FORM 10-KSB - ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File Number: 0-24188
JOTAN, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3181162
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
118 WEST ADAMS STREET, SUITE 900
JACKSONVILLE, FLORIDA 32202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 904-355-2592
including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. Yes [x] No [ ]
Registrant's revenues for the fiscal year ended December 31, 1997 were
$60,257,468.
The aggregate market value of the voting common stock held by non-
affiliates of the Registrant as of April 15, 1998 was approximately
1,661,313.
The number of shares outstanding of Common Stock, $.01 par value, as of
April 15, 1998: 21,414,013.
Documents Incorporated by Reference
None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
<PAGE>
Jotan, Inc.
Form 10-KSB
Table of Contents
PART I
Item 1. Description of the Business . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of Security Holders . 7
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters . . . . . . . . . . . . . 7
Item 6. Management's Discussion and Analysis. . . . . . . . . 8
Item 7. Financial Statements . . . . . . . . . . . . . . . . 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons . . . . . . . . . . . . . . . . . . . . . . . 15
Item 10. Executive Compensation . . . . . . . . . . . . . . . 17
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Certain Relationships and Related Transactions . . . 20
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . 22
<PAGE>
PART I
Item 1. Description of the Business
Business Development
Jotan, Inc. (the "Company") was originally organized on December 5, 1988
under the laws of the State of Idaho as Antelope Resources, Inc.
Following the acquisition of Jotan, Inc., a Florida corporation, in March
1994, the Company, through its wholly-owned subsidiary, Jotan-Florida,
became actively engaged in the business of distributing packaging and
shipping supplies for industrial customers in the southeastern United
States.
On May 14, 1996 the stockholders approved a proposal to change the
Company's state of incorporation from Idaho to Florida and to increase the
Company's authorized shares of common stock from ten million (10,000,000)
to forty million (40,000,000) and to authorize a class of blank-check
preferred stock. The re-incorporation and the change in authorized shares
were accomplished by merging the Company into the Company's wholly-owned
subsidiary, Jotan-Florida.
On March 4, 1997 the Company completed the acquisition of 100% of the
stock of Southland Holding Company ("SHC"). The subsidiaries of SHC and
one affiliate of the Company merged with and into SHC in 1997 which
changed its name to Southland Container Packaging Corp. ("Southland").
Southland is a distributor of packaging and shipping supplies with eleven
distribution centers throughout the United States. Southland served
primarily the moving and storage industry, but also provided packaging
products to the air freight and perishable food markets. As of June 20,
1997 the Company completed the acquisition of the assets of Cove Container
Corporation ("Cove"). Cove is a distributor of packaging and shipping
supplies with a distribution center located in Pontiac, Michigan, and a
manufacturing facility in West Branch, Michigan. Cove serves both the
industrial and the moving and storage industries.
The Company's principal executive offices are located at 118 West Adams
Street, Suite 900, P.O. Box 836, Jacksonville, Florida 32201, and its
telephone number is (904) 355-2592.
Present Business Activities
The Company is a distributor of packaging and shipping supplies with
twenty-four distribution centers and two production facilities located
throughout the United States. The Company sells to a broad customer base
including industrial, moving and storage, air freight, and perishable food
market segments. Prior to March 1997, Jotan, Inc. was a southeast
regional distributor of packaging materials providing "Just On Time As
Needed" delivery service for its industrial customers.
Industrial Market
The Company offers its industrial customers a comprehensive line of
products and services on a "Just On Time As Needed" (Jotan) basis, whereby
the Company determines the daily packaging and shipping supply demands of
its customers and delivers to the customer, as needed, the
finished packaging and shipping products tailored to the customer's needs.
The Company designs a supply system for each customer based on "just in
time" inventory management by providing all of the customer's packaging
and shipping supplies as needed.
The Company has developed a supply system of inventory management that
provides a single source for all of its customers' packaging and shipping
supplies. It is designed to save the customer time, effort, storage space
and money. By using the Company's services, a customer can eliminate its
packaging and shipping supplies inventories thereby freeing up warehouse
space, reducing labor costs and reducing required capital. Customers can
fulfill their packaging and shipping supply needs on a schedule tailored
to their specific production runs and manufacturing systems. Common
problems encountered by manufacturers such as procurement, storage,
delivery and financing of packaging and shipping supplies become the
responsibility of the Company.
Moving and Storage Market
The Company sells and distributes corrugated moving supplies, wrapping and
cushioning materials, moving van and warehouse pads, material handling
equipment, and other supplies to the moving and storage industry. The
Company offers the capability for customers to pick up products from
geographically dispersed distribution centers. This is extremely
important to the many "over the road" drivers who make up a large portion
of the service providers in the moving and storage industry.
Perishable Product Packaging and Air Freight Markets
The Company provides packaging products to air freight haulers and seafood
and agricultural products producers. These include air freight
containers, coated corrugated containers, and other packaging materials
specifically designed for the unique requirements of the perishable
product shipper. The air freight business has become the dominant market
segment for the west coast operations, and the perishable packaging
product lines are rapidly growing throughout the southeast.
Products
The Company's supplier base includes all the major integrated forest
products manufacturers. Together with a regional supplier base serving
smaller run specialty requirements, the Company possesses sufficient
supply capacities to meet the demands of the Company and its customers.
The Company also purchases from its suppliers products such as bubble and
shrink wrap, foam filling, packing peanuts, pallet wrap, tape, labels, and
related packaging equipment. Because there are many manufacturers of its
products, the Company does not rely on any single supplier or limited
source in order to meet customer demands; and the Company has available to
it several practical alternative sources for all of its products.
Research and Development
The Company has not allocated funds for conducting research and
development activities and, because of the nature of the Company's
business, it is not anticipated that funds will be allocated for research
and development in the immediate future. Development of special or
customized products for a customer is usually facilitated through the
Company's representatives working closely with the customer to design the
specific product required to meet the customer's needs.
Marketing and Distribution
The Company distributes its products over a broad geographical area, with
distribution centers located in the northeast, southeast, mid-west, south
central, and western United States. Each of the Company's service and
distribution centers concentrates on attracting and retaining customers
from within the general geographical area of the facility. From its
corporate headquarters in Jacksonville, Florida, the Company provides its
distribution centers with planning and budgeting services, financial
controls, procurement, information systems, personnel training and
guidance in the marketing of specialized product lines. Inventory
maintained at each of the Company's facilities is based on customers'
requirements including the type of product needed and optimal production
runs. During 1997, the Company established and maintained new warehouse
operations in Carrollton, TX and Findlay, OH.
The Company maintains a direct sales force that solicits business from
potential customers within the immediate area of each respective service
and distribution center. Each of the Company's representatives works
closely with their customers to develop a customized plan to maximize the
efficiency of inventory control for packaging and shipping supplies.
Competition
The Company is in direct competition with manufacturers of corrugated
boxes and other manufacturers of packaging and shipping products that
market directly to end users. Many of the Company's competitors possess
greater financial and personnel resources than the Company. Management
believes that the Company is able to compete with these other companies
because of its more personalized service and because of its ability to
deliver packaging and shipping materials to its customers at a competitive
price on a just-on-time-as-needed basis. Such ability to compete,
however, depends upon the ability of the Company to finance its
acquisition of inventory sufficient to satisfy the customer.
In addition to competition from manufacturers, the Company also competes
with distributors who provide a similar distribution link between the
manufacturers and the end user. This is particularly true in the moving
and storage segment of the business. The moving and storage industry is a
mature industry. Packaging materials represent a significant component in
its cost structure. As a result of the similarity of services offered by
the Company and its major competitors, the price of packaging is a major
factor in the selection of a packaging vendor. Some of these competitors
have superior financial resources to the Company.
Certain competitive conditions existed in 1997 that materially affected
the performance of the Company. These conditions are discussed in "Item
3, Legal Proceedings."
Patents and Trademarks
The Company has filed a trademark application for the name "Jotan". The
Company has adopted and is the owner of the trademark "Thermal Shield"
which is the subject of a pending application in the United States Patent
and Trademark Office.
The Company has filed an application, and patent protection is pending for
"Method And Apparatus For Packaging Perishable Goods". These products are
marketed under the "Thermal Shield" trademark.
Government Regulation
The distribution of packaging and shipping supplies is not specifically
regulated by any particular government agency, either federally or
locally. Aside from the general business regulatory requirements, the
Company is not aware of any specific governmental approvals or licenses
that must be obtained or maintained to operate its business in the normal
course.
Employees
As of the date hereof, the Company employs approximately 240 people full-
time in management, administrative, sales, warehouse, distribution, and
production functions. Management currently anticipates hiring additional
employees as business warrants.
Item 2. Description of Property
The Company's principal place of business and executive offices are
located at 118 West Adams Street, Jacksonville, Florida 32202 and consist
of 5,000 square feet of office space which is subject to a five year lease
expiring in 1999. The Company has production, service, and distribution
centers consisting of warehouse and office space all leased except one, at
the following locations:
609 East 10th Street 610 East 10th Street 1730 Colonial
Jacksonville, FL Jacksonville, FL Thomasville, GA
502 McKean Street 1629 South Highway 14 2025 West Belt Line Road
Auburndale, FL Greer, SC Carrollton, TX
200 Northparke Drive 3001 Directors Row 3625 Oakcliff Road
Findlay, OH Orlando, FL Atlanta, GA
2211 F Dis. Center Dr. 1536 Castle Hayne Road 8620 Dorsey Run Road
Charlotte, NC Wilmington, NC Jessup, MD
333 Park Avenue 125 National Road 166 National Road
Federalsburg, MD Edison, NJ Edison, NJ
36 Holton Street 4490 Steelway Boulevard 120 West 155th Street
Winchester, MA Liverpool, NY Gardena, CA
3112 & 3114 Via Mondo 214 Shaw Road #7 2810 Marshal
Rancho Dominguez, CA San Francisco, CA Tacoma, WA
5075 Kinston Street 444 South Boulevard E 3891 South M-76
Denver, CO Pontiac, MI West Branch, MI
Each of the Company's properties is leased except the Thomasville, Georgia
property which is owned by the Company.
Item 3. Legal ProceedingsThe following is a list of the material legal
proceedings instituted by or pending against the Company:
Jotan, Inc. v. Golden State Container et. al.
The Company instituted a civil action against Golden State Container, Inc.
(k/n/a Victory Packaging, Inc.) ("Golden State") and the following
defendants: David Rapson, Pete Dougherty, Fred Brown, Jeff Barber, Mason
Shelby, Ron Sheldon, Dawn Berti, Mike O'Malley, George Miller, Cheryl
Becker and Tomas Toro (collectively, the "Defendants") on January 22,
1998, in the 192nd District Court of Dallas County, Dallas, Texas for
Injunctive Relief and Temporary Restraints. The action was filed to
restrain all such named Defendants from continuing to take certain actions
or taking action which would (i) result in the breach of existing
contractual relations with certain named Defendants, (ii) result in
tortious interference with business contracts, and (iii) result in a
violation of state antitrust laws and public policy in regard to
disclosure of confidential and proprietary information. A temporary
restraining order was granted by the 192nd District Court of Dallas. Upon
receipt of service of process, counsel for Defendant, Golden State,
entered into a Rule 11 Agreement with counsel for the Company, whereby the
temporary restraining order was modified. Thereafter, the Defendant,
Golden State, filed a Motion to Transfer Venue from Dallas County to
Harris County, Houston, Texas, the domicile of Golden State. The Motion
to transfer venue was granted by the Dallas Court on February 5, 1998.
The Company then instituted an action in the 270th District Court of
Harris County for Injunctive Relief and Temporary Restraints on February
6, 1998. In such proceeding, the Court instructed the parties to reach an
agreement. Counsel for Defendants and the Company then agreed under the
terms of a Rule 11 Agreement, as adopted and entered by the Court, to
restrain certain acts of the Defendant relating to the Company's employees
and operations. Subsequently, the Motion to Transfer Venue as granted by
192nd Dallas Court was transferred and assigned to the 189th District
Court in Harris County. Defendants have filed motions to consolidate the
claims brought in the 270th Court into the 189th Court in Harris County.
The Company has filed a reply and Plea in Abatement in regard to
Defendants' motion. The Company simultaneously filed a Motion to Transfer
the claims transferred and assigned to the 189th Court into the 270th
Court where the agreed to Rule 11, as adopted and entered by the Court as
a Temporary Injunction is in place. Further, the Company is preparing
responses to certain special appearances of named Defendants filed in the
270th Court. Litigation continues with the Temporary Injunction, as
adopted by the Court, in place as mutually agreed by the parties and as
adopted by the Court until the time of trial. There is no assurance that
any injunction will remain in place after the trial.
John L. Sanders et. al. v. Jotan, Inc.
--------------------------------------
On January 8, 1998, the Company sent a notice of claims letter to John L.
Sanders, Jr., Lester G. Gegenheimer, and William P. Blincoe III, the
selling shareholders of Southland ("Selling Shareholders"), demanding in
excess of Eleven Million Dollars ($11,000,000) representing losses
suffered for breaches of certain representations and warranties and
covenants in the Share Purchase Agreement dated December 19, 1996 as
supplemented and amended ("Purchase Agreement"), in accordance with the
provisions thereof. Upon receipt of the notice letter, the Selling
Shareholders responded by asserting a claim for arbitration pursuant to
the Purchase Agreement. The Selling Shareholders assert in the
Arbitration Notice, filed January 23, 1998, claims for payment of certain
bonuses and adjustment increases to the selling price of the shares of the
capital stock of Southland. The Company is presently preparing its
response to the Arbitration Notice and a counterclaim based upon the
claims asserted in the notice of claims letter as sent to the Selling
Shareholders on January 8, 1998. The matter is pending before the
American Arbitration Association ("AAA") and will be conducted pursuant to
the rules and procedures of the AAA. There is no assurance that the
Company will prevail on all or any of its claims against the Selling
Shareholders. The Company believes that any liabilities related to this
claim have been adequately provided for in the financial statements.
The February One Group, Inc. vs. Jotan, Inc.
--------------------------------------------
On July 18, 1996, The February One Group, Inc. filed suit against the
Company in a dispute over the repayment of a loan that February One made
to the Company. The Company believes that it has an offsetting claim
against February One in a dispute over a failed financing attempt by
Coleman & Co. The Company believes that any liabilities to February One
have been adequately provided for in its financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
Information required by this item number has been omitted because it is
inapplicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters
There has not been an established public trading market for the shares of
the Company's common stock. Quotations on the Company's common stock,
when available, are published on the OTC Bulletin Board under the symbol
"JTAN", and in the National Quotation Bureau, Inc. (NQB) pink sheets under
"Jotan, Inc."
As of December 31, 1997, there were 126 holders of record of the common
stock, which figure does not take into account those shareholders whose
certificates may be held in the name of broker-dealers. In addition, there
are three holders of record of warrants immediately exercisable into
shares of the common capital stock of the Company.
Dividends
The Company has not declared or paid cash dividends or made distributions
in the past, and the Company does not anticipate that it will pay cash
dividends or make distributions to holders of the Company's common stock
in the foreseeable future. The Company, except as discussed below,
currently intends to retain and reinvest future earnings to finance its
operations.
Certain requirements exist as a result of amendments to the Credit
Agreement (defined hereinafter) that restrict the payment of dividends to
common equity holders.
Recent Sales of Unregistered Securities
As of May 16, 1996, the Company signed an agreement that resulted in the
sale of 1,265,823 shares of Series A Convertible Preferred Stock to F-
Jotan, L.L.C. ("F-Jotan"), an affiliate of Fairview Capital, L.L.C., a
Raleigh, North Carolina, based private investment company ("Fairview").
The Series A Convertible Preferred Stock carries an 8% annual dividend
payable in additional shares of preferred stock, beginning January 1,
1997. (As of April 14, 1998, F-Jotan held 1,435,705 shares of Series A
Convertible Preferred Stock.)
As of February 28, 1997, the Company entered into an agreement with Rice
Partners II, L.P. ("Rice") and two Fairview affiliates to purchase $10
million (face amount) of Series B Redeemable Preferred Stock together with
15,210,990 shares of immediately exercisable common stock warrants of the
Company related thereto, and $9,000,000 of 12.5% senior subordinated
notes. The Series B Redeemable Preferred Stock accrues dividends at a
rate of 8.0% per annum, payable quarterly in cash or, at the Company's
option, in kind by the issuance of additional shares of Series B
Redeemable Preferred Stock. As of June 20, 1997, the Company entered into
an agreement with Rice which resulted in Rice purchasing an additional
$2,625,000 of Series B Redeemable Preferred Redeemable Stock together with
3,620,473 shares of immediately exercisable common stock warrants of the
Company related thereto, and $2,625,000 of 12.5% senior subordinated
notes. (For a more complete discussion of the Fairview and Rice
transactions, see the "Liquidity and Capital Resources" section included
in Item 6 below).
As of January 23, 1998, Rice purchased an additional $250,000 of Series B
Redeemable Preferred Stock. As of April 14, 1998, the Company entered
into an agreement with Rice to borrow an additional $1.25 million in
exchange for certain 12.5% senior subordinated notes and warrants to
purchase 42,377,173 shares of the Company's common stock. Concurrently,
the Company issued warrants to Rice for the purchase of 8,475,638 shares
of Common Stock as additional consideration for Rice's $250,000 Series B
Redeemable Preferred Stock purchase in January 1998 (for further
discussion of these transactions, see "Liquidity and Capital Resources"
included in Item 6 below).
Item 6. Management's Discussion and Analysis
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-KSB.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
On March 4, 1997, the Company completed the acquisition of 100% of the
stock of SHC from the Selling Shareholders. On June 23, 1997, the Company
completed the acquisition of the assets of Cove. As a result of these
acquisitions, the Company's financial statements after March 4, 1997 are
not comparable to financial statements prior to that date.
To facilitate a meaningful comparison of the Company's operating
performance, the following discussion and analysis is presented on a
traditional basis. Included in the following discussion are comparisons
of EBITDA (earnings before interest, taxes, depreciation, and
amortization). The Company believes EBITDA is helpful in understanding
cash flow generated from operations that are available for taxes, debt
service and capital expenditures. In addition, EBITDA facilitates the
monitoring of covenants related to certain long-term debt. EBITDA should
not be considered by investors as an alternative to net earnings as an
indicator of the Company's operating performance or to cash flows as a
measure of its overall liquidity.
Jotan, Inc., and its consolidated subsidiaries reported a net loss of
$38.3 million for the year ended December 31, 1997 compared to net income
of $.2 million for the same period in 1996. EBITDA for the year ended
December 31, 1997 reflected a loss of $1.5 million compared to $.4 million
for the same period in 1996. This included the establishment of
significant reserves for bad debts, inventory obsolescence, and certain
termination and other costs.
The Company incurred significant losses during 1997 related to its
acquisition of Southland. The losses were due to, among other things,
loss of key employees and significant customers and increased, intense
competition. The Company evaluated these adverse indicators and
determined that they impaired the value of the long-lived assets acquired
from Southland. Accordingly, the Company determined that the fair value
of the goodwill and noncompete agreements was less than the carrying value
by approximately $29.9 million which was written off in late 1997.
Net sales increased to $60.2 million for the year ended December 31, 1997
from $11.7 million for 1996. The increase in net sales was primarily
related to post acquisition revenue generated by Southland and Cove. Net
sales also increased from new business at the Company's six existing
distribution center, and the two new distribution centers opened and
maintained in Carrollton, Texas and Findlay, Ohio during 1997.
Gross profit increased to $16.7 million for the year ended December 31,
1997 from $2.9 million for the year ended December 31, 1997. Gross profit
margins were improved as a result of post acquisition revenue generated by
Southland and Cove.
Operating expenses increased to $18.7 million in 1997 from $2.5 million
for the same period in 1996. The major factor contributing to these
increases was the inclusion of Southland's and Cove's operating expenses
in the post-acquisition period. Other contributing factors included
expenses related to integration of Southland's administrative functions,
and professional fees relating to staffing and regulatory filings.
Expenses (which do not constitute a write-down) related to amortization of
goodwill and non-compete agreements were $3.0 million. These expenses are
determined before recognition of the impairment and the associated
writedown described above. There was no amortization expense in the same
period of 1996. This increase relates to the amortization of goodwill and
non-compete agreements resulting from the Southland and Cove acquisitions.
Interest expense for 1997 increased to $3.6 million from $0.3 million for
the equivalent period of 1996. This increase reflected the impact of
increased borrowings related to the Southland and Cove acquisitions.
1997 Operations
Revenues and earnings in 1997 were both significantly short of
expectations. Increases in total industry capacity for containerboard and
softened demand for corrugated containers contributed to a decline in
published linerboard prices of approximately 45% by mid-year 1997. By
year end 1997, published industry prices had recovered more than 25% from
their low point in 1997. This, coupled with loss of key employees and
aggressive actions taken by competitors in several of Southland's markets,
had a significant adverse impact on revenue and earnings. After the
acquisition of Southland, the Company began an effort to enhance its
management strength. The Company recruited a President in June of 1997
and hired a new Chief Financial Officer in October of 1997. In mid-
December, the Board of Directors engaged Allomet Partners, Ltd. to analyze
the business and develop a strategy focused on cost reduction and improved
liquidity. After the resignation of the President in January, 1998, the
Board assigned one of the partners of Allomet Partners to function in the
role of Chief Executive Officer. In April, 1998, the Company selected
Raleigh C. Minor to be Chief Executive Officer of the Company and
Southland. Mr. Minor had been serving as Interim Chief Executive Officer.
Mr. Minor was also a principal of Allomet Partners Ltd., but resigned when
selected to be the Chief Executive Officer.
The Company under-estimated the time required to implement a common
information systems network throughout the acquired locations. This
resulted in delays to the achievement of certain cost-containment and
asset management goals initially targeted.
The Company faced intense competition after the acquisition of Southland.
Aggressive competitors pressured gross profit margins, particularly in the
moving and storage segment of the business. A number of the Company's key
sales employees were recruited by a competitor requiring a significant
rebuild of the sales staff. The Company filed a lawsuit against this
competitor and has obtained a Temporary Injunction restraining the
competitor from continuing to recruit the Company's employees. (See Item
3, "Legal Proceedings".)
On December 31, 1997, the Company failed to make the scheduled principal
and interest payments required in its Credit Agreement (as defined below).
On April 21, 1998, the Banks (as defined below) and Rice and Fairview
agreed to amendments to, and waivers of, the defaults under the Credit
Agreement and the Note Purchase Agreement, respectively (as defined
below). (See "Liquidity and Capital Resources" for more detail). The
Company and the Banks and Rice and Fairview have further amended the
Credit Agreement and the Note Purchase Agreement to help meet the
immediate capital needs of the Company.
In December 1997 the Company determined that its cash flow was
insufficient to provide its suppliers with normal payment terms.
Negotiations were held with certain key vendors who agreed to hold in
abeyance amounts due and transact future business on a cash on delivery or
cash in advance basis while a repayment plan was implemented and Bank
negotiations were completed. A plan has been developed and implemented,
with the approval of these vendors, to accomplish the repayment of past
due amounts over a two-year period while providing for the uninterrupted
supply of materials for the business.
The Company has developed a Business Plan to improve performance, meet
cash requirements including bank and vendor debt, and establish a
foundation for future operations. Key elements of the plan include
management restructuring, facility consolidations, improved working
capital management, cost containment, and expansion within certain product
lines. New management is proactive and is very focused on achieving the
plan. Although it is much too soon to predict success, there are many
marked changes as compared to 1997. There are risks associated with this
plan, including but not limited to, general economic and business
conditions, competitive market pricing, and failure to effectively
maintain vendor relationships.
Forward-looking statements in this filing including the above and those in
the footnotes to the financial statements, are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to risks and uncertainties,
and actual results could differ materially.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The following financial discussion does not give effect to the acquisition
of SHC and Cove on a consolidated basis and includes only those operations
of Jotan, Inc. prior to such acquisitions.
Net sales increased to $11.7 million, or 12.5% for the year ended December
31, 1996 from $10.4 million for the year ended December 31, 1995. The
increase in sales resulted from new business at the Company's four
existing distribution centers, which more than offset the impact of the
closure of the Chattanooga distribution center during the third quarter of
1995, and the decline in corrugated prices that occurred during the first
six months of 1996. The Company's existing distribution centers
experienced increased sales in 1996 of $2.2 million, a 23.2% increase
compared to the year ended December 31, 1995.
Cost of sales increased from $8.2 million, or 79.4% of sales, for the year
ended December 31, 1995 to $8.8 million, or 75.1% of sales, for the year
ended December 31, 1996. The decline in cost of goods sold as a
percentage of sales from 1995 to 1996 reflects the decrease in cost of
corrugated and packaging products which occurred during the first six
months of 1996. While a significant portion of those decreases were
passed on to customers, the Company was able, through better defined
product sourcing, increased inventory turns, and the improved financial
condition of the Company, to improve its gross profit margins.
Operating expenses declined 3.6% to $2.5 million for the year ended
December 31, 1996 as compared to $2.6 million for the same period in 1995.
Several factors contributed to this decrease including the closure of the
Chattanooga distribution center and lower expenses related to the
collection of account receivables.
As a result of the foregoing factors, the Company had a profit from
operations of $382,000 for the year ended December 31, 1996 compared to a
loss from operations of $472,158 for the year ended December 31, 1995.
Interest expense increased $45,897 to $271,138 for the year ended December
31, 1996 due principally to an increase in average debt outstanding. The
increased borrowings were incurred primarily to fund internal growth of
the Company. Other income declined to $63,107 in 1996 from $170,077 for
the year ended December 31, 1995, reflecting the completion of the vendor
settlement project in 1995.
As a result of the foregoing, the Company had net income of $173,658 or
primary earnings per share of $.03 for the year ended December 31, 1996
compared to a net loss of $527,322 or $.10 a share for the year ended
December 31, 1995.
Liquidity and Capital Resources
Term and Revolving Loans
The Company entered into a credit agreement (the "Credit Agreement") with
Banque Paribas individually and as agent for other participating banks
(the "Banks") as of February 28, 1997 to obtain up to $12 million in a
senior revolving credit facility and $27 million in senior
term/acquisition credit facilities. The Company terminated its then
existing long-term financing arrangement with CIT and paid off other long-
term credit facilities.
The Credit Agreement initially required minimum interest coverage, fixed
charge coverage, and EBITDA. As of August 31, 1997, the Company failed to
meet minimum EBITDA requirements. As of September 30, 1997, the Company
failed to meet the required interest coverage, fixed charge coverage, and
EBITDA requirements. Waivers were obtained from the Banks for defaults
occurring during August and September and financial covenants were waived
for October and November.
On November 14, 1997, the Company amended the Credit Agreement, reducing
the revolving credit facility from $9 million to $8 million, until April
1, 1998, when the revolving credit facility was to increase to $12
million.
On December 31, 1997, the Company did not make the scheduled principal and
interest payments required in the Credit Agreement. As of April 14, 1998,
the Company and Southland entered into a Fifth Amendment to its Credit
Agreement with the Banks (the "Fifth Amendment") whereby the Banks agreed
to defer the payment of accrued but unpaid interest through July 31, 1998
(and certain additional interest payments through September 30, 1998) by
execution of interest deferral notes bearing certain fixed and variable
rates. The Company agreed to shorten the maturity dates of the loans so
that all principal and interest under loans from the Banks will be due on
February 28, 2001. As a result of the Fifth Amendment, the Company's
working capital line of credit with the Banks extended and were renewed to
help meet the Company's financing requirements.
Subordinated Loans
In order to obtain financing for the acquisition of Southland and fund
future expansion, the Company signed an agreement as of February 28, 1997
with Rice to purchase $7 million of senior subordinated debt and $8
million of Series B Senior Redeemable Preferred Sock. F-Southland,
L.L.C., a North Carolina limited liability company, and FF-Southland,
L.P., a North Carolina limited partnership, entities affiliated with
Fairview (and sometimes collectively called the "Southland Purchasers")
purchased an aggregate amount of $2 million of such senior subordinated
debt (such debt held by Rice and the Southland Purchasers is herein
sometimes called, the "Subordinated Debt") and $2 million of such Series B
Redeemable Preferred Stock.
The Subordinated Debt is evidenced by notes (the "Subordinated Notes")
which bear interest at a rate of 12.5% per annum, with a default rate of
15.5% per annum. Interest is payable quarterly for eight years, with
principal due in equal quarterly installments during the seventh and
eighth years. Prepayments of the Subordinated Debt are allowed subject to
premiums ranging from 12.5% during the first year to 0% commencing in the
sixth year. The Subordinated Debt is subordinated to the Bank's debt and
is unsecured. Rice and the Southland Purchasers were paid pro rata
portions of a fee of $225,000 for providing the Subordinated Debt
financing. The Company agreed to issue to them immediately exercisable
warrants for an aggregate purchase of 3,233,833 shares of the Company's
common stock.
As of June 20, 1997, the Company entered into an agreement with Rice and
Fairview that resulted in Rice purchasing an additional $2,625,000 of
Series B Redeemable Preferred Stock. These additional funds were used to
provide the long-term financing of the Cove acquisition. As a result of
this agreement, the Banks amended the Credit Agreement waiving the
Company's compliance with certain covenants, thus allowing the Company to
temporarily borrow $2,625,000 under its acquisition credit facility of the
Credit Agreement. These funds were repaid to the Banks with proceeds from
the sale of the additional Series B Redeemable Preferred Redeemable Stock
to Rice in September 1997.
As of August 19, 1997, the Company amended the Subordinated Debt Agreement
to allow interest payments due on the last business day of August 1997,
November 1997 and February 1998 to be satisfied by the issue on or before
May 30, 1998 of Subordinated Notes (the "PIK Notes") for the amount of
such interest, on the same terms as the Subordinated Notes.
As a condition to the most current amendment to the Credit Agreement (the
"Fifth Amendment"), the Banks required Rice to loan the Company an
additional $1,250,000. In exchange for this loan, the Company issued to
Rice its 12.5% priority senior subordinated notes (the "Priority Note").
Interest payments under the Priority Note is payable with PIK Notes until
the Bank's debt is repaid. The Priority Note (and the PIK Notes) are
junior to the Bank's debt but senior to all the Subordinated Notes
previously issued to Rice and Fairview in 1997. The Company also agreed
to issue to Rice warrants for the purchase (at a nominal exercise price)
of 42,377,173 shares of the Company's common stock. The Company also
agreed to issue to Rice similar warrants to purchase 8,475,638 shares of
the Company's common stock as additional consideration for the purchase of
the Priority Note and Rice's purchase of $250,000 of Series B Redeemable
Preferred Stock in January, 1998. The total number of shares of common
stock provided under these warrants may be reduced if a fairness opinion
which has been requested from an independent financial advisor indicates
that the number of shares issuable under the warrants is not fair to the
Company's shareholders. The exercise of such warrants is also subject to
completing certain disclosure requirements and to obtaining certain share-
holder approvals. (See "Market for Common Equity and Related Stockholder
Matters" above and Item 11, footnote 4.)
Rice and Fairview also agreed to waive defaults under the Subordinated
Notes and to allow payment of delinquent and future interest payments by
the issuance of PIK Notes until the Bank's debt is fully repaid. Rice and
the Southland Purchasers also agreed to amendments to financial covenants
with Southland and the Company in the documents underlying the
Subordinated Notes consistent with the Fifth Amendment.
Negotiations were held with certain key vendors to hold in abeyance
amounts due while a repayment plan was implemented and bank negotiations
were completed. A plan has been developed and implemented, with the
approval of the creditors involved, to accomplish the repayment of past
due amounts over a two-year period while providing for the uninterrupted
supply of materials for the business.
Net Operating Losses
The Company has accumulated approximately $7.1 million of net operating
loss carryforwards as of December 31, 1997. The use of these losses to
reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss carry
forwards. The carryforwards expire in the year 2012.
Environmental Matters
The Company discovered ground water contamination at its Thomasville,
Georgia facility resulting from the business activities of a former
property owner. This contamination was reported as required under Georgia
law. The Company has not yet been notified of any remediation
requirements and thus is unable presently to estimate the potential for
its liability or cost of cleanup. The Company believes that any liability
for remediation is immaterial.
Year 2000
The Company utilizes a wholesale distribution and financial software
(FACTS) which, according to the software vendor, in its current release is
able to address Year 2000 issues. The Company plans to update to this
release by mid-year, 1998. No significant additional cost beyond that of
the ongoing software support agreement is anticipated and as such is
immaterial to the financial statements.
Item 7. Financial Statements
See the financial statements included herein on pages F-1 through F-23.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Information required by this item number has been omitted because it is
inapplicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
(a) Directors and Executive Officers
The names and ages of the directors and executive officers of the Company
and the business experience during the past five years of each of the
directors and executive officers of the Company are as follows:
SHEA E. RALPH, age 37, has been a director of the Company since March
1994. From March 1994 until February 1997, Mr. Ralph was President and
Chief Executive Officer of the Company. He served as Vice President of
Atlantic Bag & Paper Company (a former subsidiary of the Company) from
1988 to 1993.
JEFFREY P. SANGALIS, age 39, has been a director of the Company since
February 1997. He is a founding principal of Rice, Sangalis, Toole &
Wilson, a private investment firm based in Houston, Texas, which manages
Rice Partners II, L.P., a private investment fund organized to invest in
subordinated debt and equity securities of middle market companies, and
has served in that capacity since 1989. Mr. Sangalis serves as a director
of Bayou Steel Corporation, a producer of light structural steel products.
PHILIP A. DAVIDSON, age 33, has been a director of the Company since
February 1997. He has been a Managing Director since 1993 of Rice,
Sangalis, Toole & Wilson, a private investment firm based in Houston,
Texas, which manages Rice Partners II, L.P., a private investment fund
organized to invest in subordinated debt and equity securities of middle
market companies.
JAMES P. WILSON, age 39, has been a director of the Company since February
1997. He is a founding Principal of Rice, Sangalis, Toole & Wilson, a
private investment firm based in Houston, Texas, which manages Rice
Partners II, L.P., a private investment fund organized to invest in
subordinated debt and equity securities of middle market companies, and
has served in that capacity since 1989.
JAMES D. LUMSDEN, age 44, has been a director of the Company since March,
1998 and served as a director of the Company from May, 1996 until
February, 1997. Mr. Lumsden is President and Managing Principal of
Franklin Street/Fairview Capital, L.L.C., a private investment fund.
Prior to that time, Mr. Lumsden was President and co-founder of Fairview
Advisors, Inc., a regional investor in assets held by the Resolution Trust
Corporation.
RALEIGH C. MINOR, age 61, has been President and Chief Executive Officer
of the Company since April, 1998. Since 1986, Mr. Minor was a principal
and Chairman of the Board of Allomet Partners, Ltd., a general management
consulting firm engaged by the Company and which specializes in
turnarounds and crisis management. As a principal of Allomet, Mr. Minor
served as Interim Chief Executive Officer of the Company from January,
1998 until his election as President and Chief Executive Officer.
EDWARD L. LIPSCOMB, age 48, joined the Company in October, 1997. Prior to
that time, he was Vice President and Chief Financial Officer of Bancroft
Bag, Inc. He has held financial and operating management positions with
Domtar, Inc. (Vice President Administration) and Stone Container.
None of the officers, directors, or control persons of the Company have
been an executive officer or partner of any business which filed or was
subject to any bankruptcy petition, been convicted in or been the subject
of any pending criminal proceedings, have been the subject of any order,
judgement, or decree involving the violation of any state or federal
securities or commodities laws or limiting his involvement in any type of
business, securities, or banking activities.
(b) Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities Exchange Commission thereunder require the
Company's executive officers, directors and persons who own more than 10%
of the Company's common stock, as well as certain affiliates of such
persons, to file reports of beneficial ownership of the Company's common
stock and changes in such ownership with the Securities and Exchange
Commission.
The Company is not aware of whether Richard M. Gray, Gert Schumann, Suzi
Hernandez, William A. Hightower, James D. Lumsden and Jeremiah M.
Callahan, all of whom resigned as directors of the Company effective
February 7, 1997 (except Mr. Callahan who resigned effective March 4,
1998) engaged in any post-termination transactions reportable under SEC
rules. In particular, the Company is not aware of whether any of such
persons reported on a Form 5 between 2700 and 3000 shares of the Company's
common stock acquired by each of these persons in April, 1997 as
consideration for services provided to the Company as directors prior to
February 7, 1997 (see "Director Compensation" below). The acquisition of
such shares would have been exempt from immediate reporting under an SEC
rule permitting the deferred reporting of small acquisitions.
Edward L. Lipscomb filed a late Form 3 Initial Statement of Beneficial
Ownership showing that he holds employee stock options to purchase 30,000
shares of the Company's common stock granted to him pursuant to his
Employment Agreement with the Company.
The Company is taking a number of steps to ensure that its directors,
executive officers and greater than 10% shareholders are aware of and
comply promptly with the reporting requirements of Section 16(a).
Item 10. Executive Compensation
The following table sets forth the cash and non-cash compensation paid by
the Company for services rendered for the fiscal years ended December 31,
1997, 1996 and 1995 to all individuals serving as the Company's Chief
Executive Officer or President (the "Named Executive Officer"). No other
executive officer of the Company received a salary in excess of $100,000
annually for the period depicted.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and All other
Principal Principal Year Salary ($) Bonus Compensation
------------------- ---- ---------- ----- ------------
Shea E. Ralph, Chairman 1997 $118,748 $36,500(1) $7,200(2)
President and Chief 1996 70,519 0 3,600(2)
Executive Officer (prior 1995 60,599 0 720(2)
to 2/28/97)
Jeffrey P. Sangalis, 1997 $ 0 $ 0 $ 0
Chief Executive Officer
(2/28/97 - 6/30/97)
Jeremiah Callahan, 1997 $ 0 $ 0 $ 0
Chief Executive
Officer (6/30/97 -
10/1/97)
William H. Ames 1997 $114,478 $ 0 $ 0
President
(6/11/97 - 1/5/98)
(1) Bonus paid in connection with acquisition of Southland Holding
Company.
(2) Car allowance.
Director Compensation
Since February 28, 1997, the Company has not compensated its directors for
services provided as a director other than reimbursement for expenses
incurred in connection with board and committee meetings attended. Prior
to February 28, 1997 each director received 1,800 shares of the Company's
common stock annually plus 100 additional shares of common stock for each
meeting of the Board attended.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of April 15, 1998,
concerning beneficial ownership of voting securities of the Company by (i)
each person known by the Company to be the owner of more than 5% of each
outstanding class of the Company's voting securities, (ii) all directors
and nominees, (iii) the individuals named in the Summary Compensation
Table elsewhere herein, and (iv) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Name and Address Beneficial Percent of Voting
of Beneficial Owner Title of Class Ownership(1) Class(2) Stock(3)
------------------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Rice Partners II, L.P. (4) Common 66,570,213 92.1% 88.6%
5847 San Felipe, Suite 4350 B Preferred 54,375 84.5
Houston, TX 77057
Jeffrey P. Sangalis (5) Common 66,570,213 92.1 88.6
5847 San Felipe, Suite 4350 B Preferred 54,375 84.5
Houston, TX 77057
Philip A. Davidson (5) Common 66,570,213 92.1 88.6
5847 San Felipe, Suite 4350 B Preferred 54,375 84.5
Houston, TX 77057
James P. Wilson (5) Common 66,570,213 92.1 88.6
5847 San Felipe, Suite 4350 B Preferred 54,375 84.5
Houston, TX 77057
F-Jotan, L.L.C. Common 5,985,472 21.9 21.9
F-Southland, L.L.C. and A Preferred 1,435,705 100.0
FF-Southland, L.P. (6) B Preferred 10,000 15.5
702 Oberlin Road, Suite 150
Raleigh, NC 27605
Jeremiah Callahan(6)(7) Common 5,988,072 21.9 21.9
702 Oberlin Road, Suite 150 A Preferred 1,435,705 100.0
Raleigh, NC 27605 B Preferred 10,000 15.6
James D. Lumsden Common 5,988,072 21.9 21.9
702 Oberlin Road, Suite 150 A Preferred 1,435,705 100.0
Raleigh, NC 27605 (6)(7) B Preferred 10,000 15.5
Shea E. Ralph (8) Common 983,000 4.6 4.1
118 West Adams Street
Jacksonville, FL 32201
William Ames - 0 0 0
Raleigh C. Minor - 0 0 0
All directors and executive Common 73,538,685 94.0 94.0
officers as a group A Preferred 1,435,705 100.0
B Preferred 64,375 100.0
</TABLE>
(1) Pursuant to rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), beneficial ownership of a security
consists of sole or shared voting power (including the power to vote
or direct the vote) and/or the sole or shared investment power
(including the power to dispose or direct the disposition) with
respect to a security. The number of shares of Common Stock includes
the number of shares of Common Stock that are subject to the exercise
of options or warrants within 60 days of the date of this Proxy
Statement and the number of shares of Common Stock issuable upon
conversion of such beneficial owner's shares of Series A Convertible
Preferred Stock (each of which is immediately convertible into two
shares of Common Stock), excluding accrued dividends thereon.
(2) Percent of Class of Common Stock with respect to each beneficial
owner of Common Stock was calculated based on the ratio of the number
of shares of Common Stock beneficially owned by such beneficial owner
to the sum of (a) the total number of outstanding shares of Common
Stock as of April 15, 1998, (b) the number of shares of Common Stock
issuable upon conversion of shares of Series A Convertible Preferred
Stock (each of which is immediately convertible into two shares of
Common Stock) held by the applicable beneficial owner and (c) the
number of shares of Common Stock issuable upon exercise of options or
warrants held by the applicable beneficial owner exercisable within
60 days of the date of this Proxy Statement. Percent of Class of
Series A Convertible Preferred Stock was calculated based on the
ratio of the number of shares of Series A Convertible Preferred Stock
beneficially owned by such beneficial owner to the total number of
outstanding shares of Series A Convertible Preferred Stock. Percent
of Class of Series B Redeemable Preferred Stock was calculated based
on the ratio of the number of shares of Series B Redeemable Preferred
Stock beneficially owned by such beneficial owner to the total number
of outstanding shares of Series B Redeemable Preferred Stock.
(3) Percent of Voting Stock with respect to each beneficial owner was
calculated based on the ratio of the number of shares of Common Stock
beneficially owned by such beneficial owner to the sum of (a) the
total number of outstanding shares of Common Stock as of April 15,
1998, (b) the number of shares of Common Stock issuable upon
conversion of shares of Series A Convertible Preferred Stock (each of
which is immediately convertible into two shares of Common Stock) and
(c) the number of shares of Common Stock issuable upon exercise of
options or warrants held by the applicable beneficial owner
exercisable within 60 days of the date of this Proxy Statement.
(4) Includes 50,852,811 shares of Common Stock issuable under warrants
owned by Rice Partners, II, L.P. The number of shares of Common
Stock issuable under these warrants may be reduced if a fairness
opinion which has been requested by the Company indicates that the
number of shares issuable under the warrants is not fair to the
Company's shareholders. The exercise of such warrants is also
subject to approval by the holders of Voting Stock and the holders of
Common Stock as described in Proposal 2 below and the filing of
Articles of Amendment with the Florida Secretary of State.
(5) Jeffrey P. Sangalis and James P. Wilson, directors of the Company,
are principals of Rice, Sangalis, Toole & Wilson, the manager of Rice
Partners II, L.P. Philip A. Davidson is a Managing Director of Rice,
Sangalis, Toole & Wilson, the manager of Rice Partners II, L.P. The
shares shown as owned by Messrs. Sangalis, Davidson and Wilson are
the same shares and consist in each case of the shares owned by Rice
Partners II, L.P., which are deemed to be beneficially owned by
Messrs. Sangalis, Davidson, and Wilson due to their ability to
control Rice Partners II, L.P. with regard to the voting and
disposition of such shares.
(6) Includes (i) 5,000 shares of Series B Redeemable Preferred Stock
beneficially owned by F-Southland, L.L.C., (ii) 5,000 shares of
Series B Redeemable Preferred Stock beneficially owned by FF
Southland, L.P., (iii) 1,557,031 shares of Common Stock issuable
under warrants owned by F-Southland, L.L.C., (iv) 1,557,031 shares of
Common Stock issuable under warrants owned by FF-Southland, L.P., and
(v) 2,871,410 shares of Common Stock issuable to F-Jotan, L.L.C. on
conversion of 1,435,705 shares of Series A Convertible Preferred
Stock owned by F-Jotan, L.L.C. Shares owned by F-Southland, L.L.C.,
FF-Southland, L.P. and F-Jotan, L.L.C. (the "Fairview Shareholders")
are deemed to be beneficially owned by all Fairview Shareholders by
virtue of having a common manager.
(7) James D. Lumsden, a director of the Company, and Jeremiah Callahan, a
former director and former chief executive officer of the Company,
are each a member of Franklin Street/Fairview Capital, L.L.C., the
manager of F-Jotan, F-Southland, L.L.C. and FF-Southland, L.P. The
shares shown as owned by Mr. Lumsden are the same shares and
consist in each case of the shares beneficially owned by F-Jotan,
F-Southland, L.L.C. and FF-Southland, L.P. over which Mr. Lumsden
and Mr. Callahan have shared voting investment power (except for
2,600 and 2,800 shares of common stock owned directly by Mr. Lumsden
and Mr. Callahan, respectively, which were received for services
provided as directors of the Company prior to February 28, 1997).
(8) Includes 33,000 shares of Common Stock issuable upon exercise of
employee stock options.
Item 12. Certain Relationships and Related Transactions
During the Company's last two fiscal years, there have been no
transactions between the Company and any officer, directors, nominees for
election as director, or any shareholder owning greater than five percent
(5%) of any class of the Company's voting securities, nor any member of
any such person's immediate family, except as set forth below:
Mr. Sidney Ralph, father of Shea E. Ralph, owns all of the outstanding
shares of common stock of Total Supply Systems, Inc. ("Total Supply"), a
private corporation. Total Supply has made certain financial advances to
the Company pursuant to an arrangement similar to a line of credit with
interest charged at prime plus one percent.
On December 31, 1993, the Company purchased all of the outstanding
capital stock of Atlantic Bag and Paper Company ("Atlantic Bag") from
Total Supply in exchange for a $750,000 note payable to Total Supply. On
September 8, 1994, the Company refinanced its short-term line of credit
arrangement and the $750,000 note payable to Total Supply into a
convertible subordinated debenture. On February 22, 1995, the Company
entered into an agreement with Total Supply whereby the previous debt
agreements were canceled and a new agreement put in their place. The
revised agreement converted a portion of the face value ($919,833) into
shares of Common Stock at fair value (determined to be $3.00) and the
balance of $750,000 was payable over an 81-week period at $10,000 per week
including interest at 9.25%. The balance due under the agreement was paid
in full during September, 1996.
The Company also leases a warehouse from Sidney Ralph and another
warehouse from Total Supply. These two leases each have a term which
expires in 2004 and a monthly lease payment of $4,000 and $1,000
respectively.
On May 16, 1996, F-Jotan, L.L.C., a North Carolina limited liability
company ("F-Jotan"), invested $2,000,000 in the Company in exchange for
100% of the outstanding Series A Convertible Preferred Stock. James D.
Lumsden and Jeremiah M. Callahan are members of Franklin Street/Fairview
Capital L.L. C. ("Fairview"), the manager of F-Jotan, and were elected to
the Company's Board of Directors in 1996 in connection with the investment
by F-Jotan. James D. Lumsden currently serves as a member of the Board of
Directors of the Company.
As of February 28, 1997, the Company issued to Rice Partners II, L.P., a
Delaware limited partnership ("Rice") and to F-Southland, L.L.C., a North
Carolina limited liability company, and FF-Southland, L.P., a North
Carolina limited partnership (collectively, the "Southland Purchasers"),
entities affiliated with F-Jotan, senior subordinated debt, senior
preferred stock and warrants to purchase shares of Common Stock in a
transaction (the "February 1997 Transaction") which resulted in a change
of control of the Company. (For additional discussion of the February
1997 Transaction, see "Recent Sales of Unregistered Securities" included
in Item 5 above and "Liquidity and Capital Resources" included in Item 6
above). In connection with the February 1997 Transaction, Rice was given
the right to elect a majority of the members of the Company's Board of
Directors for so long as Rice owned at least 10% of the equity interest in
the Company that it acquired on February 28, 1997. In addition, the
Southland Purchasers were given the right to elect one member of the
Company's Board of Directors. The Company's Restated Articles of
Incorporation were amended to provide that the Series B Redeemable
Preferred Stock (voting separately as a class) has the right to elect a
majority of the Board of Directors.
In the February 1997 Transaction, Rice and the Southland Purchasers were
paid a pro rata fee of $225,000 for providing the subordinated debt
financing and a pro rata fee of $225,000 for providing the senior
redeemable preferred stock financing.
Two members of the Board of Directors of the Company which approved the
February 1997 Transaction, James D. Lumsden and Jeremiah M. Callahan, are
members of Fairview, the controlling entity of each of the Southland
Purchasers. Fairview also is the controlling entity of F-Jotan, the
holder of the Company's Series A Convertible Preferred Stock, the consent
of which was required and obtained in order to consummate this
transaction.
As of September 10, 1997, the Company issued to Rice an additional
$2,625,000 of Series B Redeemable Preferred Stock and additional warrants
to acquire 3,620,473 shares of the Company's common stock (the "September
1997 Transaction"). The funds received by the Company in the September
1997 Transaction facilitated the Company's acquisition of substantially
all the assets of Cove Container Corporation.
As of January 23, 1998 the Company issued to Rice $250,000 of Series B
Redeemable Preferred Stock for cash the ("January 1998 Transaction"). The
funds received were used by the Company to make payments to certain
individuals who previously owned minority interests in certain Southland
subsidiaries.
As of April 14, 1998, as a condition to the most current amendment of the
credit agreement with the Company's senior lenders, Rice loaned the
Company an additional $1,250,000. In exchange for this loan, the Company
issued to Rice its 12.5% priority senior subordinated notes and additional
warrants for the purchase of 42,377,173 shares of the Company's common
stock (the "April 1998 Transaction"). The Company also issued to Rice
additional warrants to purchase 8,475,638 shares of the Company's common
stock as additional consideration for Rice's purchase of $250,000 of
Series B Redeemable Preferred Stock in January, 1998. The total number of
shares of common stock provided under these warrants may be reduced if a
fairness opinion which has been requested from an independent financial
advisor indicates that the number of shares issuable under the warrants is
not fair to the Company's shareholders. For additional discussion of the
September 1997 Transaction, the January 1998 Transaction and the April
1998 Transaction, see "Recent Sales of Unregistered Securities" included
in Item 5 above and "Liquidity and Capital Resources" included in Item 6
above.
Three members of the Board of Directors of the Company that approved the
September 1997 Transaction, the January 1998 Transaction and the April
1998 Transaction are principals of Rice, Sangalis, Toole & Wilson, the
manager of Rice.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3. (a) The Registrant's Restated Articles of Incorporation, as
amended.
(b) The Registrant's Bylaws, as amended.
10. Material Contracts
(a) Credit Agreement dated as of February 28, 1997 among the
Registrant, Southland Container Packaging Corp. (formerly
Southland Holding Company, successor in interest by merger
to SHC Acquisition Corp., each of its own subsidiaries and
Atlantic Bag & Paper Company), Banque Paribas, individually
and as agent for other participating banks (filed as an
Exhibit to the Registrant's Current Report on Form 8-K as
of March 17, 1997 and incorporated herein by reference).
(b) Third Amendment to Credit Agreement dated as of August 19,
1997.
(c) Fourth Amendment to Credit Agreement dated as of
November 6, 1997.
(d) Fifth Amendment to Credit Agreement dated as of April 14,
1998 among the Registrant, Southland Container Packaging
Corp. and Banque Paribas, individually and as agent for
other participating banks (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(e) Note Purchase Agreement dated as of February 28, 1997 among
the Registrant, Southland Container Packaging Corp., Rice
Partners II, L.P. and F-Southland, L.L.C. and FF-Southland,
L.P.
(f) Amendment No. 1 to Note Purchase Agreement dated as of
August 19, 1997 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P.
(g) Amendment No. 2 to Note Purchase Agreement dated as of
November 6, 1997 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P.
(h) Amendment No. 3 to Note Purchase Agreement dated as of
April 14, 1998 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P. (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(i) Priority Note Purchase Agreement among the Registrant,
Southland Container Packaging Corp. and Rice Partners II,
L.P. dated as of April 24, 1998 (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(j) Preferred Stock and Warrant Purchase Agreement dated as of
February 28, 1997 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
David Freedman and Shea E. Ralph (filed as an Exhibit to
the Registrant's Current Report on Form 8-K as of March 17,
1997 and incorporated herein by reference).
(k) First Supplemental Preferred Stock and Warrant Purchase
Agreement dated as of September 10, 1997 among the
Registrant, Rice Partners II, L.P., the Southland
purchasers, F-Jotan, David Freedman and Shea E. Ralph
(filed as an Exhibit to Schedule 13D filed by Rice
Partners, II, L.P., as of October 10, 1997 and incorporated
herein by reference).
(l) Second Supplemental Preferred Stock Purchase Agreement
dated as of January 23, 1998, among the Registrant, Rice
Partners II, L.P., F-Southland, L.L.C. and FF-Southland,
L.P., F-Jotan and Shea E. Ralph
(m) Amended and Restated Second Supplemental Preferred Stock
and Warrant Purchase Agreement dated as of April 14, 1998
among the Registrant, Rice Partners II, L.P., F-Southland,
L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
(filed as an Exhibit to the Registrant's Current Report on
Form 8-K filed as of May 4, 1998 and incorporated herein by
reference).
