PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") made
as of February 28, 1997, by and among JOTAN, INC., a Florida corporation (the
"Company"), RICE PARTNERS II, L.P., a Delaware limited partnership ("Rice"),
F-SOUTHLAND, L.L.C., a North Carolina limited liability company ("F-
Southland"), FF-Southland, L.P., a Delaware limited partnership ("FF-
Southland" and together with F-Southland, the "Southland Purchasers", which,
together with Rice are individually and collectively, as the context requires,
referred to herein as the "Purchaser"), F-JOTAN, L.L.C., a North Carolina
limited liability corporation ("F-Jotan"), and each of the SHAREHOLDERS named
on the signature pages hereto (individually and collectively, as the context
requires, the "Shareholder").
W I T N E S S E T H:
WHEREAS, each Shareholder owns beneficially and of record the number of
shares or share equivalents set forth under the signature of such Shareholder
on this Agreement of the issued and outstanding capital stock of the Company;
WHEREAS, F-Jotan, which is the owner of the 1,329,357 shares of the
Series A Preferred Stock of the Company as of the date hereof, will acquire
certain rights and benefits herein and in the Shareholder Agreement in
consideration of terminating certain of its existing contractual rights in
respect of the Company as more fully described in Section 11.18 of the
Shareholder Agreement;
WHEREAS, the Company has entered into a Note Purchase Agreement (the
"Note Agreement") dated of even date with this Agreement with each Purchaser;
WHEREAS, the Company and the Shareholder have entered into a Shareholder
Agreement (the "Shareholder Agreement") dated of even date with this Agreement
with each Purchaser and F-Jotan; and
WHEREAS, each Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things,
the Company, F-Jotan and each Shareholder enter into, and perform under, this
Agreement and the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser, F-
Jotan, the Shareholder, and the Company, intending to be legally bound, agree
as follows:
Article I
Definitions
As used in this Agreement, the following terms have the meanings
indicated:
Additional Securities. This term is defined in Section 2.08(a)(iv).
Adjustment Event. Any event in which (a) the Company issues any shares
of Capital Stock in an Adjustment Public Offering for consideration per
share that exceeds the amount received per share by any Holder in
connection with the exercise of the Call Option with respect to such
Holder; (b) any Person acquires Capital Stock in connection with the
acquisition of the beneficial ownership of more than fifty percent (50%)
of the voting securities of the Company, or acquires Capital Stock and
the right to elect a majority of the members of the Company's board of
directors for a consideration per share or unit that exceeds the amount
received per share by any such Holder in connection with the exercise of
such Call Option; (c) the Company sells all or a majority of its assets
or revenue or income generating capacity for such amount of
consideration that, if the Company were liquidated on the date that such
sale is consummated, the holders of any class of Capital Stock would
receive per share distributions exceeding the amount received per share
by any such Holder in connection with the exercise of such Call Option;
or (d) the Company participates in any merger, consolidation,
reorganization, share exchange, recapitalization, or similar transaction
or series of related transactions involving a change of control of the
Company or disposition of all or a majority of its assets or revenue or
income generating capacity, directly or indirectly, in which the holders
of any class of Capital Stock receive per share consideration for, or
distributions with respect to, their shares in an amount that exceeds
the amount received per share by such Holder in connection with the
exercise of such Call Option.
Adjustment Public Offering. Each public offering of shares of any class
of Capital Stock pursuant to a registration statement filed with the
Commission.
