rice under Section
7.01, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
provisions with respect to indemnities and contribution as are
reasonably satisfactory to such underwriters and the Holders; the
Holders on whose behalf Registrable Securities are to be distributed by
such underwriters will be parties to any such underwriting agreement
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters,
will also be made to and for the benefit of such Holders of Registrable
Securities; and no Holder of Registrable Securities will be required by
the Company to make any representations or warranties to or agreements
with the Company or the underwriters other than reasonable and
customary representations, warranties, or agreements regarding such
Holder, such Holder's Registrable Securities, such Holder's intended
method or methods of disposition, and any other representation required
by law;
(h) furnish, at the written request of any Holder, on the date
that such Registrable Securities are delivered to the underwriters for
sale pursuant to such registration, or, if such Registrable Securities
are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities
becomes effective, (i) an opinion in form and substance reasonably
satisfactory to such Holders, and addressing matters customarily
addressed in underwritten public offerings, of the counsel representing
the Company for the purposes of such registration (who will not be an
employee of the Company and who will be satisfactory to such Holders),
addressed to the underwriters, if any, and to the selling Holders; and
(ii) a letter (the "comfort letter") in form and substance reasonably
satisfactory to such Holders, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the selling Holders making such request (and, if such accountants
refuse to deliver the comfort letter to such Holders, then the comfort
letter will be addressed to the Company and accompanied by a letter
from such accountants addressed to such Holders stating that they may
rely on the comfort letter addressed to the Company); and
(i) during the period when the registration statement is
required to be effective, notify each selling Holder of the happening
of any event as a result of which the prospectus included in the
registration statement contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Page 12
<PAGE>
It will be a condition precedent to the obligation of the Company to
take any action pursuant to this Article VII in respect of the Registrable
Securities that are to be registered at the request of any Holder of Registrable
Securities that such Holder furnish to the Company such information regarding
the Registrable Securities held by such Holder and the intended method of
disposition thereof as is legally required in connection with the action taken
by the Company. The managing underwriter or underwriters, if any, for any
offering of Registrable Securities to be registered pursuant to Section 7.01 or
7.03 will be selected by the Holders of a majority of the Registrable Securities
being so registered.
7.06 Allocation of Expenses. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Article VII, including,
without limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e) expenses of any
special audits or comfort letters incident to or required by any such
registration or qualification; and (f) expenses of complying with the securities
or blue sky laws of any jurisdictions in connection with such registration or
qualification. Each Holder will severally bear the expense of its underwriting
fees, discounts, or commissions relating to its sale of Registrable Securities.
7.07 Listing on Securities Exchange. If the Company lists any shares of
Capital Stock on any securities exchange or on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar system, it will,
at its expense, list thereon, maintain and, when necessary, increase such
listing of, all Registrable Securities.
7.08 Holdback Agreements.
(a) If any registration pursuant to Section 7.02 is in
connection with an underwritten public offering, each Holder of
Registrable Securities agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the
effective date of such registration statement and ending on the one
hundred eightieth (180th) day after the effective date of such
registration statement; provided, that each Shareholder and each Person
that is an officer, director, or beneficial owner of five percent (5%)
or more of the outstanding shares of any class of Capital Stock enters
into such an agreement.
(b) The Company and the Shareholder agree (i) not to effect
any public sale or distribution during the period seven (7) days (or
such longer period as may be prescribed by Rule 10b-6 under the
Exchange Act) prior to the effective date of the registration statement
employed in any underwritten public offering and ending on the one
hundred eightieth (180th) day after any such registration statement
contemplated by Sections 7.01 or 7.03 has become effective, except as
part of such underwritten public offering pursuant to such registration
statement and except pursuant to securities registered on Forms S-4 or
S-8 of the Commission or any successor forms, and (ii) use
Page 13
<PAGE>
their best efforts to cause each holder of its equity securities or any
securities convertible into or exchangeable or exercisable for any of
such securities, in each case purchased from the Company at any time
after the date of this Agreement (other than in a public offering), to
agree not to effect any such public sale or distribution of such
securities during such period.