(n) Priority Warrant Purchase Agreement dated as of April 14,
1998 among the Registrant and Rice Partners II, L.P. (filed
as an Exhibit to the Registrant's Current Report on Form 8-
K filed as of May 4, 1998 and incorporated herein by
reference).
(o) Shareholder Agreement dated as of February 28, 1997 among
the Registrant, Rice Partners II, L.P., F-Southland, L.L.C.
and FF-Southland, L.P., F-Jotan, David Freedman and Shea E.
Ralph (filed as an Exhibit to the Registrant's Current
Report on Form 8-K as of March 17, 1997 and incorporated
herein by reference).
(p) First Supplemental Shareholder Agreement dated as of
September 10, 1997 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
David Freedman and Shea E. Ralph (filed as an Exhibit to
Schedule 13D filed by Rice Partners, II, L.P., as of
October 10, 1997 and incorporated herein by reference).
(q) Second Supplemental Shareholder Agreement dated as of
January 23, 1998 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan
and Shea E. Ralph.
(r) Amended and Restated Second Supplemental Shareholder
Agreement dated as of April 14, 1998 among the Registrant,
Rice Partners II, L.P., F-Southland, L.L.C. and FF-
Southland, L.P., F-Jotan and Shea E. Ralph (filed as an
Exhibit to the Registrant's Current Report on Form 8-K
filed as of May 4, 1998 and incorporated herein by
reference).
(s) Priority Shareholder Agreement dated as of April 14, 1998
among the Registrant, Rice Partners II, L.P., F-Southland,
L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
(filed as an Exhibit to the Registrant's Current Report on
Form 8-K filed as of May 4, 1998 and incorporated herein by
reference).
(t) Employment Agreement between the Registrant and Shea E.
Ralph dated November 22, 1996.
(u) Employment Agreement between the Registrant and Edward L.
Lipscomb dated October 2, 1997.
(v) Management Contract Agreement between the Registrant and
Allomet Partners, Ltd. dated December 31, 1997.
(w) Jotan, Inc. 1996 Long-Term Incentive Plan.
21. Subsidiaries of Registrant.
27. Financial Data Schedule
(b) Reports on Form 8-K
None filed during last Quarter of fiscal year ended December 31,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JOTAN, INC.
DATE: May 22, 1998 By: /s/ Raleigh C. Minor
Raleigh C. Minor, President
and Chief Executive Officer
DATE: May 22, 1998 By: /s/ Edward L. Lipscomb
Edward L. Lipscomb, Vice President,
Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
DATE: May 22, 1998 /s/ Jeffrey P. Sangalis
Jeffrey P. Sangalis, Director
DATE: May 22, 1998 /s/ Shea E. Ralph
Shea E. Ralph, Director
DATE: May 22, 1998 /s/ James P. Wilson
James P. Wilson, Director
<PAGE>
EXHIBIT INDEX
3. (a) The Registrant's Restated Articles of Incorporation, as
amended.
(b) The Registrant's Bylaws, as amended.
10. Material Contracts
(a) Credit Agreement dated as of February 28, 1997 among the
Registrant, Southland Container Packaging Corp. (formerly
Southland Holding Company, successor in interest by merger
to SHC Acquisition Corp., each of its own subsidiaries and
Atlantic Bag & Paper Company), Banque Paribas, individually
and as agent for other participating banks (filed as an
Exhibit to the Registrant's Current Report on Form 8-K as
of March 17, 1997 and incorporated herein by reference).
(b) Third Amendment to Credit Agreement dated as of August 19,
1997.
(c) Fourth Amendment to Credit Agreement dated as of
November 6, 1997.
(d) Fifth Amendment to Credit Agreement dated as of April 14,
1998 among the Registrant, Southland Container Packaging
Corp. and Banque Paribas, individually and as agent for
other participating banks (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(e) Note Purchase Agreement dated as of February 28, 1997 among
the Registrant, Southland Container Packaging Corp., Rice
Partners II, L.P. and F-Southland, L.L.C. and FF-Southland,
L.P.
(f) Amendment No. 1 to Note Purchase Agreement dated as of
August 19, 1997 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P.
(g) Amendment No. 2 to Note Purchase Agreement dated as of
November 6, 1997 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P.
(h) Amendment No. 3 to Note Purchase Agreement dated as of
April 14, 1998 among the Registrant, Southland Container
Packaging Corp., Rice Partners II, L.P. and F-Southland,
L.L.C. and FF-Southland, L.P. (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(i) Priority Note Purchase Agreement among the Registrant,
Southland Container Packaging Corp. and Rice Partners II,
L.P. dated as of April 24, 1998 (filed as an Exhibit to the
Registrant's Current Report on Form 8-K filed as of May 4,
1998 and incorporated herein by reference).
(j) Preferred Stock and Warrant Purchase Agreement dated as of
February 28, 1997 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
David Freedman and Shea E. Ralph (filed as an Exhibit to
the Registrant's Current Report on Form 8-K as of March 17,
1997 and incorporated herein by reference).
(k) First Supplemental Preferred Stock and Warrant Purchase
Agreement dated as of September 10, 1997 among the
Registrant, Rice Partners II, L.P., the Southland
purchasers, F-Jotan, David Freedman and Shea E. Ralph
(filed as an Exhibit to Schedule 13D filed by Rice
Partners, II, L.P., as of October 10, 1997 and incorporated
herein by reference).
(l) Second Supplemental Preferred Stock Purchase Agreement
dated as of January 23, 1998, among the Registrant, Rice
Partners II, L.P., F-Southland, L.L.C. and FF-Southland,
L.P., F-Jotan and Shea E. Ralph
(m) Amended and Restated Second Supplemental Preferred Stock
and Warrant Purchase Agreement dated as of April 14, 1998
among the Registrant, Rice Partners II, L.P., F-Southland,
L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
(filed as an Exhibit to the Registrant's Current Report on
Form 8-K filed as of May 4, 1998 and incorporated herein by
reference).
(n) Priority Warrant Purchase Agreement dated as of April 14,
1998 among the Registrant and Rice Partners II, L.P. (filed
as an Exhibit to the Registrant's Current Report on Form 8-
K filed as of May 4, 1998 and incorporated herein by
reference).
(o) Shareholder Agreement dated as of February 28, 1997 among
the Registrant, Rice Partners II, L.P., F-Southland, L.L.C.
and FF-Southland, L.P., F-Jotan, David Freedman and Shea E.
Ralph (filed as an Exhibit to the Registrant's Current
Report on Form 8-K as of March 17, 1997 and incorporated
herein by reference).
(p) First Supplemental Shareholder Agreement dated as of
September 10, 1997 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan,
David Freedman and Shea E. Ralph (filed as an Exhibit to
Schedule 13D filed by Rice Partners, II, L.P., as of
October 10, 1997 and incorporated herein by reference).
(q) Second Supplemental Shareholder Agreement dated as of
January 23, 1998 among the Registrant, Rice Partners II,
L.P., F-Southland, L.L.C. and FF-Southland, L.P., F-Jotan
and Shea E. Ralph
(r) Amended and Restated Second Supplemental Shareholder
Agreement dated as of April 14, 1998 among the Registrant,
Rice Partners II, L.P., F-Southland, L.L.C. and FF-
Southland, L.P., F-Jotan and Shea E. Ralph (filed as an
Exhibit to the Registrant's Current Report on Form 8-K
filed as of May 4, 1998 and incorporated herein by
reference).
(s) Priority Shareholder Agreement dated as of April 14, 1998
among the Registrant, Rice Partners II, L.P., F-Southland,
L.L.C. and FF-Southland, L.P., F-Jotan and Shea E. Ralph
(filed as an Exhibit to the Registrant's Current Report on
Form 8-K filed as of May 4, 1998 and incorporated herein by
reference).
(t) Employment Agreement between the Registrant and Shea E.
Ralph dated November 22, 1996.
(u) Employment Agreement between the Registrant and Edward L.
Lipscomb dated October 2, 1997.
(v) Management Contract Agreement between the Registrant and
Allomet Partners, Ltd. dated December 31, 1997.
(w) Jotan, Inc. 1996 Long-Term Incentive Plan.
21. Subsidiaries of Registrant.
27. Financial Data Schedule
<PAGE> F-1
ANNUAL REPORT ON FORM 10-KSB
ITEM 7, ITEM 13(A)(1)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
Jotan, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997 and 1996
The following financial statements of Jotan, Inc. are included in Item 7:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . F-2
Consolidated Statements of Operations for the Years ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years ended December 31, 1997 and 1996 . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-6
<PAGE>
Report of Independent Auditors
Board of Directors
Jotan, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Jotan,
Inc. and subsidiaries (the Company) as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Jotan, Inc. and subsidiaries at
December 31, 1997 and December 31, 1996, and the consolidated results of
their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note
3, the Company acquired an entity in early 1997 which has incurred
significant losses, utilized substantially all available funding,
adversely impacted cash flows and created a deficit in working capital and
stockholder's equity at December 31, 1997. Also, claims have been made by
both the Company and the sellers which could significantly effect the
purchase price of the entity. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Jacksonville, Florida
April 17, 1998
<PAGE>
Jotan, Inc.
Consolidated Balance Sheets
December 31
1997 1996
---- ----
Assets
Current assets:
Cash $ 1,389,131 $ 1,403,214
Accounts receivable, less allowance for
doubtful accounts of $660,000 in 1997
and $33,170 in 1996 9,556,959 1,553,224
Inventory 7,284,309 1,181,642
Other current assets 1,666,500 323,949
---------- ----------
Total current assets 19,896,899 4,462,029
---------- ----------
Property and equipment:
Land 110,000 110,000
Buildings and leasehold improvements 957,004 502,255
Vehicles 444,269 251,974
Furniture, fixtures, and equipment 972,841 361,383
Capitalized building leases 3,282,216 -
---------- ----------
Total property and equipment 5,766,330 1,225,612
Less accumulated depreciation (918,447) (386,858)
---------- ----------
Net property and equipment 4,847,883 838,754
Goodwill, net 1,983,280 -
Non-compete agreements, net 1,918,020 -
Other assets 275,867 697,275
---------- ----------
Total assets $28,921,949 $ 5,998,058
========== ==========
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Trade payables $ 7,428,185 $ 1,525,941
Accrued expenses 3,404,952 221,557
Current portion of long-term debt and
capital leases 9,642,997 1,716,332
Other current liabilities 1,547,204 -
---------- ----------
Total current liabilities 22,023,338 3,463,830
Capitalized lease obligations 3,857,231 -
Other liabilities 2,123,163 -
Long-term debt, less current portion:
Related parties 9,189,596 -
Others 14,600,367 506,097
---------- ----------
29,770,357 506,097
---------- ----------
Series B redeemable preferred stock with
related parties 12,682,747 -
Stockholders' equity (deficit):
Preferred Stock, Series A and B,
authorized shares-10,000,000
Series A preferred stock, $.01
par value:
Issued and outstanding shares to
related party-1,435,705 in 1997
and 1,265,823 in 1996 14,357 12,658
Voting common stock, $.01 par value:
Authorized shares-40,000,000
Issued and outstanding shares-5,696,611
in 1997 and 5,679,411 in 1996 56,966 56,794
Additional paid-in capital 3,849,385 3,963,983
Retained earnings (deficit) (39,475,201) (2,005,304)
---------- ----------
Total stockholders' equity (deficit) (35,554,493) 2,028,131
---------- ----------
Total liabilities and stockholders' equity $28,921,949 $ 5,998,058
========== ==========
See notes to consolidated financial statements.
<PAGE>
Jotan, Inc.
Consolidated Statements of Operations
Year ended December 31
1997 1996
---- ----
Sales $ 60,257,468 $11,659,754
Cost of sales 43,502,244 8,758,248
----------- ----------
Gross profit 16,755,224 2,901,506
Operating expenses 18,721,607 2,519,506
Amortization of goodwill and non-compete
agreements 2,951,968 -
Write down of goodwill and non-compete
agreements 29,980,794 -
----------- ----------
Operating (loss) income (34,899,145) 382,000
Other income (expense):
Interest expense (3,560,624) (271,138)
Loss on sale of assets - (311)
Other income 64,153 63,107
----------- ----------
Total other (expense) (3,496,471) (208,342)
----------- ----------
(Loss) income before taxes (38,395,616) 173,658
Income tax benefit 925,719 -
----------- ----------
Net (loss) income (37,469,897) 173,658
Amounts attributable to preferred stock 1,076,651 -
----------- ----------
Net (loss) income attributable to
common shareholders $(38,546,548) $ 173,658
=========== ==========
Net (loss) income per share:
Basic $ (6.77) $ .03
=========== ==========
Diluted $ (6.77) $ .02
=========== ==========
Weighted average number of shares
outstanding:
Basic 5,692,370 5,676,598
=========== ==========
Diluted 5,692,370 7,381,306
=========== ==========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Jotan, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Total
<CAPTION>
Total
Series A Convertible Additional Retained Stockholders'
Voting Common Stock Preferred Stock Paid-In Earnings Equity
Shares Amount Shares Amount Capital (Deficit) (Deficit)
------ ------ ------ ------ ---------- --------- -------------
<S> <C> c> <C> <C> <C> <C> <C>
Balance at December 31, 1995 5,664,311 $56,643 - $ - $2,149,166 $ (2,178,962) $ 26,847
Voting common stock issued 15,100 151 - - 7,399 - 7,550
Series A preferred stock
issued - - 1,265,823 12,658 1,807,418 - 1,820,076
Net income - - - - - 173,658 173,658
--------- ------ --------- ------ --------- ----------- ---------
Balance at December 31, 1996 5,679,411 56,794 1,265,823 12,658 3,963,983 (2,005,304) 2,028,131
Voting common stock issued 17,200 172 - - 25,628 - 25,800
Series A preferred stock
dividend - - 169,882 1,699 (1,699) - -
Series B preferred stock
dividend - - - - (730,530) - (730,530)
Accretion of Series B
preferred stock
discount - - - - (76,122) - (76,122)
Warrants issued - - - - 668,125 - 668,125
Net loss - - - - - (37,469,897) (37,469,897)
--------- ------ --------- ------ --------- ----------- -----------
Balance at December 31, 1997 5,696,611 $56,966 1,435,705 $14,357 $3,849,385 $(39,475,201) $(35,554,493)
========= ====== ========= ====== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Jotan, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1997 1996
---- ----
Cash flows from operating activities
Net (loss) income $(37,469,897) $ 173,658
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Loss on sale of assets - 311
Depreciation and amortization expense 3,524,842 161,756
Write down of goodwill and non-compete
agreements 29,980,794 -
Stock compensation expense 25,800 7,550
Changes in operating assets and
liabilities:
Increase in accounts receivable (1,666,877) (596,798)
(Increase) decrease in inventory (447,822) 80,295
Increase in other current assets (479,563) (144,109)
Decrease (increase) in other assets 519,427 (626,444)
Increase in trade payables 2,726,992 316,921
Increase in accrued expenses 1,465,977 162,695
Increase in other current liabilities 298,204 -
Increase in other liabilities 58,943 -
----------- ----------
Net cash (used in) provided by operating
activities (1,463,180) 464,165
Cash flows from investing activities
Proceeds from disposition of equipment - 13,220
Purchase of property and equipment (467,464) (54,689)
Purchase of business Cove, net of cash
acquired (2,625,000) -
Purchase of business Southland, net of
cash acquired (37,992,907) -
----------- ----------
Net cash used in investing activities (41,085,371) (41,469)
----------- ----------
Cash flows from financing activities
Proceeds from (payments) on line of
credit borrowings (1,594,076) 486,698
Repayments of convertible subordinated
debenture - (353,749)
Principal payments on notes and
capitalized leases (4,414,550) (65,948)
Proceeds from debt 35,490,542 -
Increase in notes payable 508,332 -
Proceeds from stock issuance 11,876,095 1,820,076
Proceeds from issuance of warrants 668,125 -
----------- ----------
Net cash provided by financing activities 42,534,468 1,887,077
----------- ----------
Net (decrease) increase in cash (14,083) 1,381,443
Cash at beginning of period 1,403,214 21,771
----------- ----------
Cash at end of period $ 1,389,131 $ 1,403,214
=========== ==========
Purchase of business, Cove net of cash
acquired:
Inventory $ (383,500) $ -
Property and equipment (278,750) -
Other assets (2,850) -
Notes payable and capitalized leases 94,137 -
Goodwill (2,054,037) -
----------- ----------
$ (2,625,000) $ -
=========== ==========
Purchase of business, Southland net
of cash acquired:
Trade receivables $ (6,336,858) $ -
Inventory (5,271,345) -
Other current assets (862,988) -
Property and equipment (2,795,245) -
Non-compete agreements (6,851,586) -
Other assets (95,169) -
Trade payables 3,175,252 -
Accrued expenses 1,717,418 -
Other current liabilities 1,249,000 -
Other liabilities 2,064,220 -
Notes payable and capitalized leases 3,983,377 -
Goodwill (27,968,983) -
----------- ----------
$(37,992,907) $ -
=========== ==========
Supplementary schedule of non-cash
investing activities:
Acquisition of building by capital
lease $ 1,000,000 $ -
=========== ==========
Conversion of debt to shares of
common stock - 919,826
=========== ==========
Cash paid during the year for:
Interest $ 2,329,291 $ 261,123
=========== ==========
See notes to consolidated financial statements.
<PAGE>
Jotan, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Business and Organization
Jotan, Inc. (the Company) was originally organized on December 5, 1988
under the laws of the State of Idaho as Antelope Resources, Inc. Following
the acquisition of Jotan, Inc., a Florida Corporation, in March 1994, the
Company, through its wholly-owned subsidiary, Jotan-Florida, became
actively engaged in the business of distributing packaging and shipping
supplies for industrial customers in the southeastern United States.
On May 14, 1996 the stockholders approved a proposal to change the
Company's state of incorporation from Idaho to Florida and to increase the
Company's authorized shares of common stock from ten million (10,000,000)
to forty million (40,000,000) and to authorize a class of blank-check
preferred stock. The Re-incorporation and the change in authorized shares
were accomplished by merging the Company into the Company's wholly-owned
subsidiary, Jotan-Florida.
On March 4, 1997 the Company completed the acquisition of 100% of the
stock of Southland Holding Company ("Southland"). Southland is a
distributor of packaging and shipping supplies with eleven distribution
centers throughout the United States. Southland served primarily the
moving and storage industry, but also provided packaging products to the
air freight and perishable food markets. The acquisition of Southland has
been accounted for under the purchase method of accounting. Accordingly,
the purchase price of approximately $39,000,000 was allocated to the
individual assets acquired and liabilities assumed of Southland based upon
estimates of their respective fair values at the date of acquisition. The
more significant assets acquired and liabilities assumed include the
following: accounts receivable-$6,337,000; inventories-$5,271,000;
capitalized building leases and equipment-$2,795,000, noncompete
agreements-$6,852,000; accounts payable-$3,175,000; accrued expenses-
$1,717,000; capital leases obligations-$3,161,000; taxes and other-
$4,255,000; and goodwill-$27,969,000. The acquisition was funded primarily
through the issuance of redeemable preferred stock ($10,000,000) and
proceeds from long-term debt. The Company and the seller have each filed a
claim against the other party for certain items which are currently in
dispute. The ultimate resolution of these items could have a material
effect on the final purchase price.
On June 20, 1997 the Company completed the acquisition of the assets of
Cove Container Corporation (Cove). Cove is a distributor of packaging and
shipping supplies with a distribution center located in Pontiac, Michigan,
and a manufacturing facility in West Branch, Michigan. Cove serves both
the industrial and the moving and storage industries. The acquisition of
Cove has been accounted for under the purchase method of accounting.
Accordingly, the purchase price of approximately $2,625,000 was allocated
to the individual assets acquired and liabilities assumed based upon
estimates of their respective fair values at the date of acquisition. The
more significant assets acquired and liabilities assumed include the
following: inventory-$383,500; property and equipment-$279,000; notes
payables-$94,000 and goodwill-$2,054,000.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Jotan, Inc.
(the Parent) and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation.
Inventory
Inventory is stated at lower of weighted average cost or market,
determined by the first-in, first-out method.
Income Taxes
The Company accounts for income taxes under Financial Accounting Standards
Board Statement (Statement) No. 109, Accounting for Income Taxes.
Statement No. 109 requires income taxes to be recognized using the
liability method. Specifically, deferred tax assets and liabilities are
determined based on estimated future tax effects attributable to temporary
differences in assets and liabilities for income tax purposes.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the respective
assets. The estimated useful lives of the vehicles, furniture, fixtures
and equipment vary from five to fifteen years, buildings owned are
depreciated over forty years and buildings under capital lease and
leasehold improvements are depreciated over the shorter of the lease term
or the estimated useful life.
The Company records impairment of long-lived assets in accordance with
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which requires impairment losses
to be recorded on identifiable long-lived assets used in operations and
related goodwill when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. If an asset is determined to be
impaired, a loss is to be recorded based upon the difference between fair
value of the assets and its carrying value. Fair value is to be estimated
based on estimated selling prices or discounted future cash flows.
Statement No. 121 also addresses the accounting for the expected
disposition of long-lived assets.
Deferred Acquisition Costs
The costs incurred related to acquisitions, which consist primarily of
legal and accounting fees, are deferred until the acquisition is completed
and then amortized over the estimated useful life. Costs incurred related
to acquisitions which will not be completed are expensed.
Revenue Recognition
The Company recognizes revenue when inventory is delivered to the
customer.
Fair Value of Financial Instruments
The Company discloses the fair value of financial instruments in
accordance with Statement No. 107, Disclosures About Value of Financial
Instruments. The reported amounts in the balance sheets at December 31,
1997 and 1996 for cash, accounts receivable, trade payables, and long-term
debt approximates fair value.
Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share exclude
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share are very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.
Stock Compensation
The Company follows the intrinsic value method of accounting for stock
based compensation prescribed in Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees. Accordingly, stock
compensation expense is measured as the excess if any, of the quoted
market price of the Company's stock at the date of grant over the exercise
price. Disclosures required with respect to the alternative fair value
measurement and recognition methods prescribed by Statement No. 123,
Accounting for Stock-Based Compensation, are presented in Note 11-Employee
Stock Incentives.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
The FASB has issued Statement No. 130, Reporting Comprehensive Income, and
Statement No. 131, Disclosures about Segment of an Enterprise and Related
Information, both of which the Company will adopt in 1998. Statement No.
130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. Comprehensive income
generally represents all changes in shareholders' equity except those
resulting from investments by or distributions to shareholders. With the
exception of net earnings, such changes are generally not significant to
the Company, and the adoption of Statement No. 130, including the required
comparative presentation for prior periods, is not expected to have a
material impact on its financial statements. Statement No. 131 requires
that a publicly held company report financial and descriptive information
about its operating segments in financial statements issued to
shareholders for interim and annual periods. The Statement also requires
additional disclosures with respect to products and services, geographic
areas of operation and major customers. Management does not anticipate
that the adoption of Statement No. 131 will have a significant effect on
the Company's financial statements.
Going Concern and Impairment of Intangibles Acquired from Southland
The Company acquired Southland in early 1997 which has incurred
significant losses, utilized substantially all available funding and
adversely impacted cash flows. These conditions have resulted in the
Company having a deficit in working capital and stockholders equity at
December 31, 1997. The poor operating results were due to, among other
things, loss of key employees and significant customers and increased
intense competition.
Also, the Company has filed a claim against the sellers of Southland for
$11,000,000 for various misrepresentations and breach of contract. The
sellers have filed a claim against the Company for approximately
$4,000,000 for amounts due under the sales agreement, including
approximately $2,000,000 held in escrow. The claim is currently in the
early phases of arbitration and management believes they have adequately
provided for any amounts due to the sellers.
As a result of the poor operating results, the Company, under new
executive management in January 1998, developed a plan to improve
liquidity and reduce costs. Key elements of the plan include management
restructuring, facility consolidations, cost containment and expansion
within certain product lines. The Company also obtained additional debt
financing in April 1998 and is currently negotiating with its primary
lender for additional financing under more favorable terms.
As of December 31, 1997, the Company evaluated the impairment indicators
described above and determined that the long lived assets acquired from
Southland were impaired. The Company calculated the amount of the
impairment based on estimated future discounted cash flows (fair value)
and determined that the carrying value of the long lived assets exceeded
the fair value by approximately $29,900,000. Accordingly, the $26,300,000
carrying value of goodwill was reduced to zero and the carrying value of
the non compete agreements was reduced by $3,600,000 to $1,900,000.
4. Goodwill and Non-Compete Agreements
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized on a straight line basis over 15 years.
The non-compete agreements relate to the sellers of businesses acquired
and are amortized on a straight line basis over the term of the agreement,
generally five years. See Note 3 for discussion of write down of goodwill
and non-compete agreements during 1997 due to impairment.
Goodwill and non-compete agreements consist of the following at December
31:
1997 1996
---- ----
Goodwill $3,597,911 $ -
Accumulated amortization 1,614,631 -
--------- -------
1,983,280 -
Non-compete agreements 3,249,686 -
Accumulated amortization 1,331,666 -
--------- -------
1,918,020 -
--------- -------
$3,901,300 $ -
========= =======
0
5. Long-Term Debt
Long-term debt consist of the following
at December 31:
1997 1996
Senior Secured Term Loan A with interest at
LIBOR plus 2.75% payable quarterly (8.47%
at December 31, 1997), with principal
payments due quarterly beginning in June
1997 and ending March 2002, net of discount
of $387,133. $ 8,112,867 -
Senior Secured Term Loan B with interest at
LIBOR plus 3.25% payable quarterly (8.97%
at December 31, 1997), with principal
payments due quarterly beginning in June
1997 and ending March 2004, net of discount
of $363,780. 7,586,220 -
Senior Secured Revolving Line of Credit with
interest at LIBOR plus 2.75% payable
quarterly (9.43% at December 31, 1997),
with principal due March 2002. 8,080,884 -
Subordinated Debt with related parties,
interest of 12.5% payable quarterly
commencing May 30, 1998, with principal
due in equal quarterly installments
during 2002 and 2005, net of discount
of $318,738. 8,681,262 -
Mortgage note payable with interest at prime
plus 2% (8.25%), principal and interest of
$5,000 due monthly until March 1999. - 504,083
Senior Subordinated PIK notes with related
parties evidencing accrued interest due for
August 1997 and November 1997 on the
original subordinated debt, interest of
12.5%, with principal due in equal
quarterly installments during 2002 and
2005. 508,334 -
Line of credit up to $2,000,000, amount
available based on percentages of accounts
receivable and inventory, secured by the
Company's assets, interest at prime plus
3%. - 1,594,076
Other 284,778 124,270
----------- ---------
33,254,345 2,222,429
Less current maturities 9,464,382 1,716,332
----------- ---------
$ 23,789,963 $ 506,097
=========== =========
The Company entered into an agreement ("the Credit Agreement") with Banque
Paribas individually and as agent for other participating Banks (the
"Banks") on February 28, 1997 to obtain up to $12,000,000 in a senior
revolving credit facility and $27,000,000 in senior term/acquisition
credit facilities in connection with the acquisition of Southland. The
Company terminated its long term financing arrangement with CIT and paid
off other long term credit facilities on February 28, 1997. The Credit
Agreement is secured by all assets, including inventory, accounts
receivable, real estate, trademarks, and patents of the Company, as well
as the common stock and other equity interests of each subsidiary of the
Company. The Credit Agreement also contains restrictive covenants
including limitations on the Company's amount of debt, disposition of
assets, incurrence of liens or encumbrances, payment of dividends,
investments, executive compensation and requires minimum interest
coverage, fixed charge coverage and EBITDA.
On November 14, 1997 the Company amended the Credit Agreement, reducing
the revolving credit facility from $9,000,000 to $8,000,000, until April
1, 1998 when the revolving credit facility increases to $12,000,000.
On December 31, 1997, the Company did not make the scheduled principal and
interest payments required in the Credit Agreement. On April 14, 1998 the
Company and Southland entered into a Fifth Amendment to its Credit
Agreement with the Banks (the "Fifth Amendment") whereby the Banks waived
the events of default for nonpayment and agreed to defer delinquent
interest payments and other scheduled interest payments through July 31,
1998 by execution of interest deferral notes. Scheduled principal payments
also were deferred until March 1999. However, the Company agreed that all
principal and interest under loans from the Banks will be due on February
28, 2001. The Company agreed to give the Banks tighter controls and liens
on cash collateral, and the Banks agreed to relax certain financial
covenants, although the miscellaneous debt restriction was reduced to
$100,000. One of the new terms was that all collections on customer
receivables would be used to pay down the revolving line of credit through
a lockbox arrangement. As a result, the amount outstanding under the
revolving line of credit of $8,080,884 at December 31, 1997 has been
classified as a current liability. As a result of the Fifth Amendment, the
Company's working capital line of credit with the Banks remains available
to meet the Company's requirements.
As a condition to the Fifth Amendment, the Banks required Rice Capital
Partners II L.P.(Rice), a related party by management of Rice being on the
Board of Directors, to loan the Company an additional $1,250,000. In
exchange for this loan which was obtained in April 1998, the Company
issued to Rice its 12.5% priority senior subordinated notes (the "Priority
Notes"). Interest payments under the Priority Notes are payable with PIK
notes until the Bank's debt is repaid. The Priority Notes are junior to
the Bank's debt but senior to the subordinated notes previously issued to
Rice and Fairview (the "1997 Senior Subordinated Notes"). In connection
with the purchase of Priority Notes, the Company also agreed to
issue to Rice warrants for the purchase (at a nominal exercise price) of
42,377,173 shares of the Company's common stock. The Company also agreed
to issue to Rice similar warrants to purchase 8,475,638 shares of the
Company's common stock as additional consideration for Rice's purchase of
$250,000 of Series B Preferred Stock in January, 1998. The total number
of shares of common stock provided under these warrants is subject to
reduction after receipt of a fairness opinion from an independent
financial advisor and is subject to approval by the holders of the voting
stock increasing its authorized common stock. The affirmative vote of
Rice alone will constitute the vote required for such shareholder approval.
Subordinated Debt
In order to obtain financing for the acquisition of Southland and fund
future expansion, the Company signed an agreement on February 28, 1997
with Rice to purchase $9,000,000 of senior subordinated debt and
$10,000,000 of senior redeemable preferred stock. F-Southland, L.L.C., a
North Carolina limited liability company, and FF-Southland Limited
Partnership, a North Carolina limited partnership, entities affiliated
with Franklin Street/Fairview Capital, L.L.C. ("Fairview"), a related
party by management of Fairview being on the Board of Directors, purchased
an aggregate amount of $2,000,000 of such senior subordinated debt and
$2,000,000 of such senior redeemable preferred stock.
The subordinated debt held by Rice and Fairview (the "Subordinated Notes")
bears interest at a rate of 12.5% per annum, with a default rate of 15.5%
per annum. Interest is payable quarterly for eight years, with principal
due in equal quarterly installments during the seventh and eighth years.
Prepayments of the Subordinated Debt are allowed subject to premiums
ranging from 12.5% during the first year to 0% commencing in the sixth
year. The Subordinated Debt is subordinated to the Bank's debt and is
unsecured.
On August 19, 1997 the Company amended the Subordinated Debt Agreement to
allow interest payments due on the last business day of August 1997,
November 1997 and February 1998 to be satisfied by the issue on or before
May 30, 1998 of Senior Subordinated Notes for the amount of such interest,
on the same terms as the Subordinated Notes.
Rice and Fairview also agreed to waive defaults in interest payments under
the 1997 Senior Subordinated Notes and to allow payment of delinquent and
future interest payments by the issuance of PIK Notes until repayment of
the Bank's debt. The Banks, Rice, and Fairview also agreed to amendments
to financial covenants in the documents underlying the 1997 Senior
Subordinated Notes consistent with the Fifth Amendment.
Interest expense and accrued interest payable to Rice and Fairview totaled
approximately $949,000 and $156,000, respectively, during 1997.
Long-term debt due matures as follows:
1998 $ 9,656,127
1999 1,757,425
2000 1,993,910
2001 2,478,310
2002 3,179,890
Thereafter 15,258,334
-----------
34,323,996
Less discounts (1,069,651)
-----------
$33,254,345
==========
6. Leases
Capitalized Leases
The Company leases certain land and buildings under long term leases which
are accounted for as capital leases. Included in property and equipment
are the following assets held under capital leases:
Capitalized leases $3,282,216
Less accumulated amortization (237,900)
---------
$3,044,316
=========
Future minimum lease payments for assets under capital leases at December
31, 1997 are as follows:
1998 $ 732,504
1999 732,504
2000 732,504
2001 732,504
2002 732,504
Thereafter 4,372,932
----------
Total minimum lease payables 8,035,452
Less amount representing interest (3,999,606)
----------
Present value of minimum lease payments 4,035,846
Less current maturities (178,615)
----------
Long-term obligations $ 3,857,231
==========
Amortization expense of $237,900 during 1997 is included in operating
expenses on the statement of operations.
Operating Leases
The Company leases warehouses and office facilities under operating leases
expiring at various times through 2004. The leases have renewal options
ranging from one to two years. Rent expense under these leases was
$1,417,035 and $244,582 for the years ended December 31, 1997 and 1996
respectively.
The Company has entered into non-cancelable operating leases for trucks
and warehouse equipment that expire at various times though 2004. Rent
expense under these leases was $450,370 and $90,638 for the years ended
December 31, 1997 and 1996 respectively.
At December 31, 1997 future minimum lease payments for non-cancelable
operating leases were as follows:
1998 $2,110,560
1999 1,613,480
2000 950,220
2001 868,430
2002 665,435
Thereafter 538,700
---------
Total $6,746,825
=========
7. Income Taxes
The components of the income tax provision (benefit) are as follows:
Year ended December 31
1997 1996
---- ---
Current
Federal $ (558,958) $ -
State (86,803) -
----------- --------
(645,761) -
Deferred
Federal 70,144 -
State (350,102) -
----------- --------
(279,958) -
----------- --------
$ (925,719) $ -
=========== ========
The reconciliation of income tax (benefit) computed at the US federal
statutory rate to income tax expense (benefit) is as follows:
Year ended December 31
1997 1996
---- ----
Tax at US statutory rate $(13,105,566) $ 59,044
State taxes, net of federal benefit (2,035,217) 6,304
Goodwill 9,019,042 -
Meals and entertainment 42,255 6,785
Increase (decrease) in valuation
allowance 5,182,008 (72,133)
Other (28,241) -
----------- --------
$ (925,719) $ -
=========== ========
The temporary differences that give rise to significant portions of the
deferred tax assets at December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
Allowance for doubtful accounts
receivable $ 259,248 $ 12,275
Inventory 588,292 15,086
Depreciation/amortization 191,303 15,306
Non-compete agreements 1,788,388 -
Debt costs 150,296 -
Accrued expenses 236,310 -
Net operating loss carry forward 3,574,127 637,734
Other 21,603 4,779
--------- --------
6,809,567 685,380
Valuation allowance 6,037,610 685,380
--------- --------
$ 771,957 $ -
========= ========
Statement No. 109 requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. After consideration of all the evidence, both positive
and negative, management has determined that a $6,037,610 valuation
allowance at December 31, 1997 is necessary to reduce the deferred tax
assets to the amount that will more likely than not be realized. The
change in the valuation allowance for the current year is $5,182,008. At
December 31, 1997, the Company has available net operating loss
carryforwards of $9,099,100, which expire in the year 2012.
8. Deferred Compensation Plan
In June, 1997, the Company established a 401K plan open to all full time
employees who have met prescribed eligibility requirements. To encourage
participation, the Company provides a matching contribution of 50% of the
first 6% of employee contribution. During 1997, the Company expensed
$89,000 related to this plan.
9. Employment Agreements
In order to provide for the mutual protection of the Company and certain
key employees, the Company has entered into employment agreements with
these individuals. While tailored to the specific circumstances, these
agreements provide a defined compensation structure and severance
agreement in exchange for non-compete agreements.
10. Redeemable Preferred Stock
In connection with the Southland acquisition, the Company issued 50,000
shares of Series B Redeemable Preferred stock for$9,269,220, net of fees
and discount. The Series B Redeemable Preferred stock are redeemable at
$200 per share and accrue dividends at a rate of 8.0% per annum, payable
quarterly, in kind by the issuance of additional shares of Series B
Preferred stock. The balance at December 31, 1997 includes approximately
$667,000 related to accrued dividends and approximately $76,000 related to
accretion of the carrying value to the redemption value. Series B
Preferred stock has liquidation preference over all other shares of common
stock and preferred stock, including Series A Preferred stock that is
currently held by F-Jotan, an affiliate of Fairview. Redemption of the
Series B Redeemable Preferred stock is mandatory at any time after the
eighth anniversary of closing at the greater of book value or fair value
of the common stock (the put value). The Series B Preferred stock may be
redeemed by the Company commencing in the sixth year at the put value. The
Series B Redeemable Preferred stock entitles the holders thereof at all
times that it is outstanding to elect the majority of the Board of
Directors.
On June 23, 1997, the Company entered into a commitment agreement with
Rice and Fairview which resulted in their purchasing an additional 13,125
shares of Series B Preferred Stock (First Supplemental Series B Redeemable
Preferred Stock) on September 11, 1997 for $2,606,875, net of discount.
The 13,125 shares of First Supplemental Series B Redeemable Preferred
Stock are redeemable at $200 per share and accrue dividends at a rate of
8.0% per annum payable in-kind by additional shares of Series B Preferred
Stock and have all the same rights and privileges of the Series B
Redeemable Preferred Stock described above. The balance at December 31,
1997 includes approximately $65,000 related to accrued dividends and
approximately $1,000 related to accretion of the carrying value to the
redemption value. These additional funds were used to provide the long
term financing of the Cove acquisition, retiring the acquisition credit
facility of $2,625,000.
11. Shareholders' Equity
In connection with the issuance of the senior subordinated debt on
February 28, 1997 and the Series B Redeemable Preferred Stock on February
28, 1997 and First Supplemental Series B Redeemable Preferred Stock on
September 11, 1997, the Company issued warrants to purchase 3,233,833,
11,977,158 and 3,620,473 shares, respectively, of the Company's common
stock. The warrants are each exercisable at any time at an exercise price
not to exceed $100 and expire in 10 years from date of grant. The warrants
were valued at fair value at the date of grant which totaled $150,000
related to the senior subordinated debt and approximately $520,000 related
to the Series B and First Supplemental Redeemable Preferred Stock.
On May 16, 1996, the Company signed an agreement to sell up to $6,000,000
in Series A Convertible Preferred Stock to an affiliate of Fairview
Capital L.L.C., a Raleigh, N.C. based private investment company. The
initial funding closed May 16, 1996, and provided the Company $1,820,076,
net of expenses, through the sale of 1,265,823 shares of Series A
Convertible Preferred Stock to F-Jotan. Under the terms of the Series A
Convertible Preferred Stock Purchase Agreement, the Company may sell an
additional $4,000,000 of Series A Convertible Preferred Stock to the
investors subject to certain conditions set forth in the Series A
Convertible Preferred Stock Purchase Agreement. The Series A Convertible
Preferred Stock is convertible into common stock at any time at the option
of the holder on a 2 for 1 basis, has voting rights equivalent to the
common stock and carries an 8% annual dividend, which is payable beginning
January 1, 1997 in additional shares of preferred stock. If all shares of
the Series A convertible preferred stock are issued, this class of stock
will represent approximately 15% of the Company's outstanding shares on a
fully diluted basis.
In 1995, the Company issued 5,000 warrants, which expire March 29, 2000,
to purchase the Company's common stock at a price equaling one hundred ten
percent (110%) of the fair value of the common stock on March 28, 1995
($5.16 per share).
12. Employee Stock Incentives
The Company has stock options outstanding to participants under the
Company's 1996 long-term incentive plan, approved by stockholders on July
10, 1996 and amended on May 6, 1997. Under the plan, the option price per
share shall be at least 100 percent of the fair market value of the common
stock on the date of grant. Accordingly, per APB 25 because the exercise
price of the Company's employee stock options is equal to or greater than
the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company's 1996 long term incentive plan has authorized the grant of
options to employees for up to 2,000,000 shares of the Company's common
stock. All options granted have 10 year terms and become fully exercisable
with continued employment as follows:
Full Years Percentage of
Elapsed Since Shares Which
Date of Grant May Be Exercised
------------- -----------------
1 25%
2 50%
3 75%
4 100%
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997 and 1996, respectively: risk-free
interest rates of 11.5%and 7.5%; dividend yields of 0%and 0%; volatility
factors of the expected market price of the Company's common stock of 0.67
and 0.34; and a weighted-average expected life of the option of 7 and 5
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1997 1996
---- ----
Pro forma net $ (38,593,097) $ 142,658
(loss) income
Pro forma earnings
per share:
Basic $ (6.77) $ .03
Diluted $ (6.77) $ .02
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Weighted - Weighted -
Average Average
Exercise Exercise
Options Price Options Price
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding -
beginning of year 274,150 $1.0 -
Granted 115,000 $1.4 278,550 $1.0
Exercised - -
Forfeited 277,750 $1.0 4,400 1.0
------- --- ------- ---
Outstanding -
end of year 111,400 274,150
======= =======
Exercisable at
end of year 5,725 -
Weighted-average
fair value of
options granted
during the year $ 1.03 $ 0.43
during the year
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged
from $1.00 to $1.43. The weighted-average remaining contractual life of
those options is 9 years.
13. Earnings Per Share
The following table sets forth the computation of shares for purposes of
the earnings (loss) per share calculation:
1997 1996
---- ----
Average shares outstanding 5,692,370 5,676,598
Net effect of dilutive stock options -
based on the treasury method using
average market price - 109,424
Assumed conversion of 8% preferred
convertible stock equivalent to
2,531,646 common shares 5,692,370 1,595,284
--------- ---------
Totals 5,692,370 7,381,306
========= =========
The 1997 earnings per share calculation excludes the effect of 111,400
outstanding options, 2,871,410 shares of preferred convertible stock, and
warrants to purchase 18,831,464 shares of common stock, as their effect is
antidilutive. Also, in January 1998 and April 1998 the company issued
warrants to purchase approximately 50,852,811 shares of common stock.
14. Pro Forma Information Related to Southland and Cove Acquisitions
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the Southland and Cove
transactions had occurred as of January 1, 1996 after giving effect to
certain adjustments, including depreciation, amortization of goodwill,
interest expense on acquisition debt and related income tax effects. The
net loss of $39,134,000 for 1997 includes the writedown of goodwill and
noncompete agreements of $29,900,000 due to impairment (see Note 3). The
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
acquisition been made on that date, nor are they necessarily indicative of
results which may occur in the future.
(Pro Forma-Unaudited)
Years ended December 31
-----------------------
Revenues $ 72,944,000 $72,060,000
Net loss attributable to common
stockholders (39,134,000) (3,431,000)
Net (loss) per share (6.87) (.60)
RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
1. The name of this Corporation is Jotan, Inc.
2. The text of its Restated Articles of Incorporation is as
follows:
ARTICLE I
NAME AND PLACE OF BUSINESS
Section 1.1 Name and Place of Business. The name of this
corporation is Jotan, Inc., with its principal place of business at 118
West Adams Street, Jacksonville, Florida 32202 with a mailing address of
P.O. Box 836, Jacksonville, Florida 32201.
ARTICLE II
DURATION
Section 2.1 Duration. This corporation shall exist perpetually.
ARTICLE III
PURPOSES
Section 3.1 Purposes. This corporation is organized for the purpose
of transacting any or all lawful business permitted under the laws of the
United States and of the State of Florida.
ARTICLE IV
CAPITAL STOCK
Section 4.1 Authorized Capital. The corporation is authorized to
issue forty million (40,000,000) shares of common stock with a par value
of one cent ($0.01) per share, and ten million (10,000,000) shares of
preferred stock having a par value of one cent ($0.01) per share. The
Board of Directors shall have the authority to establish series of the
preferred stock and, by filing the appropriate Articles of Amendment with
the Department of State of the State of Florida, to establish the
designation of each series and the variations in rights, preferences and
limitations for each series.
ARTICLE V
DIRECTORS
Section 5.1 Number. This corporation shall have Three (3)
directors initially. The number of directors may be increased or
diminished from time to time by the bylaws, but shall never be less than
one, nor more than ten.
Section 5.2 Indemnification. This Corporation shall indemnify
directors and officers to the full extent permitted by law.
ARTICLE VI
BYLAWS
Section 6.1 Bylaws. The initial bylaws of this Corporation shall be
adopted by the board of directors. Bylaws shall be adopted, altered,
amended or repealed from time to time by either the shareholders or the
board of directors, but the board of directors shall not alter, amend or
repeal any bylaw adopted by the shareholders if the shareholders
specifically provide that such bylaw is not subject to amendment or repeal
by the board of directors.
IN WITNESS WHEREOF, the undersigned President of Jotan, Inc. has
executed this Restatement of the Articles of Incorporation of Jotan, Inc.
this 9th day of April, 1996 and has caused to be appended hereto the
Certificate required by Section 607.1007(4) of the Florida Business
Corporation Act.
/s/ Shea Ralph
Shea Ralph, President
ATTEST
/s/ David Freedman
David Freedman, Secretary of Jotan, Inc.
<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.
/s/ Shea E. Ralph
Shea E. Ralph, Director
President of Jotan, Inc.
ATTEST:
/s/ David Freedman
David Freedman
Secretary of Jotan, Inc.
<PAGE>
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF JOTAN, INC.
[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 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") but prior to each share of Common
Stock with respect to the payment of dividends.
3. Liquidation Preference.
(a) Liquidation Preference. Each share of Series A Convertible
Preferred Stock shall be treated as being pari passu with each share
of Series B Redeemable Preferred Stock and prior to each share of
Common Stock with respect to the distribution of assets or surplus
funds upon any Liquidation. In the event of any Liquidation, the
assets and funds of the Corporation shall be ratably distributed
among the holders of the Series A Convertible Preferred Stock and the
Series B Redeemable Preferred Stock based on the total number of
shares of such Preferred Stock then held by all such holders. Upon
any Liquidation and after both the holders of the Series A
Convertible Preferred Stock shall have been paid the full Series A
Preferential Amount and the Series B Redeemable Preferred Stock shall
have been paid the full Series B Preferential Amount, the entire
remaining assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the
Common Stock.
(b) Consolidation: Merger. A consolidation, merger or share
exchange of the Corporation shall be treated as a Liquidation in
accordance with paragraph B.3(b) of Section 4.2.
(c) Valuation of Securities. Any securities to be delivered
upon Liquidation shall be valued as follows:
(i) securities not subject to investment letter or other
similar restrictions on free marketability covered by paragraph
A.3(c)(ii) of this Section 4.2:
(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 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
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);
(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 shares of Common Stock upon the
exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any change in the consideration payable to the
Corporation, or change in the number of Common Stock
issuable, upon the exercise, conversion or exchange
thereof, the Series A Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such change becoming
effective, be recomputed to reflect such change insofar as
it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided,
however, that no such adjustment of the Series A Conversion
Price shall affect Common Stock previously issued upon
conversion of the Series A Convertible Preferred Stock);
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities that shall not have been exercised, the Series A
Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options, the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor was
the consideration actually received by the Corporation
for the issue of all such Options, whether or not
exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue
of all such Convertible Securities that actually were
converted or exchanged, plus the additional
consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received by
the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation
(determined pursuant to paragraph 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;
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 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
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 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 maimer would not significantly impact the market price of
the Common Stock. If the redemption notice has been duly given, each
holder of shares of Series A Convertible Preferred Stock to be
redeemed shall be entitled to convert, on or prior to the redemption
date, such shares of Series A Convertible Preferred Stock into shares
of Common Stock in accordance with the terms of these Restated
Articles of Incorporation.
(b) The Company shall mail an appropriate Redemption Notice
stating the information to be set forth therein.
B. Series B Redeemable Preferred Stock
1. Designation 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 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.
(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 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 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:
Redemption Date Price
--------------- -----
(i) On or after the Initial Issue 112.5% of the
Date and before the first Series B
anniversary of the Initial Preferential
Issue Date Amount
(ii) On or after the first 110.71% of the
anniversary of the Initial Series B
Issue Date and before the Preferential
second anniversary of the Amount
Initial Issue Date
(iii) On or after the second 108.92% of the
anniversary of the Initial Series B
Issue Date and before the Preferential
third anniversary of the Amount
Initial Issue Date
(iv) On or after the third 107.14% of the
anniversary of the Initial Series B
Issue Date and before the Preferential
fourth anniversary of the Amount
Initial Issue Date
(v) On or after the fourth 105.36% of the
anniversary of the Initial Series B
Issue Date and before the Preferential
fifth anniversary of the Amount
Initial Issue Date
(vi) On or after the fifth 100% of the
anniversary of the Initial Series B
Issue Date Preferential
Amount
(b) Mandatory Redemptions. On the eighth (8th) anniversary of
the Initial Issue Date, the Company shall redeem (subject to the
legal availability of funds) all shares of the Series B Redeemable
Preferred Stock issued and outstanding from time to time; provided,
however, that if the Company fails to redeem any such shares at such
anniversary, the holders of such shares shall be entitled to all
rights and remedies at law or in equity.
(c) Continuing Obligations. In the event any redemption
required by this paragraph 5 is not completed for any reason, the
obligation of the Company to redeem all or a portion of the Series B
Redeemable Preferred Stock will continue until the earliest time as
the circumstance preventing such redemption no longer exists, at
which time the Company will redeem the Series B Redeemable Preferred
Stock. The Company will use its best efforts to make funds legally
available for such redemptions, including, without limitation,
revaluing assets of the Company.
(d) Redemption Notice. The Company shall mail an appropriate
Redemption Notice stating the information to be set forth therein.
(e) Surrender of Stock. On or before the Redemption Date, each
holder of Series B Redeemable Preferred Stock to be redeemed shall
surrender the certificate or certificates (if any) representing such
shares to the Company, in the manner and at the place designated in
the Redemption Notice, and thereupon the Series B Preferential Amount
for such shares shall be payable to the order of the person whose
name appears on such certificate or certificates (or that is entitled
to such payment if there is no certificate) as the owner thereof or
such person's designee, and each surrendered certificate shall be
canceled and retired. In the event fewer 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.
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, recapitalization, 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 maimer, whether by amendment hereof or of its
Bylaws, merger, reorganization, recapitalization, consolidation,
sales of assets, sale of stock, tender offer, dissolution or
otherwise, take any action, or permit any action to be taken, solely
or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce
the value 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 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 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 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, recapitalization, 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 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).
BYLAWS
OF
JOTAN, INC.
ARTICLE I
BUSINESS OFFICES
Section 1.1 Florida. The corporation shall have such offices as
its business may require within or without the State of Florida
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
Section 2.1 Florida. The address of the initial registered office
in the State of Florida and the name of the initial registered agent of
the corporation at such address are set forth in the Articles of
Incorporation. The corporation may, from time to time, designate a
different address as its registered office or a different person as its
registered agent, or both; provided, however, that such designation shall
become effective upon the filing of a statement of such change with the
Department of State of the State of Florida as is required by law.
Section 2.2 Other States. In the event the corporation desires to
qualify to do business in one or more states other than Florida, the
corporation shall designate the location of the registered office in each
such state and designate the registered agent for service of process at
such address in the manner provided by law of the state in which the
corporation ejects to be qualified.
ARTICLE III
SHAREHOLDERS' MEETINGS
Section 3.1 Place of Meetings. Meetings of the shareholders
shall be held at the principal office of the corporation or any other
place (within or without the state of Florida) designated in the notice of
the meeting.
Section 3.2 Annual Meeting. An annual meeting of the shareholders
shall be held within four months after the close of each fiscal year of
the corporation at a time and place designated by the Board of Directors,
at which meeting the shareholders shall elect a Board of Directors and
transact other business. If an annual meeting is not held within any 13-
month period, the Circuit Court of the circuit in which the registered
office of the corporation is located may, on the application of any
shareholder, summarily order a meeting to be held.
Section 3.3 Special Meetings. Special meetings of the
shareholders shall be held when directed by the President or the Board of
Directors, or when requested in writing by the holders of not less than
twenty percent of all the shares entitled to vote at the meeting. A
meeting requested by shareholders shall be called for a date not less than
ten nor more than sixty days after the request is made, unless the
shareholders requesting the meeting designate a later date. The call for
the meeting shall be issued by the Secretary unless the President, Board
of Directors, or shareholders requesting the meeting shall designate
another person to do so.
Section 3.4 Notice. Written notice stating the place, day, and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten nor more than sixty days before the meeting, either personally or by
first class mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United states mail addressed
to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 3.5 Notice of Adjourned Meetings. When a meeting is
adjourned to another tine or place, it shall not be necessary to give any
notice of the adjourned meeting if the time and place to which the meeting
is adjourned are announced at the meeting at which the adjournment is
taken, and any business may be transacted at the adjourned meeting that
might have been transacted on the original date of the meeting. If,
however, after the adjournment, the Board of Directors fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be
given, as provided in Section 3.4 above, to each shareholder of record on
the new record date entitled to vote at such meeting.