Affiliate. With respect to any Person, (a) a Person that, directly or
indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person; (b) any
Person of which such Person or such Person's spouse is an officer,
director, security holder, partner, or, in the case of a trust, the
beneficiary or trustee, and (c) any Person that is an officer, director,
security holder, partner, or, in the case of a trust, the beneficiary or
trustee of such Person. The term "control" as used with respect to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by
contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a
Valuation Event (the "Negotiation Period"), each party to this Agreement
agrees to negotiate in good faith to reach agreement upon the Appraised
Value of the securities or property at issue, as of the date of the
Valuation Event, which will be the fair market value of such securities
or property, without premium for control or discount for minority
interests, illiquidity, or restrictions on transfer. In the event that
the parties are unable to agree upon the Appraised Value of such
securities or other property by the end of the Negotiation Period, then
the Appraised Value of such securities or property will be determined
for purposes of this Agreement by an Appraiser. An "Appraiser" shall be
a recognized appraisal or investment firm with experience in making
determinations of value of the type required to be made under this
definition. If the Holders and the Company cannot agree on an Appraiser
within thirty (30) days after the end of the Negotiation Period, the
Company, on the one hand, and the Holders, on the other hand, shall each
select an Appraiser within forty (40) days after the end of the
Negotiation Period and those two Appraisers shall select within fifty
(50) days after the end of the Negotiation Period an independent
Appraiser to determine the fair market value of such securities or
property, without premium for control or discount for minority
interests. Such independent Appraiser shall be directed to determine
fair market value of such securities or property as soon as practicable,
but in no event later than thirty (30) days from the date of its
selection. The determination by an Appraiser of the fair market value
will be conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when (i) the
Company is not a reporting company under the Exchange Act and (ii) the
Common Stock is not traded in the organized securities markets, will, in
all cases, be calculated by determining the Appraised Value of the
entire Company taken as a whole (plus the exercise price of all options,
warrants and other rights to acquire Capital Stock of the Company having
an exercise price per share less than the Fair Market Value of such
Capital Stock) and dividing that value by the sum of (x) the number of
shares of Common Stock then outstanding plus (y) the number of shares of
Common Stock Equivalents, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. The costs
of the Appraiser or Appraisers will be borne by the Company. In no
event will the Appraised Value of the Common Stock or Other Securities
be less than the per share consideration received or receivable with
respect to the Common Stock or securities or property of the same class
as the Other Securities, as the case may be, in connection with a
pending transaction involving a sale, merger, recapitalization,
reorganization, consolidation, share exchange, dissolution of the
Company, sale or transfer of all or a majority of its assets or revenue
or income generating capacity, or similar transaction. The prevailing
market prices for any security or property will not be dispositive of
the Appraised Value thereof.
Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Prices for the
security in question for the thirty (30) trading days immediately
preceding the date of determination.
Book Value. With respect to shares of Common Stock, an amount equal to
the quotient determined by dividing (a) the sum of (x) the total
consolidated assets of the Company shown on the most recent regularly
prepared consolidated balance sheet of the Company prior to the date of
the Valuation Event in question minus (y) the total consolidated
liabilities of the Company as shown on the most recent regularly
prepared consolidated balance sheet of the Company prior to the date of
the Valuation Event by (b) the aggregate number of shares of Common
Stock and Common Stock Equivalents as of the date of the Valuation
Event. For the purposes of this Agreement, the Book Value of the shares
of Common Stock will be determined by the independent certified public
accountants then retained by the Company as described in Section 4.06.
Buyer. This term is defined in Section 6.02(a)(ii) of the Shareholder
Agreement.
Call Option. This term is defined in Section 5.01 of the Shareholder
Agreement.
Call Option Closing. This term is defined in Section 5.04 of the
Shareholder Agreement.
Call Option Period. This term is defined in Section 5.01 of the
Shareholder Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other shares,
options, interests, participations, or other equivalents (however
designated) of or in such Person, whether voting or nonvoting,
including, without limitation, common stock, options, warrants,
preferred stock (including the Series A Preferred Stock), phantom stock,
stock appreciation rights, convertible notes or debentures, stock
purchase rights, and all agreements, instruments, documents, and
securities convertible, exercisable, or exchangeable, in whole or in
part, into any one or more of the foregoing.
Certificate. This term is defined in Section 2.01(a)(iii).
Closing Date. As of March 4, 1997.
Closing Price.
(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System --
National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the last
reported sales price, regular way, of such security for such day, or, if
there has not been a sale on such trading day, the highest closing or
last bid quotation therefor on such trading day (excluding, in any case,
any price that is not the result of bona fide arm's length trading); or
(b) If the primary market for such security is not an exchange
or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid or
asked quotation by disinterested Persons in the over-the-counter market
on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate from time to time.
Common Stock. The common stock, $0.01 par value, of the Company.
Common Stock Equivalent. Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common
Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. Jotan, Inc. and any successor or assign, and, unless the
context requires otherwise, the term Company includes any Subsidiary.
Co-Sell Shares. This term is defined in Section 6.02(d) of the
Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the Shareholder
Agreement.
Dilution Fee. This term is defined in Article III of the Shareholder
Agreement.
Election Notice. This term is defined in Section 6.02(b) of the
Shareholder Agreement.
Employment Agreements. This term is defined in Section 11.1 of the Note
Agreement.
Excess Consideration. The amount that a Holder would have realized
following the Adjustment Event had the Call Option not been exercised by
the Company until such time, minus the amount that such Holder realized
due to the exercise of the Call Option; provided, however, that the
amount of Excess Consideration will in all events be deemed to be at
least zero.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03 as
adjusted from time to time pursuant to the provisions of this Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities not regularly traded in the securities
markets and other property, the fair market value of such securities or
property as determined in good faith by disinterested members of the
Board of Directors of the Company at the time it authorizes the
transaction (a "Valuation Event") requiring a determination of Fair
Market Value under this Agreement; provided, however, that, at the
election of the Holders or if there are no disinterested members of the
Board of Directors of the Company, the Fair Market Value of such
securities and other property will be the Appraised Value.