7.09 Rule 144. At all times, the Company will take such action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell shares of Registrable Securities without registration
pursuant to and in accordance with (a) Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation adopted by the Commission. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
7.10 Rule 144A. The Company agrees that, upon the request of any Holder
or any prospective purchaser of a Warrant or Warrant Shares designated by a
Holder, the Company will promptly provide (but in any case within fifteen (15)
days of a request) to such Holder or potential purchaser, the following
information:
(a) a brief statement of the nature of the business of the
Company and any Subsidiaries and the products and services they offer;
(b) the most recent consolidated balance sheets and profit
and losses and retained earnings statements, and similar financial
statements of the Company for such part of the two preceding fiscal
years prior to such request as the Company has been in operation (such
financial information will be audited, to the extent reasonably
available); and
(c) such other information about the Company, any
Subsidiaries, and their business, financial condition, and results of
operations as the requesting Holder or purchaser of such Warrants
requests in order to comply with Rule 144A, as amended, and the
antifraud provisions of the federal and state securities laws.
The Company hereby represents and warrants to any such requesting Holder and any
prospective purchaser of Warrants or Warrant Shares from such Holder that the
information provided by the Company pursuant to this Section 7.10 will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
7.11 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company will not, without the prior written consent
of the Holders, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
7.01, unless under the terms of such agreement, such holder or prospective
Page 14
<PAGE>
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not reduce the amount of the
Registrable Securities of the Holders that is included or (b) to make a demand
registration that could result in such registration statement being declared
effective prior to the effectiveness of the first registration statement
effected under Section 7.01 or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 7.01.
7.12 Exchange Rights. At the option of any Holder, any such Holder may
exchange its Warrant or Warrant Shares for fully paid and nonassessable shares
(calculated as to each exchange to the nearest one-thousandth (1/1000) of a
share and rounded upward) of common stock of any Affiliate or Subsidiary of the
Company that on the date of receipt of the Exchange Notice has a class of
capital stock registered under section 12 of the Exchange Act or within one year
and 120 days will have a class of capital stock so registered (not subject to an
effective stock pledge to an agent for the benefit of the Senior Lenders) (such
Affiliate or Subsidiary will be referred to in this Agreement as the "Exchange
Company" and the common stock of such Affiliate or Subsidiary will be referred
to in this Agreement as "Exchange Common Stock"). Each $1,000 worth of Warrants
or Warrant Shares (valued at Fair Market Value on the date the Exchange Notice
was sent), will be exchangeable for $1,000 worth of Exchange Common Stock
(valued at Fair Market Value on the date that the Exchange Notice was sent). To
exchange Warrants or Warrant Shares into Exchange Common Stock, the Holder will
surrender at the principal office of the Exchange Company the Warrants or
certificate or certificates evidencing the Warrant Shares duly endorsed or
assigned to the Company, and give written notice to the Company at such office
that it elects to exchange such Warrants or Warrant Shares (the "Exchange
Notice"). Warrants or Warrant Shares will be deemed to have been exchanged
immediately prior to the close of business on the day of the surrender for
exchange in accordance with the foregoing provisions, and the Person or Persons
entitled to receive the Exchange Common Stock issuable upon any such exchange
will thereupon be treated for all purposes as the record holder or holders of
the Exchange Common Stock. As promptly as practicable on or after the exchange
date, the Exchange Company will issue and deliver a certificate or certificates
for the number of full shares of Exchange Common Stock issuable upon exchange to
the Person or Persons entitled to receive such shares. Upon exchange of any
Issued Warrant Shares, the Company will pay or make with respect to Issued
Warrant Shares any dividends or other distributions that have been declared on
the Warrant Shares in kind or cash, as the case may be. If any Holder exchanges
its Warrants or Warrant Shares for shares of Exchange Common Stock pursuant to
this Section 7.12, such Holder will have all of the rights set forth in this
Article VII, except that for the purposes of this Article VII the term "Company"
will refer instead to the Exchange Company and the term "Registrable Securities"
will refer to the shares of Exchange Common Stock held by such Holder.
7.13 Other Rights. The Company will not grant to any person any
registration rights without the consent of the Holders.
Page 15
<PAGE>
Article VIII
Directors
8.01 Voting Agreement. To ensure compliance with this Article VIII,
each of the Shareholder, Rice, the Southland Purchasers and F-Jotan hereby
irrevocably covenants and agrees to vote, or give or withhold consent with
respect to, all shares of Capital Stock now owned or later acquired by each of
them, all in accordance with the terms of this Article VIII. A counterpart of
this Agreement will be deposited with the Company at its principal place of
business or registered office and will be subject to the same right of
examination by a shareholder of the Company, in person or by agent or attorney,
as are the books and records of the Company.
8.02 Board of Directors. (a) So long as the provisions of this Article VIII
remain in effect, each (now or hereafter) party to this Agreement other than
Rice will, at the request of Rice or its designees, vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later acquired
by such party so that at all times each and every individual designated by Rice
or its respective designees in accordance with (and subject to the limitations
in) Section 4.11 of the Purchase Agreement will be a director of the Company;
provided, however, that Rice will not have any obligation to designate or cause
any individual to serve on the board of directors of the Company. No director
designated by Rice or its designee may be removed without the prior written
consent of Rice.