Section 3.6 Waiver of Notice. Whenever notice is required to be
given to any shareholder, a waiver thereof in writing, signed by the
person or persons entitled to such notice whether before or after the time
stated therein, shall be equivalent to the giving of such notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the shareholders need be specified in the written
waiver of notice.
Section 3.7 Closing of Transfer Books and Fixing Record Date.
(a) For the purpose of determining shareholders entitled to notice
or to vote at any meeting of shareholders or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, sixty days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten days immediately preceding such meeting.
(b) In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any
determination of shareholders, such date in any case to be not more than
sixty days and, in the case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action requiring such
determination of shareholders is to be taken.
(c) If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice or to vote
at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders.
(d) When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 3.8 Record of Shareholders Having Voting Rights.
(a) If the corporation shall have more than six shareholders, the
officer or agent having charge of the stock transfer books for shares of
the corporation shall make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof with the address of and the number and
class and series, if any, of shares held by each. For a period of ten
days prior to such meeting, the list shall be kept on file at the regis-
tered office of the corporation, at the principal place of business of the
corporation, or at the office of the transfer agent or registrar of the
corporation and any shareholder shall be entitled to inspect the list at
any time during usual business hours. The list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder at any time during the meeting. If the
requirements of this section have not been substantially complied with,
the meeting, on demand of any shareholder in person or by proxy, shall be
adjourned until the requirements are compiled with. If no such demand is
made, failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
(b) If the corporation shall have fewer than seven shareholders, the
books of record of shareholders shall be made available to any shareholder
at any annual or special meeting of the shareholders, upon the request of
any shareholder. If the books of record shall not be made available to
the shareholder requesting them at the meeting where the request is made,
the meeting, on demand of any shareholder in person or by proxy, shall be
adjourned until the requirements are compiled with. If no such demand is
made, failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
Section 3.9 Shareholder Quorum A majority of the shares entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. When a specified item of business is required to
be voted on by a class or series of stock, a majority of the shares of
such class or series shall constitute a quorum for the transaction of such
item of business by that class or series. If a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number or voting by class is
required by Chapter 607 of the Florida General Corporation Act or by the
Articles of Incorporation or by these Bylaws. After a quorum has been
established at a shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum shall not affect the
validity of any action taken at the meeting or any adjournment thereof.
Section 3.10 Voting of Shares.
(a) Each outstanding share, regardless of class, shall be entitled
to one vote on each matter submitted to a vote at a meeting of
shareholders, except as may otherwise be provided in the Articles of
Incorporation.
(b) A shareholder may vote either in person or by proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact.
(c) At each election for directors every shareholder entitled to
vote at such election shall have the right to vote, in person or by proxy,
the number of shares owned by him for as many persons as there are
directors to be elected at that time and for whose election he has a right
to vote. If cumulative voting is specifically authorized by the Articles
of Incorporation, a shareholder may cumulate his votes giving one
candidate as many votes as the number of directors to be elected at that
time multiplied by the number of his shares, or by distributing such votes
on the same principle among any number of such candidates.
Section 3.11 Proxies.
(a) Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting, or a shareholder's
duly authorized attorney-in-fact, may authorize another person or persons
to act for him by proxy.
(b) Every proxy must be signed by the shareholder or his attorney-
in-fact. No proxy shall be valid after the expiration of eleven months
from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing it, except
as otherwise provided by law.
(c) If a proxy for the same shares confers authority upon two or
more persons and does not otherwise provide, a majority of them present at
the meeting (or if only one is present then that one) may exercise all the
powers conferred by the proxy; but if the proxy holders present at the
meeting are equally divided as to the right and manner of voting in any
particular case, the voting of such shares shall be prorated.
(d) The authority of the holder of a proxy to act shall not be
revoked by the incompetence or death of the shareholder who executed the
proxy unless, before the authority is exercised, written notice of an
adjudication of such incompetence or of such death is received by the
corporate officer responsible for maintaining the list of shareholders.
Section 3.12 Action by Shareholders Without a Meeting.
(a) Any action required to be taken at any annual or special meeting
of shareholders of the corporation, or any action which may be taken at
any annual or special meeting of such shareholders, may be taken without a
meeting, without prior notice, and without a vote if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. If shares are
entitled to be voted by class and if any class of shares is entitled to
vote thereon as a class, such written consent shall be required of the
holders of a majority of the shares of each class of shares entitled to
vote as a class thereon and of the total shares entitled to vote thereon.
(b) Within 10 days after obtaining such authorization by written
consent, notice must be given to those shareholders who have not consented
in writing. The notice shall fairly summarize the material features of
the authorized action and, if the action be a merger, consolidation, or
sale or exchange of assets for which dissenters rights are provided under
Chapter 607 of the Florida Business Corporation Act, the notice shall
contain a clear statement of the right of shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with
further provisions of this Chapter regarding the rights of dissenting
shareholders.
(c) In the event that the action to which the shareholders have
consented is such as would have required the filing of a certificate under
any other Section of Chapter 607 of the Florida Business Corporation Act
if such action had been voted on by shareholders at a meeting thereof, the
certificate filed under such other section shall state that written
consent has been given in accordance with the provisions of Section
607.0704 of the Florida Business Corporation Act.
ARTICLE IV
DIRECTORS
Section 4.1 Function. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of this
corporation shall be managed under the direction of, the Board of
Directors.
Section 4.2 Qualifications. Directors need not be residents of
this state or shareholders of this corporation.
Section 4.3 Compensation. The Board of Directors shall have
authority to fix the compensation of directors unless otherwise provided
in the Articles of Incorporation.
Section 4.4 Number. This corporation shall have three (3)
directors initially. The number of directors may be increased or
diminished from time to time, but shall never be less than one nor more
than ten.
Section 4.5 Election and Term.
(a) Each person named in the Articles of Incorporation as a member
of the initial Board of Directors shall hold office until the first annual
meeting of shareholders and until his successor shall have been elected
and qualified, or until his earlier resignation, removal from office, or
death.
(b) At the first annual meeting of shareholders and at each annual
meeting thereafter, the shareholders shall elect directors to hold office
until the next succeeding annual meeting. Each director shall hold office
for the term for which he is elected and until his successor shall have
been elected and qualified, or until his earlier resignation, removal from
office, or death.
Section 4.6 Removal of Directors. Any director, or the entire
Board of Directors, may be removed, with or without cause, at a meeting of
the shareholders called expressly for that purpose, as provided in Section
607.0808, Florida Statutes (1989).
Section 4.7 Vacancies. Any vacancy occurring in the Board of
Directors, including any vacancy created by reason of an increase in the
number of directors, may be filled by the affirmative vote of a majority
of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall hold office only
until the next election of directors by the shareholders.
Section 4.8 Quorum and Voting. A majority of the number of
directors fixed by these bylaws shall constitute a quorum for the
transaction of business The act of a majority of the directors present at
a meeting at which the quorum is present shall be the act of the Board of
Directors.
Section 4.9 Executive and Other Committees.
(a) The Board of Directors, by resolution adopted by a majority of
the full Board of Directors, may designate from among its members an
executive committee and one or more committees, each of which, to the
extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except as limited by the laws of the
State of Florida.
(b) The Board of Directors, by resolution adopted in accordance with
this section, may designate one or more directors as alternate members of
any such committee, who may act in the place and stead of any absent
member or members at any meeting of such committee.
Section 4.10 Place of Meeting. Regular and special meetings of the
Board of Directors may be held within or without the State of Florida.
Section 4.11 Time, Notice and Call of Meetings.
(a) Regular meetings of the Board of Directors shall be held
immediately following the annual meeting of shareholders each year, and
regular or special meetings may be held at such times thereafter as the
Board of Directors may fix, and at such other times as called by the
President of the corporation or any two directors. Written notice of the
time and place of special meetings of the Board of Directors shall be
given to each director by either personal delivery, telegram, or cablegram
at least two days before the meeting, or by notice mailed to each director
at least five days before the meeting.
(b) Notice of a meeting of the Board of Directors need not be given
to any director who signs a waiver of notice either before or after the
meeting. Attendance of a director at a meeting shall constitute a waiver
of notice of such meeting and waiver of any and all objections to the
place of the meeting, the time of the meeting, or the manner in which it
has been called or convened, except when a director states, at the
beginning of the meeting, any objection to the transaction of business
because the meeting is not lawfully called or convened.
(c) Members of the Board of Directors may participate in a meeting
of such board by conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 4.12 Action Without a Meeting. Any action required to be
taken at a meeting of the Board of Directors, or any action which my be
taken at a meeting of the directors or a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so to
be taken, signed by all of the directors, or all the members of the
committee, as the case may be, is filed in the minutes of the proceedings
of the board or of the committee. Such consent shall have the same effect
as a unanimous vote.
ARTICLE V
OFFICERS
Section 5.1 Officers. This corporation shall have a President,
who shall be a Director, a Secretary and a Treasurer. They shall be
chosen by the Board of Directors at the first meeting of the Board of
Directors held following each annual meeting of stockholders, and shall
serve until their successors are chosen and qualify. All other officers,
agents and factors shall be chosen, serve for such terms and have such
duties as may he determined by the Board of Directors. Any person may
hold two or more offices.
Section 5.2 Duties. The officers of this corporation shall have
the following duties:
(a) The President shall be the chief executive officer of the
corporation, shall have general and active management of the business and
affairs of the corporation subject to the directions of the Board of
Directors, and shall preside at all meetings of the shareholders and Board
of Directors.
(b) The Secretary shall have custody of and maintain all of the
corporate records, except the financial records, shall record the minutes
of all meetings of the shareholders and the Board of Directors or its
committees, shall send all notices of meetings, and shall perform such
other duties as may be prescribed by the Board of Directors or the
President.
(c) The Treasurer shall have custody of all corporate funds and
financial records, shall keep full and accurate accounts of receipts and
disbursements and render accounts thereof at the annual meetings of
shareholders and whenever else required by the Board of Directors or the
President, and shall perform such other duties as may be prescribed by the
Board of Directors or the President.
(d) The Vice President, if one is elected, shall, in the absence or
disability of the President, perform the duties and exercise the powers of
the President. He also shall perform whatever duties and have whatever
powers the Board of Directors may from time to time assign him. If more
than one Vice President is elected, one thereof shall be designated as
Executive Vice President and shall, in the absence or disability of the
President, perform the duties and exercise the powers of the President,
and each other Vice President shall only perform whatever duties and have
whatever powers the Board of Directors my from time to time assign him.
Section 5.3 Removal of Officers. Any officer or agent elected or
appointed by the Board of Directors may be removed by the board whenever
in its judgment the best interests of the corporation will be served
thereby.
Section 5.4 Vacancies. Any vacancy, however occurring, in any
office may be filled by the Board of Directors.
Section 5.5 Compensation. The compensation of the President,
Secretary, Treasurer, and such officer elected or appointed by the Board
of Directors shall be fixed by the Board and may be changed from time to
time by a majority vote of the board. The fact that an officer is also a
director shall not preclude such person from receiving compensation as
either a director or officer, nor shall it affect the validity of any
resolution by the Board of Directors fixing such compensation. The
President shall have authority to fix the salaries of all employees of the
corporation other than officers elected or appointed by the Board of
Directors.
ARTICLE VI
STOCK CERTIFICATES
Section 6.1 Authorized Issuance. This corporation may issue the
shares of stock authorized by its Articles of Incorporation and none
other. Shares may be issued only pursuant to a resolution adopted by the
Board of Directors. No shares may be validly issued or transferred in
violation of these bylaws or in violation of any agreement respecting the
issuance or transfer of shares to which the corporation is a party.
Section 6.2 Issuance. Every holder of shares in this corporation
shall be entitled to have a certificate representing all shares to which
he is entitled. No certificate shall be issued for any share until such
share is fully paid.
Section 6.3 Signatures. Certificates representing shares in this
corporation shall be signed by the President or Vice President and the
Secretary or an Assistant Secretary, and may be sealed with the seal of
this corporation or a facsimile thereof. The signatures of the President
or Vice President and the Secretary or Assistant Secretary may be
facsimiles if the certificate is manually signed on behalf of a transfer
agent or a registrar, other than the corporation itself or an employee of
the corporation.
Section 6.4 Form. Each certificate representing shares shall
state upon the face thereof: the name of the corporation; that the
corporation is organized under the laws of Florida; the name of the person
or persons to whom issued; the number and class of shares, and the
designation of the series, if any, which such certificate represents; and
the par value of each share represented by such certificate, or a
statement that the shares are without par value. Each certificate shall
otherwise comply, in all respects, with the requirements of law.
Section 6.5 Transfer of Stock. The corporation shall register a
stock certificate presented to it for transfer if the certificate is
properly endorsed by the holder of record or by his duly authorized
attorney. Provided, however, that the corporation or its transfer agent
may require the signature of such person to be guaranteed by a commercial
bank or trust company or by a member of the New York or American Stock
Exchange.
Section 6.6 Lost, Stolen, or Destroyed Certificates. The
corporation shall issue a new stock certificate in the place of any
certificate previously issued if the holder of record of the certificate
(a) makes proof in affidavit form that it has been lost, destroyed, or
wrongfully taken; (b) requests the issue of a new certificate before the
corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of any adverse claim;
(c) gives bond in such form as the corporation may direct to indemnify the
corporation, the transfer agent, and registrar against any claim that may
be made on account of the alleged loss, destruction, or theft of the
certificate; and (d) satisfies any other reasonable requirements imposed
by the corporation.
ARTICLE VII
BOOKS AND RECORDS
Section 7.1 Books and Records.
(a) This corporation shall keep correct and complete books and
records of accounts and shall keep minutes of the proceedings of its
shareholders, Board of Directors, and committees of directors.
(b) This corporation shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of
all shareholders, and the number, class, and series, if any, of the shares
held by each.
(c) Any books, records, and minutes may be in written form or in any
other form capable of being converted into written form within a
reasonable time.
Section 7.2 Shareholders' Inspection Rights. Any person who shall
have been a holder of record of at least one percent (1%) of the shares or
of voting trust certificates therefor at least six months immediately
preceding his demand or shall be the holder of record of, or the holder of
record of voting trust certificates for, at least five percent of the
outstanding shares of any class or series of the corporation, upon written
demand stating the purpose thereof, shall have the right to examine, in
person or by agent or attorney, at any reasonable time or times, for any
proper purpose its relevant books and records of accounts, minutes, and
records of shareholders and to make extracts therefrom.
Section 7.3 Financial Information.
(a) Unless modified by resolution of the shareholders not later than
four months after the close of each fiscal year, this corporation shall
prepare a balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and a
profit and loss statement showing the results of the operations of the
corporation during its fiscal year.
(b) Upon the written request of any shareholder or holder of voting
trust certificates for shares of the corporation, the corporation shall
mail to such shareholder or holder of voting trust certificates a copy of
the most recent such balance sheet and profit and loss statement.
(c) The balance sheets and profit and loss statements shall be flied
in the registered office of the corporation in this state, shall be kept
for at least five years, and shall be subject to inspection during
business hours by any shareholder or holder of voting trust certificates,
in person or by agent.
ARTICLE VIII
DIVIDENDS
Section 8.1 Payment. The Board of Directors of this corporation
may, from time to time, declare and the corporation may pay dividends as
permitted by law on its shares in cash, property, or its own shares,
except when the corporation is insolvent or when the payment thereof would
render the corporation insolvent.
ARTICLE IX
CORPORATE SEAL
Section 9.1 Form. The Board of Directors shall provide a
corporate seal which shall have the name of the corporation inscribed
thereon, and may be facsimile, engraved, printed, or an impression seal.
ARTICLE X
EMERGENCY BYLAWS
Section 10.1 Emergency. Consistent with the provisions of Section
607.0207, Florida Statutes (1991), if an emergency shall arise, as defined
therein, then the president, secretary and treasurer of this corporation
shall constitute an emergency Board of Directors and shall have the full
authority and power to conduct the business and affairs of this
corporation. The requirements of Section 4.8 of these bylaws shall be
relaxed so that a quorum shall exist if only one member of the Board is
present at the meeting for purposes of transacting business. For purposes
of conducting business during the emergency, a meeting of the Board of
Directors may be called by any member of the Board During the term of the
emergency, the Board of Directors may appoint such officers of this
corporation as the members of the Board of Directors feel reasonable and
necessary in the circumstances.
ARTICLE XI
AMENDMENT
Section 11.1 Power to Amend. These bylaws may be altered, amended
or revoked, and new bylaws may be adopted by either the Board of Directors
or the shareholders, but the Board of Directors may not alter, amend or
revoke any bylaw adopted by the shareholders if the shareholders
specifically provide that such bylaw is not subject to amendment or
revocation by the Board of Directors.
Section 11.2 Requisites for Amendment by Stockholders. These
bylaws may be amended or repealed, wholly or in part, by a majority of the
stockholders entitled to vote thereon present at any stockholders' meeting
if notice of the proposed action was included in the notice of the meeting
or is waived in writing by a majority of the stockholders entitled to vote
thereon.
I hereby certify that the foregoing bylaws are the bylaws of Jotan,
Inc., adopted by the Board of Directors of that corporation, on July 14,
1993.
/s/ Shelia J. Bonnett
Secretary
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of August 19, 1997, is among JOTAN, INC. ("Holding"), SOUTHLAND CONTAINER
PACKAGING CORP. (formerly Southland Holding Company, successor in interest
by merger to SHC Acquisition Corp., each of its own subsidiaries and
Atlantic Bag & Paper Company and herein the "Borrower"), each of the banks
or other lending institutions which are signatories hereto (collectively,
the "Banks") and BANQUE PARIBAS, as agent for the Banks (the "Agent").
RECITALS:
A. Holding, SHC Acquisition Corp., Agent and Banque Paribas, in its
individual capacity, entered into that certain Credit Agreement dated as
of February 28, 1997 (as amended by that certain letter amendment dated
April 30, 1997 and that certain Second Amendment to Credit Agreement dated
as of June 20, 1997, herein the "Credit Agreement").
B. SHC Acquisition Corp. has merged with and into Southland Holding
Company, with Southland Holding Company surviving and assuming all the
obligations of SHC Acquisition Corp. under the Credit Agreement and the
Loan Documents (as defined in the Credit Agreement).
C. Banque Paribas has assigned certain of its rights and interest
under the Credit Agreement and the other Loan Documents to the other Banks
party hereto pursuant to those certain Assignment and Acceptances, each
dated April 18, 1997.
D. Southland Holding Company has changed its name to Southland
Container Packaging Corp. and each Obligated Party (as defined in the
Credit Agreement) other than Holding has merged with and into Southland
Container Packaging Corp. with Southland Container Packaging Corp. as the
surviving entity.
E. Borrower has advised Agent that Events of Default (as defined in
the Credit Agreement) have occurred under subsections 14.1(c) and 14.1(j)
of the Credit Agreement as a result of the following (the "Existing
Defaults"): (i) the Borrower's failure to comply with the covenants set
forth in Sections 13.2, 13.3, 13.5 and 13.6 of the Credit Agreement each
as of June 30, 1997 and for the relevant period then ending (the "Violated
Covenants") and (ii) the occurrence of an event of default under the
Subordinated Loan Documents.
F. In accordance with the Agreement, the Borrower has requested
that the Agent and the Banks waive the Existing Defaults. The Banks have
agreed to do so subject to and on the terms of this Amendment and the
Credit Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment,
to the extent not otherwise defined herein, shall have the same meanings
as in the Credit Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 1.1. The definition of
"Revolving Commitment" in Section 1.1 of the Credit Agreement is amended
in its entirety to read as follows:
"Revolving Commitment" means, as to each Bank, the
obligation of such Bank to make advances of funds and purchase
participation interests in (or with respect to the Agent as a
Bank, hold other interests in) Letters of Credit in an aggregate
principal amount at any one time outstanding up to but not
exceeding the following, as the same may be reduced or
terminated pursuant to Section 2.6, Section 7.4, Section 8.7 or
Section 14.2:
(a) the amount set forth opposite the name of such
Bank on the signature pages hereto under the heading
"Revolving Commitment"; or
(b) if applicable, the amount set forth on the Bank's
most recent Assignment and Acceptance as its Revolving
Commitment; or
(c) if the amount of a Bank's Revolving Commitment is
determined at any time during the period from August 19,
1997 through March 31, 1998, an amount equal to the Bank's
Commitment Percentage (calculated based on the Revolving
Commitments only without regard to this clause (c)) of Nine
Million Dollars ($9,000,000).
The aggregate amount of the Revolving Commitments of all Banks equals
(a) from the Closing Date through August 19, 1997, Twelve Million
Dollars ($12,000,000); (b) from August 19, 1997, through March 31,
1998, Nine Million Dollars ($9,000,000), and (c) from April 1, 1998,
through the Revolving Termination Date, Twelve Million Dollars
($12,000,000).
Section 2.2 Amendment to Section 3.1. The first sentence of Section
3.1 is deleted in its entirety. As a result and as of the date hereof,
the commitment of the Banks to make Acquisition Loans is hereby
terminated.
Section 2.3 Amendment to Section 11.1. The phrase ", as of the end
of each Fiscal Quarter," is hereby deleted from clause (c) of Section 11.1
of the Credit Agreement.
Section 2.4 Amendments to Article 13.
(a) Sections 13.2 and 13.3 of the Credit Agreement are amended
by deleting the phrase "the Closing Date" and replacing it with the
phrase "June 30, 1997" wherever appearing in such Sections.
(b) Section 13.2 and 13.3 of the Credit Agreement are amended
by deleting the phrase "(beginning with the Fiscal Quarter ending
June 30, 1997)" and replacing it with the phrase "(beginning with the
Fiscal Quarter ending September 30, 1997)".
(c) The "9/30/97" date set forth in the chart in Section 13.2
of the Credit Agreement is amended to be "12/31/97" and the "10/1/97"
date in such chart is amended to be "1/1/98".
(d) Part (A) of the definition of "Fixed Charges" in Section
13.3 of the Credit Agreement is amended to read in its entirety as
follows: "(A) interest expense but excluding any interest expense
satisfied or required to be satisfied with the delivery of additional
Subordinated Notes (the "PIK Notes") and including any principal
payments on such PIK Notes made during the period in question;"
(e) The following sentence is added as the first sentence of
Section 13.5 of the Credit Agreement:
As of each month end set forth below, Holding shall not
permit EBITDA for the period from and excluding June 30, 1997
through the month then ending to be less than the Dollar amount
set forth below for such period and month end:
Month Ending Dollar Amount
------------ -------------
7/31/97 $ 350,000
8/31/97 $ 875,000
9/30/97 $1,250,000
10/31/97 $1,625,000
11/30/97 $2,100,000
12/31/97 $2,500,000
1/31/98 $2,750,000
2/28/98 $3,000,000
3/31/98 $3,500,000
The phrase "(or portion thereof since the Closing Date)" is deleted
from the existing first sentence of Section 13.5 of the Credit Agreement
and the first four lines of the existing chart in Section 13.5 of the
Credit Agreement are deleted.
(f) Section 13.6 of the Credit Agreement is amended by (i)
adding the phrase "on or after September 30, 1997," immediately after
the phrase "Holding will at all times", (ii) deleting the phrase
"Twelve Million Dollars ($12,000,000)" and replacing it with the
phrase "Eleven Million Dollars ($11,000,000)", (iii) amending the
phrase "the Closing Date" as used in clause (b) thereof to be June
30, 1997 and (iv) amending the phrase "the Closing Date" as used in
clause (c) to be September 30, 1997.
Section 2.5 Amendments to Compliance Certificate. Exhibit "L" to
the Credit Agreement, the Compliance Certificate, is amended by (i)
inserting the phrase "excluding interest paid with the delivery of
additional Subordinated Notes" immediately after the phrase "interest
paid" in part 9(b)(i), and (ii) deleting the phrase "$12,000,000" in part
12(a) and replacing it with the phrase "$11,000,000".
ARTICLE 3
Waiver
Section 3.1 Waiver of Existing Defaults. Subject to the terms and
conditions contained in this Amendment, the Agent and the Banks waive the
Existing Defaults and agree not to exercise any rights or remedies arising
as a result thereof. The waiver specifically described in this Section
3.1 shall not constitute and shall not be deemed a waiver of any other
Default or Event of Default, whether arising as a result of the further
violation of the Violated Covenants or otherwise, or a waiver of any
rights or remedies arising as a result of such other Defaults or Events of
Default. The failure to comply with the Violated Covenants for any date,
or any period ending on any date, other than as described above in the
definition of Existing Defaults shall constitute an Event of Default.
ARTICLE 4
Conditions Precedent
Section 4.1 Conditions. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent:
(a) Agent shall have received an amendment to the Note Purchase
Agreement in the form of Exhibit A hereto (the "Subdebt Amendment")
executed by Borrower, Holding and each holder of the Subordinated
Notes and, for purposes of any restriction set out in the Senior
Subordination Agreement, each Bank and Agent consents, for the
benefit of Borrower, Holding and the holders of the Subordinated
Notes, to the execution and delivery of the Subdebt Amendment.
(b) Each Bank shall have received from Borrower an amendment
fee in immediately available funds in an amount equal to such Bank's
Commitment Percentage of $36,000;
(c) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and
correct as of the date hereof as if made on the date hereof except to
the extent such representations and warranties expressly relate
solely to another date;
(d) No Default nor Event of Default (other than the Existing
Defaults) shall have occurred and be continuing; and
(e) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments, and
other legal matters incident thereto shall be reasonably satisfactory
to Agent and its legal counsel, Jenkens & Gilchrist, a Professional
Corporation.
ARTICLE 5
Ratifications, Representations and Warranties, Covenants
Section 5.1 Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Credit Agreement and except as expressly
modified and superseded by this Amendment the terms and provisions of the
Credit Agreement and the other Loan Documents are ratified and confirmed
and shall continue in full force and effect. Borrower, Holding, Agent and
each Bank agree that the Credit Agreement as amended hereby and the other
Loan Documents shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.
Section 5.2 Representations and Warranties. Borrower and Holding
represent and warrant to Agent and each Bank that (i) the execution,
delivery and performance of this Amendment and all documents required
hereby or related hereto have been authorized by all requisite action on
the part of Borrower and Holding and will not violate the articles of
incorporation, bylaws or any similar governing document of any such
parties, (ii) the representations and warranties contained in the Credit
Agreement, as amended hereby, and any other Loan Document are true and
correct on and as of the date hereof as though made on and as of the date
hereof except to the extent those representations and warranties expressly
relate solely to another date, (ii) except with respect to the Existing
Defaults, no Default or Event of Default has occurred and is continuing,
and (iv) Borrower and Holding are in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby, and
the other Loan Documents. BORROWER AND HOLDING REPRESENT AND WARRANT THAT
AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR
OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE
LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT WAIVES ANY AND ALL SUCH
CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN,
ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AMENDMENT.
ARTICLE 6
Miscellaneous
Section 6.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan
Document shall survive the execution and delivery of this Amendment and
the other Loan Documents, and no investigation by Agent or any Bank, or
any closing shall affect the representations and warranties or the right
of Agent and the Banks to rely upon them.
Section 6.2 Reference to Agreement. Each of the Loan Documents,
including the Credit Agreement and any and all other agreements,
documents, or instruments now or hereafter executed and delivered pursuant
to the terms hereof or pursuant to the terms of the Credit Agreement as
amended hereby, are hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit
Agreement as amended hereby.
Section 6.3 Expenses of Agent. As provided in the Credit
Agreement, Borrower agrees to pay on demand all reasonable out-of-pocket
costs and expenses incurred by Agent in connection with the preparation,
negotiation, and execution of this Amendment.
Section 6.4 Severability. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
Section 6.5 Applicable Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas.
Section 6.6 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Agent, the Banks, Borrower and Holding
and their respective successors and assigns, except neither Borrower nor
Holding may assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Banks.
Section 6.7 Counterparts. This Amendment may be executed in one or
more counterparts and on telecopy counterparts, each of which when so
executed shall be deemed to be an original, but all of which when taken
together shall constitute one and the same agreement.
Section 6.8 Effect of Waiver. No consent or waiver, express or
implied, by Agent or any Bank to or for any breach of or deviation from
any covenant, condition or duty by Borrower or Holding shall be deemed a
consent or waiver to or of any other breach of the same or any other
covenant, condition or duty.
Section 6.9 Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 6.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION
WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES
HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO
THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER and HOLDING:
JOTAN, INC.
SOUTHLAND CONTAINER PACKAGING CORP.,
formerly Southland Holding Company and successor
in interest to SHC Acquisition Corp. and each
Obligated Party (other than Holding)
By: /s/ David Freedman
David Freedman, Vice President and
Chief Financial Officer for both companies
AGENT:
BANQUE PARIBAS, as Agent and as a Bank
By:________________________________________________
Name:________________________________________
Title:_______________________________________
By:________________________________________________
Name:________________________________________
Title:_______________________________________
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of November 6, 1997, is among JOTAN, INC. ("Holding"), SOUTHLAND CONTAINER
PACKAGING CORP. (formerly Southland Holding Company, successor in interest
by merger to SHC Acquisition Corp., each of its own subsidiaries and
Atlantic Bag & Paper Company and herein the "Borrower"), each of the banks
or other lending institutions which are signatories hereto (collectively,
the "Banks") and BANQUE PARIBAS, as agent for the Banks (the "Agent").
RECITALS:
A. Holding, SHC Acquisition Corp., Agent and Banque Paribas, in its
individual capacity, entered into that certain Credit Agreement dated as
of February 28, 1997 (as amended by that certain letter amendment dated
April 30, 1997, that certain Second Amendment to Credit Agreement dated as
of June 20, 1997 and that certain Third Amendment to Credit Agreement
dated as of August 19, 1997, herein the "Credit Agreement").
B. SHC Acquisition Corp. has merged with and into Southland Holding
Company, with Southland Holding Company surviving and assuming all the
obligations of SHC Acquisition Corp. under the Credit Agreement and the
Loan Documents (as defined in the Credit Agreement).
C. Banque Paribas has assigned certain of its rights and interest
under the Credit Agreement and the other Loan Documents to the other Banks
party hereto pursuant to those certain Assignment and Acceptances, each
dated April 18, 1997.
D. Southland Holding Company has changed its name to Southland
Container Packaging Corp. and each Obligated Party (as defined in the
Credit Agreement) other than Holding has merged with and into Southland
Container Packaging Corp. with Southland Container Packaging Corp. as the
surviving entity.
E. Borrower has advised Agent that Events of Default (as defined in
the Credit Agreement) have occurred under subsections 14.1(c) and 14.1(j)
of the Credit Agreement as a result of the following (the "Existing
Defaults"): (i) the Borrower's failure to comply with the covenants set
forth in Section 13.5 of the Credit Agreement as of August 31, 1997 and
September 30, 1997 and for the relevant periods then ending; (ii) the
Borrower's failure to comply with the covenants set forth in Section 13.2
and 13.3 of the Credit Agreement each as of September 30, 1997 and for the
relevant period then ending; (iii) the Borrower's failure to comply with
Section 11.14 of the Credit Agreement by the time required thereby (the
Sections of the Credit Agreement described in the forgoing clauses (i),
(ii), and (iii), herein the "Violated Covenants"); and (iv) the occurrence
of an event of default under the Subordinated Loan Documents.
F. In accordance with the Agreement, the Borrower has requested
that the Agent and the Banks waive the Existing Defaults. The Banks have
agreed to do so subject to and on the terms of this Amendment and the
Credit Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE A.
Definitions
Section 1.1 Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Credit Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 1.1. The definition of
"Revolving Commitment" in Section 1.1 of the Credit Agreement is amended
in its entirety to read as follows:
"Revolving Commitment" means, as to each Bank, the
obligation of such Bank to make advances of funds and purchase
participation interests in (or with respect to the Agent as a
Bank, hold other interests in) Letters of Credit in an aggregate
principal amount at any one time outstanding up to but not
exceeding the following, as the same may be reduced or
terminated pursuant to Section 2.6, Section 7.4, Section 8.7 or
Section 14.2:
(a) the amount set forth opposite the name of such
Bank on the signature pages hereto under the heading
"Revolving Commitment"; or
(b) if applicable, the amount set forth on the Bank's
most recent Assignment and Acceptance as its Revolving
Commitment; or
(c) if the amount of a Bank's Revolving Commitment is
determined at any time during the period from November 6,
1997 through March 31, 1998, an amount equal to the Bank's
Commitment Percentage (calculated based on the Revolving
Commitments only without regard to this clause (c)) of
Eight Million Eighty-Two Thousand Dollars ($8,082,000).
The aggregate amount of the Revolving Commitments of all Banks
equals (a) from the Closing Date through August 19, 1997, Twelve
Million Dollars ($12,000,000); (b) from August 19, 1997, through
November 6, 1997, Nine Million Dollars ($9,000,000); (c) from
November 6, 1997, through March 31, 1998, Eight Million Eighty-
Two Thousand Dollars ($8,082,000); and (d) from April 1, 1998,
through the Revolving Termination Date, Twelve Million Dollars
($12,000,000).
Section 2.2 Amendment to Section 13.5. The first sentence of
Section 13.5 of the Credit Agreement is amended in its entirety to read as
follows:
As of each month end set forth below, Holding shall
not permit EBITDA for the period from and excluding June
30, 1997 through the month then ending to be less than the
Dollar amount set forth below for such period and month
end:
Month Ending Dollar Amount
----------- -------------
12/31/97 $2,500,000
1/31/98 $2,750,000
2/28/98 $3,000,000
3/31/98 $3,500,000
ARTICLE 3
Waiver
Section 3.1 Waiver of Existing Defaults. Subject to the terms and
conditions contained in this Amendment, the Agent and the Banks waive the
Existing Defaults and agree not to exercise any rights or remedies arising
as a result thereof. The waiver specifically described in this Section
3.1 shall not constitute and shall not be deemed a waiver of any other
Default or Event of Default, whether arising as a result of the further
violation of the Violated Covenants or otherwise, or a waiver of any
rights or remedies arising as a result of such other Defaults or Events of
Default. The failure to comply with the Violated Covenants for any date,
or any period ending on any date, other than as described above in the
definition of Existing Defaults shall constitute an Event of Default.
ARTICLE 4
Conditions
Section 4.1 Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions
precedent:
(a) Agent shall have received an amendment to the Note Purchase
Agreement in the form of Exhibit A hereto (the "Subdebt Amendment")
executed by Borrower, Holding and each holder of the Subordinated
Notes and, for purposes of any restriction set out in the Senior
Subordination Agreement, each Bank and Agent consents, for the
benefit of Borrower, Holding and the holders of the Subordinated
Notes, to the execution and delivery of the Subdebt Amendment.
(b) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and
correct as of the date hereof as if made on the date hereof except to
the extent such representations and warranties expressly relate
solely to another date;
(c) No Default nor Event of Default (other than the Existing
Defaults) shall have occurred and be continuing; and
(d) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments, and
other legal matters incident thereto shall be reasonably satisfactory
to Agent and its legal counsel, Jenkens & Gilchrist, a Professional
Corporation.
Section 4.2 Conditions Subsequent. To induce the Agent and the
Banks to enter into this Amendment, Holding and Borrower agree as follows:
(a) On or before December 19, 1997 and notwithstanding anything
in Section 11.1 of the Credit Agreement to the contrary, Borrower
will provide to the Agent the Borrower's Projections for Fiscal Year
1998 and any other information relating to the Borrower's budget for
Fiscal Year 1998 as the Agent may request;
(b) On Friday of each week, beginning Friday November 14, 1997,
Borrower agrees to deliver to the Agent a projected cash flow
statement for the forthcoming week setting forth, in a manner
acceptable to the Agent, projected cash receipts and expenditures for
such week; and
(c) On or before December 19, 1997, Holding shall take all
action necessary to cause the Asset Transfer to occur and shall cause
the Asset Transfer to be consummated.
Borrower and Holding agree that the failure to comply with the
agreements in this Section 4.2 shall result in the occurrence of an Event
of Default under the Credit Agreement.
ARTICLE 5
Ratifications, Representations and Warranties, Covenants
Section 5.1 Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Credit Agreement and except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Credit Agreement and the other Loan Documents are ratified and confirmed
and shall continue in full force and effect. Borrower, Holding, Agent and
each Bank agree that the Credit Agreement as amended hereby and the other
Loan Documents shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.
Section 5.2 Representations and Warranties. Borrower and Holding
represent and warrant to Agent and each Bank that (i) the execution,
delivery and performance of this Amendment and all documents required
hereby or related hereto have been authorized by all requisite action on
the part of Borrower and Holding and will not violate the articles of
incorporation, bylaws or any similar governing document of any such
parties, (ii) the representations and warranties contained in the Credit
Agreement, as amended hereby, and any other Loan Document are true and
correct on and as of the date hereof as though made on and as of the date
hereof except to the extent those representations and warranties expressly
relate solely to another date, (iii) except with respect to the Existing
Defaults, no Default or Event of Default has occurred and is continuing,
and (iv) Borrower and Holding are in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby, and
the other Loan Documents. BORROWER AND HOLDING REPRESENT AND WARRANT THAT
AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR
OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE
LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT WAIVES ANY AND ALL SUCH
CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN,
ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AMENDMENT.
ARTICLE 6
Miscellaneous
Section 6.1 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan
Document shall survive the execution and delivery of this Amendment and
the other Loan Documents, and no investigation by Agent or any Bank, or
any closing shall affect the representations and warranties or the right
of Agent and the Banks to rely upon them.
Section 6.2 Reference to Agreement. Each of the Loan Documents,
including the Credit Agreement and any and all other agreements,
documents, or instruments now or hereafter executed and delivered pursuant
to the terms hereof or pursuant to the terms of the Credit Agreement as
amended hereby, are hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit
Agreement as amended hereby.
Section 6.3 Expenses of Agent. As provided in the Credit
Agreement, Borrower agrees to pay on demand all reasonable out-of-pocket
costs and expenses incurred by Agent in connection with the preparation,
negotiation, and execution of this Amendment.
Section 6.4 Severability. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
Section 6.5 Applicable Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas.
Section 6.6 Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Agent, the Banks, Borrower and
Holding and their respective successors and assigns, except neither
Borrower nor Holding may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Banks.
Section 6.7 Counterparts. This Amendment may be executed in one
or more counterparts and on telecopy counterparts, each of which when so
executed shall be deemed to be an original, but all of which when taken
together shall constitute one and the same agreement.
Section 6.8 Effect of Waiver. No consent or waiver, express or
implied, by Agent or any Bank to or for any breach of or deviation from
any covenant, condition or duty by Borrower or Holding shall be deemed a
consent or waiver to or of any other breach of the same or any other
covenant, condition or duty.
Section 6.9 Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 6.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION
WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES
HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO
THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER and HOLDING:
JOTAN, INC.
SOUTHLAND CONTAINER PACKAGING CORP.,
formerly Southland Holding Company and
successor in interest to SHC Acquisition
Corp. and each Obligated Party (other than
Holding)
By: /s/ Ed Lipscomb
Ed Lipscomb,
Chief Financial Officer for both
companies
AGENT:
BANQUE PARIBAS, as Agent and as a Bank
By: /s/ Charles N. Rolfe
Name: Charles N. Rolfe
Title: Vice President
By: /s/ Christopher S. Goodwin
Name: Christopher S. Goodwin
Title: Vice President
BANKS:
BANKBOSTON, N.A.,
formerly The First National Bank of Boston
By:__________________________________________
Name:___________________________________
Title:__________________________________
ANTARES LEVERAGED CAPITAL CORP
By:__________________________________________
Name:___________________________________
Title:__________________________________
BHF-BANK AKTIENGESELLSCHAFT
By:__________________________________________
Name:___________________________________
Title:__________________________________
By:__________________________________________
Name:___________________________________
Title:__________________________________
AGENT:
BANQUE PARIBAS, as Agent and as a Bank
By:___________________________________
Name:____________________________
Title:___________________________
By:___________________________________
Name:____________________________
Title:___________________________
BANKS:
BANKBOSTON, N.A.,
formerly The First National Bank of Boston
By:_______________________________________
Name:________________________________
Title:_______________________________
ANTARES LEVERAGED CAPITAL CORP.
By:_______________________________________
Name:________________________________
Title:_______________________________
BHF-BANK AKTIENGESELLSCHAFT
By:_______________________________________
Name:________________________________
Title:_______________________________
By:_______________________________________
Name:________________________________
Title:_______________________________
CREDITANSTALT-BANKVEREIN
By:_______________________________________
Name:________________________________
Title:_______________________________
By:_______________________________________
Name:________________________________
Title:_______________________________
THE TRANSFER OF AND PAYMENTS ON THE SENIOR SUBORDINATED NOTES REFERENCED
HEREIN ARE RESTRICTED BY AND SUBJECT TO THE TERMS AND PROVISIONS OF A
SENIOR SUBORDINATION AGREEMENT DATED AS OF FEBRUARY 28, 1997, BY AND AMONG
BANQUE PARIBAS, A BANK ORGANIZED UNDER THE LAWS OF FRANCE ACTING THROUGH
ITS HOUSTON, TEXAS AGENCY AS AGENT FOR ITSELF AND THE OTHER SENIOR
LENDERS, RICE PARTNERS II, L.P., A DELAWARE LIMITED PARTNERSHIP, F-
SOUTHLAND, L.L.C., A NORTH CAROLINA LIMITED LIABILITY COMPANY AND FF-
SOUTHLAND, L.P., A DELAWARE LIMITED PARTNERSHIP (AS SUCH AGREEMENT MAY BE
SUPPLEMENTED, MODIFIED, AMENDED OR RESTATED FROM TIME TO TIME), A COPY OF
WHICH IS ON FILE AT THE CHIEF EXECUTIVE OFFICES OF THE COMPANY.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement"), dated as of February
28, 1997, is by and among SHC Acquisition Corp., a Florida corporation, to
be merged with and into Southland Holding Company, a Texas corporation
(the "Company"), JOTAN, INC., a Florida corporation ("Parent"), 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") (F-Southland and FF-Southland are individually or
collectively, as the context requires, referred to herein as "Southland
Purchasers") (Rice and Southland Purchasers are individually or
collectively, as the context requires, referred to herein as the
"Purchaser"). Capitalized terms used in this Agreement are defined in
Section 11.1.
To induce each Purchaser to purchase the Senior Subordinated Notes
from the Company, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows.
I. DESCRIPTION OF SENIOR SUBORDINATED NOTES AND COMMITMENT
1.1 Description of Senior Subordinated Notes. The Company will
authorize the issuance and sale of its Senior Subordinated Notes which
shall be dated as of February 28, 1997, shall be in the aggregate original
principal amount of $9,000,000.00, and shall bear interest at the fixed
rate of 12.5% per annum; provided, however, that upon the occurrence of a
Potential Default under Section 8.1(a) hereof or any Event of Default, and
during the continuation thereof, the unpaid principal amount of the Senior
Subordinated Notes shall bear interest at the rate of 15.5% per annum.
The Senior Subordinated Notes shall each be substantially in the form
attached hereto as Exhibit A. Interest on the Senior Subordinated Note
shall be computed on the basis of the actual number of days elapsed over a
360 day year.
1.2 Commitment; Funding. Subject to the terms and conditions hereof
and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to each Purchaser, and each
Purchaser agrees to purchase from the Company, a Senior Subordinated Note
in the principal amount set forth beneath the name of such Purchaser on
the Annex I to this Agreement. Delivery of the Senior Subordinated Notes
shall be made on the Closing Date in the offices of Alston & Bird, One
Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424,
against payment of the purchase price thereof, in immediately available
funds, disbursed on the Closing Date to such Persons as the Company shall
designate in writing. Each Senior Subordinated Note will be delivered to
each respective Purchaser in fully registered form, and shall be issued in
each Purchaser's name or the name of its nominee.
1.3 Origination Fee. The Company shall pay to Purchaser an
origination fee of $225,000.00 (less a $75,000.00 credit for amounts which
have been paid by the Company to Rice prior to the Closing Date), in
immediately available funds, on the Closing Date, which fee shall be
deemed fully earned and nonrefundable on the Closing Date and allocated to
each Purchaser as set forth in Annex I to this Agreement. Each Purchaser
may, at its option, deduct any and all of its portion of the origination
fee from the purchase price of its Senior Subordinated Note.
1.4 Use of Proceeds. The proceeds from the sale of the Senior
Subordinated Notes shall be used solely to (a) refinance a portion of
Parent's existing Indebtedness, (b) finance a portion of the Acquisition
and related transaction expenses, (c) recapitalize the Company and
(d) pay all fees, costs and expenses payable pursuant to this Agreement.
II. PAYMENT AND PREPAYMENT OF SENIOR SUBORDINATED OBLIGATIONS
2.1 Principal and Interest Payments. Principal and interest on each
of the Senior Subordinated Notes shall be due and payable as follows:
(a) Principal shall be due and payable in four (4) equal
quarterly installments (each in an equal amount sufficient to fully
amortize the principal balance of such Senior Subordinated Notes in
four (4) installments), on the last Business Day of each February,
May, August and November, commencing on the last Business Day of May,
2004, with all remaining unpaid principal being due and payable in
full on the Termination Date.
(b) Interest shall be due and payable (i) quarterly in arrears
on the last Business Day of each February, May, August and November,
commencing May 30, 1997, and (ii) on the Termination Date.
2.2 Optional Prepayments. At the Company's option, upon notice
given as provided below, the Company may, at any time and from time to
time, prepay all or any part of the principal of the Senior Subordinated
Notes, by payment to the Holders (ratably based on the stated principal
amount of each such Purchaser's Senior Subordinated Note) of the principal
amount to be prepaid, plus (a) any accrued and unpaid interest on the
principal amount so prepaid, plus (b) any expenses and/or damages for
which Purchaser may be entitled to receive payment or reimbursement
hereunder or, if the Senior Subordinated Notes are being prepaid in full,
the aggregate amount of all other Senior Subordinated Obligations, plus
(c) a premium equal to the percentage of the principal amount so prepaid
which is applicable in accordance with the following table based on the
date on which such prepayment is made (a "Prepayment Fee"):
Prepayment Date Premium
--------------- -------
Closing Date through February 28, 1998 12.50%
March 1, 1998 through February 28, 1999 10.71%
March 1, 1999 through February 29, 2000 8.92%
March 1, 2000 through February 28, 2001 7.14%
March 1, 2001 through February 28, 2002 5.36%
March 1, 2002 and thereafter 0.00%
Each partial prepayment under this Section 2.2 shall be in a principal
amount of not less than $250,000 or, if greater than $250,000, then in
integral multiples of $100,000. Each prepayment under this Section 2.2
shall be applied first to any expenses or costs to which Purchaser may be
entitled, second to accrued and unpaid interest on the principal amount so
prepaid, third to any applicable Prepayment Fee, fourth to installments of
principal in the inverse order of their maturities, and fifth to any
damages to which Purchaser may be entitled. The amount of any such
prepayment may not be reborrowed by the Company. The Company shall give
notice of any optional prepayment to each Purchaser not less than fifteen
(15) days nor more than sixty (60) days before the date for prepayment,
specifying in each such notice the date upon which such prepayment is to
be made and the principal amount (together with accrued and unpaid
interest, if any, thereon and any applicable Prepayment Fee) to be prepaid
on such date. Notice of prepayment having been so given, the applicable
prepayment amount shall become due and payable on the specified prepayment
date. The Company shall have no right to prepay the Senior Subordinated
Notes except as provided in this Section 2.2 or in Section 2.3.
2.3 Mandatory Prepayments. Any prepayment under this Section 2.3
shall be applied first to any expenses to which any Purchaser may be
entitled, second to accrued interest, third to any applicable Prepayment
Fee, fourth to principal installments in the inverse order of their
maturities, and fifth to any damages to which any Purchaser may be
entitled. The amount of any such mandatory prepayment may not be
reborrowed by the Company. The Company shall make mandatory prepayments
to the Holders on a pro rata basis of the original principal amount of
each such Holder's Senior Subordinated Note in each of the following
circumstances:
(a) If during any fiscal year after the Senior Debt is paid in
full, Parent or any of its Subsidiaries (including without limitation
the Company) shall sell or otherwise dispose of (other than as
permitted by Section 6.8 or Section 7.3) any property or properties
in excess of five percent (5%) of its total assets (including as a
result of a Casualty Event (to the extent the net cash proceeds
therefrom are not subsequently applied or committed to apply toward
replacement, restoration, rebuilding or repair of the damaged
property within ninety (90) days after the receipt of such net cash
proceeds)), then the Company shall prepay the Senior Subordinated
Notes in an amount equal to the lesser of (i) the aggregate net cash
proceeds of such sale or other disposition (minus the cost of any
replacement assets or properties purchased within ninety (90) days
either before or after such sale) or (ii) the aggregate amount of all
Senior Subordinated Obligations (including any applicable Prepayment
Fee), such prepayment and premium to be made within ten (10) Business
Days of receipt of such net proceeds.
(b) In the event of any sale or other disposition of all or
substantially all of the stock or assets of Parent or any of its
Subsidiaries (including without limitation the Company) in a single
transaction or series of transactions or a Casualty Event (to the
extent not subsequently applied or committed to apply toward
replacement, restoration, rebuilding or repair of the damaged
property within 90 days after the receipt of such net cash proceeds),
the Company shall, after the Senior Debt has been paid in full,
prepay the Senior Subordinated Notes in an amount equal to the lesser
of (i) the aggregate remaining net cash proceeds of such sales or
dispositions (minus the cost of any replacement assets or properties
purchased within ninety (90) days either before or after such sale)
or (ii) the aggregate amount of all Senior Subordinated Obligations
(including any applicable Prepayment Fee), such prepayment to be made
within ten (10) Business Days of receipt of such net proceeds.
2.4 Additional Payments. Unless otherwise provided herein or in the
Other Agreements, all Senior Subordinated Obligations, other than
principal and interest on the Senior Subordinated Notes, shall be payable
by the Company to the Holder thereof, on demand, and shall bear interest
from the date thirty (30) days after demand until paid at the rate of
interest then applicable under Section 1.1. Payment of fees and expenses
due and payable on the Closing Date to each Purchaser and such Purchaser's
legal counsel shall be paid in full on the Closing Date.
2.5 Liquidated Damages. Any Prepayment Fee payable pursuant to
Section 2.2 or Section 2.3 shall be payable as liquidated damages for loss
of the opportunity to recover loan origination expenses and profits over
the balance of the term of this Agreement and not as a penalty and the
Company acknowledges and agrees that such Prepayment Fees are a reasonable
estimate of such losses.
2.6 Direct Payment. The Company will pay all sums becoming due
hereunder and on the Senior Subordinated Notes to each Purchaser at the
address specified for such Purchaser on Annex I hereto, by wire transfer
in U.S. Dollars of Federal Reserve Funds or other immediately available
funds, to the account specified for such Purchaser on Annex I, or at such
other address or in such other form as such Purchaser shall have
designated by notice to the Company at least five Business Days prior to
the date of any payment, in each case without presentment and without
notations being made thereon. All payments by the Company shall be made
without set-off or counterclaim. Any wire transfer shall identify such
payment as "12.5% Senior Subordinated Note/Southland Holding Company" and
shall identify the payment as principal, premium, interest and/or
reimbursement of costs and expenses, together with the applicable date or
period to which it relates.
2.7 Payments Payable on Business Days. Payments of all amounts due
hereunder or under the Senior Subordinated Notes shall be made on a
Business Day. Any payment due on a day that is not a Business Day shall
be made on the next Business Day, together with all interest (if any)
accrued in the interim.
2.8 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or any Other Agreement, the Company shall not
be required to pay, and neither Purchaser shall be permitted to contract
for, take, reserve, charge or receive, any compensation which constitutes
interest under applicable law in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest is provided
for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any Other Agreement or otherwise
contracted for, taken, reserved, charged or received, then in such event:
(a) the provisions of this Section 2.8 shall govern and control; (b) the
Company shall not be obligated to pay any Excess Interest; (c) any Excess
Interest that any Purchaser may have contracted for, taken, reserved,
charged or received hereunder shall be, at the Holders' option,
(i) applied as a credit against the outstanding principal balance of the
Senior Subordinated Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing; (d) the interest
provided for shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "Maximum Rate"), and
this Agreement and the Other Agreements shall be deemed to have been, and
shall be, reformed and modified to reflect such reduction; and (e) the
Company shall have no action against the Holders for any damages arising
due to any Excess Interest. If for any period of time interest on any
Senior Subordinated Obligations is calculated at the Maximum Rate rather
than the applicable rate under this Agreement, and thereafter such
applicable rate becomes less than the Maximum Rate, the rate of interest
payable on such Senior Subordinated Obligations shall remain at the
Maximum Rate until the Holders shall have received the amount of interest
which the Holders would have received during such period on such Senior
Subordinated Obligations had the rate of interest not been limited to the
Maximum Rate during such period. All sums paid or agreed to be paid
hereunder or under the Other Agreements for the use, forbearance or
detention of sums due shall, to the extent permitted by applicable law, be
amortized, pro-rated, allocated and spread throughout the full term of the
Senior Subordinated Obligations until payment in full so that the rate or
amounts of interest on account of the Senior Subordinated Obligations does
not exceed the Maximum Rate. The terms of this Section 2.8 shall be
deemed incorporated into each Other Agreement and any other document or
instrument between the Company and any Holder or directed to the Company
by any Holder, whether or not specific reference to this Section 2.8 is
made.
2.9 Certain Rights and Obligations Among Holders. The provisions of
this Section 2.9 are solely for the benefit of the Holders, and neither
the Company nor any other Person shall have any rights with respect to or
be entitled to enforce this Section 2.9.