Holders. Each Purchaser, and all other Persons holding Registrable
Securities so long as such Purchasers or other Person holds Registrable
Securities, except that none of the Company, F-Jotan, any Shareholder or
any Affiliate of the Company, F-Jotan (other than the Southland
Purchasers) or the Shareholder will at any time be a Holder. Unless
otherwise provided in this Agreement, in each instance that any
Purchaser is required to request or consent to or otherwise approve an
action, such Purchaser will be deemed to have requested or consented to
or otherwise approved such action if the Holders of a
majority-in-interest of the Registrable Securities initially issued to
the Southland Purchasers and Rice on the date hereof so request, consent
or otherwise approve.
Indemnified Party. This term is defined in Section 6.01 hereof and in
Section 11.01 of the Shareholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of such Purchaser to
which any of the Warrants or any part of or interest in the Warrants is
assigned.
Intellectual Property. This term is defined in Section 3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
Negotiation Period. This term is defined in the definition of Fair
Market Value.
New Securities. Any Capital Stock other than Warrant Shares and other
than the Permitted Stock.
Notes. All or any portion of any of the Senior Subordinated Notes (as
defined in the Note Agreement) and any and all documents evidencing the
indebtedness under the Notes and any refinancing, refunding, or
replacement of the Notes.
Note Agreement. This term is defined in the preamble and includes the
Note Purchase Agreement of even date with this Agreement among the
Company and each Purchaser and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same may be
amended from time to time, and any refinancing, refunding, or
replacements of the indebtedness under the Note Agreement.
Notice of Sale. This term is defined in Section 6.02(a) of the
Shareholder Agreement.
Other Securities. Any stock, other securities, property, or other
property or rights (other than Common Stock) that the Holders become
entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to acquire Common
Stock, constituting, in the aggregate, 2,000,000 shares or less of the
outstanding Common Stock issued or reserved for issuance to present and
future key management and directors of the Company pursuant to a stock
incentive program approved or to be approved by the board of directors.
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company,
institution, entity, party, or government (whether national, federal,
state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body, or department
of any of the foregoing).
Preferred Shares. This term is defined in Section 2.01.
Preferred Stock. This term means collectively, Series A Preferred Stock
and Series B Preferred Stock.
Purchase Agreement. This term is defined in the preamble to the
Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the Shareholder
Agreement.
Put Option Closing. This term is defined in Section 4.05 of the
Shareholder Agreement.
Put Option Period. This term is defined in Section 4.01 of the
Shareholder Agreement.
Put Price. This term is defined in Section 4.02 of the Shareholder
Agreement.
Put Shares. The Warrant Shares plus any other shares of Capital Stock
owned from time to time by a Holder which were issued in respect of the
Warrant Shares.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
Registrable Securities. (a) The Issuable Warrant Shares, (b) the Issued
Warrant Shares and (c) the Preferred Shares that have not been
previously sold to the public.
Related Party. An entity wholly owned by a Selling Shareholder or one
or more Related Parties.
Selling Shareholder. This term is defined in Section 6.02 of the
Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Senior Lenders. This term is defined in Section 11.1 of the Note
Agreement.
Series A Preferred Stock. Series A Convertible Preferred Stock, $0.01
par value, of the Company having the rights, restrictions, privileges
and preferences of the series of preferred stock designated as "Series A
Convertible Preferred Stock" set forth in the Certificate.
Senior Loan Agreement. This term is defined in Section 11.1 of the Note
Agreement.
Series B Preferred Stock. Series B Preferred Stock, $0.01 par value, of
the Company having the rights, restrictions, privileges and preferences
of the series of preferred stock designated as "Series B Preferred
Stock" set forth in the Certificate.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble and
includes the Shareholder Agreement dated as of February 28, 1997 between
the Company, the Shareholder, F-Jotan and the Purchaser in substantially
the form attached to this Agreement as Annex A and incorporated in this
Agreement by reference.
Senior Subordination Agreement. This term is defined in Section 11.1 of
the Note Agreement.
Subsidiary. Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty percent (50%) or more of
(i) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the
board of directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or profits
interest of such Person, if it is a partnership, joint venture, or
similar entity; or (iii) the beneficial interest of such Person, if it
is a trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of Fair Market
Value.
Warrant A-1. Warrant A-1 referred to in Section 2.01(a)(i), dated as of
February 28, 1997, issued to Rice, and all Warrants issued upon the
transfer or division of, or in substitution for, such Warrant A-1.
Warrant A-2. Warrant A-2 referred to in Section 2.01(a)(ii), dated as
of February 28, 1997, issued to Rice, and all Warrants issued upon the
transfer or division of, or in substitution for, such Warrant A-2.