(b) So long as the provisions of this Article VIII remain in
effect, each (now or hereafter) party to this Agreement other than the Southland
Purchasers will, at the request of the Southland Purchasers or its designee,
vote, or give or withhold consent with respect to, all shares of Capital Stock
now owned or later acquired by such party so that at all times the one
individual designated by the Southland Purchasers or their respective designee
in accordance with Section 4.11 of the Purchase Agreement (which may be F-Jotan
or its designee) will be a director of the Company; provided, however, that the
Southland Purchasers will not have any obligation to designate or cause any
individual to serve on the board of directors of the Company. No director
designated by the Southland Purchasers or its designee may be removed without
the prior written consent of the Southland Purchasers and F-Jotan.
(c) Any Purchaser or F-Jotan may, at any time, terminate its
rights under this Article VIII by providing written notice of such termination
to the Company.
8.03 Termination. The obligations contained in this Article VIII shall
terminate, solely with respect to any Shareholder who is an employee of the
Company, on the first day of the month next following the date that the Company
terminates the employment of such Shareholder, as such an employee, without
cause.
Page 16
<PAGE>
Article IX
Representations and Warranties; Covenants
9.01 Representations and Warranties and Covenants of the Company and
the Shareholder. Each of the representations and warranties set forth in Section
3.01 of the Purchase Agreement and each of the covenants set forth in Article IV
of the Purchase Agreement are hereby restated and incorporated by reference in
this Agreement as though set forth in this Agreement, and is made by the Company
and the Shareholder as made in the Purchase Agreement for the benefit of each
Purchaser.
9.02 Representations and Warranties of the Purchaser. Each of the
representations and warranties of each Purchaser set forth in Section 3.02 of
the Purchase Agreement is hereby restated and incorporated by reference in this
Agreement as though set forth in this Agreement for the benefit of the Company
and the Shareholder.
Article X
Conditions
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions:
10.01 Note Agreement and Purchase Agreement Conditions. All of the
conditions precedent to the obligations of each Purchaser under the Note
Agreement and the Purchase Agreement will have been satisfied in full or waived.
10.02 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 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.
Page 17
<PAGE>
Article XI
Miscellaneous
11.01 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) 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.
11.02 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.
11.03 Integration. This Agreement, the Note Agreement and the 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
Page 18
<PAGE>
amended or supplemented except by a writing signed by Company, the
Shareholder, and each Holder.
11.04 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.
11.05 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.
11.06 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
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: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Fax: 214-939-6100
Page 19
<PAGE>
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
with courtesy copies to: Alston & Bird, L.L.P.
One Atlanta Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Stephen A. Opler
Fax: (404) 881-7777
If to the Shareholder, at: Address of such Shareholder beneath the
name of such Shareholder 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 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.
11.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and permitted 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 Purchase Agreement, and the agreements and instruments related hereto and
thereto, in a form
Page 20
<PAGE>
and substance reasonably satisfactory to the Company. .
11.08 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.
11.09 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.
11.10 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.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
11.12 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.
11.13 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.
11.14 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
Page 21
<PAGE>
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.
11.15 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.
11.16 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.
11.17 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 11.17 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 11.17, (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 11.17 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.
11.18 Termination and Release of Prior F-Jotan Agreements. F-Jotan, the
Company and the Investors (as defined below) hereby agree that, for good and
valuable consideration, receipt of which is hereby acknowledged, including
obtaining the rights set forth hereinabove and in the other Purchase Documents,
each of them hereby terminates, as of the date hereof, all of its rights,
remedies, indemnities, benefits, priorities and privileges, howsoever described,
in respect of the Company under the Prior Series A Documents and forever
releases the Company, as of
Page 22
<PAGE>
the date hereof, from all obligations to it thereunder. The "Prior Series A
Documents" shall mean and refer to (i) that certain Series A Convertible
Preferred Stock Purchase Agreement, dated as of May 16, 1996, among the Company,
F-Jotan and the Investors listed in Exhibit A to such agreement (the
"Investors"), (ii) that certain Investors Rights Agreement, dated as of May 16,
1996, among the Company, the holders of the Series A Convertible Preferred Stock
and the Investors, (iii) that certain Stockholder Agreement, dated as of May 16,
1996, among the Company, the holders of the Company's common stock listed on the
signature pages to such agreement and the Investors, and (iv) all agreements,
instruments, documents and certificates, including Stock Certificate Pa-1 For
1,265,823 Shares Of Series A Preferred, executed and delivered and/or filed in
connection therewith, including without limitation, the Articles of Amendment of
the Restated Articles of Incorporation of the Company dated May 15, 1996.