(a) Sharing of Payments. If, at any time or times, a Holder
shall not have received a payment on its Senior Subordinated Note, then it
shall notify the other Holders of such fact, the amount of such
nonpayment, the date or period to which it relates and, subject to the
terms of the Senior Subordination Agreement, such other Holders which have
received such payments shall remit to the unpaid Holder such amount as is
necessary to allocate the aggregate amount of such payments pro rata among
all Holders. The amount of any such remittance shall be credited on the
Senior Subordinated Note of the Holder to whom it is remitted, and shall
not be credited on the Senior Subordinated Note of the remitting Holder.
(b) Sharing of Prepayments. Subject to the terms and
provisions of the Senior Subordination Agreement, if, at any time or
times, a Holder shall receive a prepayment on its Senior Subordinated
Note, it shall notify the other Holders of the amount and date of such
prepayment. If all other Holders shall not have received a pro rata
prepayment as agreed, the Holder giving such notice shall remit to the
other Holders such amount as is necessary to distribute such prepayment
pro rata among all Holders. The amount of any such remittance shall be
credited on the Senior Subordinated Note of the Holder to whom it is
remitted, and shall not be credited on the Senior Subordinated Note of the
remitting Holder.
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each Purchaser severally and not jointly represents and warrants to
the Company as follows:
3.1 Existence. 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.
3.2 Authority. It has the right and power and authority to enter
into, execute, deliver and perform its obligations under this Agreement,
and its partners, managers, officers or agents executing and delivering
this Agreement are duly authorized to do so. This Agreement has been duly
and validly executed and delivered and constitutes the legal, valid and
binding obligation of such Purchaser, enforceable in accordance with its
terms.
3.3 Investor Status. It (i) is an "accredited investor," as that
term is defined in Regulation D under the Securities Act of 1933, as
amended, or (ii) has such knowledge, skill, sophistication and experience
in business and financial matters, based on actual participation, that it
is capable of evaluating the merits and risks of the purchase of its
Senior Subordinated Note from the Company and the suitability thereof for
such Purchaser.
3.4 Investment for Own Account. Except as otherwise contemplated by
this Agreement, it is acquiring its Senior Subordinated Note for
investment for its own account and, in any event, not with a view to any
distribution thereof in violation of applicable securities laws.
3.5 Legend on Notes. It agrees that its Senior Subordinated Note
will bear the appropriate legends referencing restrictions on transfer and
will not be offered, sold or transferred in the absence of registration or
exemption under applicable securities laws.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE COMPANY
To induce each Purchaser to enter into this Agreement, Parent and the
Company represent and warrant to each Purchaser that the following
statements are, and after giving effect to the Acquisition, will be, true,
correct and complete:
4.1 Corporate Existence and Authority. Parent and each of its
Subsidiaries (a) is a corporation duly organized, validly existing, and in
good standing under the laws of its state of incorporation, (b) has all
requisite corporate power and authority to own its assets and carry on its
business as now conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse
Effect. Parent and each of its Subsidiaries has the corporate power and
authority to execute, deliver, and perform its respective obligations
under this Agreement, the Acquisition Documents, the Senior Loan
Documents, and all Other Agreements to which it is, or in connection with
the transactions contemplated hereby may become, a party.
4.2 Financial Statements. Parent has delivered to each Purchaser
(a) audited consolidated financial statements of Parent and Southland as
at and for the fiscal year ended December 31, 1995, (b) unaudited
consolidated financial statements of Parent and Southland for the fiscal
year ended December 31, 1996, and (c) opening balance sheets for Parent
and its Subsidiaries reflecting a valuation of all of Parent's and each
Subsidiary's assets and liabilities based on GAAP, and a separate balance
sheet based on fair value, each as of the Closing Date taking into account
all transactions taking place on such date, all certified by Parent's
chief financial officer and (except as stated above) based on GAAP and on
financial data as of December 31, 1996 (as adjusted to reflect the
consummation of the transactions contemplated under this Agreement, the
Acquisition Documents, the Other Agreements and the Senior Loan Documents
that are contemplated to have occurred on the Closing Date as if the same
had occurred on December 31, 1996), and which are attached hereto as
Schedule 4.2(a). The financial statements referred to in clauses (a) and
(b) of this Section 4.2 have been prepared in accordance with GAAP (except
as otherwise noted therein), and fairly present both the financial
condition of Parent and Southland as of the respective dates indicated
therein and the results of Parent's and Southland's respective operations
for the respective periods indicated therein. Attached hereto as Schedule
4.2(b) are cash flow projections of the Company for the period beginning
on December 31, 1996 through December 31, 2001 together with a written
statement of the assumptions underlying them. Such cash flow projections
have been prepared in good faith based on estimates and assumptions
believed by the Company to be reasonable as of the date such projections
were prepared, and it is the Company's good faith belief that such cash
flow projections are reasonably achievable by the Company. At December
31, 1996, neither Parent, Southland nor any of their respective
Subsidiaries had any liabilities or obligations (absolute, accrued,
contingent or otherwise) of a nature required by GAAP to be reflected in
such financial statements which were, individually or in the aggregate,
material to the condition, financial or otherwise, or operations of such
Person as of that date which are not reflected on such financial
statements. There has been no material adverse change in the condition,
financial or otherwise, or operations of Parent or, to its knowledge,
Southland, since December 31, 1996, nor has there otherwise occurred a
Material Adverse Effect.
4.3 Default. Neither Parent nor any of its Subsidiaries is in
violation of any material provision under any material loan agreement,
indenture, mortgage, security agreement, lease, franchise, permit, license
or other agreement or obligation to which it is a party or by which any of
its properties is bound. Parent and each of its Subsidiaries are paying
their debts as they become due.
4.4 Authorization and Compliance with Laws and Material Agreements.
The execution, delivery and performance by Parent and its Subsidiaries of
this Agreement, the Acquisition Documents, the Senior Loan Documents and
the Other Agreements to which each is or may in connection with the
transactions contemplated hereby become a party have been or prior to the
consummation of such transactions contemplated hereby will be duly
authorized by all requisite action on the part of Parent and each such
Subsidiary, and do not and will not violate its respective Restated
Articles of Incorporation, Articles of Incorporation or Bylaws (each as
amended to the date first above written) or any law or any order of any
court, governmental authority or arbitrator, and do not and will not upon
the consummation of the transactions contemplated hereby, in any material
respect, conflict with, result in a breach of, or constitute a default
under, or result in the imposition of any Lien (except Permitted Liens)
upon any assets of Parent or any of its Subsidiaries pursuant to the
provisions of any loan agreement, indenture, mortgage, security agreement,
franchise, permit, license or other instrument or agreement by which
Parent or any of its Subsidiaries or any of their properties are bound.
Except as set forth on Schedule 4.4, no authorization, approval or
consent of, and no filing or registration with, any court, governmental
authority or third Person is or will be necessary for the execution,
delivery or performance by Parent or any of its Subsidiaries of this
Agreement, the Acquisition Documents, the Senior Loan Documents, and the
Other Agreements to which each is a party or the validity or
enforceability thereof. All such authorizations, approvals, consents,
filings and registrations described in Schedule 4.4 have been obtained.
Neither Parent nor any of its Subsidiaries is (a) in violation of any term
of its Articles of Incorporation or Bylaws or (b) in material violation of
any material contract, agreement, judgment or decree and is in material
compliance with all applicable laws, regulations and rules.
4.5 Environmental Condition of the Property. Except as disclosed on
Schedule 4.5:
(a) The location, construction, occupancy, operation and use of
the Property do not violate in any material respect any applicable law,
statute, ordinance, rule, regulation, order or determination of any
governmental authority or other body exercising similar functions, or any
restrictive covenant or deed restriction (recorded or otherwise) affecting
the Property, including, without limitation, all applicable zoning
ordinances and building codes, flood disaster, occupational health and
safety laws and Environmental Laws and regulations (hereinafter sometimes
collectively called "applicable laws");
(b) Without limitation of paragraph (a) above, neither Parent,
any Subsidiary nor the Property is subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or
subject to any remedial obligations due to violations of applicable laws;
(c) Neither Parent nor any Subsidiary is subject to any
material liability or obligation relating to (i) the environmental
conditions on, under or about the Property, including, without limitation,
the soil and ground water conditions at the Property, or (ii) the use,
management, handling, transport, treatment, generation, storage, disposal,
release or discharge of any Polluting Substance;
(d) There is no Polluting Substance or other substance that may
pose any material risk to safety, health or the environment on, under or
about any Property;
(e) Parent and its Subsidiaries have taken reasonable steps to
determine and hereby represent and warrant that no Polluting Substances
have been disposed of or otherwise released on, onto, into, or from the
Property in any material respect, and the use which Parent and its
Subsidiaries make and intend to make of the Property does not and will not
result in the disposal or other release of any Polluting Substances on,
onto, into or from the Property in any material respect; and
(f) Each of Parent and its Subsidiaries has been issued all
required federal, state and local licenses, certificates or permits
relating to, and the Property, Parent, the Subsidiaries and Parent's and
such Subsidiary's facilities, business, assets, leaseholds and equipment
are all in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations relating to, air
emissions, water discharge, noise emissions, solid or liquid waste
disposal, Polluting Substances, or other environmental, health or safety
matters.
4.6 Solvency. After giving effect to the transactions contemplated
by the Senior Loan Agreement, this Agreement and the Other Agreements,
Parent and each of the Subsidiaries individually and on a consolidated
basis will be solvent, able to pay its debts as they mature, have capital
sufficient to carry on its business and all businesses in which it is
about to engage, and
(a) the assets of each of Parent and its Subsidiaries
individually and on a consolidated basis, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of Parent and its Subsidiaries;
(b) current projections which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect Parent's judgment based on present circumstances, the most likely
set of conditions and Parent's most likely course of action for the period
projected, demonstrate that Parent and its Subsidiaries individually and
on a consolidated basis will have sufficient cash flow to enable them to
pay their debts as they mature; and
(c) Parent and its Subsidiaries do not have an unreasonably
small capital base with which to engage in its anticipated business.
For purposes of clause (a) of this Section 4.6, the "fair valuation" of
the assets of Parent and each of its Subsidiaries shall be determined on
the basis of the amount which may be realized within a reasonable time,
either through collection or sale of such assets at market value, deeming
the latter as the amount which could be obtained for the property in
question within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary selling
conditions.
4.7 Litigation and Judgments. Except as disclosed on Schedule 4.7,
there is no action, suit, proceeding or investigation before any court,
governmental authority or arbitrator pending, or to the knowledge of
Parent or the Company threatened, against or affecting Parent or any of
its Subsidiaries, this Agreement, the Acquisition Documents, the Senior
Loan Documents and/or the Other Agreements. Except as disclosed on
Schedule 4.7, there are no outstanding judgments against Parent or any of
its Subsidiaries. None of the matters listed on Schedule 4.7 could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.8 Rights in Properties; Liens. Parent and its Subsidiaries have
good and marketable title to all material properties and assets reflected
on its balance sheets, and none of such properties or assets is subject to
any Liens, except Permitted Liens. Parent and its Subsidiaries enjoys
peaceful and undisturbed possession under all leases necessary for the
operation of its other Properties, assets, and businesses and all such
leases are valid and subsisting and are in full force and effect. There
exists no default under any provision of any lease which would permit the
lessor thereunder to terminate any such lease or to exercise any rights
under such lease which, individually or together with all other such
defaults, could have a Material Adverse Effect. Each of Parent and its
Subsidiaries has the right to use all of the Intellectual Property
necessary to its business as presently conducted, and Parent's and such
Subsidiary's use of the Intellectual Property does not infringe on the
rights of any other Person in any material respect. To the best of the
Company's and Parent's knowledge, no other Person is infringing the rights
of Parent or any of its Subsidiaries in any of the Intellectual Property.
Neither Parent nor any of its Subsidiaries owes any royalties, honoraria
or fees to any Person by reason of its use of the Intellectual Property.
4.9 Enforceability. This Agreement, the Acquisition Documents, the
Senior Loan Documents and the Other Agreements to which Parent and any of
its Subsidiaries is a party, when delivered, shall constitute the legal,
valid and binding obligations of Parent and such Subsidiaries enforceable
against Parent and such Subsidiaries in accordance with their respective
terms.
4.10 Indebtedness. After giving effect to the transactions
contemplated hereby, neither Parent nor any of its Subsidiaries has any
Indebtedness, except Permitted Indebtedness. All Indebtedness owed by
Parent and its Subsidiaries to any Affiliate is set forth on Schedule
4.10.
4.11 Taxes. Each of Parent and its Subsidiaries has timely filed all
tax returns (federal, state, and local) required to be filed, including,
without limitation, all income, franchise, employment, property, and sales
taxes, and has timely paid all of its tax liabilities, other than
immaterial amounts and taxes that are being contested by Parent or such
Subsidiary in good faith by appropriate actions or proceedings diligently
pursued, and for which adequate reserves in conformity with GAAP with
respect thereto have been established to the reasonable satisfaction of
the Holders. Neither the Company nor Parent knows of any pending
investigation of Parent or any of its Subsidiaries by any taxing authority
or pending but unassessed tax liability of Parent or any of its
Subsidiaries. Neither Parent nor any Subsidiary has made any presently
effective waiver of any applicable statute of limitations or request for
an extension of time to file a tax return, and neither Parent nor such
Subsidiary is a party to any tax-sharing agreement.
4.12 Use of Proceeds; Margin Securities. Neither Parent nor any of
its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G,
T, U or X of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any extension of credit under this Agreement will
be used to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock. Neither
Parent, any of its Subsidiaries nor any Person acting on their behalf has
taken any action that might cause the transactions contemplated by this
Agreement, the Acquisition Documents, the Senior Loan Documents or any
Other Agreements to violate Regulations G, T, U or X or to violate the
Securities Exchange Act of 1934, as amended.
4.13 ERISA. All members of any Controlled Group have complied with
all applicable minimum funding requirements and all other applicable and
material requirements of ERISA and the Code, applicable to the Employee
Benefit Plans it or they sponsor or maintain, and there are no existing
conditions that would give rise to material liability thereunder. With
respect to any Employee Benefit Plan, all members of any Controlled Group
have made all contributions or payments to or under each Employee Benefit
Plan required by law, by the terms of such Employee Benefit Plan or the
terms of any contract or agreement. No Termination Event has occurred in
connection with any Pension Plan, and there are no unfunded benefit
liabilities, as defined in Section 4001(a)(18) of ERISA, with respect to
any Pension Plan which poses a risk of causing a Lien to be created on the
assets of Parent or any of its Subsidiaries or which will result in the
occurrence of a Reportable Event. No member of any Controlled Group has
been required to contribute to a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, since September 2, 1974. No material
liability to the Pension Benefit Guaranty Corporation has been, or is
expected to be, incurred by any member of a Controlled Group. The term
"liability," as referred to in this Section 4.13, includes any joint and
several liability. No prohibited transaction under ERISA or the Code has
occurred with respect to any Employee Benefit Plan which could have a
Material Adverse Effect or a material adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.
4.14 Delivery of Acquisition Documents, Employment Agreements and
Non-Compete Agreements. Each Purchaser has received complete copies of
the Acquisition Documents, the Employment Agreements and the Non-Compete
Agreements and all documents executed in connection therewith (including
all exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto, if any) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof. None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been waived, except
pursuant to a written agreement or instrument which has heretofore been
delivered to such Purchaser.
4.15 Disclosure. No representation or warranty made by Parent or any
of its Subsidiaries in this Agreement, the Senior Loan Documents, the
Acquisition Documents or any Other Agreement to which Parent or any of its
Subsidiaries is a party contains any material untrue fact or omits to
state any material fact necessary to make the statements herein or therein
not misleading. There is no fact known to Parent or any of its
Subsidiaries which Parent or any of its Subsidiaries has determined has a
Material Adverse Effect, or which Parent or any of its Subsidiaries has
reasonably determined could have a Material Adverse Effect, that has not
been disclosed in writing to Purchaser.
4.16 Subsidiaries and Capitalization. Parent has no Subsidiaries
except as otherwise set forth on Schedule 4.16. All the issued and
outstanding shares of capital stock of Parent and each of its Subsidiaries
are duly authorized, validly issued, fully paid and nonassessable. The
capitalization of Parent and each of its Subsidiaries on the Closing Date
is set forth on Schedule 4.16. No violation of any preemptive rights of
shareholders of Parent or any of its Subsidiaries has occurred by virtue
of the transactions contemplated under this Agreement, the Acquisition
Documents, the Senior Loan Documents or any Other Agreement. There are no
outstanding contracts, options, warrants, instruments, documents or
agreements binding upon Parent or any of its Subsidiaries granting to any
Person or group of Persons any right to purchase or acquire shares of
Parent's or any such Subsidiary's capital stock, except (i) pursuant to
the Purchase Documents, (ii) Permitted Stock (as defined in the Purchase
Documents) and (iii) Series A Preferred Stock (as defined in the Purchase
Documents).
4.17 Current Locations. Schedule 4.17 identifies (a) Parent's and
each Subsidiary's principal place of business and chief executive office,
(b) all the locations where Parent and its Subsidiaries maintain any books
or records relating to any of their assets, (c) all other locations where
Parent or its Subsidiaries have a place of business, and (d) each address
where any of Parent's or its Subsidiaries' assets are located. Schedule
4.17 accurately indicates whether each such location is owned or leased,
and, if leased, identifies the owner of such location. No Person other
than the Company has possession of any material amount of the assets of
the Company except as disclosed on Schedule 4.17.
4.18 Investment Company Act. Neither Parent, any Subsidiary, nor any
company controlling Parent or such Subsidiary is required to be registered
as an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
4.19 Public Utility Holding Company Act. Neither Parent nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
4.20 No Burdensome Restrictions. Neither Parent nor any Subsidiary
is a party to, or bound by any agreement, condition, contract or
arrangement which has, or which Parent or any Subsidiary reasonably
expects in the future could have, a Material Adverse Effect.
4.21 Securities Laws. The Company has complied with or is exempt
from the registration and/or qualification requirements of all federal and
state securities or blue sky laws applicable to the issuance or sale of
the Senior Subordinated Notes.
4.22 No Labor Disputes. Neither Parent nor any of its Subsidiaries
is involved in any labor dispute. There are no strikes or walkouts or
union organization of any of Parent's or any of its Subsidiaries'
employees threatened or in existence and no labor contract is scheduled to
expire during the term of this Agreement. Parent and its Subsidiaries are
in compliance with all laws, rules, regulations, orders and decrees
applicable to Parent, its Subsidiaries or their properties, except for
instances of noncompliance which, individually or in the aggregate, will
not have a Material Adverse Effect.
4.23 Brokers. Neither Parent, any Subsidiary nor any of its
shareholders has dealt with any broker, finder, commission agent or other
Person in connection with the Acquisition or other transactions referenced
in or contemplated by this Agreement, nor is Parent, any Subsidiary or any
of its shareholders under any obligation to pay any broker's fee or
commission in connection with such transactions, except as set forth on
Schedule 4.23.
4.24 Insurance. The amount and types of insurance carried by Parent
and its Subsidiaries, and the terms and conditions thereof, are
substantially similar to the coverage maintained by companies in the same
or similar business as Parent and its Subsidiaries and similarly situated,
and include, without limitation, property and casualty insurance, general
liability insurance, business interruption insurance and other insurance
in the amounts and of the types described in Section 6.12 hereof.
4.25 Conduct of Business. On the Closing Date, Parent and its
Subsidiaries is engaged only in businesses of the type described in
Schedule 4.25.
4.26 Senior Debt. Simultaneously with the issuance of the Senior
Subordinated Notes the Senior Lender will provide the Company with a
revolving loan facility in an amount not to exceed $12,000,000, a term
loan facility in an amount not to exceed $17,000,000 and, if applicable,
an acquisition term loan facility to fund acquisitions in an amount not to
exceed $10,000,000, all pursuant to the Senior Loan Agreement. The
Company expects that a total of approximately $20,000,000 of the Senior
Debt will be advanced by the Senior Lender to the Company on the Closing
Date.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Each Purchaser's obligations hereunder shall be subject to (a) the
performance by each of Parent and the Company of its respective
obligations hereunder which by the terms hereof are to be performed at or
prior to delivery of the Senior Subordinated Notes, and (b) the
satisfaction of the following conditions on or before the Closing Date:
5.1 Effectiveness of Senior Loan Documents. The Senior Loan
Documents shall have been duly executed and delivered by the parties
thereto and shall be on terms and conditions, including amortization
periods, satisfactory to each Purchaser. All conditions precedent to the
making of the Senior Debt shall have been satisfied or waived with Senior
Lender's and each Purchaser's consent.
5.2 Effectiveness of Senior Subordination Agreement. The Senior
Subordination Agreement shall have been duly executed and delivered by the
parties thereto, and shall be on terms and conditions which are
satisfactory to each Purchaser.
5.3 Minimum Availability. The Company shall have available cash and
immediately accessible availability under the Senior Debt in an amount
equal to not less than $3,000,000.00 on the Closing Date after giving
effect to the payment of (a) all prior Indebtedness, (b) all fees payable
to each Purchaser under the terms of this Agreement, and (c) all costs and
expenses arising as a result of the transactions contemplated by this
Agreement, the Acquisition Documents, the Senior Loan Documents and any
Other Agreement to which Parent, the Company and each of its Subsidiaries
is a party, and each Purchaser shall have received satisfactory evidence
thereof.
5.4 Limitation on Fees. Fees paid or payable to all Persons in
connection with the closing of the financing contemplated by this
Agreement, the Acquisition Documents, the Senior Loan Documents and any
Other Agreement shall be satisfactory to each Purchaser.
5.5 Acquisition. The Acquisition Documents shall have been duly
executed and delivered by the parties thereto, all conditions to the
consummation of the Acquisition shall have been satisfied or waived with
each Purchaser's consent, and the terms and provisions of the Acquisition
Documents and the structure of the Acquisition shall be satisfactory to
each Purchaser.
5.6 Due Diligence. The results of each Purchaser's due diligence
regarding, as applicable, Parent, the Company and each of their
Subsidiaries, the documentation in respect of Series A Preferred Stock (as
defined in the Purchase Documents) and the Acquisition shall be
satisfactory to each Purchaser; and each Purchaser shall be satisfied with
the assets and books and records and the business and financial condition
of Parent and its Subsidiaries, the environmental compliance and condition
of Parent, the Company and each of their Subsidiaries, in each case before
and after giving effect to the Acquisition.
5.7 Approval. Each Purchaser's respective investment committee
shall have approved the purchase of its Senior Subordinated Note on terms
set forth herein and in the Other Agreements.
5.8 No Litigation; Consummation of Transactions; HSR Waiting Period.
No injunction, preliminary injunction, or temporary restraining order
shall be threatened or shall exist which prohibits or may prohibit the
transactions contemplated herein or any other related transaction, and no
litigation or similar proceeding (including, without limitation, any
litigation or other proceeding seeking injunctive or similar relief) shall
be threatened or shall exist with respect to the transactions contemplated
herein, which, if adversely determined, could in the judgment of any
Purchaser have a Material Adverse Effect. The HSR waiting period
applicable to the Acquisition shall have expired or terminated.
5.9 Documents. Each Purchaser shall have received the following,
each in form and substance satisfactory to such Purchaser:
(a) Senior Subordinated Notes. Its Senior Subordinated Note
issued in the name of such Purchaser duly executed by the Company;
(b) Warrants, Certificate Evidencing Preferred Stock and
Purchase Documents. The Warrants and a stock certificate evidencing the
Preferred Stock, each of which shall have been duly issued and delivered
by Parent to each Purchaser (as applicable) in the denominations specified
on Annex I hereto, along with the fully executed Purchase Documents and
all other documents and instruments required pursuant thereto;
(c) Junior Subordination Agreements. A junior subordination
agreement duly executed in favor of each Purchaser by each Affiliate to
whom Parent, the Company or any of their respective Subsidiaries owes
Indebtedness;
(d) Other Agreements. All Other Agreements, duly executed by
the parties thereto;
(e) Insurance. Certified copies of all insurance policies and
endorsements thereto required by Section 6.12, together with a written
report from an insurance broker acceptable to each Purchaser, confirming
that the amount of such insurance coverage and the terms and conditions
thereof are substantially similar to policies maintained by companies
similarly situated to Parent, the Company and its Subsidiaries and engaged
in the same or a similar business;
(f) Approvals and Consents. Copies, certified by the Company
of all consents, authorizations, filings, licenses and approvals, if any,
required in connection with the consummation of the Acquisition, the
execution, delivery and performance by Parent, the Company and each of
their Subsidiaries, or the validity and enforceability of, this Agreement,
the Senior Loan Documents, the Acquisition Documents or the Other
Agreements to which each is a party;
(g) Opinion of Counsel to Parent, the Company and the
Subsidiaries. The written legal opinion of Alston & Bird, legal counsel
to Parent, the Company and the Subsidiaries; and written permission from
each other firm issuing an opinion to the Company or Parent in connection
with the Acquisition authorizing each Purchaser to rely on such opinions;
(h) General Certificate of the Company's Secretary or Assistant
Secretary. A certificate of the Secretary or Assistant Secretary of the
Company together with true, correct and complete copies of the following:
(i) Articles of Incorporation. The Articles of
Incorporation of the Company, including all amendments thereto,
certified by the Secretary of State of the state of its incorporation
and dated within thirty (30) days prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Company, including all
amendments thereto;
(iii) Resolutions. The resolutions of the Board of
Directors of the Company authorizing the execution, delivery and
performance of this Agreement, the Acquisition Documents, the Senior
Loan Documents and the Other Agreements to which the Company is a
party;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state of
incorporation of the Company as to its existence and good standing,
and certificates of the appropriate government officials in each
state where the Company does business and where failure to qualify as
a foreign corporation would have a Material Adverse Effect, as to its
good standing and due qualification to do business in such state,
each dated within thirty (30) days prior to the Closing Date; and
(v) Incumbency. The names of the officers of the Company
authorized to sign this Agreement and the Other Agreements to be
executed by the Company, together with a sample of the true signature
of each such officer;
(i) General Certificate of Parent's Secretary or Assistant
Secretary. A certificate of the Secretary or Assistant Secretary of
Parent together with true, correct and complete copies of the following:
(i) Restated Articles of Incorporation. The Restated
Articles of Incorporation of Parent, including all amendments
thereto, certified by the Secretary of State of the state of its
incorporation;
(ii) Bylaws. The Bylaws of Parent, including all
amendments thereto;
(iii) Resolutions. The resolutions of the Board of
Directors of Parent authorizing (A) the execution, delivery and
performance of this Agreement, the Acquisition Documents, the Senior
Loan Documents, and the Other Agreements to which Parent is a party,
(B) the issuance of the Preferred Stock to each Purchaser and the
reservation of a sufficient number of shares of Common Stock into
which such shares of Preferred Stock are exercisable (subject to
antidilution adjustments), and (C) the reservation of a sufficient
number of Warrant Shares (as defined in the Purchase Documents);
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state of
incorporation of Parent as to its existence and good standing, and
certificates of the appropriate government officials in each state
where Parent does business and where failure to qualify as a foreign
corporation would have a Material Adverse Effect, as to its good
standing and due qualification to do business in such state, each
dated within thirty (30) days prior to the Closing Date; and
(v) Incumbency. The names of the officers of Parent
authorized to sign this Agreement and the Other Agreements to be
executed by Parent, together with a sample of the true signature of
each such officer;
(j) General Certificate of each Subsidiary's Secretary or
Assistant Secretary. A certificate of the Secretary or Assistant
Secretary of each Subsidiary of the Company together with true, correct
and complete copies of the following:
(i) Articles of Incorporation. The Articles of
Incorporation of each Subsidiary of the Company, including all
amendments thereto, certified by the Secretary of State of the state
of its incorporation and dated within thirty (30) days prior to the
Closing Date;
(ii) Bylaws. The Bylaws of each Subsidiary of the Company,
including all amendments thereto;
(iii) Resolutions. The resolutions of the Board of
Directors of each Subsidiary of the Company authorizing the
execution, delivery and performance of the Acquisition Documents, the
Senior Loan Documents, and the Other Agreements, in each case to
which each such Subsidiary is a party;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state of
incorporation of each Subsidiary as to its existence and good
standing, and certificates of the appropriate government officials in
each state where each such Subsidiary does business and where failure
to qualify as a foreign corporation would have a Material Adverse
Effect, as to its good standing and due qualification to do business
in such state, each dated within thirty (30) days prior to the
Closing Date; and
(v) Incumbency. The names of the officers of each
Subsidiary authorized to sign the Other Agreements to be executed by
such Subsidiary, together with a sample of the true signature of each
such officer;
(k) Senior Loan Documents. Copies of the Senior Loan Documents
and each document relating thereto, and a certificate of the Chief
Executive Officer and Chief Financial Officer of the Company and Parent
certifying that the attached documents are a true, correct and complete
set of the Senior Loan Documents, that all conditions precedent to funding
of the Senior Debt have been met or waived, and that those transactions
are being consummated simultaneously with the sale of the Senior
Subordinated Notes;
(l) Acquisition Documents. Copies of the Acquisition Documents
and each document relating thereto, and a certificate of the Chief
Executive Officer and Chief Financial Officer of the Company and Parent
certifying that the attached documents are a true, correct and complete
set of the Acquisition Documents, that all conditions precedent to funding
of the Acquisition have been met or waived, and that those transactions
are being consummated simultaneously with the sale of the Senior
Subordinate Notes;
(m) Solvency Certificate. A certificate in form and substance
satisfactory to each Purchaser regarding the solvency of Parent, the
Company and their Subsidiaries, individually and on a consolidated basis,
which includes a pro forma balance sheet and cash flow projections and
analyses for the Company and Parent, executed by the Chief Executive
Officer and the Chief Financial Officer of each of the Company and Parent;
(n) Sources and Uses Certificate. A certificate in form and
substance satisfactory to each Purchaser executed by the Chief Executive
Officer and Chief Financial Officer of the Company and Parent, setting
forth in reasonable detail the sources and uses of funds in the
transactions contemplated herein, in the Senior Loan Documents and in the
Other Agreements;
(o) Communication with Accountants. Purchaser shall have
received a copy of a letter from each of the Company and Parent addressed
to its accountants authorizing such accountants to disclose to each
Purchaser any and all financial information concerning the Company or
Parent, as the case may be, requested by Purchaser in determining
compliance with any of the financial covenants set forth in Sections 6.20
and 7.9;
(p) Transaction Certificate. A certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company and
Parent that, to the best of their knowledge after due investigation, all
conditions precedent to the effectiveness of this Agreement have been
satisfied or waived;
(q) Environmental Reports. Environmental reports of an
independent environmental consulting firm satisfactory to each Purchaser
with respect to the Property and all improvements, fixtures and equipment
located thereon, which reports shall evidence no violation of
Environmental Laws or presence of Polluting Substances which is
unacceptable to any Purchaser in its sole discretion;
(r) Employment Agreements. A copy of each existing Employment
Agreement, in form and substance satisfactory to each Purchaser;
(s) Guaranty Agreements. A Parent Guaranty executed by Parent,
a Company Guaranty executed by the Company and a Subsidiary Guaranty
executed by each Subsidiary of Parent and the Company;
(t) Non-Compete Agreements. The Non-Compete Agreements, in
form and substance satisfactory to each Purchaser, duly executed by the
parties thereto; and
(u) Additional Information, Other Documents and Agreements.
Such other information, documents, agreements, commitments and
undertakings as any Purchaser or any Purchaser's counsel shall reasonably
request.
5.10 Material Adverse Change. For the period from December 31, 1996
to the Closing Date, and except for the transactions contemplated by this
Agreement, the Other Agreements, the Acquisition Documents and the Senior
Loan Documents, there shall have been (a) no occurrence or event which, in
any Purchaser's opinion, has or could have a Material Adverse Effect,
(b) no law, act, rule, regulation or order of any legislative,
administrative or judicial body or official which could prevent any
Purchaser from consummating the transactions contemplated by this
Agreement and the Other Agreements, and (c) no occurrence or event which
would lead the Company or any Purchaser to believe that the Company would
fail to meet the cash flow projections delivered to each Purchaser
pursuant to Section 4.2.
5.11 Fees. An origination fee (less the $75,000.00 credit for
amounts which have been paid by the Company to Rice prior to the Closing
Date) in the amounts set forth in Section 1.3 hereof shall have been paid
to each Purchaser. All other fees then payable pursuant to this Agreement
(including the fees, expenses and disbursements of each Purchaser's
counsel) shall have been paid to each Purchaser (or such counsel, as
applicable).
5.12 No Event of Default. No Event of Default or Potential Default
shall have occurred and be continuing.
5.13 Representations and Warranties. All representations and
warranties contained in this Agreement, the Senior Loan Documents, the
Acquisition Documents and the Other Agreements shall be true and correct
on the Closing Date.
5.14 Issuance of Preferred Stock. Parent shall have amended its
Articles of Incorporation to authorize the issuance of the Preferred
Stock, the Preferred Stock shall have been issued to each of Rice and the
Southland Purchasers, as required in the Certificate and Purchase
Documents, and a certificate evidencing and representing the Preferred
Stock issued to Rice and the Southland Purchasers shall have been
delivered to each of Rice and the Southland Purchasers, respectively.
5.15 Financial Statements. The consolidating financial statements
for Parent and Southland shall be satisfactory to each Purchaser.
5.16 Capital Structure of Parent and its Subsidiaries. The assets,
business structure and capital structure of Parent and each of its
Subsidiaries shall, after giving effect to the Acquisition, be
satisfactory to each Purchaser in its sole discretion.
5.17 Reference Calls. Reference calls made by each Purchaser to any
key customers or suppliers of Parent and each of its Subsidiaries shall be
satisfactory to each Purchaser, in its sole discretion.
5.18 Resignations of Officers and Directors. Each officer and
director of Southland and each of its Subsidiaries and each director,
other than Shea Ralph, of Parent shall have resigned from such position or
positions and shall have been replaced with such Persons satisfactory to
each Purchaser in accordance with the Purchase Documents and the
Certificate.
5.19 Southland Dividend. The dividend payable to the shareholders of
Southland in connection with the Acquisition pursuant to the terms of the
Acquisition Agreement shall be paid in accordance with all applicable
corporate, securities and other laws.
VI. AFFIRMATIVE COVENANTS
The Company and Parent covenant and agree that, from the date hereof
and until the Senior Subordinated Obligations have been finally and
irrevocably paid in full in accordance with the terms hereof and thereof:
6.1 Financial Statements. Parent will furnish to each Purchaser:
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of Parent, beginning
with the fiscal year ending December 31, 1996, (i) a copy of the financial
statements of Parent for such fiscal year containing a consolidated and
consolidating balance sheet, statement of income, statement of
stockholders' equity, and statement of cash flow as at the end of such
fiscal year and for the fiscal year then ended, in each case setting forth
in comparative form the figures for the preceding fiscal year, together
with management's discussion and analysis of variances prepared by
Parent's management, all in reasonable detail and audited and certified by
Ernst & Young LLP or any other "Big Six" firm of independent certified
public accountants (or any other firm of independent certified public
accountants of recognized national standing selected by Parent and
consented to by the Holders provided that the Holders consent shall not
unreasonably be withheld) to the effect that such financial statements
have been prepared in accordance with GAAP; (ii) a certificate delivered
to each Purchaser by such independent certified public accountants
confirming the calculations set forth in the officers' certificate
delivered simultaneously therewith in accordance with Section 6.2(a); and
(iii) 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, together with management's discussion and analysis of variances, as
well as, variances between actual results for such fiscal year and actual
results for the previous fiscal year. The annual audit report required
hereby shall not be qualified on the basis that the Company is not a going
concern or otherwise qualified or limited because of restricted or limited
examination by the accountant of any material 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 an unaudited
financial report of Parent and each of its Subsidiaries as of the end of
such calendar month and for the portion of the fiscal year then ended,
containing balance sheets, statements of income, retained earnings and
statements of cash flow, in each case setting forth in comparative form
the figures for the corresponding period of the preceding fiscal year,
together with management's discussion and analysis of variances all in
reasonable detail, including, without limitation, a comparison of the
actual results during such period to those originally budgeted by Parent
and each of its Subsidiaries prior to the beginning of such fiscal period
and for the fiscal year to date.
(c) As soon as available, and in any event within thirty (30)
days after the Closing Date, a balance sheet of the Company that has been
reviewed by Ernst & Young LLP, or such other independent "Big Six" or
other nationally recognized accounting firm, dated as of the Closing Date,
which has been restated using purchase accounting in accordance with APB
16 and which gives effect to the issuance of the Senior Subordinated Notes
and the Purchase Documents, and the financing transactions contemplated by
the Senior Loan Agreement as if all commitments therein available to the
Company as of the Closing Date were fully utilized, certified by the Chief
Executive Officer and the Chief Financial Officer of the Company as fairly
presenting the Company's financial position.
(d) Forty-five (45) days after the beginning of each fiscal
year of Parent, 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 any underlying
assumptions), and, promptly during each fiscal year, all revisions thereto
approved by the board of directors of Parent.
6.2 Certificates; Other Information. Parent will furnish to each
Purchaser all of the following:
(a) Concurrently with the delivery of each of the financial
statements referred to in Section 6.1(a), Section 6.1(b) and
Section 6.1(c), a certificate of an authorized officer of the Company and
Parent in the form of the officer's certificate attached hereto as Exhibit
B (i) stating that, to the knowledge of such officer, no Event of Default
or Potential Default has occurred and is continuing or, if such officer
has knowledge of an Event of Default or Potential Default, the nature
thereof and specifying the steps taken or proposed to remedy such matter,
(ii) showing in reasonable detail the calculations showing compliance with
Sections 6.20 and 7.9, (iii) stating that the financial statements
attached have been prepared in accordance with GAAP and fairly and
accurately present (subject to year-end audit adjustments, for the annual
certificates) the financial condition and results of operations of Parent,
the Company and their Subsidiaries at the date and for the period
indicated therein, (iv) containing summaries of accounts payable agings,
accounts receivable agings, and inventory, (v) containing a schedule of
the outstanding Indebtedness for borrowed money of Parent, the Company and
their Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan, (vi) containing
management's discussion and analysis of the business and affairs of
Parent, the Company and their Subsidiaries which includes, but is not
limited to, a discussion of the results of operations compared to those
originally budgeted for such period, and (vii) a report detailing (A) all
matters affecting the value, enforceability or collectibility of any
material portion of its assets including, without limitation, the
Company's reclamation or repossession of, or the return to the Company of,
a material amount of goods and material claims or disputes asserted by any
customer or other obligor, and (B) any material adverse change in the
relationship between Parent, the Company or any Subsidiary and any of its
material suppliers or customers.
(b) As soon as available, (i) a copy of each financial
statement, report, notice or proxy statement sent by Parent to its
stockholders in their capacity as stockholders, (ii) a copy of each
regular, periodic or special report, registration statement, or prospectus
filed by Parent with any securities exchange or the Securities and
Exchange Commission or any successor agency, (iii) any material order
issued by any court, governmental authority, or arbitrator in any material
proceeding to which Parent or any of its Subsidiaries is a party,
(iv) copies of all press releases and other statements made available
generally by Parent or any of its Subsidiaries to the public generally
concerning material developments in Parent's or such Subsidiary's
business, and (v) a copy of all correspondence and reports sent by Parent
or the Company to the Senior Lender outside of the ordinary course of
business.
(c) Promptly, such additional information concerning Parent,
the Company and their Subsidiaries as any Purchaser may reasonably
request.
6.3 Books and Records; Accounting System. Parent and the Company
will, and will cause each of the Subsidiaries to, keep (a) proper books of
record and account in which full, true and correct entries will be made of
all dealings or transactions of or in relation to its business and
affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current
basis set up on its books from its earnings allowances against doubtful
receivables, advances and investments and all other proper accruals
(including, without limitation, by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside
from such earnings in connection with its business. All determinations
pursuant to this subsection shall be made in accordance with, or as
required by, GAAP consistently applied. Parent and the Company will, and
will cause each of the Subsidiaries to, maintain a modern system of
accounting established and administered in accordance with sound business
practices to permit preparation of consolidated financial statements in
conformity with GAAP.
6.4 Financial Disclosure. The Company and Parent hereby irrevocably
authorize and direct all accountants and auditors employed by them at any
time during the term of this Agreement to exhibit and deliver to each
Purchaser copies of any of their respective financial statements, trial
balances or other accounting records of any sort in the accountant's or
auditor's possession, and to disclose to each Purchaser any information
they may have concerning either party's financial status and business
operations. Each of the Company and Parent hereby irrevocably authorizes
all federal, state and municipal authorities to furnish to each Purchaser
copies of reports or examinations relating to the Company or Parent,
whether made by the Company, Parent or otherwise.
6.5 Disclosure of Material Matters. Parent and the Company will,
and will cause each of the Subsidiaries to, promptly upon learning
thereof, report to each Purchaser (a) all matters materially affecting the
value, enforceability or collectibility of any material portion of its
assets including, without limitation, changes to significant contracts,
schedules of equipment, changes of significant equipment or real property,
the reclamation or repossession of, or the return to the Company or Parent
or their Subsidiaries of, a material amount of goods and material claims
or disputes asserted by any customer or other obligor, and (b) any
material adverse change in the relationship between Parent or its
Subsidiaries and any of its suppliers or customers.
6.6 Performance of Obligations. Parent and its Subsidiaries will
duly and punctually pay and perform their obligations, as applicable,
under this Agreement, the Acquisition Documents and the Other Agreements
(excluding, to the extent included, the Senior Loan Documents) to which
each is a party.
6.7 Preservation of Existence and Conduct of Business. Parent and
Company will, and will cause each of the Subsidiaries to, preserve and
maintain its corporate existence and all of its leases, privileges,
franchises, qualifications and rights that are necessary or useful in the
ordinary conduct of its business and where failure to do so would have a
Material Adverse Effect, and conduct its business as presently conducted
in an orderly and efficient manner in accordance with good business
practices; provided, however, that nothing contained in this Section 6.7
shall prohibit the occurrence of the Acquisition Merger and other
acquisitions and mergers permitted under the terms of the Senior Loan
Agreement.
6.8 Maintenance of Properties. Parent and the Company will, and
will cause each of the Subsidiaries to, operate and maintain in good
condition and repair (ordinary wear and tear excepted) and replace as
necessary, all of its material assets and properties which are necessary
in accordance with sound business practices in the proper conduct of its
business so that the value and operating efficiency of its assets and
properties are maintained and preserved. Parent and the Company will, and
will cause each of the Subsidiaries to, at all times maintain the
Intellectual Property material to its business in full force and effect,
and will defend and protect the Intellectual Property against all material
adverse claims.
6.9 Payment of Taxes and Claims. Parent and the Company will, and
will cause each of the Subsidiaries to, pay or discharge, at or before
maturity or before becoming delinquent (a) all taxes, levies, assessments,
vault, water and sewer rents, rates, charges, levies, permits, inspection
and license fees and other governmental and quasi-governmental charges and
any penalties or interest for nonpayment thereof, heretofore or hereafter
imposed or which may become a Lien upon any property owned by Parent or
such Subsidiary or arising with respect to the occupancy, use, possession
or leasing thereof (collectively the "Impositions") and (b) all lawful
claims for labor, material, and supplies, which, if unpaid, might become a
Lien upon any of its Property; provided, however, that neither Parent nor
its Subsidiaries will be required to pay or discharge any claim for labor,
material, or supplies or any Imposition (i) which is being contested in
good faith by appropriate actions or proceedings diligently pursued, and
for which adequate reserves in conformity with GAAP with respect thereto
have been established to the reasonable satisfaction of the Holders, and
(ii) if the failure to pay or discharge the same would not result in a
Material Adverse Effect.
6.10 Compliance with Laws. Parent and the Company will, and will
cause each of the Subsidiaries to, comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body
or official applicable to the operation of Parent's or such Subsidiary's
business if noncompliance with such acts, rules, regulations or orders
could have a Material Adverse Effect; provided, however, Parent or such
Subsidiary may contest or dispute any acts, rules, regulations, orders and
directions of those bodies or officials by appropriate actions or
proceedings diligently pursued, if adequate reserves in conformity with
GAAP with respect thereto are established to the reasonable satisfaction
of the Holders.
6.11 Payment of Leasehold Obligations. Parent and the Company will,
and will cause each of the Subsidiaries to, at all times, pay, when and as
due, its rental obligations under all leases under which it is a tenant or
lessee, and shall otherwise comply, in all material respects, with all
other terms of such leases and keep them in full force and effect and, at
the request of the Holders, will provide evidence of its having done so;
provided, however, Parent or such Subsidiary may contest or dispute its
obligations under such leases by appropriate actions or proceedings
diligently pursued if adequate reserves in conformity with GAAP with
respect thereto are established.
6.12 Insurance; Casualty Event. Parent and the Company will, and
will cause each of the Subsidiaries to, maintain, with financially sound,
reputable and solvent companies, insurance policies acceptable to the
Holders (a) insuring its assets against loss by fire, explosion, theft and
other risks and casualties as are customarily insured against by companies
engaged in the same or a similar business, and (b) insuring Parent and its
Subsidiaries against liability for personal injury and property damages
relating to its assets, such policies to be in such amounts and covering
such risks as are usually insured against by companies engaged in the same
or a similar business, and insuring such other matters as may from time to
time be reasonably requested by the Holders. Parent and Company will, and
will cause each of the Subsidiaries to, provide copies of all such
insurance policies to each Purchaser within ten (10) days following such
Purchaser's request for the same. Parent and the Company will, and will
cause each of the Subsidiaries to, (i) pay, or cause to be paid, all
premiums for such insurance at least thirty (30) days before such premiums
become due, (ii) furnish to each Purchaser satisfactory proof of the
timely making of such payments, (iii) deliver all renewal policies to each
Purchaser at least five (5) days before the expiration date of each
expiring policy, (iv) cause such policies to require the insurer to give
notice to each Purchaser of termination of any such policy at least thirty
(30) days before such termination is to be effective and (v) immediately
deliver written notice to each Purchaser of any Casualty Event. If Parent
or any of its Subsidiaries fails to provide and pay for any such
insurance, each Purchaser may, at its option, but shall not be required
to, pay the same and charge Parent or any Subsidiary therefor.
6.13 Inspection Rights. At any reasonable time and from time to
time, Parent and Company will, and will cause each of the Subsidiaries to,
permit representatives of any Purchaser to examine and make copies of the
books and records of, and visit and inspect the properties of, Parent and
its Subsidiaries, and to discuss the business, operations, and financial
condition of Parent and its Subsidiaries with its respective officers and
employees and with its independent certified public accountants. Such
examinations and inspections may include, but are not limited to, audits
of the application of proceeds from the Senior Subordinated Notes. In
accordance with the terms of Section 12.1 hereof, Parent will promptly
reimburse each Purchaser for all expenses incurred by representatives of
Purchaser in connection with such inspections.
6.14 Notices. Parent and the Company will, and will cause each of the
Subsidiaries to, promptly, but in any event within two (2) Business Days
after first becoming aware thereof, notify each Purchaser via telephone,
subsequently confirmed or, if requested by such Purchaser, in writing of:
(a) the commencement of any event, including but not limited
to, any action, suit, or proceeding against Parent or any Subsidiary, that
could have a Material Adverse Effect, which notice shall specify the
nature of such event and what action Parent or such Subsidiary has taken
or is taking or proposes to take with respect thereto;
(b) the occurrence of an event of default, or an event which
with the passage of time or giving of notice or both constitutes an event
of default under the Senior Loan Documents or under any instrument or
agreement evidencing any other Indebtedness of Parent or such Subsidiary,
which notice shall specify the nature of such event, condition or default
and what action Parent or such Subsidiary has taken or is taking or
proposes to take with respect thereto; or
(c) The occurrence of an Event of Default or a Potential
Default, which notice shall specify the nature of such event, condition or
default and what action Parent or such Subsidiary has taken or is taking
or proposes to take with respect thereto.
Any notification required by this Section 6.14 shall be accompanied by a
certificate of the Chief Executive Officer or Chief Financial Officer
setting forth the details of the specified events and the action which
Parent or such Subsidiary proposes to take with respect thereto.
6.15 Additional Notices. Immediately upon receipt by Parent or any
Subsidiary, Parent or the Company will, and will cause the Subsidiaries
to, provide each Purchaser with copies of all notices (including notices
of default), statements and financial information, including notices of
default, received from the Senior Lender under the Senior Loan Agreement
and any other creditor or lessor with respect to the acceleration of the
maturity of any item of Indebtedness for borrowed money or the
repossession of property from Parent or such Subsidiary.
6.16 Senior Loan Document Amendments. Parent and Company will, and
will cause the Subsidiaries to, promptly provide each Purchaser with
copies of all proposed amendments to the Senior Loan Documents and of all
other loan agreements to which Parent or such Subsidiary is a party.
6.17 Further Assurances. Parent and the Company will, and will cause
the Subsidiaries to, execute and deliver to each Purchaser from time to
time, upon demand, such supplemental agreements, statements, assignments
and transfers, or instructions or documents as any Purchaser may request,
in order that the full intent of this Agreement and the Other Agreements
may be carried into effect.
6.18 Compliance with ERISA and the Code. Parent and the Company
will, and will cause each of the Subsidiaries to, comply, and will cause
each other member of any Controlled Group to comply, with all minimum
funding requirements, and all other material requirements, of ERISA and
the Code, if applicable, to any Employee Benefit Plan it or they sponsor
or maintain, so as not to give rise to any liability thereunder. Parent
and the Company will, and will cause each of the Subsidiaries to, pay and
will cause each other member of any Controlled Group to pay when due any
amount payable by it to the Pension Benefit Guaranty Corporation.
Promptly after the filing thereof, Parent and the Company shall furnish to
each Purchaser with regard to each Employee Benefit Plan, copies of each
annual report required to be filed pursuant to Section 104 of ERISA in
connection with each such plan for each plan year.
6.19 Compliance with Regulations G, T, U and X. Neither the Company,
Parent nor any Person acting on their behalf will take any action which
might cause this Agreement, the Senior Subordinated Notes, the Purchase
Documents, the Senior Loan Documents or any Other Agreements to violate,
and the Company and Parent will take all actions necessary to cause
compliance with, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System and the Securities Exchange Act of 1934, in
each case as now in effect or as the same may hereafter be in effect.
6.20 Financial Covenants.
(a) Total Debt to EBITDA. As of the end of each Fiscal Quarter
during the periods set forth below beginning with the Fiscal Quarter
ending March 31, 1998, Parent shall not permit the ratio of Total
Debt of Parent determined on a consolidated basis which is
outstanding as of the date of determination to EBITDA for the twelve
(12) month period (or portion thereof since the Closing Date) then
ending to exceed the ratio set forth below opposite the applicable
period below:
Period Ratio
------ -----
March 31, 1998 through June 30, 1998 4.95 to 1.00
July 1, 1998 through September 30, 1998 4.68 to 1.00
October 1, 1998 through December 31, 1998 4.40 to 1.00
January 1, 1999 through June 30, 1999 4.13 to 1.00
July 1, 1999 through September 30, 1999 3.85 to 1.00
October 1, 1999 through December 31, 1999 3.58 to 1.00
January 1, 2000 through June 30, 2000 3.30 to 1.00
July 1, 2000 through September 30, 2000 3.03 to 1.00
October 1, 2000 and the end of each
Fiscal Quarter thereafter 2.75 to 1.00
(b) Interest Coverage. Parent shall not permit the ratio of
Operating Cash Flow to cash interest expense of Parent and the
Subsidiaries determined on a consolidated basis, both calculated for
the twelve (12) month period (or portion thereof since the Closing
Date) ending on the last day of each Fiscal Quarter (beginning with
the Fiscal Quarter ending June 30, 1997) during the periods set forth
below, to be less than the ratio set forth below opposite the
applicable period below:
Period Ratio
------ -----
Closing Date through June 30, 1997 1.35 to 1.00
July 1, 1997 through September 30, 1997 1.67 to 1.00
October 1, 1997 through March 31, 1998 1.80 to 1.00
April 1, 1998 through September 30, 1998 2.03 to 1.00
October 1, 1998 through March 31, 1999 2.25 to 1.00
April 1, 1999 through September 30, 1999 2.48 to 1.00
October 1, 1999 through March 31, 2000 2.70 to 1.00
April 1, 2000 through September 30, 2000 2.93 to 1.00
October 1, 2000 and the end of each
Fiscal Quarter thereafter 3.15 to 1.00
(c) Fixed Charge Coverage. Parent shall not permit the ratio
of Operating Cash Flow to Fixed Charges computed on the basis of the
Operating Cash Flow and Fixed Charges for the twelve (12) month
period (or portion thereof since the Closing Date) ending on the last
day of each Fiscal Quarter (beginning with the Fiscal Quarter ending
June 30, 1997) to be less than the ratio set forth below opposite the
applicable period below:
Period Ratio
------ -----
Closing Date through June 30, 1997 1.00 to 1.00
July 1, 1997 through June 30, 1998 1.04 to 1.00
July 1, 1998 through September 30, 1998 1.08 to 1.00
October 1, 1998 and the end of each
Fiscal Quarter thereafter 1.12 to 1.00
(d) EBITDA. As of the end of each Fiscal Quarter set forth
below, Parent shall not permit EBITDA for the twelve (12) month
period (or portion thereof since the Closing Date) then ending to be
less than the Dollar amount set forth below for such Fiscal Quarter:
Period Dollar Amount
------ -------------
June 30, 1997 $1,710,000
September 30, 1997 $3,420,000
December 31, 1997 $4,860,000
March 31, 1998 $5,625,000
June 30, 1998 $5,850,000
September 30, 1998 $6,075,000
December 31, 1998 $6,300,000
March 31, 1999 $6,525,000
June 30, 1999 $6,750,000
September 30, 1999 $6,975,000
December 31, 1999 $7,200,000
March 31, 2000 $7,425,000
June 30, 2000 $7,650,000
September 30, 2000 $7,875,000
December 31, 2000 $8,100,000
March 31, 2001 $8,325,000
June 30, 2001 $8,550,000
September 30, 2001 $8,730,000
December 31, 2001 and the last each
Fiscal Quarter thereafter $9,000,000
(e) Net Worth. Parent will at all times maintain Consolidated
Net Worth in an amount not less than the sum of (a) Twelve Million
Dollars ($12,000,000); plus (b) sixty seven and one-half percent
(67.5%) of Parent's Net Income for each Fiscal Quarter to have
completely elapsed since the Closing Date; plus (c) ninety percent
(90%) of the net cash proceeds of any sale of Securities or other
contributions to the capital of Parent received by Parent since the
Closing Date, calculated without duplication. If Net Income for a
Fiscal Quarter is zero or less, no adjustment to the requisite level
of Consolidated Net Worth shall be made.