Warrant B-1. Warrant B-1 referred to in Section 2.01(b)(i), dated as of
February 28, 1997, issued to F-Southland, and all Warrants issued upon
the transfer or division of, or in substitution for, such Warrant B-1.
Warrant B-2. Warrant B-2 referred to in Section 2.01(b)(ii), dated as
of February 28, 1997, issued to F-Southland, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
B-2.
Warrant C-1. Warrant C-1 referred to in Section 2.01(c)(i), dated as of
February 28, 1997, issued to FF-Southland, and all Warrants issued upon
the transfer or division of, or in substitution for, such Warrant C-1.
Warrant C-2. Warrant C-2 referred to in Section 2.01(c)(ii), dated as
of February 28, 1997, issued to FF-Southland, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
C-2.
Warrants. Collectively, Warrant X-0, Xxxxxxx X-0, Xxxxxxx X-0, Warrant
X-0, Xxxxxxx X-0, Xxxxxxx C-2 and all Warrants issued upon the transfer
or the division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable Warrant
Shares.
Article II
The Warrants and the Preferred Shares
2.01 The Warrants and the Preferred Shares.
(a) On the Closing Date, Rice agrees to purchase from the Company at
the purchase price set forth below, and the Company agrees to issue to Rice,
all in accordance with the terms and conditions of this Agreement:
(i) a Warrant A-1 (relating to the Notes) in substantially the
form attached to this Agreement as Annex B and incorporated in this
Agreement by reference to purchase, at a purchase price of $100, the
number of shares of Common Stock set forth beneath the name of Rice on
the signature page of this Agreement for such Warrant A-1;
(ii) a Warrant A-2 (relating to the Series B Preferred Stock) in
substantially the form attached to this Agreement as Annex C and
incorporated in this Agreement by reference to purchase, at a purchase
price of $100, the number of shares of Common Stock set forth beneath
the name of Rice on the signature page of this Agreement for such
Warrant A-2; and
(iii) 40,000 shares of Series B Preferred Stock, at a purchase
price of $8,000,000, having the rights, restrictions, privileges, and
preferences set forth in the articles of amendment of the Company's
articles of incorporation attached to this Agreement as Annex H (the
"Certificate").
(b) On the Closing Date, F-Southland agrees to purchase from the
Company, and the Company agrees to issue to F-Southland, all in accordance
with the terms and conditions of this Agreement:
(i) a Warrant B-1 (relating to the Notes) in substantially the
form attached to this Agreement as Annex D and incorporated in this
Agreement by reference to purchase, at a purchase price of $100 the
number of shares of Common Stock set forth beneath the name of F-
Southland on the signature page of this Agreement for such Warrant B-1;
(ii) a Warrant B-2 (relating to the Series B Preferred Stock) in
substantially the form attached to this Agreement as Annex E and
incorporated in this Agreement by reference to purchase, at a purchase
price of $100 the number of shares of Common Stock set forth beneath the
name of F-Southland on the signature page of this Agreement for such
Warrant B-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
(c) On the Closing Date, the FF-Southland agrees to purchase from the
Company, and the Company agrees to issue to the FF-Southland, all in
accordance with the terms and conditions of this Agreement:
(i) a Warrant C-1 (relating to the Notes) in substantially the
form attached to this Agreement as Annex F and incorporated in this
Agreement by reference to purchase, at a purchase price of $100 the
number of shares of Common Stock set forth beneath the name of F-
Southland on the signature page of this Agreement for such Warrant C-1;
(ii) a Warrant C-2 (relating to the Series B Preferred Stock) in
substantially the form attached to this Agreement as Annex G and
incorporated in this Agreement by reference to purchase, at a purchase
price of $100 the number of shares of Common Stock set forth beneath the
name of F-Southland on the signature page of this Agreement for such
Warrant C-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
The Company has, on or before the Closing Date, duly authorized the Series B
Preferred Stock being purchased and sold pursuant to the terms of this
Agreement by duly filing the Certificate with the Secretary of State of the
State of Florida. On the Closing Date, the Company will deliver to each of
Rice and the Southland Purchasers a certificate evidencing and representing
the shares of Series B Preferred Stock issued to each such Purchaser, which
certificate shall be issued in such Purchaser's name or in the name of its
designee. The shares of Series B Preferred Stock and Series A Preferred Stock
subject to the terms of this Agreement are sometimes referred to in this
Agreement collectively as the "Preferred Shares."