Page 23
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 24
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
Redeemable Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
Page 25
<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:
Jeremiah M. Callahan,
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 26
<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:
Jeremiah M. Callahan,
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 27
<PAGE>
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: ......................
Jeremiah M. Callahan,
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 28
<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 29
<PAGE>
ANNEX A
<PAGE>
ARTICLES OF AMENDMENT
TO RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
1. The name of the corporation is Jotan, Inc.
2. Article IV of the Restated Articles of Incorporation of the
Corporation is amended by 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.
................................................
Shea E. Ralph, Director
President of Jotan, Inc.
ATTEST:
.....................................................
David Freedman
Secretary of Jotan, Inc.
<PAGE>
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
[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, 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 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
Page 1
<PAGE>
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 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
Page 2
<PAGE>
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:
(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 traded over-the-counter, the
value shall be deemed to be the average of the
closing bid or sale prices (whichever are applicable)
over the 30-day period ending three business days
prior to the date of the Notice; and
(C) if there is no active public market, the
value shall be the fair market value thereof, as
reasonably determined by the Board of Directors in
good faith; and
(ii) the method of valuation of securities subject to
investment letter or other restrictions on free marketability
other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate of
the issuer or other participant in a transaction subject to
Rule 145 promulgated under the Securities Exchange Act of
1934, as amended, shall be to make an appropriate discount
from the market value determined as provided in clauses (A),
(B) or (C) of paragraph 3(c)(i) of this Section 4.2, to
reflect the adjusted fair market value thereof, as reasonably
determined by the Board of Directors in good faith.
(d) Notice. Written Notice 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 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 share of
Series A Convertible Preferred Stock could
Page 3
<PAGE>
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).
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 surrendered 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
give written notice to the Corporation at such office that it elects to
convert the same and shall state therein the name or names in which it
wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter and at
its expense, issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to
which it shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the
Page 4
<PAGE>
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
dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock, or shall effect a subdivision
of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, stock dividend,
reclassification or otherwise), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, in each
case without a corresponding adjustment to the Series A Convertible
Preferred Stock, then the Series A Conversion Price in effect
immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased,
as appropriate.
(e) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this
paragraph 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
evidences of indebtedness, shares or other securities
directly or indirectly convertible into or
exchangeable for Common Stock.
(C) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or,
pursuant to paragraph 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 or other
distribution on shares excluded from the
definition of Additional Shares of Common
Stock by the foregoing clause (1);
Page 5
<PAGE>
(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
(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 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 A
Conversion Price shall be made upon the subsequent
issue of Convertible Securities or
Page 6
<PAGE>
shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage
of time or otherwise, for any change in the
consideration payable to the Corporation, or change
in the number of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series
A Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments
based thereon, shall, upon any such change becoming
effective, be recomputed to reflect such change
insofar as it affects such Options or the rights of
conversion or exchange under such Convertible
Securities (provided, however, that no such
adjustment of the Series A Conversion Price shall
affect Common Stock previously issued upon conversion
of the Series A Convertible Preferred Stock);
(C) upon the expiration of any such Options
or any rights of conversion or exchange under such
Convertible Securities that shall not have been
exercised, the Series A Conversion Price computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(1) in the case of Convertible
Securities or Options, the only Additional
Shares of Common Stock issued were the
shares of Common Stock, if any, actually
issued upon the exercise of such Options or
the conversion or exchange of such
Convertible Securities and the consideration
received therefor was the consideration
actually received by the Corporation for the
issue of all such Options, whether or not
exercised, plus the consideration actually
received by the Corporation upon such
exercise, or for the issue of all such
Convertible Securities that actually were
converted or exchanged, plus the additional
consideration, if any, actually received by
the Corporation upon such conversion or
exchange; and
(2) in the case of Options for
Convertible Securities, only the Convertible
Securities, if any, actually issued upon the
exercise thereof were issued at the time of
issue of such Options and the consideration
received by the Corporation for the
Additional Shares of Common Stock deemed to
have been then issued was the consideration
actually received by the Corporation for the
issue of all such Options, whether or not
exercised, plus
Page 7
<PAGE>
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;
(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;
Page 8
<PAGE>
CP = the former Series A Conversion
Price;
N = the number of shares of Common
Stock outstanding immediately prior
to such issuance (or deemed
issuance) assuming exercise or
conversion of all outstanding
securities exercisable for or
convertible into Common Stock;
C = the number of shares of Common
Stock that the aggregate
consideration received or deemed to
be received by the Corporation for
the total number of additional
securities so issued or deemed to be
issued would purchase if the
purchase price per share were equal
to the then existing Conversion
Price;
AS = the number of shares of Common
Stock so issued or deemed to be
issued.