6.21 Fiscal Year. The Company and Parent will cause their fiscal
year to be the twelve month period ending on December 31 of each year.
6.22 Board Observation and Membership. Parent and the Company
will, and will cause each of the Subsidiaries to, 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
and other committees thereof) or shareholders of such Person, certified as
true and accurate by the Secretary of such Person, promptly following each
such meeting. Parent and the Company will, and will cause each of the
Subsidiaries to, (a) permit each Holder to designate one (1) person to
attend all meetings of such Person's board of directors (including
executive, compensation and 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 such Person's board of directors (including the
executive, compensation and other committees thereof) or shareholders,
(c) permit such designees to attend all such meetings as an observer, and
(d) provide to such designees a copy of all materials distributed at such
meetings or otherwise to the board of directors of Parent and its
Subsidiaries. Parent and each Subsidiary agrees to reimburse each
individual referred to in Subsection (a) above for all reasonable expenses
incurred in traveling to and from such meetings and attending such
meetings.
6.23 Environmental Costs.
(a) Parent and the Company hereby indemnify and hold each
Purchaser harmless from and against any liability, loss, damage, suit,
action or proceeding pertaining to solid or hazardous waste materials or
other waste-like or toxic substances, including, but not limited to,
claims of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under any federal, state or
municipal law or regulation, or tort, contract or common law that relates
to Parent and each Subsidiary.
(b) To the extent the laws of the United States or any state in
which property, leased or owned, of Parent or any Subsidiary provide that
a Lien upon the property of Parent or such Subsidiary may be obtained for
the removal of Polluting Substances which have been released, no later
than sixty (60) days after notice is given by any Holder to the Company,
the Company shall deliver to each Purchaser a report issued by a
qualified, third party environmental consultant selected by the Company
and approved by such Holder as to the existence of any Polluting
Substances located upon or beneath the specified property, leased or owned
by Parent or such Subsidiary. To the extent any such Polluting Substance
is located therein or thereunder that either (i) subjects the property to
Lien or (ii) requires removal to safeguard the health of any Person,
Parent and the Company will, and will cause each of the Subsidiaries to,
remove, or cause to be removed, such Lien and such Polluting Substance at
Parent's and the Company's expense.
6.24 Employment Agreements and Non-Compete Agreements. Parent and
the Company will, and will cause each of the Subsidiaries to, as
applicable, at all times maintain the Employment Agreements and Non-
Compete Agreements in full force and effect, and will diligently enforce
the Employment Agreements and Non-Compete Agreements against any parties
thereto who violate or attempt to violate any of such Employment
Agreements or Non-Compete Agreements.
VII. NEGATIVE COVENANTS
Parent and the Company covenant and agree that from the date hereof
until the Senior Subordinated Obligations have been finally and
irrevocably paid in full in accordance with the terms hereof and thereof,
without the prior consent of the Holders:
7.1 Indebtedness. Parent and the Company will not, and will not
permit the Subsidiaries to, create, incur, issue, assume, guarantee or
otherwise become liable for any Indebtedness except (a) Permitted
Indebtedness; (b) any extension, renewal or refinancing of any Permitted
Indebtedness (other than the Senior Debt) on such terms and conditions as
are, on the whole, no more onerous to Parent or such Subsidiary than the
terms and conditions of such Permitted Indebtedness on the date of such
extension, renewal or refinancing; and (c) any replacement or refinancing
of the Senior Debt; provided that (i) the interest rate on such
refinancing shall be no greater than the interest rate permitted by the
Senior Subordination Agreement, (ii) the amortization of principal on such
refinancing shall be for no shorter period, and for no greater annual
amounts, than the amortization provided for in the Senior Loan Agreement,
(iii) the amount so replaced or refinanced shall be no greater than the
maximum amount permitted to be outstanding under the Senior Loan Agreement
on the date of such replacement or refinancing, (iv) the collateral
security for such replacement or refinancing does not extend to assets
other than those contemplated by the Senior Loan Agreement (and proceeds
thereof) and (v) the other terms and conditions of such replacement or
refinancing are, on the whole, no more onerous to the Company than the
terms of the Senior Loan Agreement with such amendments thereto permitted
by the Senior Subordination Agreement. Any Permitted Indebtedness which
is subordinated to the Senior Subordinated Obligations shall continue to
be subordinated to the Senior Subordinated Obligations on terms and
conditions satisfactory to the Holders.
7.2 Limitation on Liens. Parent and the Company will not, and will
not permit the Subsidiaries to, incur, create, assume, or permit to exist
any Lien upon any of its property, assets, or revenues, including, but not
limited to, its shares of capital stock of each of its Subsidiaries,
whether now owned or hereafter acquired, except Permitted Liens.
7.3 Merger, Acquisition, Dissolution and Sale of Assets. Parent and
the Company will not, and will not permit the Subsidiaries to, (a) become
a party to a merger or consolidation (other than the Acquisition Merger
and any other merger permitted by the Senior Loan Agreement), (b) purchase
or otherwise acquire all or a substantial part of the assets of any Person
or any shares or other evidence of beneficial ownership of any Person
(other than acquisitions permitted under the terms of the Senior Loan
Agreement), (c) dissolve or liquidate, (d) form, acquire or permit the
existence of any Subsidiary or Subsidiaries other than the Subsidiaries in
existence on the date hereof and those permitted to be created under the
terms of the Senior Loan Agreement, and (e) sell, assign or transfer any
of its assets, except (i) the transfer of all assets of Parent (other than
the stock of the Company) to the Company, (ii) sales of inventory in the
ordinary course of business, (iii) sales of other assets reasonably and in
good faith determined by the Company to be obsolete or no longer necessary
to the Company's business, and (iv) asset dispositions permitted by the
Senior Loan Agreement.
7.4 Restricted Payments. Parent and the Company will not, and will
not permit the Subsidiaries to, at any time make or become obligated to
make, directly or indirectly, any (a) declaration of any dividend on, or
any other payment or distribution in respect of, any shares of capital
stock of the Company; except (i) dividends in cash from the Company or its
Subsidiaries to Parent to the extent necessary to permit Parent to pay the
Senior Subordinated Obligations due and payable from Parent to each
Purchaser, (ii) dividends from the Subsidiaries of the Company to the
Company to the extent necessary to permit the Company to pay the Senior
Subordinated Obligations, (iii) dividends on the Preferred Stock as
provided in the Certificate and payments made pursuant to the Purchase
Documents, and (iv) other dividends permitted by the Senior Loan
Agreement, (b) except as otherwise provided for herein, any professional
consulting or management fees or any other payments to any shareholders of
Parent or any Subsidiary, (c) payment or distribution on account of the
purchase, repurchase, redemption, put, call or other retirement of any
shares of capital stock of Parent or any Subsidiary or of any warrant,
option or other right to acquire such shares (except pursuant to the
Purchase Documents or the Certificate or as permitted by the Senior Loan
Agreement), or (d) 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).
7.5 Loans and Investments. Except for Permitted Investments, Parent
and the Company will not, and will not permit any Subsidiary to, make any
advance, loan, extension of credit, or capital contribution to or
investment in, or purchase any stock, bonds, notes, debentures, or other
securities of any Person.
7.6 Transactions with Affiliates. Except as contemplated by this
Agreement and the Other Agreements, Parent and the Company will not, and
will not permit any Subsidiaries to, enter into any transaction with any
director, officer, employee, shareholder, or Affiliate of Parent,
Southland or any of their respective Subsidiaries except, on prior
approval by the Company's board of directors of the terms which shall be
fair and reasonable and be 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 Parent, Southland or any of their
respective Subsidiaries, as the case may be.
7.7 Nature of Business. Parent and the Company will not, and will
not permit any Subsidiary to, engage in any business other than the
businesses set forth on Schedule 4.25, or any business reasonably related
thereto.
7.8 Modification of Senior Loan Agreement. Parent and the Company
will not, and will not permit any Subsidiary to, agree or consent to any
modification, amendment or waiver of any of the terms or provisions of the
Senior Loan Documents without the prior written consent of the Holders
except such amendments and waivers which can be made to the Senior Loan
Documents without the consent of the Purchaser under the terms of the
Senior Subordination Agreement.
7.9 Capital Expenditure Limits. The aggregate amount of all Capital
Expenditures of Parent and the Subsidiaries during any Fiscal Year will
not exceed the Capital Expenditure Limit for such Fiscal Year:
Period Amount
------ ------
Closing Date through December 31, 1997 $440,000
January 1, 1998 through December 31, 1998 $550,000
January 1, 1999 through December 31, 1999 $660,000
January 1, 2000 through December 31, 2000 $770,000
January 1, 2001 and each Fiscal Year
thereafter $880,000
The term "Capital Expenditure Limit" means, for the Fiscal Years set forth
above, the sum of (i) the Dollar amount set forth in the table above
opposite the applicable Fiscal Year (the Dollar amount as set forth for
each Fiscal Year herein the "Yearly Limit") plus (ii) fifty percent (50%)
of the portion of the Yearly Limit from the immediately preceding Fiscal
Year which was not expended by Parent and its Subsidiaries for Capital
Expenditures in such preceding Fiscal Year. In calculating compliance
with this Section 7.9, (a) Capital Expenditures made in a Fiscal Year
shall first be debited against the Yearly Limit for such Fiscal Year then
debited against the carryover of the Yearly Limit, if any, from the
preceding Fiscal Year and (b) the aggregate amount of all payments due
under a Capital Lease for the entire term thereof (excluding, however, the
interest portion of capitalized lease payments) shall be considered
expended in full on the date that the Capital Lease is entered into.
7.10 Remuneration. Parent and the Company will not, and will not
permit any Subsidiary to, (a) pay any management, consulting, or similar
fees to any shareholder or Affiliate of Parent or any Subsidiary or to any
director, officer, employee or immediate family member of any such
Affiliate or shareholder, except as set forth in Schedule 7.10, or (b) pay
any compensation to the Persons identified on Schedule 7.10 in excess of
the amounts set forth on Schedule 7.10, whether such compensation consists
of salary, bonus, management, consulting or other fees, capital
distributions, or other benefits or otherwise, and regardless of whether
such compensation is paid by Parent and/or any Subsidiary or Affiliate of
Parent.
7.11 Modification of Employment Agreements, the Acquisition Documents
or Non-Compete Agreements. Parent and the Company will not, and will not
permit any Subsidiary to, agree to any modification, amendment or waiver
of any of the terms or provisions of the Employment Agreements, the
Acquisition Documents or Non-Compete Agreements without the prior written
consent of the Holders.
VIII. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) (i) the Company shall fail to pay when due (whether upon
acceleration or otherwise), any principal payable under the Senior
Subordinated Notes, (ii) the Company shall fail to pay within three (3)
Business Days of the date due any interest payable under the Senior
Subordinated Notes or this Agreement, or (iii) the Company, Parent or any
Subsidiary shall fail to pay within five (5) Business Days after receipt
of notice of failure to pay (whether by acceleration or otherwise), any
other Senior Subordinated Obligations;
(b) the Company, Parent or any Subsidiary shall fail to pay
when due (following the expiration of applicable notice and cure periods,
if any), whether upon acceleration or otherwise, any Indebtedness
(excluding for purposes of this Section 8.1(b) only the Senior Debt),
individually or in the aggregate, having an unpaid principal amount in
excess of $750,000.00;
(c) The Company or Parent, as the case may be, shall fail to
perform or observe any (i) obligation, agreement, covenant, term or
condition (other than the obligation to make payment) contained (A) in the
Senior Subordinated Notes or in Section 6.20 or Article VII of this
Agreement; (B) in Section 6.1 of this Agreement, and such default is not
cured or otherwise waived within fifteen (15) days after written notice
thereof is provided to Parent or Company, as the case may be, or (C) in
this Agreement (excluding the obligations, agreements, covenants, terms or
conditions governed by Sections 8.1(a), 8.1(c)(i)(A) and (B) above), and
such default is not cured or otherwise waived within thirty (30) days
after written notice thereof is provided to Parent or Company, as the case
may be or (ii) material obligation, agreement, covenant, term or condition
(other than the obligation to make payment which is covered by Section
8.1(a) above) contained in the Other Agreements and such default is not
cured or otherwise waived within thirty (30) days after written notice
thereof is provided to Parent or Company, as the case may be;
(d) Parent, the Company or any Subsidiary shall fail in any
material respect to comply with any material agreement, indenture,
mortgage, deed of trust, or other agreement (excluding the Senior Loan
Documents and the Other Agreements) binding on it or affecting its
properties or business, unless a waiver or consent has been obtained
therefor;
(e) any representation, warranty or other material information
whatsoever made or provided by the Company, Parent or any Subsidiary in
connection with this Agreement or the Other Agreements or otherwise to
induce each Purchaser to purchase its Senior Subordinated Note, Preferred
Stock or Warrants was incorrect or misleading in any material respect,
when made;
(f) the Parent or any Subsidiary shall become subject to an
Event of Bankruptcy;
(g) any judgment or order for payment of money shall be
rendered against Parent, the Company or any Subsidiary which exceeds an
uninsured amount of $750,000.00 and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order, or
(ii) there shall be a
period of thirty (30) consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect;
(h) the Senior Debt shall have been accelerated or the holders
thereof shall have commenced an action to foreclose on the liens securing
the Senior Debt;
(i) Parent shall cease to directly own and control one hundred
percent (100%) of the aggregate number of shares of capital stock of the
Company (provided, that the fact that Thomas J. Gilligan has a Lien on the
shares of capital stock of Southland which are held in treasury shall not
result in the occurrence of an Event of Default under this clause (i)
unless Thomas J. Gilligan forecloses on or otherwise causes such treasury
shares to be issued out of the treasury);
(j) the occurrence of a material change in ownership in Parent
(for purposes of this subsection a "change in ownership" means the
circumstance that (i) F-Jotan, L.L.C. shall own, directly or indirectly,
five percent (5%) less than (A) the Registrable Securities (as defined in
the Purchase Agreement) so owned by such party on the Closing Date or (B)
the number of shares of issued and outstanding voting stock of Parent
(without giving effect to the issuance of any shares of Common Stock under
the Warrants or the conversion of the Series A Preferred Stock) so owned
by such party on the Closing Date, (ii) Rice or the Southland Purchasers
shall cease to beneficially own or control, directly or indirectly, at
least seventy percent (70%) of the issued and outstanding shares of
capital stock of the Company (determined on a fully diluted basis) owned
by Rice or the Southland Purchasers, as the case may be, on the Closing
Date, or (iii) 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 Parent); or
(k) Parent, the Company or any Subsidiary shall revoke or
attempt to revoke its guaranty agreement executed in favor of each
Purchaser, or shall repudiate its liability thereunder or shall fail to
comply in any material respect with the terms thereof.
8.2 Remedies of Holders upon Occurrence of Event of Default. When
any Event of Default described in Section 8.1 above, other than any Event
of Default described in clause (f) thereof, has occurred and is
continuing, the majority-in-interest of the Holders may (in addition to
any other right, power or remedy permitted to the Holders by law) declare
the entire amount of the Senior Subordinated Obligations, including,
without limitation, the entire principal, Prepayment Fee (if any) and all
interest accrued then outstanding under the Senior Subordinated Notes, to
be, and the same shall thereupon become, forthwith due and payable,
without any presentment, demand, protest, notice of default, notice of
intention to accelerate, notice of acceleration or other notice of any
kind, all of which are hereby expressly waived, and in such event the
Company shall (subject to the terms of the Senior Subordination Agreement)
forthwith pay to the Holders an amount equal to one hundred percent (100%)
of the amount thereof. When any Event of Default described in clause (f)
of Section 8.1 above shall occur, all of the Senior Subordinated
Obligations, including, without limitation, the entire principal,
Prepayment Fee (if any), and all accrued interest then outstanding under
the Senior Subordinated Notes, shall thereupon be forthwith due and
payable without any presentment, demand, protest, notice of default,
notice of intention to accelerate, notice of acceleration or other notice
of any kind (including any notice by the Holders of the Senior
Subordinated Notes), all of which are hereby expressly waived by Parent
and the Company, and the Company will (subject to the terms of the Senior
Subordination Agreement) forthwith pay to each Holder an amount equal to
one hundred percent (100%) of the amount thereof. The provisions of this
Section 8.2 are solely for the benefit of the Holders and neither the
Company nor any other Person shall have any rights with respect to or be
entitled to enforce this Section 8.2. If, at any time or times, Parent,
the Company or any Subsidiary shall be in default under the Senior
Subordinated Notes, this Agreement or any Other Agreement, Rice (so long
as it is a Holder) may act as the representative of and, as such, shall
consult with the other Holders in connection with any action to be taken
with respect to such default and/or with respect to the enforcement of
their rights and remedies. All expenses incurred and all amounts realized
shall be apportioned among the Holders, pro rata, and reimbursed by the
Company as provided in this Agreement.
8.3 Annulment of Acceleration. The provisions of the foregoing
Section 8.2 are subject to the condition that, if all or any part of the
Senior Subordinated Obligations have been declared or have otherwise
become immediately due and payable by reason of the occurrence of any
Event of Default, Rice, with the prior written approval of the majority-
in-interest of the Holders may (so long as Rice is a Holder), by written
instrument delivered to the Company (an "Annulment Notice"), rescind and
annul such declaration and the consequences thereof as to the Senior
Subordinated Notes, provided that (a) at the time such Annulment Notice is
delivered no judgment or decree has been entered for the payment of any
monies due pursuant to such Senior Subordinated Obligations in connection
therewith, and (b) all arrears of interest and all other sums payable on
such Senior Subordinated Obligations in connection therewith (except any
principal, interest or Prepayment Fee which has become due and payable
solely by reason of such declaration under Section 8.2 hereof) shall have
been duly paid or deferred by the Holders; and provided further, that no
such rescission and annulment shall extend to or affect any subsequent
default or Event of Default or impair any right consequent thereto, and
shall not be deemed a waiver of the Event of Default giving rise to the
acceleration unless specifically waived in writing by the majority-in-
interest of the Holders.
8.4 Payment of Senior Subordinated Obligations. Subject to the
terms of the Senior Subordination Agreement, each Purchaser shall have the
right, which is absolute and unconditional, to receive payment of the
principal of and interest on its Senior Subordinated Note and payment of
all other Senior Subordinated Obligations on the date when due and, upon
the occurrence and continuance of an Event of Default, Rice shall have the
right, which is absolute and unconditional, to institute suit against
Parent, the Company and/or any Subsidiary on behalf of the Holders for the
enforcement of any such payment. Such rights shall not be impaired
without the Holder's prior written consent.
8.5 Remedies. Subject to the terms of the Senior Subordination
Agreement, if any Event of Default shall occur and be continuing, Rice, on
behalf of each and every Holder, may exercise any right or remedy it has
at law, in equity or under this Agreement or any Other Agreement. No
right or remedy conferred upon or reserved to Rice or any other Purchaser
under this Agreement or any Other Agreement is intended to be exclusive of
any other right or remedy, and every right and remedy shall be cumulative
and in addition to every other right or remedy given hereunder or now or
hereafter existing under any applicable law. Every right and remedy given
by this Agreement or by applicable law to Rice or any other Holder may be
exercised from time to time and as often as may be deemed expedient by
Rice or such other Holder.
8.6 Conduct No Waiver. No course of dealing on the part of any
Purchaser, nor any delay or failure on the part of any Purchaser to
exercise any of its rights, shall operate as a waiver of such right or
otherwise prejudice such Purchaser's rights, powers and remedies. If the
Company fails to pay, when due, the principal of, Prepayment Fee (if any)
or the interest on, the Senior Subordinated Notes, or fails to comply with
any other provision of this Agreement, the Company shall pay to the
Holder, to the extent permitted by law, on demand, such further amounts as
shall be sufficient to cover the cost and expenses, including, but not
limited to, reasonable attorney's fees, incurred by such Purchaser in
collecting any sums due on the Senior Subordinated Note or in otherwise
enforcing any of such Purchaser's rights.
IX. SUBORDINATION
Notwithstanding any provision in this Agreement to the contrary, the
Indebtedness evidenced by the Senior Subordinated Notes shall be
subordinate in right of payment to all regularly scheduled payments of
principal and interest with respect to the Senior Debt, and any
Purchaser's rights and remedies hereunder shall be subordinate to the
rights and remedies of the Senior Lender, in accordance with the terms of
the Senior Subordination Agreement. Nothing contained in this Article IX
or elsewhere in this Agreement, in the Senior Subordinated Notes or the
Senior Subordination Agreement is intended to or shall impair, as between
the Company and Purchaser, the obligations of the Company, which are
absolute and unconditional, to pay to Purchaser the principal of,
Prepayment Fee (if any) and interest on the Senior Subordinated Notes and
all other Senior Subordinated Obligations as and when the same shall
become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of Purchaser and creditors of the
Company other than the holders of the Senior Debt, nor shall anything
herein or therein prevent Purchaser from exercising all remedies otherwise
permitted by applicable law upon an Event of Default under this Agreement.
X. FORM OF SENIOR SUBORDINATED NOTE, REGISTRATION, TRANSFER AND
REPLACEMENT
10.1 Form of Senior Subordinated Notes. The Senior Subordinated
Notes initially delivered under this Agreement will be a fully registered
note in the form attached hereto as Exhibit A. The Senior Subordinated
Notes are issuable only in fully registered form in denominations of at
least $1,000,000 (or the then-remaining outstanding balance thereof, if
less than $1,000,000).
10.2 Senior Subordinated Notes Register. The Company shall cause to
be kept at the principal office a register for the registration and
transfer of the Senior Subordinated Notes. The names and addresses of
each Holder of the Senior Subordinated Notes, the transfer thereof and the
names and addresses of the transferees of the Senior Subordinated Notes
shall be recorded in such register.
10.3 Issuance of New Senior Subordinated Notes upon Exchange or
Transfer. Upon surrender for exchange or registration of transfer of any
Senior Subordinated Note at the office of the Company designated for
notices in accordance with Section 12.3 hereof, the Company shall execute
and deliver, at its expense, one or more new Senior Subordinated Notes of
any authorized denomination requested by the Holder of the surrendered
Senior Subordinated Note, each dated the date to which interest has been
paid on the Senior Subordinated Note so surrendered (or, if no interest
has been paid, the date of the surrendered Senior Subordinated Note), but
in the same aggregate unpaid principal amount as the surrendered Senior
Subordinated Note, and registered in the name of such Person or Persons as
shall be designated in writing by such Holder. Every Senior Subordinated
Note surrendered for registration of transfer shall be duly endorsed, or
be accompanied by a written instrument of transfer duly executed, by the
Holder of such Senior Subordinated Note or by his attorney duly authorized
in writing.
10.4 Replacement of Senior Subordinated Notes. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of a Senior Subordinated Note and, in the case of any such
loss, theft or destruction, upon delivery of a bond of indemnity in such
form and amount as shall be reasonably satisfactory to the Company or, in
the event of such mutilation upon surrender and cancellation of such
Senior Subordinated Note, the Company, without charge to the Holder
thereof, will make and deliver a new Senior Subordinated Note of like
tenor and the same series in lieu of such lost, stolen, destroyed or
mutilated Senior Subordinated Note. If any such lost, stolen or destroyed
Senior Subordinated Note is owned by any Purchaser or any other Holder
whose credit is satisfactory to the Company, then the affidavit of an
authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Senior Subordinated Note at the
time of such loss, theft or destruction shall be accepted as satisfactory
evidence thereof, and no further indemnity shall be required as a
condition to the execution and delivery of a new Senior Subordinated Note,
other than a written agreement of such owner (in form reasonably
satisfactory to the Company) to indemnify the Company.
XI. INTERPRETATION OF AGREEMENT
11.1 Certain Terms Defined. When used in this Agreement, the terms
set forth below are defined as follows:
"Acquisition" means the purchase of all the outstanding shares of
capital stock of Southland and certain assets of Southland Container,
Inc. pursuant to the Acquisition Documents.
"Acquisition Agreement" means that certain Share Purchase Agreement
dated as of December 19, 1996, by and among Parent, Southland, Lester
G. Gegenheimer, John L. Sanders, Jr. and William P. Blincoe, as the
same has been (i) assigned to the Company pursuant to that certain
Assignment of Rights Under Share Purchase Agreement dated as of
February 28, 1997, by and among Southland, Lester G. Gegenheimer,
John L. Sanders, Jr., William P. Blincoe, Parent and the Company,
(ii) amended by that certain Agreement Regarding the Purchase Price
Adjustment, Bonus and Additional Consideration dated as of February
28, 1997, by and among Parent, the Company, Lester G. Gegenheimer,
John L. Sanders, Jr., William P., Blincoe, III, and Southland, and
(iii) further amended or otherwise modified as of the Closing Date.
"Acquisition Documents" means the Acquisition Agreement and the
agreements, documents and instruments executed in connection
therewith or contemplated thereby, including, without limitation, the
Non-Compete Agreements and the Minority Shareholder Agreements, and
all amendments thereto.
"Acquisition Merger" means the merger of the Company with and into
Southland, with Southland as the surviving Person.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, the Person in question.
A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Note Purchase Agreement, including all
schedules and exhibits hereto, as the same may be modified,
supplemented, extended and/or amended from time to time.
"Annulment Notice" is defined in Section 8.3.
"Business Day" means each day of the week except Saturdays, Sundays,
and days on which banking institutions are authorized by law to close
in the States of Florida and Texas.
"Capital Expenditures" means, for any period, all expenditures of
Parent and its Subsidiaries which are classified as capital
expenditures in accordance with GAAP including all such expenditures
associated with Capital Lease Obligations but excluding, to the
extent included, any such expenditures made in connection with an
acquisition funded with the proceeds of the advances made or held by
any Senior Lender pursuant to Section 3.1 of the Senior Loan
Agreement.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal
property, which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof,
determined in accordance with GAAP.
"Casualty Event" means any of the following events: (a) the
destruction of any Property or other tangible assets of Parent or any
of its Subsidiaries, or the occurrence of damage to such Property or
assets, which in each case renders the repair or replacement thereof
uneconomic; (b) the requisition of title to such Property or assets
by any governmental authority for a period of more than 6 months;
(c) the constructive total loss with respect to such Property or
assets; or (d) the loss of quiet title to any real property owned or
leased by Parent or its Subsidiaries to the extent that such loss
constitutes an insurable loss or otherwise interferes with the normal
and customary use of such real estate in the ordinary course of
business.
"Certificate" is defined in Article I of the Purchase Agreement.
"Closing Date" means the date on which all of the conditions stated
in Article V of this Agreement have been met to each Purchaser's
satisfaction and the purchase price for the Senior Subordinated Notes
has been paid, but in any event not later than March 4, 1997.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated thereunder.
"Common Stock" means the $.01 par value common stock of Parent.
"Company" means SHC Acquisition Corp., a Florida corporation, who
will merge with and into Southland Holding Company, a Texas
corporation and, unless the context requires otherwise, shall include
its Subsidiaries, if any.
"Company Guaranty" means the guaranty of Company in favor of each
Purchaser, in form and substance satisfactory to each Purchaser, as
the same may be amended or otherwise modified from time to time.
"Consolidated Net Worth" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as stockholders'
equity on a consolidated balance sheet of Parent and the
Subsidiaries.
"Controlled Group" means any group of organizations within the
meaning of Section 414(b), (c), (m) or (o) of the Code of which
Parent or any of its Subsidiaries is a member.
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" means, for any period and any Person, the total of the
following each calculated without duplication for such Person on a
consolidated basis for such period: (a) Net Income; (b) any
provision for (or less any benefit from) income or franchise taxes
included in determining Net Income; plus (c) interest expense
deducted in determining Net Income; plus (d) amortization and
depreciation expense deducted in determining Net Income; plus (e)
other noncash charges deducted in determining consolidated net income
and not already deducted in accordance with clause (d) above or
clauses (b) and (c) of the definition of Net Income.
"Employee Benefit Plan" means any employee benefit plan, as defined
in Section 3(3) of ERISA, which is, previously has been or will be
established or maintained by any member of a Controlled Group.
"Employment Agreements" means (i) those certain Employment Agreements
by and between (A) Shea E. Ralph and Parent, dated as of November 22,
1996, as amended, modified or supplemented from time to time,
(B) David Freeman and Parent, dated as of November 22, 1996, as
amended, modified or supplemented from time to time, (C) Alton E.
Thompson and Parent, dated as of November 22, 1996, as amended,
modified or supplemented from time to time, and (ii) any other
employment or non-compete agreement now existing or hereafter entered
into by and between Parent or any Subsidiary and any other officer or
employee of Parent or any Subsidiary, including, without limitation,
such employment agreements that may be entered into by Parent or the
Company as a result of the Acquisition or the transactions
contemplated hereby or thereby, (iii) consulting agreements to which
Parent or the Company may be a party, including without limitation,
such agreements with Fairview Capital, L.L.C. or its affiliates and
officers of any thereof, including Jeremiah M. Callahan, and (iv) all
non-compete or buy-sell agreements by and between Parent, Company or
any Subsidiary of either thereof, and any employee, officer or
director of any thereof, together, in each case, with all renewals,
modifications, amendments or supplements thereto (each such agreement
at all times to be in form and substance satisfactory to the
Holders).
"Environmental Laws" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of courts
or administrative agencies or authorities relating to pollution or
protection of the environment (including, without limitation, ambient
air, surface water, ground water, land surface, and subsurface
strata), and other laws relating to (a) Polluting Substances or
(b) the manufacture, processing, distribution, use, treatment,
handling, storage, disposal, or transportation of Polluting
Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time, and the regulations
promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a Person of a
voluntary petition in bankruptcy under any provision of any
bankruptcy law or a petition to take advantage of any insolvency act,
(b) the admission in writing by Parent or any Subsidiary of its
inability to pay its debts generally as they become due, (c) the
appointment of a receiver or receivers for all or a material part of
a Person's assets with the consent of such Person, (d) the filing of
any bankruptcy, arrangement or reorganization petition by or, with
the consent of a Person, against such Person under any provision of
any bankruptcy law, (e) a receiver, liquidator or trustee of a Person
or a substantial part of its assets shall be appointed pursuant to
the Federal Bankruptcy Code by the order of a court of competent
jurisdiction which shall not be dismissed or stayed within thirty
(30) days, or (f) an involuntary petition to reorganize or liquidate
a Person pursuant to the Federal Bankruptcy Code shall be filed
against such Person and shall not be dismissed or stayed within
thirty (30) days.
"Event of Default" is defined in Section 8.1.
"Excess Interest" is defined in Section 2.8.
"Fiscal Year" means a twelve (12) month period ending December 31.
"Fiscal Quarters" means the three (3) month periods falling in each
Fiscal Year ending March 31, June 30, September 30 and December 31.
"Fixed Charges" means, for any period, the total of the following for
Parent and the Subsidiaries calculated on a consolidated basis
without duplication for such period: (A) interest expense; plus (B)
cash federal and state income taxes paid; plus (C) scheduled
amortization of Indebtedness paid or payable (excluding, to the
extent included, nonpermanent principal repayments under the
Revolving Loans (as defined in the Senior Loan Agreement)); plus (C)
the Dollar amount paid in connection with repurchases of stock,
options or warrants consummated in accordance with Section 12.4 of
the Senior Loan Agreement.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting
Standards Board and/or their respective successors and which are
applicable in the circumstances as of the date in question, provided,
that neither Parent nor any Subsidiary may change the use or
application of any accounting method, practice or principle without
the prior written consent of the Holders, which consent may require
that an adjustment be made to any and all the financial covenants and
the capital expenditure covenant set forth herein. Accounting
principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all
material respects to those accounting principles applied in a
preceding period.
"Holder" when used in reference to the Senior Subordinated Notes
and/or the Senior Subordinated Obligations, means the Person or
Persons who, at the time of determination, is the lawful owner of all
or a portion of each Senior Subordinated Note or an obligee of all or
a portion of the Senior Subordinated Obligations. Unless otherwise
provided in this Agreement, in each instance that the Holders are
required to request or consent in concert to or otherwise express
approval of an action, the Holders will be deemed to have requested
or consented to such action or given such approval if the Holders of
a majority-in-interest of the Senior Subordinated Notes so request,
consent or approve.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Impositions" is defined in Section 6.9.
"Indebtedness" means for any Person: (a) all indebtedness, whether
or not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed,
(b) all indebtedness representing deferred payment of the purchase
price of property or assets, (c) all indebtedness under any lease
which, in conformity with GAAP, is required to be capitalized for
balance sheet purposes and leases of property or assets made as a
part of any sale and lease-back transaction if required to be
capitalized, (d) all indebtedness under guaranties, endorsements,
assumptions, or other contractual obligations, including any letters
of credit, or the obligations in respect of, or to purchase or
otherwise acquire, indebtedness of others, (e) all indebtedness
secured by a Lien existing on property owned, subject to such Lien,
whether or not the indebtedness secured thereby shall have been
assumed by the owner thereof, (f) trade accounts payable more than
one hundred twenty (120) days past due, and (g) all amendments,
renewals, extensions, modifications and refundings of any
indebtedness or obligations referred to in clauses (a), (b), (c),
(d), (e) or (f).
"Intellectual Property" means 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.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, financing statement, or conditional sale or title
retention agreement, or any other interest in property designed to
secure the repayment of Indebtedness or any other obligation, whether
arising by agreement, operation of law, or otherwise.
"Material Adverse Effect" means (a) a material adverse effect upon
the business, operations, properties, assets or condition (financial
or otherwise) of Parent or any Subsidiary or (b) the impairment of
the ability of any party to perform its obligations under this
Agreement or any of the Other Agreements to which it is a party or of
any Purchaser to enforce or collect any of the Senior Subordinated
Obligations. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such event
does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and
all other then existing events would result in a Material Adverse
Effect.
"Maximum Rate" is defined in Section 2.8.
"Minority Shareholder Agreements" means, collectively, (a) that
certain Termination of Stock Option and Repurchase Agreement dated as
of February 28, 1997, by and among Southland Container Inc. of
Maryland, Daniel Bernard Lyons and Earl Carroll Smith, (b) that
certain Stock Purchase Agreement dated February 28, 1997, by and
between the Company and Daniel Bernard Lyons, (c) those certain
employment agreements dated February 28, 1997, by and between the
Company and each of (i) Frederick Brown, (ii) Daniel Bernard Lyons,
(iii) Gary R. Zimmerman, (iv) Charles J. Cook, (v) Robert W. Menzel,
Jr., (vi) Earl Carroll Smith and (vii) John Becker.
"Net Income" means, for any period and any Person, such Person's
consolidated net income (or loss), but excluding: (a) the income of
any other Person (other than its subsidiaries) in which such Person
or any of it subsidiaries has an ownership interest, unless received
by such Person or its subsidiary in a cash distribution; (b) any
after-tax gains or losses attributable to asset disposition; and (c)
to the extent not included in clauses (a) and (b) above, any
after-tax extraordinary, non-cash or nonrecurring gains or losses.
"Non-Compete Agreements" means collectively, those certain Non-
Compete Agreements, dated as of February 28, 1997 between Parent and
each of (a) Lester G. Gegenheimer, (b) John L. Sanders, Jr. and (c)
William P. Blinco, and any other non-compete agreement now or
hereafter entered into by and between Parent, the Company or any of
their Subsidiaries and any officer of such parties, together with all
renewals, modifications, amendments or supplements thereto.
"Operating Cash Flow" means, for any period, the total of the
following for Parent and the Subsidiaries calculated on a
consolidated basis without duplication for such period: (a) EBITDA;
minus (b) all Capital Expenditures which are not financed with
Indebtedness of the Company (including Capital Lease Obligations)
incurred after the Closing Date not to exceed $1,500,000 in the
aggregate at any time outstanding secured by purchase money Liens
permitted by Section 12.2(g) of the Senior Loan Agreement but
including Capital Expenditures financed with proceeds of the
Revolving Loans (as defined in the Senior Loan Agreement).
"Other Agreements" means the Senior Subordinated Notes, the Purchase
Documents, each Subsidiary Guaranty and all other agreements,
instruments and documents (including, without limitation, notes,
guarantees, powers of attorney, consents, assignments, contracts,
notices, subordination agreements and all other written matter), and
all renewals, modifications and extensions thereof, whether
heretofore, now or hereafter executed by or on behalf of Parent
and/or any Subsidiary of the Company and delivered to and for the
benefit of any Purchaser or any Person participating with any
Purchaser in the Senior Subordinated Notes with respect to this
Agreement or any of the transactions contemplated by this Agreement.
The Other Agreements shall not include any Senior Loan Documents.
"Parent" means Jotan, Inc., a Florida corporation and, unless the
context requires otherwise, shall include its Subsidiaries, if any.
"Parent Guaranty" means the guaranty of Parent in favor of each
Purchaser, in form and substance satisfactory to each Purchaser, as
the same may be amended or otherwise modified from time to time.
"Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is, was or will be established or
maintained by any member of the Controlled Group.
"Permitted Indebtedness" means (a) any Indebtedness in favor of the
Senior Lender under the Senior Loan Agreement and created pursuant
thereto, (b) any Indebtedness in favor of any Holder and/or the Other
Agreements and created pursuant thereto, (c) purchase money
Indebtedness of the Company (including Capital Lease Obligations)
incurred after the Closing Date not to exceed $1,500,000 in the
aggregate at any time outstanding secured by purchase money Liens
permitted hereunder, subject to the limitations placed on Capital
Expenditures in Section 7.9, (d) any Indebtedness of a Subsidiary to
the Company permitted by the Senior Loan Agreement; provided that (i)
the proceeds of such Indebtedness shall be used to finance the
working capital requirements of such Subsidiary and (ii) such
Indebtedness shall have such other terms and conditions as the
Purchaser may reasonable require, (e) the other Indebtedness set
forth on Schedule 11.1(a) and approved by the Holders, (f) guaranties
by Parent or any Subsidiary of such Indebtedness and (g) any other
Indebtedness permitted by the Senior Loan Agreement.
"Permitted Investments" means the following:
(a) securities issued or directly and fully guaranteed or
insured by the United States Government or any agency or
instrumentality thereof (provided that the full faith and credit of
the United States Government is pledged in support thereof), having
maturities of not more than twelve (12) months from the date of
acquisition;
(b) time deposits and certificates of deposit (i) of any
commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $100,000,000 with
maturities of not more than twelve months from the date of
acquisition or (ii) which are fully insured by the Bank Insurance
Fund with maturities of not more than twelve (12) months from the
date of acquisition;
(c) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by
Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing
not more than twelve (12) months after the date of acquisition;
(d) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in
clauses (a) through (c) above; or
(e) advances, loans, extensions of credit or capital
contributions and investments permitted by the Senior Loan Agreement.
"Permitted Liens" means (a) Liens in favor of the Senior Lender under
the Senior Loan Agreement created in accordance with the terms
thereof as in effect on the date hereof, (b) Liens securing purchase
money Indebtedness incurred to finance the acquisition of capital
assets by the Company, subject to the limitations placed on Capital
Expenditures in Section 7.9 hereof, but only so long as (i) such Lien
attaches only to the asset so financed, (ii) the Indebtedness secured
by such Lien does not exceed one hundred percent (100%) of the
purchase price, including installation and freight, of the asset so
financed and (iii) no Event of Default or Potential Default has
occurred and is continuing, (c) Liens for property taxes not yet due,
(d) materialmen's, mechanics', worker's, repairmen's, employees' or
other like Liens arising against the Company in the ordinary course
of business, in each case which are either not delinquent or are
being contested in good faith and by appropriate actions or
proceedings conducted with due diligence and for the payment of which
adequate reserves in accordance with GAAP have been established with
respect thereto, (e) deposits to secure payment of worker's
compensation, unemployment insurance or other social security
benefits and (f) Liens disclosed on Schedule 11.1(b) and replacements
of such Liens so long as such Lien does not extend beyond the
property or asset then subject to such Lien and (g) other Liens
permitted by the Senior Loan Agreement.
"Person" means any individual, sole proprietorship, corporation,
business trust, unincorporated organization, association, company,
partnership, joint venture, governmental authority (whether a
national, federal, state, county, municipality or otherwise, and
shall include without limitation any instrumentality, division,
agency, body or department thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes and shall
include, without limitation, any flammable explosives, radioactive
materials, oil, hazardous materials, hazardous or solid wastes,
hazardous or toxic substances or related materials defined in the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act of 1986,
the Resource Conservation and Recovery Act of 1976, the Hazardous and
Solid Waste Amendments of 1984, and the Hazardous Materials
Transportation Act, as any of the same are hereafter amended, and in
the regulations adopted and publications promulgated thereto;
provided, in the event any of the foregoing Environmental Laws is
amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of
such amendment and, provided, further, to the extent that the
applicable laws of any state establish a meaning for "hazardous
substance," "hazardous waste," "hazardous material," "solid waste,"
or "toxic substance" which is broader than that specified in any of
the foregoing Environmental Laws, such broader meaning shall apply.
"Potential Default" means the occurrence of any condition or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
"Preferred Stock" means, collectively, the $0.01 par value Series A
Convertible Preferred Stock and the $0.01 par value Series B
Redeemable Preferred Stock of Parent.
"Prepayment Fee" is defined in Section 2.2 and includes any
Prepayment Fee arising as a result of the Holders' exercise of their
rights and remedies under Section 8.2.
"Prior Target" means all Targets acquired or whose assets have been
acquired in an acquisition permitted under the terms of the Senior
Loan Agreement.
"Property" means all real property owned, leased or operated by
Parent or any Subsidiary thereof.
"Purchase Documents" means, collectively, (a) the Warrants, (b) the
Preferred Stock and Warrant Purchase Agreement dated as of February
28, 1997, executed by and between Parent and each Purchaser and the
other parties names therein, with respect to the issuance to each
Purchaser of the Warrants and the issuance to each Purchaser of its
Preferred Stock, (c) the Preferred Stock, and (d) the Shareholder
Agreement dated as of February 28, 1997 executed by each Purchaser,
Parent and the other parties named therein, as each of the foregoing
may be amended from time to time.
"Purchaser" means collectively and individually Rice and the
Southland Purchasers, together with all of their respective
transferees, successors and assigns of all or any portion of the
Senior Subordinated Notes or the Senior Subordinated Obligations and
any nominees on whose behalf any of the foregoing purchase or
otherwise acquire any of such Indebtedness of the Company, and shall
include, but not be limited to, each and every "Holder" as defined
herein.
"Reportable Event" means (i) any of the events set forth in Sections
4043(b) (other than a merger, consolidation or transfer of assets in
which no Pension Plan involved has any unfunded benefit liabilities),
4068(f) or 4063(a) of ERISA, (ii) any event requiring any member of
the Controlled Group to provide security under Section 401(a)(29) of
the Code, or (iii) any failure to make payments required by
Section 412(m) of the Code.
"Securities" means any stock, shares, options, warrants, voting trust
certificates, or other instruments evidencing an ownership interest
or a right to acquire an ownership interest in a Person or any bonds,
debentures, notes or other evidences of indebtedness, secured or
unsecured.
"Senior Agent" means Banque Paribas, a bank organized under the laws
of France, as agent for the Senior Lenders, and its successors and
assigns.
"Senior Debt" shall have the same meaning as set forth in the Senior
Subordination Agreement.
"Senior Loan Documents" means the Senior Loan Agreement, the "Loan
Documents" (as defined in the Senior Loan Agreement) and the
agreements, documents and instruments executed in connection
therewith or contemplated thereby, and all amendments thereto.
"Senior Lender" means individually and collectively, as the context
requires, the Persons who are now or may from time to time become
lenders under the Senior Loan Agreement, and any Person or Persons
who replaces or refinances the Senior Debt under the terms set forth
in Section 7.1(c).
"Senior Loan Agreement" means the Credit Agreement by and among
Parent, the Company, the Senior Agent and the Senior Lender, dated as
of the February 28, 1997, as amended in accordance with the express
provisions of the Senior Subordination Agreement, and all documents
and instruments delivered pursuant thereto in connection with the
loans and advances made thereunder.
"Senior Subordinated Notes" means the term promissory notes issued to
each Purchaser pursuant to this Agreement, together with all
renewals, modifications, extensions, substitutions and replacements
thereof.
"Senior Subordinated Obligations" means and includes any and all
Indebtedness and/or liabilities of Parent and any Subsidiary to each
Purchaser of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising,
under this Agreement or any Other Agreement (regardless of how such
Indebtedness or liabilities arise or by what agreement or instrument
they may be evidenced or whether evidenced by any agreement or
instrument) and all obligations of Parent and any Subsidiary to each
Purchaser to perform acts or refrain from taking any action under any
of the aforementioned documents, together with all renewals,
modifications, extensions, increases, substitutions or replacements
of any of such Indebtedness.
"Senior Subordination Agreement" means that certain Senior
Subordination Agreement of even date herewith executed by and among
Parent, the Senior Agent and each Purchaser, and all amendments and
modifications thereto.
"Shareholder Agreement" means that certain Shareholders' Agreement
dated as of the date hereof among Parent, each Purchaser, F-Jotan,
L.L.C. and the other parties thereto, as the same may be amended,
modified, extended or restated from time to time.
"Southland" means Southland Holdings Company, a Texas corporation
and, unless the context requires otherwise, shall include its
Subsidiaries, if any.
"Subsidiary" means any Person of which or in which the Company and
its other Subsidiaries or Parent and its Subsidiaries or Southland,
as the context requires, own directly or indirectly fifty percent
(50%) or more of (a) the combined voting power of all classes having
general voting power under ordinary circumstances to elect a majority
of the board of directors or equivalent body of such Persons, if it
is a corporation, (b) the capital interest or profits interest of
such Person, if it is a partnership, joint venture or similar entity,
or (c) the beneficial interest of such Person if it is a trust,
association or other unincorporated organization.
"Subsidiary Guaranty" means the guaranty of a Subsidiary of Parent or
the Company in favor of each Purchaser, in form and substance
satisfactory to each Purchaser, as the same may be amended or
otherwise modified from time to time.
"Subsidiary Mergers" means the merger of Atlantic Bag and Paper
Company and each Subsidiary owned directly by the Company (after
giving effect to the Acquisition Merger) with and into the Company,
with the Company as the surviving Person.
"Target" is defined in Section 9.2 of the Senior Loan Agreement.
"Termination Date" means the earliest to occur of (a) February 28,
2005, (b) the date on which the Senior Subordinated Notes are
accelerated pursuant to Article VIII, or (c) the date on which the
Senior Subordinated Obligations are paid in full.
"Termination Event" means (a) a Reportable Event, (b) the termination
of a Pension Plan which has unfunded benefit liabilities (including
an involuntary termination under Section 4042 of ERISA), (c) the
filing of a Notice of Intent to Terminate a Pension Plan, (d) the
initiation of proceedings to terminate a Pension Plan under
Section 4042 of ERISA or (e) the appointment of a trustee to
administer a Pension Plan under Section 4042 of ERISA.
"Total Debt" means, at the time of determination, the sum of (a) all
the Indebtedness of Parent and the Subsidiaries determined on a
consolidated basis other than the Letter of Credit Liabilities (as
defined in the Senior Loan Agreement) and Indebtedness outstanding
under the Revolving Loans (as defined in the Senior Loan Agreement)
plus (b) the arithmetic average of the sum of (i) the principal
balance of the Revolving Loans outstanding as of the date of
determination plus (ii) the principal balance of the Revolving Loans
on the last day of each of the eleven (11) calendar months
immediately preceding the date of determination, plus (c) the
arithmetic average of the sum of (i) the Letter of Credit Liabilities
outstanding as of the date of determination plus (ii) the Letter of
Credit Liabilities outstanding on the last day of each of the eleven
(11) calendar months immediately preceding the date of determination.
"Transfer" is defined in Section 12.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Warrants" is defined in the Purchase Documents and shall be
denominated as set forth in Annex I hereto.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein. All other terms contained in this Agreement
shall have, when the context so indicates, the meanings provided for by
the Uniform Commercial Code as adopted and in force in the State of
Florida, as from time to time in effect.
11.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is
required to be made for the purposes of this Agreement, the same shall be
done, unless specified otherwise, in accordance with GAAP, except where
such principles are inconsistent with the requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such Person.
11.4 References. When used in this Agreement, the words "hereof",
"herein" and "hereunder" and words of similar import shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and the words "Article", "Section", "subsection", "clause",
"Annex", "Schedule" and "Exhibit" refer to Articles, Sections, subsections
and clauses of, and Annexes, Schedules and Exhibits to, this Agreement
unless otherwise specified.
XII. MISCELLANEOUS
12.1 Expenses. The Company agrees to pay (a) all out-of-pocket
expenses of each Purchaser (including reasonable fees, expenses and
disbursements of each Purchaser's counsel) in connection with the
preparation, negotiation, enforcement, operation and administration of
this Agreement, the Senior Subordinated Notes, the Other Agreements, or
any documents executed in connection therewith, or any waiver,
modification or amendment of any provision hereof or thereof; and (b) if
an Event of Default occurs, all court costs and costs of collection,
including, without limitation, reasonable fees, expenses and disbursements
of counsel employed in connection with any and all collection efforts.
The attorneys' fees arising from such services, including those of any
appellate proceedings, and all expenses, costs, charges and other fees
incurred by such counsel or any Purchaser in any way or respect arising in
connection with or relating to any of the events or actions described in
this Article XII shall be payable by the Company to each Purchaser, on
demand, and shall be additional Senior Subordinated Obligations. Without
limiting the generality of the foregoing, such expenses, costs, charges
and fees may include: recording costs, appraisal costs, paralegal fees,
costs and expenses; accountants' fees, costs and expenses; court costs and
expenses; photocopying and duplicating expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges,
telegram charges; facsimile charges; secretarial overtime charges; and
expenses for travel, lodging and food paid or incurred in connection with
the performance of such legal services. The Company agrees to indemnify
each Purchaser from and hold it harmless against any documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery by the Company or any other Person of this
Agreement, the Other Agreements, and any documents executed in connection
therewith.
12.2 Indemnification. IN ADDITION TO AND NOT IN LIMITATION OF THE
OTHER INDEMNITIES PROVIDED FOR HEREIN OR IN ANY OTHER AGREEMENTS, THE
COMPANY HEREBY INDEMNIFIES AND AGREES TO HOLD HARMLESS EACH PURCHASER AND
ANY OTHER HOLDERS, AND EVERY AFFILIATE OF ANY OF THE FOREGOING, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES AND AGENTS, FROM ANY
CLAIMS, ACTIONS, DAMAGES, COSTS, ATTORNEYS' FEES AND EXPENSES (INCLUDING
ANY OF THE SAME ARISING OUT OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE
PERSON TO BE INDEMNIFIED) TO WHICH ANY OF THEM MAY BECOME SUBJECT, INSOFAR
AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS, DAMAGES, COSTS AND EXPENSES
ARISE FROM OR RELATE TO THIS AGREEMENT OR THE OTHER AGREEMENTS, OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREBY, OR FROM ANY INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY
OF THE FOREGOING, OR FROM ANY VIOLATION OR CLAIM OF VIOLATION OF ANY
APPLICABLE ENVIRONMENTAL LAWS WITH RESPECT TO ANY REAL OR PERSONAL
PROPERTY, OR FROM ANY GOVERNMENTAL OR JUDICIAL CLAIM, ORDER OR JUDGMENT
WITH RESPECT TO ANY REAL OR PERSONAL PROPERTY OF THE COMPANY, OR FROM ANY
BREACH OF THE WARRANTIES, REPRESENTATIONS OR COVENANTS CONTAINED IN THIS
AGREEMENT OR THE OTHER AGREEMENTS. THE FOREGOING INDEMNIFICATION INCLUDES
ANY SUCH CLAIMS, ACTIONS, DAMAGES, COSTS, AND EXPENSES INCURRED BY REASON
OF THE SOLE OR 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.