2.02 Legend. The Company will deliver to the appropriate Purchaser on
the Closing Date one or more certificates representing each of (i) Xxxxxxx X-
0, (xx) Xxxxxxx X-0, (xxx) Warrant B-1, (iv) Warrant B-2, (v) Warrant C-1,
(vi) Warrant C-2 and (vii) the Series B Preferred Stock, purchased by Rice or
the Southland Purchasers, as the case may be, in such denominations as such
Purchaser requests. Such certificates will be issued in the respective
Purchaser's name or, subject to compliance with transfer and registration
requirements under applicable Federal and state securities laws, in the name
or names of its respective designee or designees. It is understood and agreed
that the certificates evidencing the Warrants will bear the following legends:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION
WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT
LIMITATION, THE NORTH CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS
SECURITIES ACT OF 1957, AS AMENDED, AND THE GEORGIA SECURITIES ACT OF
1973, AS AMENDED, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF
FEBRUARY 28, 1997, BY AND AMONG JOTAN, INC. (THE "COMPANY"), RICE
PARTNERS II, L.P., F-SOUTHLAND, L.L.C. AND FF-SOUTHLAND, L.P., F-JOTAN,
L.L.C. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO SUCH
SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED,
AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,' AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
It is further understood and agreed that the certificates evidencing the
Preferred Stock will bear substantially the same as the following legends:
"THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE SHARES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT LIMITATION, THE NORTH
CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS SECURITIES ACT OF 1957,
AS AMENDED, AND THE GEORGIA SECURITIES ACT OF 1973, AS AMENDED, AND MAY
NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH
ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,' AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
"THESE SHARES ARE SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH
DATED AS OF FEBRUARY 28, 1997, BETWEEN JOTAN, INC. (THE "COMPANY"), RICE
PARTNERS II, L.P., F-JOTAN, L.L.C., AND F-SOUTHLAND, L.L.C., FF-
SOUTHLAND, L.P. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO
SUCH SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS").
COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE
COMPANY."
2.03 Exercise Price. The Exercise Price per share will be $0.01 for
each share of Common Stock covered by the Warrants; provided, however, that in
no event will either (i) the aggregate Exercise Price for all of the shares of
Common Stock covered by Warrant A-1 exceed $100.00, (ii) the aggregate
Exercise Price for all of the shares of Common Stock covered by Warrant A-2
exceed $100.00, (iii) the aggregate Exercise Price for all of the shares of
Common Stock covered by Warrant B-1 exceed $100.00, (iv) the aggregate
Exercise Price for all of the shares of Common Stock covered by Warrant B-2
exceed $100.00, (v) the aggregate Exercise Price for all of the shares of
Common Stock covered by Warrant C-1 exceed $100.00 or (vi) the aggregate
Exercise Price for all of the shares of Common Stock covered by Warrant C-2
exceed $100.00, whether as a result of any change in the par value of the
Common Stock or Other Securities, as a result of any change in the number of
shares purchasable as provided in this Article II, or otherwise; provided,
further, that such limitation of the aggregate Exercise Price will have no
effect whatsoever upon the amount or number of Warrant Shares for which the
Warrants may be exercised.
2.04 Exercise of Warrants.
(a) Each of the Warrants may be exercised at any time or from
time to time on or after the Closing Date until the tenth (10th)
anniversary of the Closing Date, on any day that is a Business Day, for
all or any part of the number of Issuable Warrant Shares purchasable
upon its exercise. In order to exercise its Warrant, in whole or in
part, the Holder will deliver to the Company at the address designated
by the Company pursuant to Section 6.06, (i) a written notice of such
Holder's election to exercise its Warrant, which notice will specify the
number of Issuable Warrant Shares to be purchased pursuant to such
exercise, (ii) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Issuable Warrant Shares to be purchased
pursuant to such exercise, and (iii) the Warrant. Such notice will be
substantially in the form of the Subscription Form appearing at the end
of the Warrants. Upon receipt of such notice, the Company will, as
promptly as practicable, and in any event within ten (10) business days,
execute, or cause to be executed, and deliver to such Holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock and Other Securities issuable upon such exercise,
as provided in this Agreement. The stock certificate or certificates so
delivered will be in such denominations as may be specified in such
notice and will be registered in the name of such Holder, or, subject to
compliance with transfer and registration requirements under applicable
Federal and state securities laws, such other name as designated in such
notice. A Warrant will be deemed to have been exercised, such
certificate or certificates will be deemed to have been issued, and such
Holder or any other Person so designated or named in such notice will be
deemed to have become a holder of record of such shares for all
purposes, as of the date that such notice, together with payment of the
Exercise Price and the Warrant is received by the Company. If the
Warrant has been exercised in part, the Company will, at the time of
delivery of such certificate of certificates, deliver to such Holder a
new Warrant evidencing the rights of such Holder to purchase the number
of Issuable Warrant Shares with respect to which the Warrant has not
been exercised, which new Warrant will, in all other respects, be
identical with the Warrants, or, at the request of such Holder,
appropriate notation may be made on the original Warrant and the
original Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at the option of
the Holder, by (i) company or individual check, certified or official
bank check, (ii) cancellation of any debt owed by the Company to the
Holder, or (iii) cancellation of Warrant Shares, valued at Fair Market
Value. If the Holder surrenders a combination of cash or cancellation
of any debt owed by the Company to the Holder or Warrants, the Holder
will specify the respective number of shares of Common Stock to be
purchased with each form of consideration, and the foregoing provisions
will be applied to each form of consideration with the same effect as if
the Warrant were being separately exercised with respect to each form of
consideration; provided, however, that a Holder may designate that any
cash to be remitted to a Holder in payment of debt be applied, together
with other monies, to the exercise of the portion of the Warrant being
exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other Securities upon
the exercise of any of the Warrants will be made without charge to any Holder
for any tax, other than income taxes assessed on such Holder, in respect of
such issuance.