Notwithstanding the foregoing, the Series A Conversion Price
shall not be so reduced at such time if the amount of such
reduction would be an amount less than $0.01, but any such
amount shall be carried forward and deduction with respect
thereto made at the time of and together with any subsequent
reduction that, together with such amount and any other amount
or amounts so carried forward, shall aggregate $0.01 or more.
(v) Determination of Consideration. For purposes of
this paragraph 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
Page 9
<PAGE>
of such consideration so received, computed
as provided in clauses (1) and (2) above, as
reasonably determined in good faith by the
Board of Directors; and
(B) Options and Convertible Securities. The
consideration per share received by the Corporation
for Additional Shares of Common Stock deemed to have
been issued pursuant to paragraph 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 in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such number) payable to the
Corporation upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities, or in the case
of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange
of such Convertible Securities by
(2) the maximum number of shares of
Common Stock (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such number)
issuable upon the exercise of such Options
or the conversion or exchange of such
Convertible Securities.
(f) Other Distributions. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities of the Corporation
or any of its subsidiaries, other than additional shares of Common
Stock, then in each such event provision shall be made so that the
holders of Series A Convertible Preferred Stock shall receive, upon the
conversion thereof, the securities of the Corporation that they would
have received had their stock been converted into Common Stock
immediately prior to such event.
(g) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any
consolidation or merger of the Corporation with or into another entity
or entities or the conveyance of all or substantially all of the assets
of the Corporation, each share of Series A Convertible Preferred Stock
(other than shares of Series A Convertible Preferred Stock for which
the holder thereof has elected to receive the Series A Preferential
Amount pursuant to paragraph A.3 above) shall
Page 10
<PAGE>
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 and
readjustments, (ii) the Series A Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property that at the time would be received upon the
conversion of Series A Convertible Preferred Stock.
(i) 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 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
Page 11
<PAGE>
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
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
Page 12
<PAGE>
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 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, 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 Date 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:
(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
Page 13
<PAGE>
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 any time to
holders of record on the Series B Record Date therefor.
(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.
Page 14
<PAGE>
(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 funds 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
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 issued 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
Page 15
<PAGE>
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. Any 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 B.4 of Section 4.2, the number of directors
shall be such number as may be 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.
(a) Optional Redemption. The Series B Redeemable 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
Page 16
<PAGE>
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:
<TABLE>
<CAPTION>
Redemption Date Price
<S> <C> <C>
(i) On or after the Initial Issue Date and 112.5% of the Series B
before the first anniversary of Preferential Amount
the Initial Issue Date
(ii) On or after the first anniversary of the 110.71% of the Series B
Initial Issue Date and before the second Preferential Amount
anniversary of the Initial Issue Date
(iii) On or after the second anniversary of the 108.92% of the Series B
Initial Issue Date and before the third Preferential Amount
anniversary of the Initial Issue Date
(iv) On or after the third anniversary of the 107.14% of the Series B
Initial Issue Date and before the fourth Preferential Amount
anniversary of the Initial Issue Date
(v) On or after the fourth anniversary of the 105.36% of the Series B
Initial Issue Date and before the fifth Preferential Amount
anniversary of the Initial Issue Date
(vi) On or after the fifth anniversary of the 100% of the Series B
Initial Issue Date Preferential Amount
</TABLE>
(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
circumstance preventing such redemption no longer exists, at which time
the Company will redeem the Series B Redeemable Preferred Stock. The
Company
Page 17
<PAGE>
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 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 Stock 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
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.
Page 18
<PAGE>
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
the purpose of increasing the value of any class of stock of the
Corporation
Page 19
<PAGE>
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, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4.2 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 of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder
Page 20
<PAGE>
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 day 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
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:
(1) The total number of shares of Series A
Convertible Preferred Stock
Page 21
<PAGE>
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 Initial Purchase Price Per Share" shall mean $1.58 per share
of Series A Convertible Preferred Stock.
"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
Page 22
<PAGE>
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.
"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 (8.0%) 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
Page 23
<PAGE>
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.
"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 24
<PAGE>