12.3 Notices. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and delivered or
mailed by the United States mails, certified mail, return receipt
requested, (a) if to a Purchaser, addressed to such Purchaser at the
address specified on Annex I hereto or to such other addresses as such
Purchaser may in writing designate, (b) if to any other Holder, addressed
to such Holder at such address as such Holder may in writing designate,
and (c) if to Parent or any Subsidiary, addressed to Parent at the address
set forth next to its name on the signature pages hereto or to such other
address as Parent may in writing designate. 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
(whether by noncertified mail, telecopy, telegram, facsimile, express
delivery or otherwise), whichever is earlier.
12.4 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by
any Purchaser at the closing of the purchase of the Senior Subordinated
Notes, and (c) financial statements, certificates and other information
previously or hereafter furnished to any Purchaser, may be reproduced by
such Purchaser by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and such Purchaser may
destroy any original document so reproduced. The Company agrees and
stipulates that any such reproduction which is legible shall be admissible
in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not
such reproduction was made by the Company in the regular course of
business) and that any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence; provided that
nothing herein contained shall preclude the Company from objecting to the
admission of any reproduction on the basis that such reproduction is not
accurate, has been altered, is otherwise incomplete or is otherwise
inadmissible.
12.5 Assignment, Sale of Interest. Neither Parent nor the Company
may sell, assign or transfer this Agreement, or the Other Agreements or
any portion thereof, including, without limitation, Parent's or the
Company's rights, title, interests, remedies, powers and/or duties
hereunder or thereunder. Parent and the Company hereby consent to Rice's
participation, sale, assignment, transfer or other disposition
(collectively, a "Transfer"), at any time or times hereafter at the
Company's expense, of this Agreement, or the Other Agreements to which
Parent or any Subsidiary is a party, or of any portion hereof or thereof,
including, without limitation, Rice's rights, title, interests, remedies,
powers and/or duties hereunder or thereunder; provided, however, that
except in the case of an assignment of all of a Purchaser's rights under
this Agreement and the Senior Subordinated Notes, the outstanding
principal amount of the Senior Subordinated Notes of the assigning
Purchaser being assigned, pursuant to each assignment shall in no event be
less than Three Million Dollars ($3,000,000). In connection with any
Transfer, Parent and the Company agree to cooperate fully with Rice and
any potential Transferee. Such cooperation shall include, but is not
limited to, cooperating with any audits or other due diligence
investigation undertaken by any potential Transferee.
12.6 Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
12.7 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
12.8 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and
it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart or reproduction thereof
permitted by Section 12.3.
12.9 Reliance on and Survival Provisions. All covenants,
representations and warranties made by Parent and the Company herein and
in any certificates delivered pursuant hereto, whether or not in
connection with a closing, (a) shall be deemed to be material and to have
been relied upon by each Purchaser, notwithstanding any investigation
heretofore or hereafter made by any Purchaser or on such Purchaser's
behalf, and (b) shall survive the delivery of this Agreement and the
Senior Subordinated Notes until all obligations of Parent and the Company
under this Agreement shall have been satisfied.
12.10 Integration and Severability. This Agreement embodies the
entire agreement and understanding between each Purchaser, Parent and the
Company, and supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any one or more of the provisions
contained in this Agreement or in any Senior Subordinated Notes, or any
application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein, and any other application
thereof, shall not in any way be affected or impaired thereby.
12.11 Law Governing. THIS AGREEMENT HAS BEEN SUBSTANTIALLY
NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED
TO BE PERFORMED, IN PART IN THE STATE OF FLORIDA. ALL OBLIGATIONS, RIGHTS
AND REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. THE SENIOR
SUBORDINATED NOTES SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED THEREIN. EACH PURCHASER
RETAINS ALL RIGHTS UNDER THE LAWS OF THE UNITED STATES OF AMERICA,
INCLUDING THOSE RELATING TO THE CHARGING OF INTEREST.
12.12 Waivers; Modification. NO PROVISION OF THIS AGREEMENT MAY
BE WAIVED, AMENDED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF
ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE
PARTY AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER, CHANGE, MODIFICATION OR
DISCHARGE IS SOUGHT.
12.13 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 12.13
WITH ITS COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
PARENT, THE COMPANY AND EACH PURCHASER 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, THE SENIOR SUBORDINATED NOTES OR ANY DOCUMENTS ENTERED INTO IN
CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF EACH PURCHASER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH
PURCHASER TO PURCHASE THE SENIOR SUBORDINATED NOTES FROM THE COMPANY.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and each Purchaser have
caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized.
PARENT:
JOTAN, INC.
By: /s/ Shea E. Ralph
Shea E. Ralph,
Chief Executive Officer
Address for Notices for Parent and all
Subsidiaries:
118 West Adams Street
Jacksonville, Florida 32202
Attn: Mr. David Freedman
Facsimile: (904) 353-0075
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: Clare Draper
Facsimile: (404) 881-7777
COMPANY:
SHC ACQUISITION CORP. (who will merge
with and into Southland Holding
Company)
By: /s/ Shea E. Ralph
Shea E. Ralph,
Chief Executive Officer
PURCHASER:
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: /s/ Jeffrey P. Sangalis
Jeffrey P. Sangalis
Managing Director
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its manager
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
its general partner
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
STATE OF GEORGIA ]
]
COUNTY OF FULTON ]
This instrument was acknowledged before me on this ___ day of
_____________, 1997 by Shea E. Ralph, Chief Executive Officer of Jotan,
Inc.
_____________________________________
Notary Public
_____________________________________
Printed Name
My commission expires:
_______________________
(SEAL)
STATE OF GEORGIA ]
]
COUNTY OF FULTON ]
This instrument was acknowledged before me on this ___ day of
_____________, 1997 by Shea E. Ralph, Chief Executive Officer of SHC
Acquisition Corp.
_____________________________________
Notary Public
_____________________________________
Printed Name
My commission expires:
_______________________
(SEAL)
STATE OF GEORGIA ]
]
COUNTY OF FULTON ]
This instrument was acknowledged before me on this ___ day of
_____________, 1997 by Jeffrey P. Sangalis, Managing Partner of Rice
Mezzanine Corporation, as general partner of RMC Fund Management, L.P., as
general partner of Rice Capital Group IV, L.P. as general partner for Rice
Partners II, L.P.
_____________________________________
Notary Public
_____________________________________
Printed Name
My commission expires:
_______________________
(SEAL)
STATE OF GEORGIA ]
]
COUNTY OF FULTON ]
This instrument was acknowledged before me on this ___ day of
_____________, 1997 by Jeremiah M. Callahan, Manager of
Franklin/Street/Fairview Capital, L.L.C., as general partner of F-
Southland, L.L.C.
_____________________________________
Notary Public
_____________________________________
Printed Name
My commission expires:
_______________________
(SEAL)
STATE OF GEORGIA ]
]
COUNTY OF FULTON ]
This instrument was acknowledged before me on this ___ day of
_____________, 1997 by Jeremiah M. Callahan, Manager of Franklin Capital,
L.L.C., as general partner of FSFC Associates, L.P., as general partner of
F-Southland, L.L.C.
_____________________________________
Notary Public
_____________________________________
Printed Name
My commission expires:
_______________________
(SEAL)
SOUTHLAND ACKNOWLEDGMENT
By execution below, Southland (a) acknowledges that as a result of
the Acquisition Merger, Southland has succeeded to the rights and
obligations of the Company under this Agreement and the Other Agreements,
(b) assumes the Senior Subordinated Obligations and (c) agrees to be bound
by this Agreement and the Other Agreements as the Company.
SOUTHLAND HOLDING COMPANY
By: /s/ Shea E. Ralph
Shea E. Ralph
Chief Executive Officer
<PAGE>
Annex I
to
Note Purchase Agreement
Information Concerning Rice
Rice: Rice Partners II, L.P.
Principal Amount of
Senior Subordinated Note: $7,000,000.00
Denomination of Warrants: Warrant A-1 - 9,581,726 shares of the common
stock of Parent on a fully diluted basis
Warrant A-2 - 2,515,203 shares of the common
stock of Parent on a fully diluted basis
Origination Fee: $175,000
Address for notices: Rice Partners II, L.P.
c/o Rice Capital Group IV, L.P.
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: Jeffrey P. Sangalis
Facsimile: (713) 783-9750
and with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Facsimile: (214) 939-6100
Payments to be made
by wire transfer to: Southwest Bank of Texas, N.A.
Houston, Texas
ABA Routing #113011258
Accounting #9048545
For the Account of:
Rice Partners II, L.P.
Money Market Account #9020012
re: Southland Holding Company 12.5% Senior
Subordinated Note
Information Concerning the Southland Purchasers
The Southland Purchasers: F-Southland, L.L.C.
FF-Southland, L.P.
Principal Amount of
Senior Subordinated Note
F-Southland, L.L.C.: $ 1,000,000.00
Principal Amount of
Senior Subordinated Note
FF-Southland, L.P.: $ 1,000,000.00
Denomination of Warrant: Warrant B-1 - 359,315 shares of the common stock
of Parent on a fully diluted basis (F-Southland,
L.L.C.)
Warrant B-2 - 1,197,716 shares of the common
stock of Parent on a fully diluted basis
(F-Southland, L.L.C.)
Warrant C-1 - 359,315 shares of the common stock
of Parent on a fully diluted basis (FF-Southland,
L.P.)
Warrant C-2 - 1,197,716 shares of the common stock
of Parent on a fully diluted basis (FF-Southland,
L.P.)
Origination Fee: F-Southland, L.L.C.: $ 25,000.00
FF-Southland, L.P.: $25,000.00
Address for notices: F-Southland, L.L.C.
FF-Southland, L.P.
c/o Fairview Capital
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: 919-473-2501
and with a copy to:
Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr., Esq.
Facsimile: (919) 781-4865
Payments to be made
by wire transfer to
F-Southland, L.L.C.: WACHOVIA Bank of North Carolina
Cameron Village Branch, Raleigh, NC
ABA Routing #053100494
Account #6263126828
For the Account of:
F-Southland, L.L.C.
re: Southland Holding Company
12.5% Senior Subordinated Note
Attention: Cheryl Whaley (919) 755-2300
Payments to be made
by wire transfer to
FF-Southland, L.P.: WACHOVIA Bank of North Carolina
Cameron Village Branch, Raleigh, NC
ABA Routing #053100494
Accounting #6269094508
For the Account of:
FF-Southland, L.P.
re: Southland Holding Company
12.5% Senior Subordinated Note
Attention: Cheryl Whaley (919) 755-2300
<PAGE>
Schedule 4.3
to
Note Purchase Agreement
Defaults under Existing Agreements
<PAGE>
Schedule 4.4
to
Note Purchase Agreement
Authorizations, Approvals, Consents and Filings
<PAGE>
Schedule 4.5
to
Note Purchase Agreement
Environmental Condition of Property
<PAGE>
Schedule 4.7
to
Note Purchase Agreement
Litigation and Judgments
<PAGE>
Schedule 4.16
to
Note Purchase Agreement
Capitalization
<PAGE>
Schedule 4.17
to
Note Purchase Agreement
Current Locations
<PAGE>
Schedule 4.23
to
Note Purchase Agreement
Brokers
<PAGE>
Schedule 4.26
to
Note Purchase Agreement
Conduct of Business
<PAGE>
Schedule 7.10
to
Note Purchase Agreement
Remuneration
<PAGE>
Exhibit A
to
Note Purchase Agreement
Form of Senior Subordinated Notes
<PAGE>
Exhibit B
to
Note Purchase Agreement
Form of Legal Opinion
<PAGE>
Exhibit C
to
Note Purchase Agreement
Form of Officer's Compliance Certificate
<PAGE>
Exhibit D
to
Note Purchase Agreement
Permitted Indebtedness
<PAGE>
Exhibit E
to
Note Purchase Agreement
Permitted Liens
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT
This Amendment No. 1 to Note Purchase Agreement (this "Amendment"),
dated as of August 19, 1997, by and among Southland Container Packaging
Corp., a Texas corporation (as successor by merger to SHC Acquisition
Corp., a Florida corporation, and formerly called Southland Holding
Company, herein the "Company"), JOTAN, INC., a Florida corporation
("Parent"), RICE PARTNERS II, L.P., a Delaware limited partnership
("Rice"), F-SOUTHLAND, L.L.C., a North Carolina limited liability company
("F-Southland"), and FF-SOUTHLAND, L.P., a Delaware limited partnership
("FF-Southland") (F-Southland and FF-Southland are individually or
collectively, as the context requires, referred to herein as "Southland
Purchasers") (Rice and Southland Purchasers are individually or
collectively, as the context requires, referred to herein as the
"Purchaser").
RECITALS
A. The Company, Parent, Rice and the Southland Purchasers have
entered into that certain Note Purchase Agreement, dated as of February
28, 1997 (the "Original Agreement" and, as amended hereby, the "Note
Agreement").
B. SHC Acquisition Corp. has merged with and into Southland Holding
Company, with Southland Holding Company surviving and assuming all the
obligations of SHC Acquisition Corp. under the Original Agreement. On
July 31, 1997, all of the subsidiaries of Southland Holding Company and
Atlantic Bag & Paper Company, a Subsidiary of Parent, merged with and into
Southland Holding Company (which concurrently changed its name to
Southland Container Packaging Corp.), with the result that the Company, as
of July 31, 1997, had no Subsidiaries.
C. The Company has advised the Purchaser, the Senior Lender and the
Senior Agent that certain defaults have occurred under the financial
covenants in the Original Agreement and in the Senior Loan Agreement.
D. The Company has requested that the Senior Lender (1) make
certain amendments to the Senior Loan Agreement (as the same has been
amended by that certain letter amendment dated April 30, 1997 and that
certain Second Amendment to Credit Agreement dated as of June 20, 1997),
pursuant to the Third Amendment to Credit Agreement among the Company,
Parent, Senior Agent and the Senior Lender, which Purchaser will review
and approve (the "Senior Loan Amendment"), and (2) waive such defaults,
and the Senior Lender is willing to do so subject to the terms and
conditions set forth therein.
E. The Company has requested that the Purchaser make (1) certain
amendments to the Original Agreement and (2) waive such defaults under the
Original Agreement, and the Purchaser is willing to do so subject to the
terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINITIONS. All capitalized terms used but not otherwise defined in
this Amendment shall have the meanings ascribed to them in the Note
Agreement. Unless otherwise specified, all section references herein
refer to sections of the Original Agreement.
2. AMENDMENTS. The Original Agreement is hereby amended as follows:
2.1 Amendment to Section 2.1. Section 2.1(b) is hereby amended
by deleting it in its entirety and substituting the following in lieu
thereof:
(b) Interest shall be due and payable (i) on May 30, 1997 (for
the period from and including the Closing Date to but excluding May
30, 1997), (ii) and thereafter quarterly in arrears on the last
Business Day of each February, May, August and November, commencing
May 30, 1997 and (iii) on the Termination Date; provided, however,
that with respect to interest payable pursuant to clause (ii) on the
last Business Day of August 1997, November 1997 and February 1998,
the Company shall satisfy its obligation to pay interest in cash on
such dates by the issuance on or before May 30, 1998 to the Purchaser
of one or more Senior Subordinated Notes substantially in the form of
Exhibit A-1 to this Agreement (each a "PIK Note") in an aggregate
amount for each Purchaser not to exceed, and evidencing, the
Company's obligation to pay such accrued interest (the "PIK
Interest"); and the Company shall have no obligation to pay PIK
Interest due on such dates in cash. Each Purchaser acknowledges that
the PIK Notes delivered pursuant to this Section 2.1(b) are
"Subordinate Loan Documents" and the Obligations evidenced thereby
are "Subordinated Debt" as both such terms are defined in the Senior
Subordination Agreement.
2.2 Amendment to Section 6.20. Effective as of the date hereof,
Sections 6.20(b), 6.20(c), 6.20(d) and 6.20(e) are hereby amended as
follows:
(a) Section 6.20(b) is hereby amended by deleting the first
paragraph thereof and substituting the following paragraph in lieu
thereof:
(b) Interest Coverage. Parent shall not permit the ratio of
Operating Cash Flow to cash interest expense of Parent and the
Subsidiaries determined on a consolidated basis, both calculated for
the twelve (12) month period (or portion thereof since June 30, 1997)
ending on the last day of each Fiscal Quarter (beginning with the
Fiscal Quarter ending September 30, 1997) during the periods set
forth below, to be less than the ratio set forth below opposite the
applicable period below:
Period Ratio
------ -----
July 1, 1997 through December 31, 1997 1.65 to 1.00
January 1, 1998 through March 31, 1998 1.80 to 1.00
April 1, 1998 through September 30, 1998 2.03 to 1.00
October 1, 1998 through March 31, 1999 2.25 to 1.00
April 1, 1999 through September 30, 1999 2.48 to 1.00
October 1, 1999 through March 31, 2000 2.70 to 1.00
April 1, 2000 through September 30, 2000 2.93 to 1.00
October 1, 2000 and the end of each
Fiscal Quarter thereafter 3.15 to 1.00
(b) Section 6.20(c) is hereby amended by deleting the first
paragraph thereof and substituting the following paragraph in lieu
thereof:
(c) Fixed Charge Coverage. Parent shall not permit the ratio
of Operating Cash Flow to Fixed Charges computed on the basis of the
Operating Cash Flow and Fixed Charges for the twelve (12) month
period (or portion thereof since June 30, 1997) ending on the last
day of each Fiscal Quarter (beginning with the Fiscal Quarter ending
September 30, 1997) to be less than the ratio set forth below
opposite the applicable period below:
(c) Section 6.20(d) is hereby amended by deleting it in its entirety
and substituting the following in lieu thereof:
(d) EBITDA. As of the end of each Fiscal Quarter set forth
below, Parent shall not permit EBITDA for the twelve (12) month
period (or portion thereof since June 30, 1997) then ending to be
less than the Dollar amount set forth below for such Fiscal Quarter
(beginning with the Fiscal Quarter ending September 30, 1997):
Period Dollar Amount
------ -------------
September 30, 1997 $1,125,000
December 31, 1997 $2,250,000
March 31, 1998 $3,150,000
June 30, 1998 $5,850,000
September 30, 1998 $6,075,000
December 31, 1998 $6,300,000
March 31, 1999 $6,525,000
June 30, 1999 $6,750,000
September 30, 1999 $6,975,000
December 31, 1999 $7,200,000
March 31, 2000 $7,425,000
June 30, 2000 $7,650,000
September 30, 2000 $7,875,000
December 31, 2000 $8,100,000
March 31, 2001 $8,325,000
June 30, 2001 $8,550,000
September 30, 2001 $8,730,000
December 31, 2001 and the last each
Fiscal Quarter thereafter $9,000,000
(d) Section 6.20(e) is hereby amended by deleting it in its entirety
and substituting the following in lieu thereof:
(e) Net Worth. Parent will at all times on and after September
30, 1997, maintain Consolidated Net Worth in an amount not less than
the sum of (a) Ten Million Dollars ($10,000,000); plus (b) sixty
seven and one-half percent (67.5%) of Parent's Net Income for each
Fiscal Quarter to have completely elapsed since June 30, 1997; plus
(c) ninety percent (90%) of the net cash proceeds of any sale of
Securities or other contributions to the capital of Parent received
by Parent since September 30, 1997, calculated without duplication.
If Net Income for a Fiscal Quarter is zero or less, no adjustment to
the requisite level of Consolidated Net Worth shall be made.
2.3. Amendment to Section 11.1; Amendment and Restatement of Certain
Definitions. Effective as of the date hereof, the definitions of "Fixed
Charges" and "Senior Loan Agreement" appearing in Section 11.1 are hereby
amended and restated in their entirety to read as follows:
"Fixed Charges" means, for any period, the total of the following for
Parent and the Subsidiaries calculated on a consolidated basis
without duplication for such period: (A) cash interest expense for
any portion of the period in question; plus (B) cash federal and
state income taxes paid; plus (C) scheduled amortization of
Indebtedness paid or payable (excluding, to the extent included,
nonpermanent principal repayments under the Revolving Loans (as
defined in the Senior Loan Agreement)); plus (C) the Dollar amount
paid in connection with repurchases of stock, options or warrants
consummated in accordance with Section 12.4 of the Senior Loan
Agreement.
"Senior Loan Agreement" means the Credit Agreement by and among
Parent, the Company, the Senior Agent and the Senior Lender, dated as
of the February 28, 1997, as the amended by that certain letter
amendment dated April 30, 1997, that certain Second Amendment to
Credit Agreement dated as of June 20, 1997 and that certain Third
Amendment to Credit Agreement dated as of August 20, 1997, as further
amended in accordance with the express provisions of the Senior
Subordination Agreement, and all documents and instruments delivered
pursuant thereto in connection with the loans and advances made
thereunder.
"Senior Subordinated Notes" means the term promissory notes issued to
each Purchaser pursuant to this Agreement, including notes issued as
evidence of the Company's obligation to pay PIK Interest pursuant to
Section 2.1(b) hereof, together with all renewals, modifications,
extensions, substitutions and replacements thereof.
2.4 Amendment to Section 11.1; Additional Definition. Effective as
of the date hereof, Section 11.1 is hereby amended by adding the following
definition thereto in alphabetical order:
"PIK Interest" is defined in Section 2.1 hereof.
"PIK Note" is defined in Section 2.1 hereof.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions
precedent, unless specifically waived in writing by the Purchaser:
3.1. Purchaser shall have received (a) this Amendment, duly executed
by the Company; (b) a certificate of the Secretary of the Company in the
form of Exhibit A attached hereto (hereinafter referred to as the "Company
General Certificate"), certified by the Secretary of the Company and
acknowledging (i) that the Company's Board of Directors has adopted,
approved, consented to and ratified resolutions which authorize the
execution, delivery and performance by the Company of the Senior Loan
Amendment, this Amendment and all Other Agreements to which the Company is
or is to be a party, and (ii) the names of the officers of the Company
authorized to sign the Senior Loan Amendment, this Amendment and each of
the Other Agreements to which the Company is or is to be a party hereunder
(including the certificates contemplated herein) together with specimen
signatures of such officers; (c) an executed copy of the Senior Loan
Amendment and each document relating thereto, or a certificate executed by
the Chief Financial Officer of the Company certifying that the Senior Loan
Amendment and other documents attached thereto are true, correct and
complete copies of the Senior Loan Agreement and all documents relating
thereto; (d) certificates of existence and good standing or merger for the
Company, issued within 30 days prior to the date of this Amendment by the
Secretary of State or other appropriate official in the jurisdiction in
which it was incorporated; (e) a written consent of the Senior Agent on
behalf of the Senior Lender to the execution and delivery of this
Amendment and all documents relating hereto; and (f) such additional
documents, instruments and information as Purchaser or its legal counsel
may request.
3.2. The representations and warranties contained herein and in the
Original Agreement and the Other Agreements, as amended hereby, shall be
true and correct on and as of the date hereof, as if made on the date
hereof.
3.3. No Potential Default or Event of Default under the Original
Agreement, as amended hereby, shall have occurred and be continuing,
unless such Potential Default or Event of Default has been specifically
waived in writing by Purchaser.
3.4. The Senior Loan Amendment shall have been duly executed and
delivered by the parties thereto and shall be on terms and conditions
satisfactory to Purchaser, and all conditions precedent to funding of the
Senior Loans contemplated thereunder shall have been satisfied or waived.
4. RATIFICATIONS, REPRESENTATIONS AND WARRANTIES; CONSENT TO SENIOR
LOAN AMENDMENT; COVENANT TO ISSUE PIK NOTES.
4.1. The terms and provisions set forth in this Amendment shall
modify and supersede all inconsistent terms and provisions set forth in
the Original Agreement and the Other Agreements and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Original Agreement and the Other Agreements are ratified and confirmed
and shall continue in full force and effect. The Company, Parent and
Purchaser agree that the Original Agreement and the Other Agreements, as
amended hereby, shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.
4.2. The Company hereby represents and warrants to Purchaser that (a)
the execution, delivery and performance of this Amendment and any and all
other agreements executed and/or delivered in connection herewith or
therewith have been authorized by all requisite corporate action on the
part of the Company and will not violate the Articles of Incorporation or
Bylaws of the Company; (b) the representations and warranties contained in
the Original Agreement and the Other Agreements, as amended hereby, are
true and correct on and as of the date hereof as though made on and as of
such date; (c) no Potential Default or Event of Default under the Original
Agreement, as amended hereby, has occurred and is continuing, unless such
Potential Default or Event of Default has been specifically waived in
writing by Purchaser; (d) the Company is in full compliance with all
covenants and agreements contained in the Original Agreement, as amended
hereby, and the Other Agreements; and (e) the Company has not amended its
Articles of Incorporation or its Bylaws since February 28, 1997, except
for such amendments, if any, as are attached to the Company General
Certificate. The foregoing representations and warranties shall survive
the execution and delivery of this Amendment.
4.3 The Purchaser hereby represents that is the holder of the Senior
Subordinated Notes issued to it on the Closing Date, and consents to the
execution and delivery by the Company and Parent of the Senior Loan
Amendment. This consent is expressly intended for the benefit of, and may
be relied upon by, the Senior Lender and the Senior Agent for all purposes
of the Loan Documents (as defined in the Senior Loan Agreement) including
the Senior Subordination Agreement.
4.4 Each of Parent and the Company hereby consents to the execution
and delivery by the other of this Amendment; and Parent hereby confirms
its Parent Guaranty and the Company hereby confirms its Company Guaranty
for all purposes, giving effect to this Amendment and the Senior Loan
Amendment and the transactions contemplated hereby and thereby.
4.5 The Company hereby covenants and agrees, within five (5)
Business Days' after the written request of a Purchaser, but in any event
not later than May 30, 1998, to duly issue and deliver to such Purchaser
its PIK Note(s) relating to the payment date(s) thereof as set forth in
Section 2.1 of the Note Agreement (as amended hereby) in the appropriate
PIK Interest amount with respect to such dates. Such amount shall be
provided by such Purchaser to the Company at the time of such request.
5. LIMITED WAIVER.
By execution of this Amendment, Purchaser hereby waives any Potential
Default or Event of Default occurring and existing under Section 8.1(c) of
the Note Purchase Agreement solely as a result of the Company's failure to
comply with the specific financial covenant set forth in Sections 6.20(b),
(c), (d) and (e) of the Note Purchase Agreement during the measurement
period ended June 30, 1997 and any rights and remedies arising as a result
thereof. Except as specifically provided in this Section 5, nothing
contained in this Amendment shall be construed as a waiver by Purchaser of
any covenant or provision of the Note Purchase Agreement, the Other
Agreements, this Amendment, or of any other contract or instrument between
or among Parent, the Company and Purchaser, and the failure of Purchaser
at any time or times hereafter to require strict performance by Parent or
the Company, as the case may be, of any provision thereof shall not waive,
affect or diminish any right of Purchaser to thereafter demand strict
compliance therewith. Purchaser hereby reserves all rights granted under
the Note Purchase Agreement, the Other Agreements, this Amendment and any
other contract or instrument between or among Parent, the Company and
Purchaser.
6. MISCELLANEOUS.
6.1. Survival of Representations and Warranties. All representations
and warranties made in the Original Agreement or any Other Agreement,
including, without limitation, any document furnished in connection with
this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Purchaser or any closing
shall affect the representations and warranties or the right of Purchaser
to rely upon them.
6.2. Reference to Original Agreement. Each of the Original Agreement
and the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Original Agreement, as amended
hereby, are hereby amended so that any reference in the Original Agreement
and such Other Agreements to the Original Agreement shall mean a reference
to the Original Agreement as amended hereby.
6.3. Expenses of Purchaser. As provided in the Original Agreement,
the Company agrees to pay on demand all costs and expenses incurred by
Purchaser in connection with the preparation, negotiation and execution of
this Amendment and any other agreements executed pursuant hereto,
including, without limitation, the reasonable costs and fees of
Purchaser's legal counsel.
6.4. Severability. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall
be confined to the provision so held to be invalid or unenforceable.
6.5. Successors and Assigns. This Amendment will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
6.6. Headings. The headings of the sections and subsections of this
Amendment are inserted for convenience only and do not constitute a part
of this Amendment.
6.7. Counterparts. This Amendment may be executed in any number of
counterparts, which shall collectively constitute one agreement.
6.8. Law Governing. THIS AMENDMENT HAS BEEN SUBSTANTIALLY
NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED
TO BE PERFORMED, IN PART IN THE STATE OF FLORIDA. ALL OBLIGATIONS, RIGHTS
AND REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. THE SENIOR
SUBORDINATED NOTES SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED THEREIN. EACH PURCHASER
RETAINS ALL RIGHTS UNDER THE LAWS OF THE UNITED STATES OF AMERICA,
INCLUDING THOSE RELATING TO THE CHARGING OF INTEREST.
6.9 Waivers; Modification. NO PROVISION OF THIS AMENDMENT MAY BE
WAIVED, AMENDED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF
ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE
PARTY AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER, CHANGE, MODIFICATION OR
DISCHARGE IS SOUGHT.
6.10 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.10 WITH
ITS COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PARENT,
THE COMPANY AND EACH PURCHASER 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
AMENDMENT, THE SENIOR SUBORDINATED NOTES OR ANY DOCUMENTS ENTERED INTO IN
CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF EACH PURCHASER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH
PURCHASER TO PURCHASE THE SENIOR SUBORDINATED NOTES FROM THE COMPANY.
6.11. Final Agreement. THE ORIGINAL AGREEMENT, AS AMENDED HEREBY,
AND THE OTHER AGREEMENTS REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS
EXECUTED. THE ORIGINAL AGREEMENT, AS AMENDED HEREBY, AND THE OTHER
AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
6.12. Release. THE COMPANY HEREBY ACKNOWLEDGES THAT IT HAS NO
DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY
KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL
OR ANY PART OF ITS LIABILITY TO REPAY THE "SENIOR SUBORDINATED
OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR
NATURE FROM PURCHASER. THE COMPANY HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES PURCHASER, ITS PREDECESSORS, AGENTS,
OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH THE COMPANY MAY NOW OR HEREAFTER HAVE AGAINST
PURCHASER, ITS PREDECESSORS, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM THE "SENIOR SUBORDINATED OBLIGATIONS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING,
RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
ORIGINAL AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION
OF THIS AMENDMENT.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and Purchaser have caused
this Amendment to be executed and delivered as of the date first written.
PARENT:
JOTAN, INC.
By: /s/ David Freedman
David Freedman,
Vice President and Chief Financial
Officer
Address for Notices for Parent and all
Subsidiaries:
118 West Adams Street
Jacksonville, Florida 32202
Attn: Mr. David Freedman
Facsimile: (904) 353-0075
COMPANY:
SOUTHLAND CONTAINER
PACKAGING CORP. (formerly known as
Southland Holding Company and as
successor by merger to SHC Acquisition
Corp.)
By: /s/ David Freedman
David Freedman,
Vice President and Chief Financial
Officer
118 West Adams Street
Jacksonville, Florida 32202
Attn: Mr. David Freedman
Facsimile: (904) 353-0075
PURCHASER:
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: /s/ Jeffrey P. Sangalis
Jeffrey P. Sangalis
Managing Director
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its manager
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
its general partner
By: Franklin Capital, L.L.C.,
its general partner
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
<PAGE>
EXHIBIT A
Form of Company General Certificate
[See Attached]
<PAGE>
EXHIBIT A-1
Form of PIK Note
[See Attached]
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
This Amendment No. 2 to Note Purchase Agreement (this "Amendment"),
dated as of November 6, 1997, by and among Southland Container Packaging
Corp., a Texas corporation (as successor by merger to SHC Acquisition
Corp., a Florida corporation, and formerly called Southland Holding
Company, herein the "Company"), JOTAN, INC., a Florida corporation
("Parent"), RICE PARTNERS II, L.P., a Delaware limited partnership
("Rice"), F-SOUTHLAND, L.L.C., a North Carolina limited liability company
("F-Southland"), and FF-SOUTHLAND, L.P., a Delaware limited partnership
("FF-Southland") (F-Southland and FF-Southland are individually or
collectively, as the context requires, referred to herein as "Southland
Purchasers") (Rice and Southland Purchasers are individually or
collectively, as the context requires, referred to herein as the
"Purchaser").
RECITALS
A. The Company, Parent, Rice and the Southland Purchasers have
entered into that certain Note Purchase Agreement, dated as of February
28, 1997, as the same has been amended by that certain Amendment No. 1
dated as of August 19, 1997 (the "Original Agreement" and, as amended
hereby, the "Note Agreement").
B. SHC Acquisition Corp. has merged with and into Southland Holding
Company, with Southland Holding Company surviving and assuming all the
obligations of SHC Acquisition Corp. under the Original Agreement. On
July 31, 1997, all of the subsidiaries of Southland Holding Company and
Atlantic Bag & Paper Company, a Subsidiary of Parent, merged with and into
Southland Holding Company (which concurrently changed its name to
Southland Container Packaging Corp.), with the result that the Company, as
of July 31, 1997, had no Subsidiaries.
C. The Company has advised the Purchaser, the Senior Lender and the
Senior Agent that certain defaults have occurred under the financial
covenants in the Original Agreement and in the Senior Loan Agreement.
D. The Company has requested that the Senior Lender (1) make
certain amendments to the Senior Loan Agreement (as the same has been
amended by that certain letter amendment dated April 30, 1997, that
certain Second Amendment to Credit Agreement dated as of June 20, 1997 and
that certain Third Amendment to Credit Agreement dated as of August 19,
1997) pursuant to the Fourth Amendment to Credit Agreement among the
Company, Parent, Senior Agent and the Senior Lender, which Purchaser will
review and approve (the "Senior Loan Amendment"), and (2) waive such
defaults, and the Senior Lender is willing to do so subject to the terms
and conditions set forth therein.
E. The Company has requested that the Purchaser make (1) certain
amendments to the Original Agreement and (2) waive such defaults under the
Original Agreement, and the Purchaser is willing to do so subject to the
terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINITIONS. All capitalized terms used but not otherwise defined in
this Amendment shall have the meanings ascribed to them in the Note
Agreement. Unless otherwise specified, all section references herein
refer to sections of the Original Agreement.
2. AMENDMENTS. The Original Agreement is hereby amended as follows:
Amendment to Section 6.20. Effective as of the date hereof,
Section 6.20(d) is hereby amended as follows:
(a) Section 6.20(d) is hereby amended by deleting it in its
entirety and substituting the following in lieu thereof:
(d) EBITDA. As of the end of each Fiscal Quarter set forth
below, Parent shall not permit EBITDA for the twelve (12) month
period (or portion thereof since June 30, 1997) then ending to be
less than the Dollar amount set forth below for such Fiscal Quarter
(beginning with the Fiscal Quarter ending December 31, 1997):
Period Dollar Amount
------ -------------
December 31, 1997 $2,250,000
March 31, 1998 $3,150,000
June 30, 1998 $5,850,000
September 30, 1998 $6,075,000
December 31, 1998 $6,300,000
March 31, 1999 $6,525,000
June 30, 1999 $6,750,000
Period Dollar Amount
------ -------------
September 30, 1999 $6,975,000
December 31, 1999 $7,200,000
March 31, 2000 $7,425,000
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions
precedent, unless specifically waived in writing by the Purchaser:
3.1. Purchaser shall have received (a) this Amendment, duly executed
by the Company; (b) a certificate of each of the Secretary of the Company
and of Parent in the forms of Exhibit A and Exhibit A-1 attached hereto,
respectively (hereinafter collectively referred to as the "Company General
Certificate"), certified by the Secretary of the Company as Parent, as
appropriate, and acknowledging (i) that the Company's Board of Directors
has adopted, approved, consented to and ratified resolutions which
authorize the execution, delivery and performance by the Company of the
Senior Loan Amendment, this Amendment and all Other Agreements to which
the Company is or is to be a party, and (ii) the names of the officers of
the Company authorized to sign the Senior Loan Amendment, this Amendment
and each of the Other Agreements to which the Company is or is to be a
party hereunder (including the certificates contemplated herein) together
with specimen signatures of such officers; (c) an executed copy of the
Senior Loan Amendment and each document relating thereto, or a certificate
executed by the Chief Financial Officer of the Company certifying that the
Senior Loan Amendment and other documents attached thereto are true,
correct and complete copies of the Senior Loan Agreement and all documents
relating thereto; (d) a written consent of the Senior Agent on behalf of
the Senior Lender to the execution and delivery of this Amendment and all
documents relating hereto; and (e) such additional documents, instruments
and information as Purchaser or its legal counsel may request.
3.2. The representations and warranties contained herein and in the
Original Agreement and the Other Agreements, as amended hereby, shall be
true and correct on and as of the date hereof, as if made on the date
hereof.
3.3. No Potential Default or Event of Default under the Original
Agreement, as amended hereby, shall have occurred and be continuing,
unless such Potential Default or Event of Default has been specifically
waived in writing by Purchaser.
3.4. The Senior Loan Amendment shall have been duly executed and
delivered by the parties thereto and shall be on terms and conditions
satisfactory to Purchaser, and all conditions precedent to funding of the
Senior Loans contemplated thereunder shall have been satisfied or waived.
4. RATIFICATIONS, REPRESENTATIONS AND WARRANTIES; CONSENT TO SENIOR
LOAN AMENDMENT; COVENANT TO ISSUE PIK NOTES.
4.1. The terms and provisions set forth in this Amendment shall
modify and supersede all inconsistent terms and provisions set forth in
the Original Agreement and the Other Agreements and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Original Agreement and the Other Agreements are ratified and confirmed
and shall continue in full force and effect. The Company, Parent and
Purchaser agree that the Original Agreement and the Other Agreements, as
amended hereby, shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.
4.2. The Company hereby represents and warrants to Purchaser that (a)
the execution, delivery and performance of this Amendment and any and all
other agreements executed and/or delivered in connection herewith or
therewith have been authorized by all requisite corporate action on the
part of the Company and will not violate the Articles of Incorporation or
Bylaws of the Company; (b) the representations and warranties contained in
the Original Agreement and the Other Agreements, as amended hereby, are
true and correct on and as of the date hereof as though made on and as of
such date; (c) no Potential Default or Event of Default under the Original
Agreement, as amended hereby, has occurred and is continuing, unless such
Potential Default or Event of Default has been specifically waived in
writing by Purchaser; (d) the Company is in full compliance with all
covenants and agreements contained in the Original Agreement, as amended
hereby, and the Other Agreements; and (e) the Company has not amended its
Articles of Incorporation or its Bylaws since August 19, 1997, except for
such amendments, if any, as are attached to the Company General
Certificate. The foregoing representations and warranties shall survive
the execution and delivery of this Amendment.
4.3 The Purchaser hereby represents that is the holder of the Senior
Subordinated Notes issued to it on the Closing Date, and consents to the
execution and delivery by the Company and Parent of the Senior Loan
Amendment. This consent is expressly intended for the benefit of, and may
be relied upon by, the Senior Lender and the Senior Agent for all purposes
of the Loan Documents (as defined in the Senior Loan Agreement) including
the Senior Subordination Agreement.
4.4 Each of Parent and the Company hereby consents to the execution
and delivery by the other of this Amendment; and Parent hereby confirms
its Parent Guaranty and the Company hereby confirms its Company Guaranty
for all purposes, giving effect to this Amendment and the Senior Loan
Amendment and the transactions contemplated hereby and thereby.
5. LIMITED WAIVER.
By execution of this Amendment, Purchaser hereby waives any Potential
Default or Event of Default occurring and existing under Section 8.1(c) of
the Note Purchase Agreement solely as a result of the Company's failure to
comply with the specific financial covenant set forth in Sections 6.20(b),
(c) and (d) of the Note Purchase Agreement during the measurement period
ended September 30, 1997 and any rights and remedies arising as a result
thereof. Except as specifically provided in this Section 5, nothing
contained in this Amendment shall be construed as a waiver by Purchaser of
any covenant or provision of the Note Purchase Agreement, the Other
Agreements, this Amendment, or of any other contract or instrument between
or among Parent, the Company and Purchaser, and the failure of Purchaser
at any time or times hereafter to require strict performance by Parent or
the Company, as the case may be, of any provision thereof shall not waive,
affect or diminish any right of Purchaser to thereafter demand strict
compliance therewith. Purchaser hereby reserves all rights granted under
the Note Purchase Agreement, the Other Agreements, this Amendment and any
other contract or instrument between or among Parent, the Company and
Purchaser.
6. MISCELLANEOUS.
6.1. Survival of Representations and Warranties. All representations
and warranties made in the Original Agreement or any Other Agreement,
including, without limitation, any document furnished in connection with
this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Purchaser or any closing
shall affect the representations and warranties or the right of Purchaser
to rely upon them.
6.2. Reference to Original Agreement. Each of the Original Agreement
and the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Original Agreement, as amended
hereby, are hereby amended so that any reference in the Original Agreement
and such Other Agreements to the Original Agreement shall mean a reference
to the Original Agreement as amended hereby.
6.3. Expenses of Purchaser. As provided in the Original Agreement,
the Company agrees to pay on demand all costs and expenses incurred by
Purchaser in connection with the preparation, negotiation and execution of
this Amendment and any other agreements executed pursuant hereto,
including, without limitation, the reasonable costs and fees of
Purchaser's legal counsel.
6.4. Severability. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall
be confined to the provision so held to be invalid or unenforceable.
6.5. Successors and Assigns. This Amendment will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
6.6. Headings. The headings of the sections and subsections of this
Amendment are inserted for convenience only and do not constitute a part
of this Amendment.
6.7. Counterparts. This Amendment may be executed in any number of
counterparts, which shall collectively constitute one agreement.
6.8. Law Governing. THIS AMENDMENT HAS BEEN SUBSTANTIALLY
NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED
TO BE PERFORMED, IN PART IN THE STATE OF FLORIDA. ALL OBLIGATIONS, RIGHTS
AND REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. THE SENIOR
SUBORDINATED NOTES SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED THEREIN. EACH PURCHASER
RETAINS ALL RIGHTS UNDER THE LAWS OF THE UNITED STATES OF AMERICA,
INCLUDING THOSE RELATING TO THE CHARGING OF INTEREST.
6.9 Waivers; Modification. NO PROVISION OF THIS AMENDMENT MAY BE
WAIVED, AMENDED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF
ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE
PARTY AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER, CHANGE, MODIFICATION OR
DISCHARGE IS SOUGHT.
6.10 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.10 WITH
ITS COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PARENT,
THE COMPANY AND EACH PURCHASER 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
AMENDMENT, THE SENIOR SUBORDINATED NOTES OR ANY DOCUMENTS ENTERED INTO IN
CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF EACH PURCHASER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH
PURCHASER TO PURCHASE THE SENIOR SUBORDINATED NOTES FROM THE COMPANY.
6.11. Final Agreement. THE ORIGINAL AGREEMENT, AS AMENDED HEREBY,
AND THE OTHER AGREEMENTS REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS
EXECUTED. THE ORIGINAL AGREEMENT, AS AMENDED HEREBY, AND THE OTHER
AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
6.12. Release. THE COMPANY HEREBY ACKNOWLEDGES THAT IT HAS NO
DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY
KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL
OR ANY PART OF ITS LIABILITY TO REPAY THE "SENIOR SUBORDINATED
OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR
NATURE FROM PURCHASER. THE COMPANY HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES PURCHASER, ITS PREDECESSORS, AGENTS,
OFFICERS, DIRECTORS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH THE COMPANY MAY NOW OR HEREAFTER HAVE AGAINST
PURCHASER, ITS PREDECESSORS, AGENTS, OFFICERS, DIRECTORS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM THE "SENIOR SUBORDINATED OBLIGATIONS",
INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING,
RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
ORIGINAL AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION
OF THIS AMENDMENT.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and Purchaser have caused
this Amendment to be executed and delivered as of the date first written.
PARENT:
JOTAN, INC.
By: /s/ Edward L. Lipscomb
Edward L. Lipscomb,
Vice President and Chief Financial
Officer
Address for Notices for Parent and all
Subsidiaries:
118 West Adams Street
Jacksonville, Florida 32202
Attn: Mr. David Freedman
Facsimile: (904) 353-0075
COMPANY:
SOUTHLAND CONTAINER
PACKAGING CORP. (formerly known as
Southland Holding Company and as
successor by merger to SHC Acquisition
Corp.)
By: /s/ Edward L. Lipscomb
Edward L. Lipscomb,
Vice President and Chief Financial
Officer
118 West Adams Street
Jacksonville, Florida 32202
Attn: Mr. David Freedman
Facsimile: (904) 353-0075
PURCHASER:
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: /s/ Jeffrey P. Sangalis
Jeffrey P. Sangalis
Managing Director
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its manager
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
its general partner
By: Franklin Capital, L.L.C.,
its general partner
By: /s/ Jeremiah M. Callahan
Jeremiah M. Callahan,
Manager
<PAGE>
EXHIBIT A
Form of Company General Certificate
[See Attached]
<PAGE>
EXHIBIT A-1
Form of Parent General Certificate
[See Attached]
SECOND SUPPLEMENTAL PREFERRED STOCK
PURCHASE AGREEMENT
SECOND SUPPLEMENTAL PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") made as of January 23, 1998, by and among JOTAN, INC., a
Florida corporation (the "Company"), RICE PARTNERS II, L.P., a Delaware
limited partnership ("Rice" or the "Purchaser"), F-SOUTHLAND, L.L.C., a
North Carolina limited liability company ("F-Southland"), FF-SOUTHLAND,
L.P., a Delaware limited partnership ("FF-Southland" and together with F-
Southland, the "Southland Purchasers"), F-JOTAN, L.L.C., a North Carolina
limited liability corporation ("F-Jotan"), and the SHAREHOLDER named on
the signature pages hereto (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Rice, the Southland Purchasers, F-Jotan and the Shareholder
named on the signature pages thereof, executed and delivered the Preferred
Stock and Warrant Purchase Agreement, dated as of February 28, 1997 (the
"Original Purchase Agreement");
WHEREAS, the Company entered into that certain First Supplemental
Preferred Stock and Warrant Purchase Agreement dated as of September 10,
1997, by and among the Company, Rice, the Southland Purchasers, F-Jotan,
and the Shareholders named therein (the "First Supplemental Purchase
Agreement" and together with this Agreement and the Original Purchase
Agreement, as the same may be further, as the same may be modified,
amended, supplemented or restated from time to time, collectively being
called, the "Purchase Agreement");
WHEREAS, each Shareholder owns beneficially and of record the number
of shares or share equivalents set forth under the signature of such
Shareholder on this Agreement of the issued and outstanding capital stock
of the Company (reflecting the departure of David Freedman on December 31,
1997 from employment at the Company and the termination of his options to
purchase up to 275,000 of the Company's Common Stock);
WHEREAS, F-Jotan is the owner of the 1,435,705 shares of the Series A
Preferred Stock of the Company as of the date hereof;
WHEREAS, the Southland Purchasers and Rice are owners of shares of
Series B Preferred Stock and Warrants exercisable into the Company's
Common Stock, as set forth under the signature of each such party below;
WHEREAS, SHC Acquisition Corp., a wholly-owned Subsidiary of the
Company, has merged with and into Southland Holding Company, with
Southland Holding Company surviving and assuming all the obligations of
SHC Acquisition Corp. under the Original Purchase Agreement. On July 31,
1997, all of the subsidiaries of Southland Holding Company and Atlantic
Bag & Paper Company, a Subsidiary of the Company, merged with and into
Southland Holding Company (which concurrently changed its name to
Southland Container Packaging Corp.), with the result that Southland
Container Packaging Corp. ("Southland"), as of July 31, 1997, had no
Subsidiaries;
WHEREAS, the Company, Southland, Rice and the Southland Purchasers
have entered into that certain Note Purchase Agreement, dated as of
February 28, 1997, as amended by Amendment No. 1, dated as of August 19,
1997 and Amendment No. 2, dated as of November 6, 1997 (as the same may be
modified, amended, supplemented or restated from time to time the "Note
Agreement");
WHEREAS, the Company and the Shareholder have entered into a
Shareholder Agreement, dated as of February 28, 1997 (the "Original
Shareholder Agreement"), with Purchaser, the Southland Purchasers and F-
Jotan;
WHEREAS, the Company entered into that certain First Supplemental
Shareholder Agreement, dated as of September 10, 1997, with Rice, the
Southland Purchasers, F-Jotan, and the shareholders named therein (the
"First Supplemental Shareholder Agreement") and the Second Supplemental
Shareholder Agreement, dated as of the date hereof, with Rice, the
Southland Purchasers, F-Jotan and the Shareholder substantially in the
form attached hereto as Annex A (the "Second Supplemental Shareholder
Agreement" and together with the First Supplemental Shareholder Agreement
and the Original Shareholder Agreement, as the same may be further
modified, amended, supplemented or restated from time to time,
collectively being called, the "Shareholder Agreement");
WHEREAS, Rice and the Board of Directors of the Company have
determined that, in the best interest of the Company, Rice is willing
purchase, and the Company is willing to sell to Rice, $250,000 (the
"Purchase Price") of Series B Preferred Stock, in cash (the "Investment")
to enable the Company to make certain payments to certain individuals who
previously owned minority interests in certain subsidiaries of Southland;
WHEREAS, although Rice is willing to enter into and consummate the
transactions contemplated hereby upon the due issuance of its Preferred
Stock (as defined below) against the payment of the Purchase Price, the
Southland Purchasers have elected not to purchase Preferred Stock in this
transaction; and
WHEREAS, Rice and the Company have agreed that, unlike the First
Supplemental Purchase Agreement, Rice will not receive Warrants in
connection with the purchase of the Second Supplemental Preferred Shares
(as defined below).
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, Purchaser, F-Jotan, the Shareholder, and the Company,
intending to be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, all capitalized terms have the meanings
indicated in the Original Purchase Agreement unless otherwise defined
herein. Any such term used in the Original Purchase Agreement, but not
defined herein, shall be interpreted to cover all corresponding terms used
herein and relating to the Warrants and Series B Preferred Stock to be
issued pursuant to this Agreement, as if such terms were set forth at
length herein and applied to the transactions contemplated hereby.
Agreement. This Second Supplemental Preferred Stock Purchase
Agreement, as the same may be modified, amended, supplemented or
restated from time to time.
Closing Date. With respect to this Agreement, as of the date first
set forth above.
Note Agreement. This term is defined in the preamble and includes
the Note Purchase Agreement, dated as of February 28, 1997, as
amended by Amendment No. 1, dated as of August 19, 1997 and Amendment
No. 2 dated as of November 6, 1997, as the same may be further
modified, amended, supplemented or restated from time to time, and
any refinancing, refunding or replacements of the indebtedness under
the Note Agreement.
Original Closing Date. The Closing Date with respect to the Original
Purchase Agreement, which occurred as of February 28, 1997 with
respect to the originally issued Warrants and Preferred Shares under
the Original Purchase Agreement and March 4, 1997 with respect to the
initial funding.
Preferred Stock or Series B Preferred Stock. For purposes of this
Agreement (except where the context requires a reference to this
Agreement and the Original Purchase Agreement), the Second
Supplemental Series B Preferred Stock.
Purchase Price. This term is defined in the preamble.
Purchaser. For purposes of the Second Supplemental Documents and the
First Supplemental Documents (as defined in the First Supplemental
Purchase Agreement), Rice; and for purposes of the Original Purchase
Agreement and the transactions contemplated thereby, Rice and the
Southland Purchasers.
Second Supplemental Documents. This Agreement, the Second
Supplemental Series B Preferred Stock and the Second Supplemental
Shareholder Agreement, and the transactions and documents,
instruments, certificates and agreements contemplated thereby, as the
same may be modified, amended, supplemented or restated from time to
time.
Second Supplemental Preferred Shares. Shares of Series B Preferred
Stock (but not any Series A Preferred Stock) to be issued to
Purchaser hereunder in connection with the Investment upon payment of
the applicable Purchase Price therefor.
Second Supplemental Series B Preferred Stock. Series B Preferred
Stock to be issued to the applicable Purchaser hereunder in
connection with the Investment upon payment of the applicable
Purchase Price therefor.
Shareholder Agreement. This term is defined in the Preamble.
Southland. This term is defined in the Preamble.
Article II
The Preferred Shares
2.01 The Preferred Shares. On the Closing Date, Rice agrees to
purchase from the Company at the purchase price set forth below, and the
Company agrees to issue to Rice, all in accordance with the terms and
conditions of this Agreement:
1,250 shares of Series B Preferred Stock, at a purchase price of
$200 per share (for a total of $250,000) having the rights,
restrictions, privileges, and preferences set forth in the articles
of amendment of the Company's articles of incorporation attached to
the Original Purchase Agreement as Annex H (the "Certificate").
The Company has 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.
Within forty-five (45) business days after the Closing Date, the Company
will deliver to Rice a certificate evidencing and representing the shares
of Second Supplemental Series B Preferred Stock issued to such Purchaser,
which certificate shall be issued in such Purchaser's name or in the name
of its designee.
2.02 Legend. The Company will deliver to Purchaser pursuant to
Section 2.01, one or more certificates representing the Second
Supplemental Series B Preferred Stock purchased by Rice in such
denominations as such Purchaser requests. Such certificates will be
issued in such Purchaser's name or, subject to compliance with transfer
and registration requirements under applicable Federal and state
securities laws, in the name or names of its respective designee or
designees.