2.06 Register. The Company will, at all times while any of the
Warrants or Preferred Shares remain outstanding, keep and maintain at its
principal office a register in which the registration, transfer, and exchange
of the Warrants and Preferred Shares will be provided for. The Company will
not at any time, except upon the dissolution, liquidation, or winding up of
the Company, close such register so as to result in preventing or delaying the
exercise or transfer, as the case may be, of any of the Warrants or Preferred
Shares.
2.07 Transfer and Exchange. The Warrants, all options and rights under
the Warrants, and the Preferred Shares are transferable, in whole or in part,
in person or by duly authorized attorney, on the books of the Company upon
surrender of the Warrants or the Preferred Shares, as the case may be, at the
principal offices of the Company, together with the form of transfer
authorization attached to the Warrants duly executed or by endorsement of the
certificates representing the Preferred Shares; provided, however, that such
transfers of the Warrants and Preferred Shares will be made only to Persons
that the transferor in good faith believes to be an "accredited investor" as
such term is defined in Regulation D under the Securities Act. Absent any
such transfer and subject to the Shareholder Agreement, the Company may deem
and treat the registered Holders of the Warrants or the Preferred Shares, as
the case may be, at any time as the absolute owners of the Warrants or the
Preferred Shares, as the case may be, for all purposes and will not be
affected by any notice to the contrary. If any of the Warrants or Preferred
Shares are transferred in part, the Company will, at the time of surrender of
such Warrant or Preferred Shares, as the case may be, issue to the transferee
a Warrant or a certificate for Preferred Shares, as the case may be, covering
the number of shares transferred and to the transferor a Warrant or a
certificate for Preferred Shares, as the case may be, covering the number of
shares not transferred. Notwithstanding the foregoing, each Purchaser agrees
that it will not effect a transfer of any of the Warrants to any Person or
Affiliate of such Person engaged in the type of business set forth on Annex I
attached hereto and incorporated herein by reference unless such transfer is
made in connection with a transaction resulting in a change of control of the
Company.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of shares of
Common Stock in such manner that, following the complete and full
exercise of the Warrants of each Holder, the amount of Common Stock
issued to all Holders will equal the aggregate number of shares of
Common Stock set forth beneath the name of the Purchaser on the
signature pages of this Agreement, as adjusted, to the extent necessary,
to give effect to the following events:
(i) In case at any time or from time to time, the
holders of any class of Common Stock or Common Stock Equivalent
have received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) have become
entitled to receive, without payment therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by
way of spin-off, split-up, reclassification (including any
reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation),
recapitalization, combination of shares into a smaller
number of shares, or similar corporate restructuring;
other than additional shares of Common Stock issued as a
stock dividend or in a stock-split (adjustments in respect of
which are provided for in Sections 2.08(a)(ii) and (iii)), then,
and in each such case, the Holders, on the exercise of Warrants,
will be entitled to receive for each share of Common Stock
issuable under the Warrants as of the record date fixed for such
distribution, the greatest per share amount of consideration
received by any holder of any class of Common Stock or Common
Stock Equivalent or to which such Holder is entitled less the
amount of any Dilution Fee actually and irrevocably paid to such
Holders. All such consideration receivable upon exercise of such
Warrant with respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of determining
the amount of consideration to which such Holder is entitled upon
exercise of the Warrant with respect to any subsequent
distribution.
(ii) If at any time there occurs any stock split,
stock dividend or distribution, reverse stock split, or other
subdivision of the Common Stock, then the number of shares of
Common Stock to be received by the Holder of the Warrant and the
Exercise Price, subject to the limitations set forth in this
Agreement, will be proportionately adjusted.