It is understood and agreed that the certificates evidencing the
Second Supplemental Series B Preferred Stock will bear substantially the
same as the following legends:
"THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE
SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT LIMITATION,
THE NORTH CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS SECURITIES
ACT OF 1957, AS AMENDED, AND THE GEORGIA SECURITIES ACT OF 1973, AS
AMENDED, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED,
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THESE SHARES ARE SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT,
EACH DATED AS OF FEBRUARY 28, 1997, BETWEEN JOTAN, INC. (THE
"COMPANY"), RICE PARTNERS II, L.P., F-JOTAN, L.L.C., AND F-SOUTHLAND,
L.L.C., FF-SOUTHLAND, L.P. AND THE OTHER PARTIES LISTED ON THE
SIGNATURE PAGES TO SUCH SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY
BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME,
THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY."
COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE OFFICES OF THE
COMPANY."
All shares of Capital Stock of the Company subject to the Shareholder
Agreement will bear a legend to such effect.
2.03 Original Purchase Agreement Provisions Incorporated into this
Agreement. Except as set forth above, all other provisions in Article II
of the Purchase Agreement shall be incorporated herein as if set forth at
length with full application to the Second Supplemental Preferred Shares;
and all such Preferred Shares issued pursuant to this Agreement shall be
included in all adjustment and other calculations under Section 2.08 of
the Purchase Agreement relating to Preferred Shares issued as of the
Original Closing Date under the Original Purchase Agreement as if the
Second Supplemental Preferred Shares were issued on the Original Closing
Date; provided, however, that as a result of the issuance of securities
contemplated by the Second Supplemental Documents, there will be no
adjustments under Section 2.08 of the Original Purchase Agreement (despite
the issuance of the Supplemental Preferred Stock to Rice).
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company and the
Shareholder. The Company and the Shareholder severally and not jointly
represent and warrant to the Southland Purchasers, Purchaser and F-Jotan
that:
(a) Except as disclosed in writing to Rice and the Southland
Purchasers, the Company is a corporation duly organized and existing
and in good standing under the laws of its state of incorporation and
is qualified or licensed to do business in all other countries,
states, and jurisdictions the laws of which require it to be so
qualified or licensed. The Company has no Subsidiaries (other than
Southland) or debt or equity investment in any Person. Giving effect
to the transactions contemplated herein, the Shareholder owns
beneficially and of record the number of shares in the aggregate of
the issued and outstanding capital stock or stock equivalents of the
Company on a fully converted and diluted basis as of the Closing Date
set forth under the signature of such Shareholder on this Agreement,
all being free and clear of all liens, claims and encumbrances.
Other than the Southland Purchasers, Purchaser and F-Jotan, and,
except any other stock issuable under any employee or director stock
plan which constitutes Permitted Stock, no Person has any rights,
whether granted by the Company or any other Person, to acquire any
portion of the equity interest of the Company or the assets of the
Company.
(b) Each of the Company and the Shareholder has, and at all
times that this Agreement is in force will have, the right and power,
and is duly authorized, to enter into, execute, deliver, and perform
this Agreement and the Second Supplemental Shareholder Agreement, and
the officers of Company executing and delivering this Agreement and
the Second Supplemental Shareholder Agreement are duly authorized to
do so. This Agreement has been duly and validly executed, issued,
and delivered and constitutes the legal, valid, and binding
obligations of Company and the Shareholder, enforceable in accordance
with its respective terms.
(c) The execution, delivery, and performance of this Agreement
and the Shareholder Agreement 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, except for the Senior
Credit Agreement (as defined in the Note Agreement), 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 1,435,705 shares of Series A
Preferred Stock are issued and outstanding and of which 64,250 shares
of Series B Preferred Stock are issued and outstanding (after giving
effect to the transactions contemplated herein). An aggregate of at
least 3,620,473 shares of Common Stock are reserved for issuance on
exercise of the First Supplemental Warrant; and notwithstanding
Section 3.01(d) of the Original Purchase Agreement, 15,210,990 shares
of Common Stock have been reserved for issuance of all other Warrants
(issued as of the Original Closing Date of February 28, 1997). All
of the issued and outstanding shares of Common Stock are, and upon
issuance and payment therefor in accordance with the terms of this
Agreement, all of the outstanding Second Supplemental Series B
Preferred Stock will be, validly issued, fully paid and
nonassessable. The Second Supplemental Preferred Shares have been
offered, issued, sold, and delivered by Company free from preemptive
rights, rights of first refusal, antidilution rights, cumulative
voting rights or similar rights (except as otherwise provided in the
Purchase Agreement, this Agreement, the Shareholder Agreement or in
the powers, designations, rights and preferences of the Preferred
Stock contained in the Certificate) and in compliance with applicable
federal and state securities laws. Except pursuant to this Agreement
and the Certificate and except for the 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 Second Supplemental Preferred Shares have been duly and
validly authorized and, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid, and nonassessable
and free of preemptive rights, rights of first refusal or similar
rights.
(f) All other representations and warranties set forth in the
Original Purchase Agreement are true and correct as of the date
hereof, giving effect to the transactions contemplated hereby.
3.02 Representations and Warranties of Purchaser. Rice represents and
warrants to the Company, F-Jotan, the Southland Purchasers and the
Shareholder:
(a) Rice is a limited partnership, duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its organization.
(b) Rice has the right and power and is duly authorized to
enter into, execute, deliver, and perform this Agreement and the
Second Supplemental Shareholder Agreement, and its officers, managers
or agents executing and delivering this Agreement and the Second
Supplemental Shareholder Agreement are duly authorized to do so.
This Agreement and the Second Supplemental Shareholder Agreement have
been duly and validly executed, issued, and delivered and constitute
the legal, valid, and binding obligation of Rice, enforceable in
accordance with their respective terms.
(c) Rice (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 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 Second Supplemental Preferred Shares, 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 Second Supplemental Preferred
Shares.
(d) Except as otherwise contemplated by this Agreement and the
Shareholder Agreement, Rice is acquiring its Second Supplemental
Series B Preferred Stock, for investment for its own account and not
with a view to any distribution thereof in violation of applicable
securities laws.
(e) Rice agrees that the certificates representing its
Preferred Shares will bear the legends referenced in this Agreement
or the Original Purchase Agreement, as the case may be, and such
Preferred Shares, will not be offered, sold, or transferred in the
absence of registration or exemption under applicable securities
laws.
(f) Rice is not acquiring the Second Supplemental Preferred
Shares based upon any representation, oral or written, by the Company
or the Shareholder or any representative of the Company or the
Shareholder with respect to the future value of, income from, or tax
consequences relating to, such Preferred Shares, but rather upon an
independent examination and judgment as to the prospects of the
Company. Further, Rice acknowledges that no federal or state
administrative entity responsible for securities registration or
enforcement has made any recommendation or endorsement of such
Preferred Shares or any findings as to the fairness of an investment
in the Preferred Shares.
(g) Rice 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 Second
Supplemental Preferred Shares.
Article IV
Covenants
4.01 Original Purchase Agreement Covenants Incorporated Into This
Agreement. The Company will comply with all covenants in Article IV of
the Original Purchase Agreement as if set forth herein at length.
Article V
Conditions
The obligations of Purchaser to effect the transactions contemplated
by this Agreement are subject to the following conditions precedent:
5.01 Shareholder Agreement. The Company, F-Jotan, the Southland
Purchasers and the Shareholder will have entered into the Second
Supplemental Shareholder Agreement with Purchaser.
5.02 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.
5.03 Proceedings; Consents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents
necessary to the consummation of this Agreement, will be satisfactory in
form and substance to Purchaser and its counsel, and 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 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 Second Supplemental Shareholder Agreement will
have been received, be in full force and effect, and not be subject to any
onerous condition.
5.06 Government Filings. All filings under 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, Purchaser and the Shareholder.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies to
which 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 Purchaser, the Southland Purchasers and F-Jotan, the
Holders, and their Affiliates and their respective successors, assigns,
officers, directors, managers, employees, attorneys, and agents
(individually and collectively, an "Indemnified Party") from and against
any and all losses, claims, obligations, liabilities, deficiencies,
penalties, causes of action, damages, costs, and expenses (including,
without limitation, costs of investigation and defense, attorneys' fees,
and expenses), including, without limitation, those arising out of the
contributory negligence of any Indemnified Party, that the Indemnified
Party may suffer, incur, or be responsible for, arising or resulting from,
to the extent applicable, any misrepresentation, breach of warranty, or
nonfulfillment of any covenant or agreement on the part of the Company or
the Shareholder (solely with respect to the representations and warranties
made by him) under this Agreement, the Shareholder Agreement, or under any
other agreement to which the Company or the Shareholder is a party in
connection with this transaction, or from any misrepresentation in or
omission from any certificate or other instrument furnished or to be
furnished to Purchaser or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the
terms of this Agreement cannot be adequately measured or compensated in
money damages, and that any breach or threatened breach of this Agreement
by a party to this Agreement would do irreparable injury to the
nondefaulting party. It is, therefore, agreed that in the event of any
breach or threatened breach by a party to this Agreement of the terms and
conditions set forth in this Agreement, the nondefaulting party will be
entitled, in addition to any and all other rights and remedies that it may
have in law or in equity, to apply for and obtain injunctive relief
requiring the defaulting party to be restrained from any such breach or
threatened breach or to refrain from a continuation of any actual breach.
6.03 Integration. The Purchase Agreement, the Other Agreements, the
First Supplemental Warrant (as defined in the First Supplemental Purchase
Agreement) and all other Warrants, and the Shareholder Agreement (as
amended and confirmed as of the date hereof) constitute the entire
agreement between the parties with respect to the subject matter hereof
and thereof and supersede all previous written, and all previous or
contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder and each Holder.
6.04 Headings. The headings in this Agreement are for convenience
and reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to
the Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree
that it is not the intention of any of them to violate any public policy,
statutory or common law rules, regulations, or decisions of any
governmental or regulatory body. If any provision of this Agreement is
judicially or administratively interpreted or construed as being in
violation of any such policy, rule, regulation, or decision, the
provision, section, sentence, word, clause, or combination thereof causing
such violation will be inoperative (and in lieu thereof there will be
inserted such provision, sentence, word, clause, or combination thereof as
may be valid and consistent with the intent of the parties under this
Agreement) and the remainder of this Agreement, as amended, will remain
binding upon the parties, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
6.06 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be
given to or served upon any of the parties by another, such notice,
demand, request, consent, approval, declaration, or other communication
will be in writing and addressed to the party to be notified as set forth
below. Notices shall be deemed to have been validly served, given or
delivered (and "the date of such notice" or words of similar effect shall
mean the date) five (5) days after deposit in the United States mails,
certified mail, return receipt requested, with proper postage prepaid, or
upon actual receipt thereof with written acknowledgment of receipt
(whether by noncertified mail, telecopy, telegram, facsimile, express
delivery, hand delivery or otherwise), whichever is earlier.
If to Rice, at: Address of Rice beneath the name of Rice on the
signature pages of this Agreement
with courtesy copies to: Patton Boggs, L.L.P.
2200 Ross Avenue
Suite 900
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
FAX: 214-871-2688
If to the Southland
Purchasers, at: Address of the Southland Purchasers beneath the
name of the Southland Purchasers on the signature
pages of this Agreement
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Facsimile: (919) 781-4865
If to F-Jotan, at: Address of F-Jotan beneath the name of F-Jotan on
the signature pages of this Agreement
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Facsimile: (919) 781-4865
If to the Company, at: Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attn: President
Fax: 904-353-0075
If to the Shareholder, Address of such Shareholder beneath his/her
name on the signature pages of this Agreement
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than 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 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.
6.12 Other Business. It is understood and accepted that Purchaser,
F-Jotan, the Southland Purchasers, the Holders, and their Affiliates have
interests in other business ventures that may be in conflict with the
activities of the Company and that nothing in this Agreement will limit
the current or future business activities of such parties whether or not
such activities are competitive with those of the Company. The Company
and the Shareholder agree that all business opportunities that may be
available to such parties in any field substantially related to the
business of the Company will be pursued exclusively through the Company.
6.13 Choice of Law. THIS AGREEMENT WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF FLORIDA
APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN
WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER
PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY
OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to
give or withhold any consent or approval under this Agreement or to take
any other action or omit to take any action under this Agreement, and that
each other Holder may act or refrain from acting under this Agreement as
such other Holder may, in its discretion, elect.
6.15 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.15 WITH
ITS COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
COMPANY, F-JOTAN, PURCHASER, THE SOUTHLAND PURCHASERS AND EACH SHAREHOLDER
HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY, IRREVOCABLY AND
EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR
THE ACTIONS OF THE COMPANY, F-JOTAN, PURCHASER, THE SOUTHLAND PURCHASERS
AND EACH SHAREHOLDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT
HEREOF OR THEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR PURCHASER
TO PURCHASE THE WARRANTS AND PREFERRED STOCK FROM THE COMPANY.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
JOTAN, INC.
BY: /s/ Edward Lipscomb
Edward Lipscomb
Vice President and Chief Financial
Officer
118 West Adams Street
Jacksonville, Florida 32201
Attn: President
Fax: (904) 343-0075
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: /s/ Jeffrey P. Sangalis
Jeffrey P. Sangalis
Managing Director
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: Jeffrey P. Sangalis
Fax: (713) 783-9750
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred Stock
40,000 Shares of Series B Preferred
Stock
13,125 Shares of First
Supplemental Series B
Preferred Stock
1,125 Shares of Second
Supplemental Series B
Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
3,620,473 First Supplemental Warrant
A-2 Shares
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its Manager
By: /s/ James D. Lumsden
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
1,435,705 Shares of Series A
Convertible Preferred Stock
None Shares of Common Stock
None Other Equity Interests
THE SOUTHLAND PURCHASERS:
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its Manager
By: /s/ James D. Lumsden
James D. Lumsden, Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred Stock
5,000 Shares of Series B
Preferred Stock
None Shares of Common Stock
359,315 Warrant B-1 Shares
1,197,716 Warrant B-2 Shares
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: /s/ James D. Lumsden
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred Stock
5,000 Shares of Series B
Preferred Stock
None Shares of Common Stock
359,315 Warrant C-1 Shares
1,197,716 Warrant C-2 Shares
SHAREHOLDER:
/s/ Shea E. Ralph
Shea E. Ralph
OWNED ON CLOSING DATE:
950,000 Shares of Common Stock Owned
on Closing Date
33,000 Other Equity Interests
<PAGE>
ANNEX A
[Second Supplemental Shareholder Agreement]
<PAGE>
SECOND SUPPLEMENTAL PREFERRED STOCK
PURCHASE AGREEMENT
Jotan, Inc.
the "Company"
the Shareholders as set forth on the signature pages hereof
the "Shareholder"
and
Rice Partners II, L.P. (the "Purchaser"),
and
F-Southland, L.L.C. and FF-Southland, L.P.
F-Jotan
January 23, 1998
<PAGE>
SECOND SUPPLEMENTAL SHAREHOLDER AGREEMENT
SECOND SUPPLEMENTAL SHAREHOLDER AGREEMENT (the "Agreement") made as
of January 23, 1998, by and among JOTAN, INC., a Florida corporation (the
"Company"), the SHAREHOLDERS of the Company listed on the signature pages
hereof (individually and collectively, as the context requires, the
"Shareholder"), RICE PARTNERS II, L.P., a Delaware limited partnership
("Rice" or "Purchaser"), and F-SOUTHLAND, L.L.C., a North Carolina limited
liability company ("F-Southland"), FF-SOUTHLAND , L.P., a Delaware limited
partnership ("FF-Southland" and together with F-Southland, the "Southland
Purchasers"), F-JOTAN, L.L.C., a North Carolina limited liability company
("F-Jotan") and of the shareholder named on the signature pages hereto the
"Shareholder").
W I T N E S S E T H:
WHEREAS, 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 (reflecting the departure of David Freedman on December 31,
1997 from employment at the Company and the termination of his options to
purchase up to 275,000 of the Company's Common Stock);
WHEREAS, F-Jotan is the owner of the 1,329,357 shares of the Series A
Preferred Stock of the Company as of the date hereof;
WHEREAS, SHC Acquisition Corp., a wholly-owned Subsidiary of the
Company, has merged with and into Southland Holding Company, with
Southland Holding Company surviving and assuming all the obligations of
SHC Acquisition Corp. under the Original Purchase Agreement. On July 31,
1997, all of the subsidiaries of Southland Holding Company and Atlantic
Bag & Paper Company, a Subsidiary of the Company, merged with and into
Southland Holding Company (which concurrently changed its name to
Southland Container Packaging Corp.), with the result that Southland
Container Packaging Corp.("Southland"), as of July 31, 1997, had no
Subsidiaries;
WHEREAS, the Company, Southland, Rice and the Southland Purchasers
have entered into that certain Note Purchase Agreement, dated as of
February 28, 1997, as amended by Amendment No. 1, dated as of August 19,
1997 and Amendment No. 2, dated as of November 6, 1997 (the "Note
Agreement");
WHEREAS, the Company entered into that certain First
Supplemental Preferred Stock and Warrant Purchase Agreement dated as of
September 10, 1997, by and among the Company, Rice, Southland Purchasers,
F-Jotan, and the Shareholder (the "First Supplemental Purchase Agreement")
and the Company is, as of the date hereof, entering into the Second
Supplemental Preferred Stock Purchase Agreement (the "Second Supplemental
Purchase Agreement", the First Supplemental Purchase Agreement and the
Preferred Stock and Warrant Purchase Agreement dated as of February 28,
1997, as the same may be further supplemented, modified, amended or
restated from time to time, collectively being called the "Purchase
Agreement");
WHEREAS, the Company and the Shareholder have entered into a
Shareholder Agreement, dated as of February 28, 1997 (the "Original
Shareholder Agreement"), with each Purchaser and F-Jotan and the First
Supplemental Shareholder Agreement dated as of September 10, 1997 (the
"First Supplemental Shareholder Agreement," together with the Original
Shareholder Agreement and this Agreement the "Shareholder Agreement"), by
and Company, Rice, F-Southland, FF-Southland and F-Jotan and each of the
Shareholders who are signatories to the respective agreements; and
WHEREAS, Rice is willing to purchase $250,000 (the "Purchase Price")
of Series B Preferred Stock, to enable the Company to make certain
payments to certain minority interests as more fully described in the
Second Supplemental Purchase Agreement; and
WHEREAS, the parties hereto desire to amend and confirm portions of
the Original Shareholder Agreement (as amended and confirmed hereby, this
"Agreement").
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Purchaser, the Shareholder, and the Company, intending
to be legally bound, agree as follows:
Article I
Definitions
All terms used in this Agreement will have the meanings ascribed to
them in the Purchase Agreement unless otherwise specifically defined in
this Agreement.
For purposes of Articles II and VII of this Agreement only, the term
"Holder" (as defined in the Purchase Agreement) shall also mean and
include F-Jotan and the term "Registrable Securities" shall mean and
include the Series A Preferred Stock and the Common Stock issuable upon
conversion of the Series A Preferred Stock.
Article II
Waiver Certain Preemptive Rights of the Holders
2.01 Preemptive Right Waiver. The Company will not issue or sell any
New Securities without SECOND complying with this Article II of the
Original Shareholder Agreement; provided, however, that for purposes of
this Agreement and the Purchase Agreement, each such Holder hereby waives
its preemptive rights with respect to the issuance of the Second Supple-
mental Preferred Shares.
Article III
Confirmation and Incorporation of Original Shareholder Agreement
3.01 Original Shareholder Agreement Provisions Incorporated into this
Agreement. Except as set forth above, all other provisions of the
Original Shareholder Agreement are hereby confirmed as if incorporated
herein at length herein with full application to the Second Supplemental
Warrant and the Second Supplemental Preferred Shares (it being agreed that
such securities shall treated in all respects as Capital Stock).
Accordingly, the Supplemental Preferred Shares shall be treated as if such
securities were issued on the Original Closing Date and are Registrable
Securities hereunder and under the Original Shareholder Agreement for all
purposes.
Article IV
Conditions
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions:
4.01 Purchase Agreement Conditions. All of the conditions precedent
to the obligations of the Purchaser under the Second Supplemental Purchase
Agreement will have been satisfied in full or waived.
4.02 Proceedings. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary
to the consummation thereof, will be reasonably satisfactory in form and
substance to each Purchaser and its counsel, and each Purchaser and its
counsel will have received copies (executed or certified as may be
appropriate) of all documents, instruments, and agreements that such
Purchaser or its counsel may request in connection with the consummation
of such transactions.
Article V
Miscellaneous
5.01 Indemnification. In addition to any other rights or remedies to
which each Purchaser and the Holders may be entitled, the Company and the
Shareholder (solely with respect to the representations and warranties
made by him herein) severally but not jointly agree to and will indemnify
and hold harmless each Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors, managers,
employees, attorneys, and agents (individually and collectively, an
"Indemnified Party") from and against any and all losses, claims,
obligations, liabilities, deficiencies, diminutions in value, penalties,
causes of action, damages, out-of-pocket costs, including, without
limitation, all such costs of directors of the Company incurred in
performing duties or services for or on behalf of the Company, reasonable
attorneys' fees, and expenses (including, without limitation, costs and
expenses of investigation and defense, attorneys' fees and expenses)
including, without limitation, those arising out of the contributory
negligence of any Indemnified Party, that any Indemnified Party may
suffer, incur, or be responsible for, arising or resulting from, to the
extent applicable, any misrepresentation, breach of warranty, or
nonfulfillment of any agreement made by or on the part of the Company or
made by the Shareholder (solely with respect to the representations and
warranties made by him herein) under this Agreement, the Purchase
Agreement, or the other Purchase Documents, the Acquisition Agreement
(each as defined in Section 11.1 of the Note Agreement together with all
supplements and amendments to each such agreement or document as of the
date hereof) or under any other agreement to which the Company or the
Shareholder is a party in connection with the transactions contemplated by
this transaction, or from any misrepresentation in or omission from any
certificate or other instrument furnished or to be furnished by the
Company to the Purchaser or the Holders under this Agreement. The
foregoing indemnification includes any such claims, actions, damages,
costs and expenses incurred by reason of the contributory negligence of
the Person to be indemnified, but excludes any of the same incurred by
reason of such Person's gross negligence or willful misconduct and shall
survive the expiration of this Agreement or the irrevocable sale by each
Purchaser of its interests in, or the repayment of its loans to, the
Company.
5.02 Default. It is agreed that a violation by any party of the
terms of this Agreement cannot be adequately measured or compensated in
money damages, and that any breach or threatened breach of this Agreement
by a party to this Agreement would do irreparable injury to the
nonbreaching party. It is, therefore, agreed that in the event of any
breach or threatened breach by a party to this Agreement of the terms and
conditions set forth in this Agreement, the nondefaulting party will be
entitled, in addition to any and all other rights and remedies that it may
have in law or in equity, to apply for and obtain injunctive relief
requiring the defaulting party to be restrained from any such breach, or
threatened breach or to refrain from a continuation of any actual breach.
5.03 Integration. The Shareholder Agreement, the Other Agreements,
the First Supplemental Warrant (as defined in the First Supplemental
Purchase Agreement ) and all other Warrants 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 amended or
supplemented except by a writing signed by Company, the Shareholder, and
each Holder.
5.04 Headings. The headings in this Agreement are for convenience
and reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to
the Sections and Articles of this Agreement unless otherwise specified.
5.05 Severability. The parties to this Agreement expressly agree
that it is not their intention to violate any public policy, statutory or
common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any
such policy, rule, regulation, or decision, the provision, section,
sentence, word, clause, or combination thereof causing such violation
will be inoperative (and in lieu thereof there will be inserted such
provision, sentence, word, clause, or combination thereof as may be valid
and consistent with the intent of the parties under this Agreement) and
the remainder of this Agreement, as amended, will remain binding upon the
parties to this Agreement, unless the inoperative provision would cause
enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
5.06 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be
given to or served upon any of the parties by another, such notice,
demand, request, consent, approval, declaration, or other communication
will be in writing and will be deemed to have been validly served, given,
or delivered (and "the date of such notice" or words of similar effect
will mean the date) five (5) days after deposit in the United States
mails, certified mail, return receipt requested, with proper postage
prepaid, or upon receipt thereof with written acknowledgment of receipt
(whether by non-certified mail, telecopy, telegram, express or hand
delivery, or otherwise), whichever is earlier, and addressed to the party
to be notified as follows:
If to the Rice, at: Address of Rice beneath the name of Rice on the
signature pages of this Agreement
with courtesy copies to: Patton Boggs, L.L.P.
2200 Ross Avenue
Suite 900
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Fax: 214-871-2688
If to F-Jotan, at: Address of F-Jotan beneath the name of F-Jotan on
the signature pages of this Agreement
with courtesy copies to: The Southland Purchasers
If to the Company, at: Jotan, Inc.
118 West Adams Street
Jacksonville, Florida 32202
Attn: President
Fax: (904) 353-0075
with courtesy copies to: Wyrick, Robins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr.
Fax: (919) 781-4865
If to the Shareholder, at: Address of such Shareholder beneath the
name of such Shareholder on the signature
pages of this Agreement
If to the Southland
Purchasers: Address of such Southland Purchasers under
their respective names on the signature
pages of this
Agreement
with courtesy copies to: F-Jotan
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than the Purchaser will be delivered
as set forth above to the address shown on the stock transfer books of the
Company or the Warrant Register unless such Holder has advised the Company
in writing of a different address to which notices are to be sent under
this Agreement.
Failure or delay in delivering the courtesy copies of any notice,
demand, request, consent, approval, declaration, or other communication to
the persons designated above to receive copies of the actual notice will
in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration, or other
communication will be deemed to have been given or received unless and
until it sets forth all items of information required to be set forth
therein pursuant to the terms of this Agreement.
5.07 Successors. This Agreement will be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns; 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 SECOND agrees in writing to be bound by the
terms and conditions of this Agreement and the Purchase Agreement, and the
agreements and instruments related hereto and thereto, in a form and
substance reasonably satisfactory to the Company.
5.08 Remedies. The failure of any party to enforce any right or
remedy under this agreement, or to enforce any such right or remedy
promptly, will not constitute a waiver thereof, nor give rise to any
estoppel against such party, nor excuse any other party from its
obligations under this Agreement. Any waiver of any such right or remedy
by any party must be in writing and signed by the party against which such
waiver is sought to be enforced.
5.09 Survival. All warranties, representations, and covenants made
by any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
considered to have been relied upon by the party to which it is delivered
and will survive the Closing Date, regardless of any investigation made by
such party or on its behalf. All statements in any such certificate or
other instrument will constitute warranties and representations under this
Agreement.
5.10 Fees. Any and all fees, costs, and expenses, of whatever kind
and nature, including attorneys' fees and expenses, incurred by the
Holders in connection with the defense or prosecution of any actions or
proceedings arising out of or in connection with this Agreement will, to
the extent provided in this Agreement, be borne and paid by the Company
within ten (10) days of demand by the Holders.
5.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
5.12 Other Business. It is understood and accepted that each
Purchaser, the Holders, and their Affiliates have interests in other
business ventures that may be in conflict with the activities of the
Company and that nothing in this Agreement will limit the current or
future business activities of such parties whether or not such activities
are competitive with those of the Company. The Company and the
Shareholder agree that all business opportunities available to them in any
field substantially related to the business of the Company will be pursued
exclusively through the Company.
5.13 Choice of Law. THIS AGREEMENT WILL BE DEEMED TO HAVE BEEN MADE
IN JACKSONVILLE, FLORIDA AND WILL BE INTERPRETED AND THE RIGHTS OF THE
PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF FLORIDA
APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN
WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER
PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY
OTHER JURISDICTION.
5.14 Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner of
such Registrable Securities, the beneficial owner of Registrable
Securities may, at its election, be treated as the Holder of such
Registrable Securities for purposes of any request or other action by any
Holder or Holders of Registrable Securities pursuant to this Agreement or
any determination of any number or percentage of shares of Registrable
Securities held by any Holder or Holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. In no event will a Holder be required to exercise
its Warrant as a condition to the registration of such Warrant or
Registrable Securities thereunder.
5.15 Fiduciary Duties. The Company acknowledges and agrees that, for
so long as any Warrant is outstanding and regardless of whether the Holder
has exercised any portion of this its Warrant, (a) the officers and
directors of the Company will owe the same duties (fiduciary and
otherwise) to the Holder as are owed to a stockholder of the Company and
(b) the Holder will be entitled to all rights and remedies with respect to
such duties or that are otherwise available to a stockholder of the
Company under the Florida General Corporation Law, as amended from time to
time.
5.16 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to
give or withhold any consent or approval under this Agreement or to take
any other action or omit to take any action under this Agreement, and that
each other Holder may act or refrain from acting under this Agreement as
such other Holder may, in its discretion, elect.
5.17 Confidentiality. Each Holder agrees to keep confidential any
information delivered by the Company to such Holder under this Agreement
that the Company clearly indicates in writing to be confidential
information; provided, however, that nothing in this Section 5.17 will
prevent such Holder from disclosing such information (a) to any Affiliate
of such Holder or any actual or potential purchaser, participant,
assignee, or transferee of such Holder's rights or obligations hereunder
that agrees to be bound by the terms of this Section 5.17, (b) upon order
of any court or administrative agency, (c) upon the request or demand of
any regulatory agency or authority having jurisdiction over such Holder,
(d) that is in the public domain, (e) that has been obtained from any
Person that is not a party to this Agreement or an Affiliate of any such
party without breach by such Person of a confidentiality obligation known
to such Holder, (f) in connection with the exercise of any remedy under
this Agreement, or (g) to the certified public accountants for such
Holder. The Company agrees that such Holder will be presumed to have met
its obligations under this Section 5.17 to the extent that it exercises
the same degree of care with respect to information provided by the
Company as it exercises with respect to its own information of similar
character.
5.18 Confirmation of Original Shareholder Agreement. Except as
amended and supplemented hereby, the Original Shareholder Agreement and
the First Supplemental Shareholder Agreement shall remain in full force
and effect, and, as so amended and supplemented, such agreements are
hereby confirmed in their entirety.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date SECOND above written.
COMPANY:
JOTAN, INC.
BY: /s/ Edward Lipscomb
Edward Lipscomb
Vice President and Chief Financial
Office
118 West Adams Street
Jacksonville, Florida 32201
Attn: President
Fax: (904) 343-0075
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: /s/ Jeffrey P. Sangalis
Name: Jeffrey P. Sangalis
Its: Managing Director
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attn: Jeffrey P. Sangalis
Fax: (713) 783-9750
OWNED ON CLOSING DATE:
None Shares of Series A Convertible
Preferred Stock
40,000 Shares of Series B Preferred
Stock
13,125 Shares of First Supplemental
Series B Preferred Stock
1,250 Shares of Second Supplemented
Series B Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
3,620,473 First Supplemental Warrant
A-2 Shares
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital,
L.L.C., its manager
By: Franklin Capital, L.L.C.,
its manager
By: /s/ James P. Lumsden
James P. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
1,329,357 Shares of Series A
Convertible Preferred Stock
None Shares of Common Stock
None Other Equity Interests
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: /s/ James D. Lumsden
James D. Lumsden,
Manager
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A Convertible
Preferred Stock
5,000 Shares of Series B Redeemable
Preferred Stock
None Shares of Common Stock
359,315 Warrant B-1 Shares
1,197,716 Warrant B-2 Shares
FF-SOUTHLAND, L.P.
By: FSFC Associates, L.P.,
Its general partner
By: Franklin Capital, L.L.C.,
Its general partner
By: /s/ James D. Lumsden
James D. Lumsden,
Manager
702 Oberlin Road, Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Facsimile: (919) 743-2501
OWNED ON CLOSING DATE:
None Shares of Series A Convertible
Preferred Stock
5,000 Shares of Series B Redeemable
Preferred Stock
None Shares of Common Stock
359,315 Warrant C-1 Shares
1,197,716 Warrant C-2 Shares
SHAREHOLDER:
/s/ Shea E. Ralph
Shea E. Ralph
OWNED ON CLOSING DATE:
950,000 Shares of Common Stock Owned
on Closing Date
33,000 Common Stock Options
<PAGE>
__________________________________________________________________________
__________________________________________________________________________
SECOND SUPPLEMENTAL SHAREHOLDER AGREEMENT
JOTAN, INC.
the "Company"
the Shareholders as set forth on the signature pages hereof
the "Shareholder"
and
Rice Partners II, L.P.,
the "Purchaser"
and
F-Jotan, and
F-Southland L.L.C. and FF-Southland, L.P.,
January 10, 1997
__________________________________________________________________________
__________________________________________________________________________
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 22nd day of
November, 1996, (the "Effective Date") between JOTAN, INC., a Florida
corporation, including its successors, assigns, and affiliated companies
(the "Company"), and Shea E. Ralph ("Employee").
Section 1. Employment. The Company hereby agrees to employ
Employee and Employee hereby agrees to remain in the employ of the
Company, for a three (3) year period commencing on the Effective Date (the
"Employment Period").
Section 2. Position and Duties.
(a) The Board of Directors of the Company has appointed
Employee as President and Chief Executive Officer of the Company.
(b) During the Employment Period, Employee shall report to the
Board of Directors of the Company. Employee's services will be performed
at the location designated by the Board of Directors.
(c) The duties of Employee shall be those assigned to Employee
by the Board of Directors of the Company. Employee acknowledges that his
duties may vary from time to time and he further acknowledges that the
Company retains the flexibility to assign various types of duties to
Employee. Employee does not have the authority to enter into any
contracts on behalf of the Company or set salaries for any corporate
employee without the prior approval of the Board of Directors.
(d) Excluding periods of vacation and sick leave to which
Employee is entitled as set forth in Section 3(d) hereof, Employee agrees
that during the Employment Period he shall devote his full business time
to his responsibilities as described herein and shall perform such
responsibilities faithfully and efficiently and to the best of his
abilities. Employee will not work as an employee of any other person,
business, or entity, including self-employment, while in the employment of
the Company, without prior written permission from the Company.
Notwithstanding the foregoing, Employee may serve on corporate, civic or
charitable boards or committees so long as such activities do not
materially interfere with the performance of Employee's duties and
responsibilities for the Company.
(e) The Company shall reimburse Employee for reasonable travel,
lodging, entertainment and other business expenses incurred by him in
connection with the Company's business, and Employee shall keep such
receipts and maintain such records as required by Company policy.
Section 3. Compensation. During the Employment Period, Employee
shall receive the following compensation and benefits:
(a) Salary.
(i) Employee shall receive a salary of Eighty-five
Thousand Dollars ($85,000.00) per annum ("Base
Salary"). Employee's Base Salary shall be reviewed
annually and may be adjusted, in the sole discretion
of the Company, to reflect cost of living or the
achievement of annual performance goals set by the
Board of Directors or Compensation Committee of the
Company.
(ii) If Employee achieves the performance goals referred to
in clause (i) above, and Employee is then employed by
the Company, then once per year, within forty-five
(45) days of satisfying such goals as determined by
the Board of Directors or Compensation Committee of
the Company, Employee shall be entitled to receive
such cash bonuses and stock options and/or other
awards as determined by the Board of Directors or
Compensation Committee of the Company.
(iii) Any salary payable to Employee shall be paid bi-
monthly, in arrears, by Company check.
(b) Life Insurance. The Company shall use reasonable efforts
to secure one or more policies of standard term life insurance on the life
of Employee from a "AAA" rated provider providing, in the aggregate, a
face amount of not less than $500,000 in the event of Employee's death
during the Employment Period (with a provision for double indemnity in the
case of accidental death) (the "Death Benefit") payable to a beneficiary
chosen by Employee and to maintain such policy or policies in effect
throughout the Employment Period, and to assign such policy to or pursuant
to the directions of Employee at the termination of Employee's employment;
provided, however, that the Company shall be required to secure and pay
for such policy or policies only if the same is commercially available to
the Company at a cost and pursuant to such terms and conditions as are
acceptable to the Company. The life insurance benefit provided pursuant
to this Section 3(b) shall be integrated with the Company's normal life
insurance benefit program so that upon the death of Employee during the
Employment Period in no event shall the Employee's beneficiary be entitled
to receive an amount in excess of the Death Benefit.
(c) Disability and Health Insurance. The Company shall provide
Employee with disability and health insurance in accordance with Company
policy.
(d) Vacation and Sick Leave. Employee shall be entitled to
vacation and sick leave in accordance with Company policy.
Section 4. Termination.
(a) This Agreement may be terminated with 30-days' prior
written notice by the Company only for cause. The term "cause" means (i)
the willful and continued failure of Employee substantially to perform his
duties with the Company after a demand for substantial performance is
communicated to him by the Board of Directors which identifies the manner
in which the Board believes he has not substantially performed his duties,
(ii) willful misconduct materially and demonstrably injurious to the
Company, or (iii) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against the Company or any affiliate, or
conviction of Employee for a felony or any crime involving moral turpitude
(which conviction, due to the passage of time or otherwise, is not subject
to further appeal). An act or failure to act by Employee shall be
considered willful if such act or failure to act was not in good faith or
such act or failure to act was without reasonable belief that it was in
the best interests of the Company. Upon termination for cause, Employee
shall not be entitled to any payments or other rights under this
Agreement.
(b) If Employee is terminated by the Company for any reason
other than cause as defined above, in addition to any other rights and
remedies Employee may have under this Agreement or otherwise, all earned
and awarded and unvested options to purchase capital stock of the Company
then held by Employee shall become immediately vested and exercisable. In
addition, the Company shall be obligated to continue to pay Employee's
salary as set forth in Section 3(a) above for the remainder of the
Employment Period.
(c) Upon termination of Employee's employment for cause,
Employee shall resign from the Board of Directors of the Company if he is
then a director, and from the Board of Directors of any affiliates of the
Company of which he is then a director. Such resignation shall be
effective no later than the effective date of termination of his
employment.
(d) This Agreement shall terminate upon death of Employee and
all payments due under this Agreement shall cease at such time.
Section 5. Confidentiality and Trade Secrets. Employee's work for
the Company will involve confidential information and/or trade secrets of
the Company, including matters of a technical nature, such as scientific,
trade and engineering secrets, formulae, processes, machines, inventions,
and research projects; matters of business nature, such as information
about costs, profits, markets, sales, lists of customers and vendors,
databases, computer programs, and models; and other information of a
similar nature, including plans for future products and services.
Employee agrees to keep secret all confidential information and trade
secrets of the Company and agrees not to disclose, either directly or
indirectly, such information to anyone outside the Company, during or
after Employee's employment with the Company except upon written consent
of the Board of Directors. Employee shall keep such matters confidential
after leaving the employment of the Company, regardless of the reason for
the separation of employment.
Section 6. Agreement Not to Compete.
(a) Employee covenants and agrees that during his employment
with the Company and (a) for a period of two (2) years following the
termination of this Agreement if terminated by the Company for cause or if
terminated by Employee or (b) for a period of six (6) months following
termination of the payment of salary due under Section 4(b) of this
Agreement if terminated by the Company other than for cause, or for such
foregoing period as applicable following the Company obtaining injunctive
relief to prevent Employee's violation of this covenant, Employee shall
not, either directly or indirectly, engage in the following activities, or
assist others in such activities in any location where the Company
conducts its business at the time of the termination of Employee's
employment with the Company:
(i) Hiring, recruiting, or attempting to recruit for any
person or business entity which is a competitor, or a
Related Entity (as hereafter defined) of such
competitor, with the Company, any person employed by
the Company; or
(ii) Soliciting any business for a competitor, or a Related
Entity of such competitor, from any of the Company's
current or prospective customers, a prospective
customer being defined as a person or entity the
Company has actively solicited, planned to solicit (as
known to Employee), or provided services to during the
twelve (12) months prior to termination of the
Employee's employment with the Company.
(b) Employee acknowledges that the Company does business
distributing corrugated boxes and packaging products in various locations
in the United States and that, with respect to such business, the Company
engages in active and substantial competition. For purposes of this
Agreement, the term "Related Entity" means any corporation, partnership or
other business entity:
(i) controlling, controlled by, or under common control or
ownership with a competitor of the Company's business;
or
(ii) in which a competitor of the Company's business has
substantial equity interest.
(c) Employee will provide the Company with such information as
the Company may from time to time request to determine Employee's
compliance with the terms of this Agreement. Employee authorizes the
Company to contact Employee's future employers and other entities with
whom Employee has any sort of business relationship to determine
Employee's compliance with this Agreement or to communicate the contents
of this Agreement to such employers and entities.
(d) Employee acknowledges that the restrictions set forth in
this Section 6 are necessary to prevent the use and disclosure of the
Company's confidential information as described in Section 5 and to
otherwise protect the legitimate business interests of the Company.
Employee further acknowledges that if Employee's employment with the
Company terminates for any reason, he will be able to earn a livelihood
without violating the foregoing restrictions and that Employee's ability
to earn a livelihood without violating such restrictions is a material
condition to Employee's employment or continued employment with the
Company. Employee agrees that this covenant is reasonable and shall apply
both during the term of Employee's employment under this Agreement and
there as described above, regardless of how said employment is terminated.
Section 7. Remedies.
(a) The Company and Employee agree that irreparable injury
would result from any breach by Employee of the provisions in this
Agreement, specifically including the Agreement Not To Compete set forth
in Section 6, and that monetary damages would not provide adequate relief
for any such breach. Accordingly, in addition to other remedies which may
be available to the Company, if Employee breaches Section 6 of this
Agreement, Employee agrees that injunctive relief in favor of the Company
is proper and that an injunction restraining Employee from violating the
terms of the Agreement Not To Compete Section will not be contrary to the
public health, safety or welfare. Further, Employee acknowledges that the
covenants contained in the Agreement Not To Compete Section are
reasonable, and Employee agrees that neither he nor any other person on
his behalf shall contest any injunctive relief sought or obtained by the
Company to enforce such covenants.
(b) If a court of competent jurisdiction determines that any of
the restrictions in this Agreement are overbroad or unreasonable, Employee
agrees to modification of the affected restriction(s) to permit
enforcement to the maximum extent allowed by law.
(c) With the exception of the availability of injunctive relief
with respect to the Agreement Not to Compete set forth in Section 6, in
the event that the parties are unable to resolve a dispute, including but
not limited to a dispute relating to a conflict-of-interest issue, both
parties agree to binding arbitration to resolve the dispute, with each
party designating one arbitrator and the two designated arbitrators
choosing a neutral third arbitrator whose name appears on the list of
neutral arbitrators maintained by the American Arbitration Association.
Each party shall designate its arbitrator within twenty (20) days of
written notice being given by either party and the third arbitrator shall
be designated within ten (10) days of the designation of the two parties'
arbitrators. If feasible, the arbitration shall be completed within
thirty (30) days of designation of the arbitrators. Arbitration fees
shall be paid jointly by the parties. If a party fails to comply with
provisions of this paragraph, the other party may seek and obtain
injunctive relief or any appropriate decree of specific performance
against the breach of this paragraph, and the party which failed to comply
with the paragraph shall reimburse the other party for any costs
associated with enforcing this paragraph.
Section 8. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be in writing and
personally delivered by hand or sent by registered or certified mail, if
to Employee, to him at the last address he has filed in writing with the
Company or, if to the Company, to its corporate secretary at its principal
executive offices.
Section 9. Non-Alienation. Employee shall not have any right to
pledge, hypothecate, anticipate, or in any way create a lien upon any
amounts provided under this Agreement, and no payments or benefits due
hereunder shall be assignable in anticipation of payment either by
voluntary or involuntary acts or by operation of law. So long as Employee
lives, no person, other than the parties hereto, shall have any rights
under or interest in this Agreement or the subject matter hereof.
Section 10. Entire Agreement; Amendment. This Agreement
constitutes the entire agreement of the parties in respect to the subject
matter hereof, and supersedes that certain Agreement between Employee and
the Company dated ___________. No provision of this Agreement may be
amended, waived or discharged except by the mutual written agreement of
the parties. The consent of any other person to any such amendment,
waiver or discharge shall not be required.
Section 11. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors or
assigns, by operation of law or otherwise, including without limitation
any corporation or other entity or person which shall succeed (whether
directly or indirectly, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company.
Except as otherwise provided herein, this Agreement shall be binding upon
and inure to the benefit of Employee and his legal representatives, heirs,
and assigns.
Section 12. Withholding of Taxes. The Company may withhold from
any benefits payable under this Agreement all federal, state, city or
other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
Section 13. Governing Law. The validity, interpretation, and
enforcement of this Agreement shall be governed by the laws of the State
of Florida.
Section 14. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect.
Section 15. Miscellaneous. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but
all of which together constitute one and the same instrument. The parties
have read and fully understand the meaning of this Agreement, have had an
opportunity to consider its provisions, and are in full agreement with all
of the provisions.
IN WITNESS WHEREOF, Employee has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused
these presents to be executed in its name on its behalf, and its corporate
seal to be hereunto affixed and attested by its Secretary or Assistant
Secretary, all as of the day and year first shown above written.
ATTEST: JOTAN, INC.
By: /s/ David Freedman By: /s/ Shea Ralph
David Freedman Shea Ralph
/s/ Shea Ralph
Employee
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is hereby entered into this
2nd day of October, 1997, between Jotan, Inc., a Florida corporation
("Employer" or "Company"), and Edward Lipscomb, an individual residing in
Monroe, LA ("Employee").
WITNESSETH:
Employer wishes to obtain or keep the services of Employee and
Employee wishes to be employed by Employer upon the terms and conditions
set forth herein.
Now, therefore, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto agree as
follows:
1. Employment. Employer hereby agrees to employ or continue to
employ Employee and Employee agrees to serve Employer as an employee for
the term of this Agreement and upon the terms and conditions herein set
forth.
2. Responsibilities. During the term of this Agreement Employee
shall serve as a Vice President & Chief Financial Officer for the
Employer's headquarters location or in such other position as Employer's
Board of Directors or its designee shall determine. Employee shall be
responsible for such matters as the Board of Directors or its designee may
from time to time determine and Employee's services shall be subject to
the direction of such Board of Directors and its designees).
Employee will devote Employee's full working time, attention and
energy to the affairs of Employer or its subsidiaries, as directed by
Employer's Board of Directors or its designee. (As used herein, the term
"subsidiary" shall mean any company 51% or more of whose outstanding stock
is owned by another company and "wholly-owned subsidiary" shall mean any
company 80% or more of whose outstanding stock is owned by another
company.) Employee shall diligently and to the best of Employee's ability
perform all duties incident to Employee's employment hereunder. Employee
shall use Employee's best efforts to promote the interests of Employer.
3. Compensation. As compensation for Employee's services during
the term of this Agreement, Employer shall pay Employee in accordance with
the schedule attached hereto as Exhibit "A" and incorporated herein by
reference.
4. Term. This Agreement shall be effective as of October 1, 1997.
Subject to the provisions for termination as set forth in Section 5, the
term of this Agreement shall be for five years; provided, that the term of
this Agreement shall be automatically extended for successive one year
terms thereafter so long as neither party hereto has given the other
written notice of termination at least sixty days prior to the end of the
original term or the end of any subsequent one-year term.
5. Termination. In addition to termination pursuant to the
provision of Section 4, this Agreement will terminate (a) upon the death
of Employee, (b) upon written notice of termination from Employer after
Employee has been unable, due to a disability, to perform the essential
functions of his position, with or without reasonable accommodation, for
at least ninety (90) days in any twelve (12) month period, (c) upon thirty
(30) days written notice by Employer that it is terminating Employee
without cause, or (d) upon written notice by Employer that it is
terminating Employee for Cause.
5.1 "Cause," as used in this Section, shall be defined to
include the following:
(a) Employee commits or is convicted of a felonious
offense or a crime involving moral turpitude; or
(b) Employee has dishonestly dealt with the assets or
business of Employer in a manner which has caused the
Employer material harm; or
(c) Employee has misappropriated or disclosed to others in
competition with Employer any confidential information
of Employer, including trade secrets, customer lists,
plans, or other intellectual property interest of
Employer; or
(d) Employee has used illegal drugs, has abused
prescription drugs, has been intoxicated by alcohol or
drugs - while working or representing Employer or has
been guilty of gross negligence or misconduct in the
execution of his duties for Employer which has caused
the Employer material harm; or
(e) Employee fails to abide by reasonable rules of conduct
or policies promulgated by Employer governing conduct
of its Employees or Employee engages in any activity
or business relationship that conflicts with any
interest of Employer and as a result of either of
these two faults has caused the Employer material
harm; or
(f) Employee has breached the terms of this Agreement or
has otherwise materially failed to perform his
obligations hereunder.
5.2 If Employee is terminated with Cause, Employer shall be
required to pay only Employee's compensation through the effective
date of termination and Employer shall be entitled to relieve
Employee of Employee's duties during any notice period prior to the
effective date of termination.
5.3 Employee may resign Employee's employment hereunder upon
ninety (90) days written notice of his intent to resign; provided,
however, that Employee agrees to remain employed pursuant to the
terms of this Agreement for an additional period of up to ninety (90)
days after the initial notice period at the request of Employer if
Employer makes such request more than ten (10) days prior to the end
of the initial notice period. If Employee resigns, Employer shall be
entitled to relieve Employee of Employee's duties during any portion,
or all, of the notice period.
6. Non-Competition.
6.1 The parties acknowledge:
(a) that Employee's services under this Agreement will
require special expertise and talent in the Business
Activities (as defined below) and that Employee has
developed or will develop substantial contacts with
suppliers and industrial and commercial customers of
Employer and its subsidiaries;
(b) that Employee will be well-compensated under this
Agreement for the expertise, knowledge and contacts
Employee has obtained and will obtain;
(c) that pursuant to this Agreement, Employee will be
placed in a position of trust and responsibility and
he will have access to a substantial amount of
Confidential Information and Trade Secrets and that
Employer is placing Employee in such position and
giving Employee access to such information in reliance
upon Employee's not competing against Employer or its
subsidiaries, and not soliciting Employer's or its
subsidiaries, industrial and commercial customers
during the time periods set forth in this Agreement;
(d) that due to Employee's special experience and talent,
the loss of Employee's services to Company under this
Agreement cannot reasonably or adequately be
compensated solely by damages in an action at law;
(e) that Employee is or will be capable of competing with
and substantially harming Employer and its
subsidiaries and has or will have more than adequate
experience, customer contact, supplier contact, name
recognition and industry reputation to start and/or
sustain a competing business; and
(f) that the terms of this Section 6 are necessary to
protect Employer's legitimate business interests and
confidential information and that Employee's
competition with Employer or its subsidiaries or other
violation of the covenants set forth below would cause
substantial and irreparable harm to Employer.
6.2 For purposes of this Agreement, "Trade Secrets" shall mean
all secret, proprietary or confidential information regarding
Employer or its business, whether developed by Employee or otherwise,
including any and all information not generally known to, or
ascertainable by, persons not employed by Employer, the disclosure or
knowledge of which would permit those persons to derive actual or
potential economic value therefrom or to cause economic or financial
harm to Employer. "Trade Secrets" shall not include information that
has become generally available to the public by the act of one who
has the right to disclose such information without violating a legal
right of Employer.
6.3 For purposes of this Agreement, "Confidential Information"
means information, other than Trade Secrets, which relates to
Employer, Employer's business, or Employer's suppliers or customers
that is not generally known by persons not employed by Employer and
which Employee has learned as a consequence of Employee's
relationship to Employer. Such information includes, without
limitation, financial information, strategic plans and forecasts,
marketing plans and forecasts, customer lists, customer pricing and
order data, supplier lists, or technical information relating to
Employer's products or services. Confidential Information shall not
include information which has become generally available to the
public by the act of one who has the right to disclose such
information without violating a legal right of Employer.
6.4 During the time that Employee is an employee of Employer,
and for a period of one (1) year thereafter (regardless of whether
Employee's employment terminates voluntarily or involuntarily or with
or without cause), Employee shall not, directly or indirectly, seek
or obtain a "Competitive Position" in the "Territory" with a
"Competitor" of Employer. For purposes of this Agreement, a
"Competitor" of Employer is any entity, individual, partnership,
joint venture, association, firm or corporation engaged, wholly or in
part, in "Business Activities"; a "Competitive Position" is any
employment with a "Competitor" of Employer in which Employee will use
or is likely to use any Confidential Information or Trade Secrets (as
those terms are defined above in this Agreement), or in which
Employee has duties for such "Competitor" of Employer that relate to
"Business Activities" and that are the same or similar to those
actually performed by Employee for Employer; "Business Activities"
shall mean the wholesale distribution and sale of packaging materials
to industrial and commercial accounts and customers in the moving and
storage industry, the air freight industry, the perishables
transportation industry, and the perishable product industry; and
"Territory" shall mean the geographic area consisting of the
territory within two hundred and fifty (250) miles of each of the
distribution centers operated by Employer. Employee acknowledges and
agrees that the foregoing Territory is reasonable because Employee
has performed and/or will perform substantial work in connection with
sales made, and Confidential Information and Trade Secrets relating
to, all of the listed locations and the areas surrounding them.
6.5 Notwithstanding anything contained herein, Employee may own
up to 5% of the shares of a publicly-held corporation which competes
with Employer or its subsidiaries, provided that none of Employee's
other relationships with such corporation violate the terms of this
Section 6.
6.6 During the Term of this Agreement and for two (2) years
thereafter, Employee shall not, on Employee's behalf or on behalf of
others, use or disclose any Confidential Information or Trade Secrets
except in the furtherance of the business of Employer. Trade Secrets
shall not lose the protection of this provision at the end of the
two-year period. Employee shall not use or disclose any Trade Secret
at any time while the information remains a Trade Secret. Nothing in
this provision shall limit the protections available to Employer
under any federal, state or local statute or legal principle
governing confidential information or trade secrets.
6.7 All records, files, software, memoranda, reports, price
lists, customer lists, drawings, plans, sketches, documents,
technical information, information on the use, development and
integration of Employer products or materials, and the like (together
with all copies of such documents and things) relating to the
business of Employer, including any and all Trade Secrets and
Confidential Information, which Employee shall use or prepare or come
in contact with in the course of, or as a result of, his employment
shall, as between the parties to this Agreement, remain the sole
property of Employer and Employee hereby conveys such property to
Employer. Employee agrees that he shall return to Employer all such
information and materials, including all copies thereof immediately
upon the termination of his employment with Employer and, at the
request of Employer, he shall cooperate with Employer to assign such
information and materials to Employer and/or to register or obtain
patent, trademark, service mark or copyright protection in favor of
Employer with respect to all such information and materials.
6.8 Notwithstanding anything else in this Agreement, the terms
of this Section 6 shall survive the expiration or termination of
Employee's employment or of this Agreement. In addition to any other
remedies available to Employer, if Employee violates any portion of
this Section 6, he shall forfeit and return all severance due to him,
or already paid to him pursuant to this Agreement or any other
agreement.
Employee acknowledges that this agreement not to compete with
Employer and its subsidiaries is necessarily of a special, unique and
extraordinary nature, and that the loss arising from a breach thereof
cannot reasonably be compensated by money damages and will cause Employer
and its subsidiaries irreparable harm. Accordingly, upon the failure of
Employee to comply with the terms of this Section 6 at any time, Employer
and its subsidiaries shall be entitled to injunctive and other
extraordinary relief in case of such breach, such injunctive or other
extraordinary relief to be cumulative to, but not in limitation of, any
other remedies to which Employer or its subsidiaries may be entitled.
Employer and Employee intend that Employer have the broadest possible
protection from unfair competition by Employee with Employer and its
subsidiaries, consistent with public policy. Accordingly, should any
court of competent jurisdiction determine that, consistent with the
established precedent of the forum state, the public policy of such state
requires a more limited restriction in duration, geographic area, nature
of restricted activity, or any combination thereof, it would be in
furtherance of the intentions of the parties hereto for the court to so
interpret and construe the terms of this Agreement to apply to only such
more limited restrictions to an appropriate degree.
7. Transfer. This Agreement and all rights and obligations
hereunder are personal to Employer and may not be assigned, transferred,
alienated or hypothecated by Employee without the express written consent
of the Employer.
8. Miscellaneous.
8.1 Amendment. This Agreement shall not be amended except by a
written agreement signed and delivered by the parties hereto.
8.2 Governing Law. The interpretation and construction of this
Agreement shall be governed by the laws of the State of Florida.
8.3 Notices. All notices and communications given pursuant
hereto shall be in writing and shall be deemed to have been duly
given if mailed by registered mail, return receipt requested:
(a) if to Employer:
Jotan, Inc.
118 West Adams St.
Jacksonville, Florida 32202
Attention: President
(b) if to Employee:
_______________________________________
_______________________________________
_______________________________________
Either party may change the address to which such notices and
communications shall be sent by written notice to the other party.
8.4 Scope. This Agreement constitutes the entire understanding
of Employee with respect to Employer and supersedes all agreements or
understandings previously made between the parties hereto relating to
this subject matter.
8.5 Gender. Pronouns of any gender used herein shall include
the other gender and the neuter, and the singular and the plural
shall each include the other.
8.6 Change of Control. This agreement will be binding on any
successor(s) to the Employer.
8.7 In the event of a Change of Control, where a simple
majority of the outstanding common shares of the Company is owned by
individuals or institutions who are not now owners of at least twenty
(20) percent of said shares, the Employee will have all earned and
awarded unvested stock options to purchase capital stock of the
Company then held by the Employee become immediately vested and
exercisable upon his voluntary or involuntary termination.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement
as to the day and year first above written.
EMPLOYER:
JOTAN, INC.
BY:_____________________________________
Title:__________________________________
EMPLOYEE:
<PAGE>
EXHIBIT A
JOTAN, INC.
118 W. Adams Street
Jacksonville, FL 32202
September 19, 1997
Mr. Edward L. Lipscomb
212 E. Frenchman's Bend Road
Monroe, LA 71203
Dear Ed:
This letter will confirm our offer to you as Vice President & Chief
Financial Officer including the following terms.
Salary: $120,000 annually, with annual reviews.
Bonus: 30% of annual salary at target (potential to exceed this
amount).
Guaranteed minimum bonus of 15% of salary for the first
twelve months.
Stock Options: 150,000 possible over five periods (30,000 possible
annually.)
Each period you will have the right to earn up to 30,000
options. You will receive 40% for remaining a full-time
employee and up to 60% for meeting specific goals.
The first period would be your date of employment until
12/31/97. The other four periods would be the four
calendar years 1998 - 2001. Options awarded would vest
equally over a four-year period. The strike price for all
options would be the average trading price on your first
day of employment.
Vacation: 4 weeks
Relocation: Normal and customary expenses for moving, house
hunting trips, and real estate fee for selling
existing residence.
Severance: You will be asked to sign a five-year employment
agreement containing a non-compete agreement. In
return, you will receive a severance agreement which
will provide you with severance equal to one year's
salary if you are terminated not-for-cause during the
contract period. A copy of this agreement is
attached.
Benefits: Standard company benefits including our 401(k) plan with a
50% match beginning after you have been an employee over
six months.
This offer is based on the assumption that you will begin employment no
later than October 1, 1997.
If this offer is satisfactory to you please sign it and fax it back to me
at 904-355-4849.
I look forward to working with you.
Sincerely,
/s/ William H. Ames
William H. Ames
President
ACCEPTED
(Ed Lipscomb) (Date)
MANAGEMENT CONTRACT
MANAGEMENT CONTRACT AGREEMENT entered into this 31st day of December,
1997, between JOTAN, INC., a corporation organized and existing under the
laws of the State of Florida and having principal offices at 1189 West
Adams St., Jacksonville, Florida 32202 (the "Company"), and ALLOMET
PARTNERS, LTD., a Delaware Corporation having principal offices at 7370
Hodgson-Memorial Drive, Savannah, Georgia 31406 (the "Consultant").
PREAMBLE
WHEREAS, the Consultant is engaged in the business of providing business
evaluation, management assistance, and financial consultation services,
and has developed considerable expertise in those areas; and
WHEREAS, the Company has requested that the Consultant provide management
and financial services to the Company, and the Consultant has agreed to do
so on the terms and conditions set forth herein.
W I T N E S S E T H:
Now, therefore, in consideration of the mutual provisions and agreements
contained herein, the Company and the Consultant agree as follows:
1. Appointment of Consultant; Relationship.
(a) The Company hereby retains Consultant for the purpose of performing
the services described in this Agreement and Consultant hereby agrees to
perform such services on the terms and conditions set forth herein.
(b) Nothing in this Agreement shall be deemed or construed as
establishing a partnership or joint venture between the Company and the
Consultant.
2. Responsibility and Authority of Consultant to Operate the Business of
the Company.
(a) The Consultant through its employees, representatives, and agents
designated from time to time, shall assume, subject to the limitations
described herein, responsibility for the operational management of the
Company effective the date hereof. The responsibility and authority of
the Consultant shall include (but is not limited to) the authority to
purchase equipment, supplies and materials used in the operation of the
Company's business; direct the Company's manufacturing, warehousing and
inventory activities; direct and manage employees in such manner as the
Consultant may deem necessary, enter into and pay obligations in the
ordinary course of the Company's business; control deposits, disbursements
and transfers of funds to and from the Company's bank accounts; maintain
the Company's books and records; supervise all marketing and sales
functions; enter into agreements with suppliers, vendors, distributors
and other persons in connection with the Company's business; manage all
other operational activities of the Company and subject to the prior
approval of the Board of Directors, engage and disengage employees and
determine employee compensation.
(b) In the course of carrying out the operation and management of the
Company pursuant to this Agreement, the Consultant anticipates that it
will consult with and seek advice from the officers and directors of and
professional advisors to the Company. Notwithstanding the foregoing, the
Consultant retains the right under this Agreement to make such routine and
day to day decisions and to take such courses of action without the
consent of any other person except as may be otherwise provided herein.
(c) The Consultant shall be entitled to rely in good faith on any
information obtained from the Company's officers, directors, employees,
and professional advisors, and on the books and records of the Company as
of the date hereof, for all purposes relating to the performance of the
Consultant's duties and obligations under the Agreement.
3. Limitations on Authority and Obligations of Consultant.
Notwithstanding anything in this Agreement to the contrary, it is
specifically understood, and the authority of the Consultant hereunder is
specifically limited as follows:
(a) In the event the Board of Directors of the Company elects to file a
petition under Chapter 11 of the United States Bankruptcy Code and the
Company thereby becomes a debtor-in-possession under the supervision of
the Bankruptcy Court, certain actions of the Consultant may require
approval of the Bankruptcy Court prior to their implementation;
(b) Subject to the terms of Company's senior loan agreement, the
Consultant shall not commit the Company to any liabilities or capital
equipment or fixed asset purchases outside the ordinary course of business
in an amount in excess of $5,000 in any instance;
(c) The shareholders and directors of the Company retain their statutory
rights and privileges and accordingly retain the right to maintain
operational and management control of the Company;
(d) The Consultant shall have no authority or responsibility for
management of operations in the following areas: compliance with any
environmental, natural resource or land use laws, regulations, ordinances
or other requirements; and handling, generating, storage, treatment,
transportation, disposal or arranging for disposal of any waste material
or hazardous substance. Consultant shall not enter into any arrangement
where it will become an owner or operator of a facility as defined under
the Federal Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") or similar laws. Without limiting the generality
of the foregoing, Consultant shall have no authority or responsibility for
any matter pertaining in any way to discharges to ground or surface water,
emissions to air or handling, generation, storage, treatment,
transportation or disposal or arranging for disposal of solid or hazardous
waste. Authority and responsibility for matters described in this
paragraph shall remain vested in the Company; and
(e) The Consultant shall not have any obligation to assume, pay,
guarantee, act as surety for or on behalf of the Company or otherwise be
responsible for any debt liability or obligation of the Company, or to
make any loans or advances to the Company, and any debts, liabilities or
obligations incurred during the term of this Agreement shall be solely for
the account of the Company; provided same are incurred in connection with
this Agreement and on behalf of the Company. The Consultant shall have no
liability or obligation whatsoever with respect to any federal, state or
local tax payable by the Company.
4. Representations by the Company. The Company warrants and represents
to the Consultant as follows:
(a) All applicable employee withholding taxes have been deposited on a
timely basis to the appropriate taxing entities and that other
withholdings for which the Company acts as a trustee have been remitted as
required;
(b) To the best of Company's knowledge, except as set forth on Exhibit
"A" hereto, the Company is and has been in compliance with all applicable
federal, state and local environmental natural resource and land use laws,
regulations, ordinances and other requirements (collectively,
"Environmental Laws"), including without limitation requirements relating
to past or present discharges to land, surface water or ground water, past
or present emissions to air; and past or present handling, generation,
storage, transportation, treatment, disposal or arrangement for disposal
of solid or hazardous waste; and
(c) To the best of Company's knowledge, except as set forth on Exhibit
"A" hereto, no environmental, health or safety hazards exist on the
Company property; and
(d) To the best of Company's knowledge, no liens or superliens have been
asserted against the property of the Company by any governmental authority
and the Company is aware of no such liens or superliens which may be
asserted.
5. Term.
(a) The initial term of this Agreement shall commence as of the date
hereof and terminate as of March 1, 1998. Thereafter, the term of this
Agreement shall continue on a month-to-month basis if extended by the
Board of Directors of Company.
(b) This Agreement may be terminated earlier than the scheduled
expiration date upon the occurrence of any of the following events:
(i) by order of the Bankruptcy Court;
(ii) the sale of the Company or substantially all of its assets;
(iii) by the Consultant upon the breach by the Company of any material
representation, warranty, covenant or other obligation of the Company
under this Agreement, or
(iv) by the Company upon breach by the Consultant of any material
covenant or obligation of the Consultant under this Agreement.
6. Compensation.
(a) The Company acknowledges that the Consultant generally receives
compensation for outside consulting services based upon the number of
hours of services provided. However, the Consultant and the Company have
agreed that the compensation under this Agreement shall be a fixed weekly
fee during the term of this Agreement; due to the length of the term of
the Agreement, the extent of control being given to the Consultant, and
the desire of the parties to lessen the Impact upon cash flow of the
Company.
(b) The weekly fee to be paid by the Company to the Consultant under this
Agreement shall be $14,000. In addition, the Consultant shall be
reimbursed by the Company for any reasonable expenses, including, but not
limited to, travel and lodging expenses of the Consultant's officers,
directors, employees and representatives, and the costs and upon prior
approval of the Company, all reasonable fees of any sub-contractors,
consultants and professional advisors retained by the Consultant in
connection with rendering its services hereunder.
7. Exculpation.
(a) The Company shall hold harmless, defend and indemnify Consultant and
its officers, employees, representatives and agents, individually and in
their respective capacities, from and against any and all claims, demands,
damages, expenses or liabilities which may be asserted against them
relating in any way to this Agreement or to any services performed
pursuant to this Agreement, except as same relate to or arise from the
Consultant's gross negligence, willful misconduct, or bad faith,
including, without limitation, those relating in any way to:
(i) compliance with any Environmental Laws pertaining to discharges
to ground or surface water;
(ii) environmental contamination of any type on the Company's
property or elsewhere including contamination subject to CERCLA or similar
Environmental Laws; and
(iii) environmental, health or safety hazards or unsafe conditions on
the Company's property.
(b) The Company shall as soon as practical after execution of this
Agreement and provided the cost of doing so is reasonable, add to its
Officers and Directors/Errors & Omissions Liability Insurance policy, if
such policy is in force, and its General Liability Policy, the name of
Allomet Partners, Ltd. as an additional insured and will provide to
Consultant a copy of the terms and conditions of such policy(ies).
(c) Except as specifically set forth in this Agreement, Consultant shall
have no liability to the Company or its creditors, shareholders or any
other party in interest except for Consultant's gross negligence, willful
misconduct and bad faith.
(d) The Consultant shall hold harmless, defend and indemnify the Company
and its officers, employees, representatives and agents, individually and
in their respective capacities, from and against any and all claims,
demands, damages, expenses or liabilities which may be assessed against
them relating in any way to this Agreement or to any services performed
pursuant to this Agreement, except as same relate to or arise from the
Company's gross negligence, willful misconduct, or bad faith, including,
without limitation, those relating in any way to this Agreement or to any
services performed pursuant to this Agreement. The above indemnifications
shall survive execution and performance of this Agreement.
8. Power of Attorney. Subject to the terms and conditions set forth in
this Agreement, the Company hereby makes, constitutes and appoints
Consultant its true and lawful attorney-in-fact for the Company and in the
Company's name, place and stead, and on the Company's behalf, to execute
and endorse all documents, agreements, contracts or certificates to which
the Company may be a party, all instruments of debt, checks, drafts,
notes, or any other similar negotiable or non-negotiable instruments
relating to the Company's business, and to collect and deposit for the
account of the Company, all revenues, cash, checks, loan proceeds, funds
or any other payments relating to the Company's business, and to disburse
such funds from the Company's bank accounts. It is acknowledged and
understood that the power of attorney granted hereby may be utilized by
the Consultant at its discretion, and shall in no way obligate the
Consultant to exercise the specific powers granted in this Section 8.
9. Miscellaneous.
(a) The Company represents to the Consultant that there are no other
agreements to which the Company is a party which are in conflict with this
Agreement or which would prohibit the Company from entering into and
carrying out the terms of this Agreement.
(b) This Agreement is for the benefit of the parties hereto and is not
assignable.
(c) This Agreement constitutes the entire agreement between the parties
pertaining to the subject mater contained herein and supersedes all other
prior and contemporaneous agreements and understandings of the parties.
(d) No modification or amendment to this Agreement shall be binding
unless executed by both parties and, if required, approved by the
Bankruptcy Court.
(e) No waiver of any of the provisions of this Agreement shall constitute
a waiver of any other provisions nor shall any waiver constitute a
continuing waiver.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(g) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
and the same instrument.
(h) All notices, elections, rights and other communications hereunder
must be in writing and shall be deemed duly given as of receipt or refusal
of receipt when delivered personally or mailed, return receipt requested,
postpaid, by post office certified, registered or express mail, FedEx or
other internationally recognized courier, to each of the appropriate
parties at their addresses set forth above (or at such other address for a
party as shall be specified by such party by notice given pursuant
hereto).
(i) Each of the parties agrees to execute and deliver such further
instruments, certificates and documents as may be reasonably requested by
any other party to carry out the terms and provisions of this Agreement.
(j) The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
(k) Any term or provision of this Agreement which is invalid or
enforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date and year first above mentioned.
ALLOMET PARTNERS, LTD.
By: /s/ Gary Brooks
Its: President
JOTAN, INC.
By: /s/ Jeffrey P. Sangalis
Its: Chairman
JOTAN, INC.
1996 LONG-TERM INCENTIVE PLAN
ARTICLE I. GENERAL
I.1. Purpose of the Plan
The purpose of the Long-Term Incentive Plan (the "Plan") of Jotan,
Inc. (the "Company") is to provide an incentive, in the form of a
proprietary shareholder interest in the Company, to employees of the
Company and/or its subsidiaries, to increase their interest in the
Company's welfare, and to assist the Company and its subsidiaries in
attracting and retaining employees.
I.2. Administration of the Plan
The Plan shall be administered by the Compensation Committee or its
successor (the "Committee") of the Board of Directors of the Company (the
"Board") which shall consist solely of two or more directors meeting the
definition of disinterested person under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") who are also outside
directors within the meaning of Proposed Treasury Regulation Section
1.162-27(e)(3) promulgated under the Internal Revenue Code of 1986, as
amended.
The Committee shall have full and final authority in its discretion,
subject to the provisions of the Plan: (a) to determine individuals to
whom and the time or times at which options or restricted stock shall be
granted and exercised and the number of shares and exercise price, if any,
of the common stock, $.01 par value, of the Company ("Common Stock"),
covered by each option or grant of restricted stock; (b) to determine the
terms of the option or restricted stock agreements, which need not be
identical, including, without limitation, terms covering vesting, exercise
dates, if any, and exercise prices, if any; (c) to decide all questions of
fact arising in the application of the Plan; and (d) to administer and
interpret the Plan in all respects. Except as provided herein, all
determinations made by the Committee shall be final and conclusive.
The Committee shall meet once each fiscal year, and at such
additional times as it may determine or as is requested by the chief
executive officer of the Company, to designate the eligible employees, if
any, to be granted awards under the Plan and the type and amount of such
awards and the time when awards will be granted. No such designation by
the Committee shall be effective as a grant of an award under the Plan
until approved by the Board; provided, however, that the Board may empower
the Committee to grant such awards without approval by the Board. All
awards granted under the Plan shall be on the terms and subject to the
conditions hereinafter provided.
I.3. Eligible Participants
Employees of the Company and the Company's subsidiaries shall be
eligible to participate in the Plan (any employee receiving an award under
this Plan is hereinafter referred to as a "Participant"). The terms
"subsidiary" or "subsidiaries" shall mean any corporation now existing or
hereafter organized or acquired (other than the Company) in an unbroken
chain of corporations beginning with the Company, if, at the time of
option grant, each of the corporations (including the Company) other than
the last corporation in the unbroken chain owns stock possessing 80% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
I.4. Grants Under the Plan
Grants under the Plan may be in the form of incentive stock options
(as described in Article II) ("Incentive Stock Options"), executive stock
options (as described in Article III) ("Executive Stock Options") and/or
restricted stock (as described in Article IV) ("Restricted Stock"), or any
combination thereof.
I.5. Other Compensation Programs
The adoption of the Plan contemplates the continuation of any
existing incentive compensation plan(s) of the Company and in no way
limits or is limited by the operation, administration or amendment of any
such plan(s). The existence and terms of the Plan shall not limit the
authority of the Board in compensating employees of the Company in such
other forms and amounts as it may determine from time to time.
I.6. Limitations on Grants
The aggregate number of shares of Common Stock, including shares
reserved for issuance pursuant to the exercise of options, which may be
granted or issued under the terms of the Plan, may not exceed [740,000]
shares, and such shares hereby are reserved for such purpose. Whenever any
outstanding grant or portion thereof expires, is canceled or forfeited or
is otherwise terminated for any reason without having been exercised or
vested or without payment having been made in respect of the entire grant,
the Common Stock allocable to the expired, forfeited, canceled or
otherwise terminated portion of the grant may again be the subject of
further grants hereunder.
Notwithstanding the foregoing, the number of shares of Common Stock
available for grants at any time under the Plan shall be reduced to such
lesser amount as may be required pursuant to the methods of calculation
necessary so that the exemptions provided pursuant to Rule 16b-3 under the
Exchange Act will continue to be available for transactions involving all
current and future grants. In addition, during the period that any grants
remain outstanding under the Plan, the Committee may make good faith
adjustments with respect to the number of shares of Common Stock
attributable to such grants for purposes of calculating the maximum number
of shares of Common Stock available for the granting of future grants
under the Plan, provided that following such adjustments the exemptions
provided pursuant to Rule 16b-3 under the Exchange Act will continue to be
available for transactions involving all current and future grants.
I.7. Definitions
The following definitions shall apply to the Plan:
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(b) "Disability" shall have the meaning provided in the Company's
applicable disability plan or applicable employment agreement with a
Participant or, in the absence of such a definition, when a Participant
becomes totally disabled (as determined by a physician mutually acceptable
to the Participant and the Company) before attaining his or her 65th
birthday and if such total disability continues for more than three
months. Disability does not include any condition which is intentionally
self-inflicted or caused by illegal acts of the Participant.
(c) "Fair Market Value" means the closing bid price of the shares of
Common Stock on such date on the principal national securities exchange or
automated quotation system of a registered securities association on which
such shares of Common Stock are listed or admitted to trading. If the
shares of Common Stock on such date are not listed or admitted to trading,
the Fair Market Value shall be the value established by the Board in good
faith on such basis as it deems reasonable and appropriate and, in the
case of an Incentive Stock Option, in accordance with Section 422 of the
Code.
(d) "Retirement" shall have the meaning provided in the Company's
applicable retirement plan or, in the absence of such a definition, the
first day of the month following the month in which the Participant
attains his or her 65th birthday.
(e) "Termination" shall mean, unless otherwise limited herein, when a
Participant ceases being an employee of the Company or any subsidiary for
any reason, including, without limitation, Retirement, discharge, layoff
or any other voluntary or involuntary termination of a Participant's
employment. Transfer of employment within the Company or among the Company
and any subsidiaries shall not be deemed a Termination.
ARTICLE II. INCENTIVE STOCK OPTIONS
II.1. Terms and Conditions
Subject to the following provisions of this Article II, all Incentive
Stock Options shall be in such form and upon such terms and conditions as
the Committee, in its discretion, may from time to time determine.
II.2. Qualified Stock Options
Incentive Stock Options shall, at the time of grant, be in such form
and upon such terms and conditions as may be required in order that such
options will constitute incentive stock options within the meaning of
Section 422 of the Code. To the extent that the Fair Market Value of
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any individual during any calendar year (pursuant to
the Plan and all other plans of the Company) exceeds $100,000, such
options shall be treated as Executive Stock Options.
II.3. Option Price
Subject to Section 2.9, the option price per share shall be at least
one hundred percent (100%) of the Fair Market Value of the Common Stock on
the date the Incentive Stock Option is granted.
II.4. Term of Option
Any Incentive Stock Option granted under the Plan may be exercised no
later than ten (10) years from the date of grant or such shorter period of
time as designated by the Committee at the time of grant. Subject to
Sections 2.7, 2.8 and 5.13 hereof and the stock option agreement governing
the grant of the Incentive Stock Options under the Plan, which may
contemplate vesting of exercise rights, options may be exercised in whole
or in one or more parts throughout such term. All rights to exercise an
Incentive Stock Option shall expire at the end of the designated term.
II.5. Payment
Payment for shares for which an Incentive Stock Option is exercised
shall be made in full to the Corporation in such manner and at such time
or times as shall be provided by the Committee at the time of grant in
either (i) cash or its equivalent or (ii) by tendering shares of
previously acquired Common Stock having a Fair Market Value equal to the
exercise price or (iii) by a combination of (i) and (ii). The proceeds
from such payment shall be added to the general funds of the Corporation
and shall be used for general corporate purposes.
II.6. Exercise of Option
Subject to Section 5.13, Incentive Stock Options shall be exercisable
in whole or in part after completion of such periods of service or
achievement of such conditions as the Committee shall specify in an
incentive stock option agreement when Granting the options; provided,
however, that in the absence of any Committee specification to the
contrary, and subject to Sections 2.7 and 2.8, twenty-five percent (25%)
of the shares subject to the Incentive Stock Option shall have been earned
and the Incentive Stock Option shall become exercisable with respect to
such shares on each of the first four annual anniversaries of the date of
grant of the Incentive Stock Option. In no event, however, and
notwithstanding Sections 2.7 and 2.8, shall an Incentive Stock Option be
exercised after the expiration of ten (10) years from the date of grant.
II.7. Termination of Employment
A Participant's Incentive Stock Options shall expire three months
after the Termination of the Participant's employment for any reason other
than death, Disability or Retirement and shall be limited to the shares of
Common Stock which could have been purchased by the Participant at the
date of Termination of employment.
II.8. Termination of Employment by Reason of Death, Disability or
Retirement
Upon the Termination of a Participant's employment by reason of
death. Disability or Retirement, Incentive Stock Options held at the
termination date by such Participant shall be exercisable, irrespective of
whether the options were fully exercisable in accordance with Section 2.6
on that date. The Participant's Incentive Stock Options shall expire
unless exercised within one year from the date of such Termination.
In the case of Termination of a Participant's employment by reason of
early retirement within the meaning of the Company's applicable retirement
plan, Incentive Stock Options which may be exercised shall be limited to
the shares which could have been purchased by the Participant at the date
of such early retirement, except that the Committee, in its discretion,
may waive the vesting requirements of Section 2.6. The Participant's
Incentive Stock Options shall expire unless exercised within one year from
the date of such Termination.
The Committee may, at any time on or before the termination of the
exercise period of the Participant's Incentive Stock Options, extend the
exercise period if the Participant's employment is terminated for a reason
specified in this Section 2.8. If so extended, the term of the exercise
period shall expire on the date specified by the Committee, which date
shall be no later than the date which is sixty (60) months following the
date of the Participant's Termination of employment. If such extension
adversely affects the Participant's federal income tax treatment of the
Incentive Stock Option at the time of extension or exercise, the extension
shall only be made with the consent of the Participant. In no event may
the term of an Incentive Stock Option, including extensions, exceed the
term set forth in Section 2.4.
II.9. Special Rule for 10 Percent Shareholders
If, at the time an Incentive Stock Option is granted, a Participant
owns Common Stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any of its
subsidiaries, then the terms of the Incentive Stock Option shall specify
that the option price shall at the time of grant be at least one hundred-
ten percent (110%) of the Fair Market Value of the stock subject to the
option and such option shall not be exercisable after the expiration of
five (5) years from the date such option is granted.
II.10. Notice of Exercise
When exercisable pursuant to the terms of the governing incentive
stock option agreement, Incentive Stock Options granted under the Plan
shall be exercised by the Participant (or by other authorized persons in
accordance with Section 5.9) as to all or part of the shares subject to
the option by delivering written notice of exercise to the Company at its
principal executive office or such other office as the Company may from
time to time direct, (a) specifying the number of shares to be purchased,
(b) indicating the method of payment of the exercise price or including a
check payable to the Company in an amount equal to the full exercise price
of the number of shares being purchased, and (c) containing such further
provisions consistent with the provisions of the Plan, as the Company may
from time to time prescribe.
II.11. Notice of Disposition
If a Participant makes a disposition, within the meaning of Section
424(c) of the Code and the regulations promulgated thereunder, of a share
or shares of Common Stock issued to such Participant pursuant to the
exercise of an Incentive Stock Option within the two-year period
commencing on the day after the date of the grant or within the one-year
period commencing on the day after the date of transfer of such share or
shares to the Participant pursuant to such exercise, the Participant
shall, within ten (10) days of such disposition, notify the Company
thereof in writing at the Company's principal executive office.
ARTICLE III. EXECUTIVE STOCK OPTIONS
III.1. Types of Options
Executive Stock Options granted under the Plan shall, at the time of
grant, provide that they will not be treated as an incentive stock option
within the meaning of Section 422 of the Code.
III.2. Terms and Conditions of Options
Subject to the following provisions, all Executive Stock Options
granted under the Plan shall be in such form and upon such terms and
conditions as the Committee, in its discretion, may from time to time
determine, provided such terms and conditions are clearly designated at
the time of grant.
III.3. Exercise Price
The exercise price per share shall be at least one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such
Executive Stock Option is granted.
III.4. Term of Options
Any Executive Stock Option granted under the Plan may be exercised no
later than ten (10) years from the date of grant or such shorter period of
time as designated by the Committee at the time of grant. Subject to
Sections 3.7, 3.8 and 5.13 hereof and the stock option agreement governing
the grant of the Executive Stock Options under the Plan, which may
contemplate vesting of exercise rights, options may be exercised in whole
or in one or more parts throughout such term. All rights to exercise an
Executive Stock Option shall expire at the end of the designated term.
III.5. Payment
Payment for shares for which an Executive Stock Option is exercised
shall be made in full to the Corporation in such manner and at such time
or times as shall be provided by the Committee at the time of grant in
either (i) cash or its equivalent or (ii) by tendering shares of
previously acquired Common Stock having a Fair Market Value equal to the
exercise price or (iii) by a combination of (i) and (ii). The proceeds
from such payment shall be added to the general funds of the Corporation
and shall be used for general corporate purposes.
III.6. Exercise of Options
Subject to Section 5.13, Executive Stock Options shall be exercisable
in whole or in part after completion of such periods of service or
achievement of such conditions as the Committee shall specify in an
executive stock option agreement when granting the options; provided,
however, that in the absence of a Committee specification to the contrary
and subject to Sections 3.7 and 3.8, twenty-five percent (25%) of the
shares subject to the Executive Stock Option shall have been earned and
the Executive Stock Option shall become exercisable with respect to such
shares on each of the first four annual anniversaries of the date of grant
of the Executive Stock Option. In no event, however, and notwithstanding
Sections 3.7 and 3.8, shall an Executive Stock Option be exercised after
the expiration of ten (10) years from the date of grant.
III.7. Termination of Employment
A Participant's Executive Stock Options shall expire three months
after the Termination of the Participant's employment for any reason other
than death, Disability or Retirement and shall be limited to the shares of
Common Stock which could have been purchased by the Participant at the
date of Termination of employment.
III.8. Termination of Employment by Reason of Death, Disability or
Retirement
Upon the Termination of a Participant's employment by reason of
death, Disability or Retirement, Executive Stock Options held at the
termination date by such Participant shall be exercisable, irrespective of
whether the options were fully exercisable in accordance with Section 3.6
on that date. The Participant's Executive Stock Options shall expire
unless exercised within one year from the date of such Termination.
In the case of Termination of a Participant's employment by reason of
early retirement within the meaning of the Company's applicable retirement
plan, Executive Stock Options which may be exercised shall be limited to
the shares which could have been purchased by the Participant at the date
of such early retirement, except that the Committee, in its discretion,
may waive the vesting requirements of Section 3.6. The Participant's
Executive Stock Options shall expire unless exercised within one year from
the date of such Termination.
The Committee may, at any time on or before the termination of the
exercise period of the Participant's Executive Stock Options, extend the
exercise period if the Participant's employment is terminated for a reason
specified in this Section 3.8. If so extended, the term of the exercise
period shall expire on the date specified by the Committee, which date
shall be no later than the date which is sixty (60) months following the
date of the Participant's Termination of employment. If such extension
adversely affects the Participant's federal income tax treatment of the
Executive Stock Option at the time of extension or exercise, the extension
shall only be made with the consent of the Participant. In no event may
the term of an Executive Stock Option, including extensions, exceed the
term set forth in Section 3.4.
III.9. Notice of Exercise
When exercisable pursuant to the terms of the governing executive
stock option agreement, Executive Stock Options granted under the Plan
shall be exercised by the Participant (or by other authorized persons in
accordance with Section 5.9) as to all or part of the shares subject to
the option by delivering written notice of exercise to the Company at its
principal executive office or such other office as the Company may from
time to time direct, (a) specifying the number of shares to be purchased,
(b) indicating the method of payment of the exercise price or including a
check payable to the Company in an amount equal to the full exercise price
of the number of shares being purchased, (c) including a Tax Election, if
applicable, in accordance with Section 5.8, and (d) containing such
further provisions consistent with the provisions of the Plan, as the
Company may from time to time prescribe.
III.10. Limitation of Exercise Periods
The Committee may limit the time periods within which an Executive
Stock Option may be exercised if a limitation on exercise is deemed
necessary in order to effect compliance with applicable law.
ARTICLE IV. RESTRICTED STOCK
IV.1. Terms and Conditions of Awards
The Committee may grant shares of stock subject to the restrictions
described in Section 4.2 under a restricted stock agreement, with or
without payment by the Participant for such Restricted Stock, as specified
by the Committee at the time of grant. Such agreement shall specify the
number of shares granted and the conditions and terms of the grant.
Restricted Stock, with restrictions noted on the face of the certificates,
shall be issued in the name of the Participant granted the Restricted
Stock and deposited with a trust administered by the Committee (and
subject to the claims of the Company's creditors) during the restriction
period unless the Participant makes an election under Section 83(b) of the
Code with respect to such Restricted Stock.
IV.2. Restrictions
Until the restrictions have lapsed in accordance with Section 4.3,
the shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated.
The Committee may impose such other restrictions on any shares of
restricted stock as required by law including, without limitation,
restrictions under applicable federal or state securities laws, and may
place legends on the certificates representing such Restricted Stock to
provide appropriate notice of such restrictions.
IV.3. Period of Restriction
Subject to Section 5.13, the restrictions set forth in Section 4.2
shall lapse and such shares shall be freely transferable upon completion
of such periods of service or achievement of such conditions as the
Committee shall specify in an individual Restricted Stock Agreement
between the Company and the Participant when granting the shares of
Restricted Stock.
IV.4. Termination of Employment
If a Participant's employment is terminated prior to the lapsing of
the restrictions in accordance with Section 4.3 as a result of death,
Retirement or Disability, restrictions on the shares of Restricted Stock
granted to the Participant shall immediately lapse on the date of such
death, Disability or Retirement. If any Participant's employment is
terminated prior to the lapsing of restrictions in accordance with Section
4.3 for any reason other than death, Disability or Retirement, the shares
of Restricted Stock granted to such Participant shall be forfeited and
shall revert to the Company.
IV.5. Rights as Shareholder
Prior to the lapsing of restrictions in accordance with Section 4.3,
Participants holding shares of Restricted Stock shall not have dividend
rights and voting rights with respect to such Restricted Stock.
ARTICLE V. GENERAL PROVISIONS
V.1. General Restrictions
Each grant under the Plan shall be subject to the requirement that if
the Committee shall determine, at any time, that (a) the listing,
registration or qualification of the shares of Common Stock subject or
related thereto upon any securities exchange or under any state or federal
law, (b) the consent or approval of any government regulatory body, or (c)
an agreement by the Participant with respect to the disposition of shares
of Common Stock, is necessary or desirable as a condition of, or in
connection with, the granting or the issuance or purchase of shares of
Common Stock thereunder, such grant may not be consummated in whole or in
part unless such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions
not acceptable to the Committee.
V.2. Adjustments for Certain Corporate Events
In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, rights offer, liquidation,
dissolution, merger, consolidation, spin-off or sale of assets, or any
other change in or affecting the corporate structure or capitalization of
the Company, the Board shall make such adjustments as the Committee may
recommend, and as the Board in its discretion may deem appropriate, in the
number and kind of shares authorized by the Plan, in the number, exercise
price or kind of shares covered by the grants and in any outstanding
grants under the Plan in order to prevent substantial dilution or
enlargement thereof.
V.3. Amendments
The Board may discontinue the Plan at any time and may amend it from
time to time, but no amendment, without approval by shareholders, may (a)
increase the total number of shares which may be issued under the Plan,
except as provided in Section 5.2 hereof, (b) materially modify the
eligibility requirements for Participants, (c) materially increase the
benefits accruing to Participants, or (d) cause the Plan to no longer
comply with Rule 16b-3 of the Exchange Act or any other federal or state
statutory or regulatory requirement.
V.4. Grants Evidenced by Agreements
Each grant under the Plan shall be evidenced by an individual
Incentive Stock Option Agreement, Executive Stock Option Agreement or
Restricted Stock Agreement, as applicable, which shall be executed by the
Company and each Participant. The agreement shall contain such terms and
provisions, not inconsistent with the terms of the Plan, as shall be
determined by the Committee, including, as applicable: (a) the number of
shares a Participant may acquire pursuant to the option granted and the
exercise price per share or the number of shares of Restricted Stock
granted, as applicable; (b) any conditions affecting the exercise of the
option; (d) the procedure for exercising the option granted; (d) a clear
designation of whether the exercise of the option granted thereby is
subject to vesting; (e) a clear designation of the period of restriction
and conditions for vesting of Restricted Stock; (f) representations and
warranties of Participant regarding the acquisition of shares for
investment purposes; and (g) such provisions as the Committee, upon advice
of counsel to the Company, shall deem necessary or appropriate to comply
with the requirements of applicable laws. In the event there shall be any
discrepancy or inconsistency between the terms of the Plan and any term or
provision contained in such an agreement, the terms of the Plan, as
interpreted by the Committee, shall govern.
V.5. Modification, Substitution or Cancellation of Grants
Subject to the terms of the Plan, the Committee may modify
outstanding grants under the Plan or accept the surrender of outstanding
grants and make new grants in substitution for them. Notwithstanding the
foregoing, no modification of any grant shall adversely alter or impair
any rights or obligations of the Participant without the Participant's
consent.
V.6. Shares Subject to the Plan
Shares distributed pursuant to the Plan shall be made available from
authorized but unissued shares or from shares purchased or otherwise
acquired, in open market, in private transactions or otherwise, by the
Company for use in the Plan, as shall be determined from time to time by
the Committee.
V.7. Rights of a Shareholder
Participants under the Plan shall have no rights as shareholders by
reason thereof unless and until certificates for shares of Common Stock
are issued to them.
V.8. Withholding
The Company shall have the right to deduct from any distribution of
Common Stock to any Participant an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be
withheld (the "Withholding Taxes") with respect to any grant under the
Plan. If a Participant is to experience a taxable event in connection with
the receipt of cash or shares of Common Stock pursuant to an option
exercise (a "Taxable Event"), the Participant shall pay the Withholding
Taxes to the Company prior to the issuance of such shares of Common Stock.
In satisfaction of the obligation to pay Withholding Taxes to the Company,
the Participant may make a written election (the "Tax Election"), which
may be accepted or rejected in the discretion of the Committee, to have
withheld a portion of the shares of Common Stock then issuable to the
Participant having an aggregate Fair Market Value on the day immediately
preceding the date of such issuance equal to the Withholding Taxes,
provided that in respect of a Participant who may be subject to liability
under Section 16(b) of the Exchange Act either: (i) in the case of a
Taxable Event involving a stock option or the grant of restricted stock,
(A) the Tax Election is made at least six (6) months prior to the date of
the Taxable Event and (B) the Tax Election is irrevocable with respect to
all Taxable Events of a similar nature occurring prior to the expiration
of six (6) months following a revocation of the Tax Election; (ii) in the
case of the exercise of an option (A) the Participant makes the Tax
Election at least six (6) months after the date the option was granted,
(B) the option is exercised during the ten (10) day period beginning on
the third business day and ending on the twelfth business day following
the release for publication of the Company's quarterly or annual statement
of sales and earnings (the "Window Period") and (C) the Tax Election is
made during the Window Period in which the option is exercised or prior to
such Window Period and subsequent to the immediately preceding Window
Period; or (iii) in the case of a Taxable Event relating to the payment of
an award, (A) the Participant makes the Tax Election at least six (6)
months after the date of grant and (B) the Tax Election is made (1) in the
case of a Taxable Event occurring within a Window Period, during the
Window Period in which the Taxable Event occurs or (2) in the case of a
Taxable Event not occurring within a Window Period, dining the Window
Period immediately preceding the Taxable Event. Notwithstanding the
foregoing, the Committee may, by the adoption of rules or otherwise, (i)
modify the provisions of this Section 5.8 as may be necessary to ensure
that the Tax Elections will be exempt transactions under Section 16(b) of
the Exchange Act, and (ii) permit Tax Elections to be made at such other
times and subject to such other conditions as the Committee determines
will constitute exempt transactions under Section 16(b) of the Exchange
Act.
V.9. Nonassignability
Except as expressly provided in the Plan, no grant shall be
transferable except by will, the laws of descent and distribution or a
qualified domestic relations order ("QDRO") as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. During the lifetime of the Participant,
except as expressly provided in the Plan, grants under the Plan shall be
exercisable only by such Participant, by the guardian or legal
representative of such Participant or pursuant to a QDRO.
V.10. Nonuniform Determinations
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive grants, the form,
amount and timing of such grants, and the terms and provisions of such
grants and the agreements evidencing the same) need not be uniform and may
be made by it selectively among persons who receive, or are eligible to
receive, grants under the Plan, whether or not such persons are similarly
situated.
V.11. No Guarantee of Employment
Neither grants under the Plan nor any action taken pursuant to the
Plan shall not constitute or be evidence of any agreement or
understanding, express or implied, that the Company shall retain the
Participant for any period of time or at any particular rate of
compensation.
V.12. Effective Date; Duration
The Plan shall become effective as of January 1, 1996, subject to
approval by the shareholders of the Company. No grant may be given under
the Plan after December 31, 2005, but grants theretofore granted may
extend beyond such date.
V.13. Change in Control
Notwithstanding anything herein to the contrary if a Change in
Control of the Company occurs, then all Incentive Stock Options and
Executive Stock Options shall become fully exercisable and all
restrictions on grants of Restricted Stock shall lapse as of the date such
Change in Control occurred. For the purposes of the Plan, a Change in
Control of the Company shall be deemed to have occurred upon the earliest
of the following events:
(a) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than any person who was the beneficial owner of 25% or more of the Common
Stock as of the effective date of the Plan, becomes the beneficial owner
(as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then- outstanding securities;
(b) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the
Company);
(c) upon the approval by the Company's shareholders of (i) a merger
or consolidation of the Company with or into another corporation (other
than a merger or consolidation in which the Company is the surviving
corporation and which does not result in any capital reorganization or
reclassification or other change in the Company's then outstanding shares
of Common Stock), (ii) a sale or disposition of all or substantially all
of the Company's assets or (iii) a plan of liquidation or dissolution of
the Company; or
(d) if the Board or any designated committee determines in its sole
discretion that any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a person who exercised a
controlling influence as of the effective date of the Plan, directly or
indirectly exercises a controlling influence over the management or
policies of the Company.
V.14. Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Florida.
<PAGE>
JOTAN, INC.
EXECUTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is effective as of the ____ day of _______________
between Jotan, Inc. (the "Company"), and _______________ an employee of
the Company or one of its subsidiaries ("Optionee").
WITNESSETH
1. Grant of Executive Stock Option. Pursuant to the provisions of
Article III of the Jotan, Inc. 1996 Long-Term Incentive Plan (the "Plan"),
the Company hereby grants to Optionee, subject to the terms and conditions
of the Plan (the terms of which are hereby incorporated by reference), the
right and option (the "Executive Stock Option") to purchase from the
Company ______ shares of common stock of the Company (the "Common Stock"),
subject to the terms and conditions herein set forth and exercisable as
hereinafter provided. This Executive Stock Option shall not constitute an
incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Terms and Conditions. The Executive Stock Option evidenced
hereby is subject to the following terms and conditions:
(a) Price. The purchase price per share is $__________.
(b) Expiration Date. The Executive Stock Option shall expire years
after the date hereof, or on _______________________.
(c) Exercise of Option. This Executive Stock Option may be
exercised, to the extent exercisable by its terms, in whole, or from time
to time in part, in accordance with the exercise schedule set forth below
(the "Exercise Schedule") and prior to its expiration. Any exercise shall
be accompanied by a written notice to the Company specifying the number of
shares as to which the Executive Stock Option is being exercised. The
Exercise Schedule shall be as follows:
Full Years Cumulative Percentage
Elapsed Since of the Shares Which
Date of Grant May Be Exercised
1 25%
2 50%
3 75%
4 100%
(d) Payment of Purchase Price Upon Exercise. At the time of any
exercise, the fall purchase price of the shares of Common Stock as to
which this Executive Stock Option shall be exercised shall be paid to the
Company in the form of cash, Common Stock at fair market value, or any
combination thereof; provided, however, that the Company, by resolution of
its Board communicated in writing to Optionee, may require from time to
time that Optionee pay for shares acquired pursuant to the exercise of
this Executive Stock Option first in the form of shares of Common Stock
acquired through any previous exercise of Executive Stock Options (as
defined in the Plan) under the Plan. For the purposes of this paragraph,
"fair market value" of the Common Stock shall have the meaning assigned
thereto in the Plan.
(e) Exercise Upon Death, Disability or Termination of Employment.
(1) Death While Employed. If Optionee shall die while an
employee of the Company or of a subsidiary of the Company, this Executive
Stock Option may be fully exercised by the person or persons to whom
Optionee's rights under this Executive Stock Option shall pass by will or
by applicable law, or if no such person has such right, by Optionee's
executors or administrators, at any time, or from time to time, within one
year from the date of Optionee's death.
(2) Disability or Normal Retirement. If Optionee's employment
with the Company or with a subsidiary of the Company shall terminate
because of Disability (as defined in the Plan) or because of Retirement
(as defined in the Plan), Optionee may fully exercise this Executive Stock
Option at any time, or from time to time, within one year from the date of
termination of employment.
(3) Early Retirement. If Optionee's employment with the Company
or with a subsidiary of the Company shall terminate because of early
retirement within the meaning of the Company's applicable retirement plan,
Optionee may fully exercise this Executive Stock Option at any time, or
from time to time, within one year from the date of termination of
employment, provided, however, that such exercise shall be limited in the
aggregate to the number of shares which Optionee was entitled to purchase
on the date of such early retirement.
(4) Other Termination. If Optionee's employment with the
Company or with a subsidiary of the Company shall terminate for any reason
other than death, Disability or Retirement as specified in clauses (1),
(2), or (3) of this subparagraph (e), Optionee may exercise this Executive
Stock Option, to the extent that Optionee is entitled to do so at the date
of termination of employment, at any time, or from time to time, within
three months from the date of termination of employment.
(5) Death After Termination of Employment. If Optionee shall
die following a termination of employment, this Executive Stock Option may
be exercised, by the person or persons to whom Optionee's rights under
this Executive Stock Option shall pass by will or by applicable law, or if
no such person has such right by Optionee's executors or administrators,
to the extent and during the period that Optionee was entitled to do so.
(6) Expiration. In no event shall Optionee or, on Optionee's
death, Optionee's successors exercise this Executive Stock Option after
the expiration date specified in subparagraph (b) of this Section 2.
(f) Nontransferability. This Executive Stock Option shall not be
assignable or transferable other than by will, the laws of descent and
distribution or a qualified domestic relations order ("QDRO") as defined
by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. During the lifetime of
Optionee, this Executive Stock Option shall be exercisable only by
Optionee or by the guardian or legal representative of Optionee or
pursuant to a QDRO.
(g) Adjustments. In the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, rights offer,
liquidation, dissolution, merger, consolidation, spinoff or sale of
assets, or of any other change in or affecting the corporate structure or
capitalization of the Company, then in any such event the number and kind
of shares subject to this Executive Stock Option and the purchase price
per share shall be appropriately adjusted pursuant to Section 5.2 of the
Plan consistent with such change in such manner as the Committee appointed
pursuant to Section 1.2 of the Plan (the "Committee") may deem equitable
to prevent substantial dilution or enlargement of the rights granted to
Optionee hereunder. Any adjustment so made shall be final and binding upon
Optionee.
(h) No Rights as Shareholder. Optionee shall have no rights as a
shareholder with respect to any shares subject to this Executive Stock
Option prior to the date of issuance of a certificate or certificates for
such shares.
(i) No Right to Continued Employment. This Executive Stock Option
shall not confer upon Optionee any right with respect to continuance of
employment by the Company or any subsidiary of the Company, nor shall it
interfere in any way with the right of the employer to terminate
Optionee's employment.
(j) Compliance With Law and Regulations. The Company shall not be
required to issue or deliver any certificates for shares prior to (1) the
listing of such shares on any stock exchange on which the Common Stock may
then be listed and (2) the completion of any registration or qualification
of such shares under any federal or state law, or any rule or regulation
of any governmental body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
(k) Income Tax Withholding. The parties hereto recognize that the
Company may be obligated to withhold federal, state or local income taxes
and social security taxes in connection with the exercise of the Executive
Stock Option or in connection with the disposition of any shares of Common
Stock acquired by exercise of this Executive Stock Option. Optionee agrees
that the Company may withhold amounts needed to cover such taxes from
payments otherwise due and owing to Optionee, and also agrees that upon
demand Optionee will promptly pay to the Company having such obligation
any additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or by certified check
payable to the order of the Company.
3. Investment Representation. The Committee may require Optionee to
furnish to the Company, prior to the issuance of any shares upon the
exercise of all or any part of this Executive Stock Option, an agreement
(in such form as such Committee may specify) in which Optionee represents
that the shares of Common Stock acquired upon exercise are being acquired
for investment and not with a view to the sale or distribution thereof and
that any transfers of such shares will be made only in compliance with the
registration requirements of the Securities Act of 1933, as amended, or an
exemption therefrom.
4. Optionee Bound by Plan. Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all the terms and provisions
thereof. In the event any of the terms of this Agreement are deemed to
conflict with any of the terms of the Plan, the terms of the Plan shall
prevail.
5. Acceleration. Notwithstanding anything herein to the contrary,
if a Change in Control of the Company, as defined in the Plan, occurs, the
date on which this Executive Stock Option may be exercised shall
automatically, and without further action by the Committee, be accelerated
to the date of such Change in Control.
6. Notices. Any notice hereunder to the Company shall be addressed
to it at its office, 118 W. Adams Street, Jacksonville, Florida 32201,
Attention: _______________ and any notice hereunder to Optionee shall
be addressed to him or her at subject to the right of either party to
designate at any time hereafter, in writing, some other address.
7. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute one and the same instrument.
8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer and Optionee has
executed this Agreement to be effective as of the day and year first above
written.
JOTAN, NC.
By:___________________________________
Its:__________________________________
Optionee
<PAGE>
AMENDMENT NO. 1
TO
JOTAN, INC.
1996 LONG-TERM INCENTIVE PLAN
The Jotan, Inc. 1996 Long-Term Incentive Plan approved by the share-
holders of Jotan, Inc. at their 1996 Annual Meeting (the "Plan") is hereby
amended as follows:
1. The first sentence of Section I.6 of the Plan is amended to read
as follows:
The aggregate number of shares of Common Stock, including shares
reserved for issuance pursuant to the exercise of options, which
may be granted or issued under the terms of the Plan, may not
exceed 2,000,000 shares, and such shares hereby are reserved for
such purpose.
2. Section I.6 of the Plan is amended further by adding the following
paragraph:
No Participant shall, in any calendar year, be granted
Incentive Stock Options and Executive Stock Options to purchase
more than 300,000 Shares. Executive Stock Options and Executive
Stock Options granted to the Participant and canceled during the
same calendar year shall be counted against such maximum number
of shares of the Company's Common Stock. In the event that the
number of Incentive Stock Options and Executive Stock Options
which may be granted is adjusted as provided in the Plan, the
above limit shall automatically be adjusted in the same ratio.
3. All other provisions of the Plan remain in full force and effect.
This Amendment was approved by the shareholders of Jotan, Inc. at their
1997 Annual Meeting.
EXHIBIT 21
Subsidiaries of the Registrant
Southland Container Packaging Corp., a Texas corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF JOTAN, INC. AS OF AND FOR THE 12 MONTHS ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,389,131
<SECURITIES> 0
<RECEIVABLES> 10,216,959
<ALLOWANCES> 660,000
<INVENTORY> 7,284,309
<CURRENT-ASSETS> 19,896,899
<PP&E> 5,766,330
<DEPRECIATION> 918,447
<TOTAL-ASSETS> 28,921,949
<CURRENT-LIABILITIES> 22,023,338
<BONDS> 29,770,357
12,682,747
14,357
<COMMON> 56,966
<OTHER-SE> (35,625,816)
<TOTAL-LIABILITY-AND-EQUITY> 28,921,949
<SALES> 60,257,468
<TOTAL-REVENUES> 60,257,468
<CGS> 43,502,244
<TOTAL-COSTS> 43,502,244
<OTHER-EXPENSES> 18,721,607
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,560,624
<INCOME-PRETAX> 38,395,616
<INCOME-TAX> (925,719)
<INCOME-CONTINUING> 37,469,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,469,897
<EPS-PRIMARY> (6.77)
<EPS-DILUTED> (6.77)
</TABLE>