(iii) In case of any reclassification or change of
outstanding shares of any class of Common Stock or Common Stock
Equivalent (other than a change in par value, or from par value to
no par value, or from no par value to par value), or in the case
of any consolidation of the Company with, or merger or share
exchange of the Company with or into, another Person, or in case
of any sale of all or a majority of the property, assets,
business, income or revenue generating capacity, or goodwill of
the Company, the Company, or such successor or other Person, as
the case may be, will provide that the Holder of this Warrant will
thereafter be entitled to receive the highest per share kind and
amount of consideration received or receivable (including cash)
upon such reclassification, change, consolidation, merger, share
exchange, or sale by any holder of any class of Common Stock or
Common Stock Equivalent that this Warrant entitles the Holder to
receive immediately prior to such reclassification, change,
consolidation, merger, share exchange, or sale (as adjusted
pursuant to Section 2.08(a)(i) and otherwise in this Agreement).
Any such successor Person, which thereafter will be deemed to be
the Company for purposes of the Warrants, will provide for
adjustments that are as nearly equivalent as may be possible to
the adjustments provided for by this Section 2.08.
(iv) If at any time the Company issues or sells any
shares of any Common Stock or any Common Stock Equivalent at a per
unit or share consideration (which consideration will include the
price paid upon issuance plus the minimum amount of any exercise,
conversion, or similar payment made upon exercise or conversion of
any Common Stock Equivalent) less than the Exercise Price or the
then current Fair Market Value per share of Common Stock
immediately prior to the time such Common Stock or Common Stock
Equivalent is issued or sold (the "Additional Securities"), then:
(A) the Exercise Price will be reduced
(but not increased) to the lower of the prices calculated
by:
(I) dividing (x) an amount
equal to the sum of (1) the number of shares of Common
Stock outstanding on a fully diluted basis immediately
prior to such issuance or sale multiplied by the then
existing Exercise Price plus (2) the aggregate
consideration, if any, received by the Company upon
such issuance or sale, by (y) the total number of
shares of Common Stock outstanding immediately after
such issuance or sale on a fully diluted basis; and
(II) multiplying the then
existing Exercise Price by a fraction, the numerator
of which is (x) the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted basis
immediately prior to such issuance or sale, multiplied
by the Fair Market Value per share of Common Stock
immediately prior to such issuance or sale, plus (2)
the aggregate consideration received by the Company
upon such issuance or sale, (y) divided by the total
number of shares of Common Stock outstanding on a
fully diluted basis immediately after such issuance or
sale, and the denominator of which is the Fair Market
Value per share of Common Stock immediately prior to
such issuance or sale (for purposes of this subsection
(II), the date as of which the Fair Market Value per
share of Common Stock will be computed will be the
earlier of the date upon which the Company will (aa)
enters into a firm contract for the issuance of such
shares, or (bb) issues such shares); and
(B) the number of shares of Common Stock
for which any of the Warrants may be exercised at the
Exercise Price resulting from the adjustment described in
subsection (A) above will be equal to the product of the
number of shares of Common Stock purchasable under such
Warrants immediately prior to such adjustment multiplied by
a fraction, the numerator of which is the Exercise Price in
effect immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting from
such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles of
this Agreement, then, in each such case, the Holders may appoint
an independent investment bank or firm of independent public
accountants, which will give its opinion as to the adjustment, if
any, on a basis consistent with the essential intent and
principles established in this Agreement, necessary to preserve
the purchase rights represented by the Warrants. Upon receipt of
such opinion, the Company will promptly deliver a copy of such
opinion to the Holders and will make the adjustments described in
such opinion. The fees and expenses of such investment bank or
independent public accountants will be borne equally by the
Holders and the Company.
(b) The Company and the Shareholder will not by any action
including, without limitation, amending, or permitting the amendment of,
the charter documents, bylaws, or similar instruments of the Company or
through any reorganization, reclassification, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities, or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions
as may be necessary or appropriate to protect the rights of the Holders
against impairment or dilution. Without limiting the generality of the
foregoing, each of the Company and the Shareholder will (i) take all
such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of
Common Stock and Other Securities, free and clear of all liens,
encumbrances, equities, and claims and (ii) use its best efforts to
obtain all such authorizations, exemptions, or consents from any public
regulatory body having jurisdiction as may be necessary to enable the
Company to perform its obligations under the Warrants. Without limiting
the generality of the foregoing, the Company represents and warrants
that the board of directors of the Company has determined the Exercise
Price to be adequate and the issuance of the Warrants to be in the best
interests of the Company.
(c) Any calculation under this Section 2.08 will be made to the
nearest one ten-thousandth of a share and the number of Issuable Warrant
Shares resulting from such calculation will be rounded up to the next
whole share of Common Stock or Other Securities comprising Issuable
Warrant Shares.
(d) The Company will not, and will not permit any Subsidiary to,
issue any Capital Stock other than Common Stock and Common Stock
Equivalents.
2.09 Lost, Stolen, Mutilated, or Destroyed Instruments. If any of the
Warrants or certificates for Preferred Shares are lost, stolen, mutilated, or
destroyed and if the Company receives a lost security affidavit containing an
indemnification from the Holder of such Warrant or Preferred Shares and
containing such other terms and providing for such bonding as may be
reasonably requested by the Company, the Company will issue a new Warrant or
certificate for Preferred Shares, as the case may be, of like denomination,
tenor, and date as the Warrant or certificate for Preferred Shares, as the
case may be, so lost, stolen, mutilated, or destroyed. Any such new Warrant
or certificate for Preferred Shares, as the case may be, will constitute an
original obligation of the Company, whether or not the allegedly lost, stolen,
mutilated, or destroyed Warrant or certificate for Preferred Shares, as the
case may be, is at any time enforceable by any Person.
2.10 Stock Legend. Without limiting the provisions of Section 2.02
hereof, the Warrants, the Warrant Shares and the Preferred Shares have not
been registered under the Securities Act or qualified under applicable state
securities laws. Accordingly, unless there is an effective registration
statement and qualification respecting the Warrants, the Warrant Shares or the
Preferred Shares, as the case may be, under the Securities Act or under
applicable state securities laws, the Preferred Shares and, at the time of
exercise of a Warrant, any stock certificate issued pursuant to the exercise
of a Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS, INCLUDING, WITHOUT LIMITATION, THE NORTH CAROLINA SECURITIES ACT,
AS AMENDED, THE TEXAS SECURITIES ACT OF 1957, AS AMENDED, AND THE
GEORGIA SECURITIES ACT OF 1973, AS AMENDED, AND (B) ARE SUBJECT TO THE
TERMS OF AND PROVISIONS OF A PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF FEBRUARY 28,
1997 AMONG JOTAN, INC. (THE "COMPANY"), RICE PARTNERS II, L.P., F-
SOUTHLAND, FF-SOUTHLAND, L.P., F-JOTAN, L.L.C. AND THE OTHER PARTIES
LISTED ON THE SIGNATURE PAGES OF SUCH SHAREHOLDER AGREEMENT (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME
TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT
THE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,' AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
All shares of Capital Stock of the Company subject to the Shareholder
Agreement will bear a legend to such effect.
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company and the Shareholder.
The Company and the Shareholder severally and not jointly represent and
warrant to each Purchaser and F-Jotan that:
(a) The Company is a corporation duly organized and existing and
in good standing under the laws of its state of incorporation and is
qualified or licensed to do business in all other countries, states, and
jurisdictions the laws of which require it to be so qualified or
licensed. The Company has no Subsidiaries except as disclosed in
Schedule 4.16 to the Note Agreement or debt or equity investment in any
Person. Giving effect to the transactions contemplated herein, the
Shareholder owns beneficially and of record the number of shares in the
aggregate of the issued and outstanding capital stock or stock
equivalents of the Company on a fully converted and diluted basis as of
the Closing Date set forth under the signature of such Shareholder on
this Agreement, all being free and clear of all liens, claims and
encumbrances. Other than Purchaser and F-Jotan, and, except any other
stock issuable under any employee or director stock plan which
constitutes Permitted Stock, no Person has any rights, whether granted
by the Company or any other Person, to acquire any portion of the equity
interest of the Company or the assets of the Company.
(b) Each of the Company and the Shareholder has, and at all
times that this Agreement is in force will have, the right and power,
and is duly authorized, to enter into, execute, deliver, and perform
this Agreement, the Shareholder Agreement, and, in the case of the
Company, the Warrants, and the officers of Company executing and
delivering this Agreement, the Shareholder Agreement, and the Warrants
are duly authorized to do so. This Agreement, the Shareholder
Agreement, and the Warrants have been duly and validly executed, issued,
and delivered and constitute the legal, valid, and binding obligations
of Company and the Shareholder, enforceable in accordance with their
respective terms.
(c) The execution, delivery, and performance of this Agreement,
the Shareholder Agreement, and the Warrants will not, by the lapse of
time, the giving of notice, or otherwise, constitute a violation of any
applicable provision contained in the charter, bylaws, or organizational
documents of the Company or contained in any agreement, instrument, or
document to which the Company or the Shareholder is a party or by which
any of them is bound.
(d) As of the Closing Date, the authorized capital stock of the
Company consists of (i) 40,000,000 shares of Common Stock, of which
5,679,411 shares are issued and outstanding and (ii) 10,000,000 shares
of Preferred Stock, of which 1,329,357 shares of Series A Preferred
Stock are issued and outstanding and of which 50,000 shares of Series B
Preferred Stock are issued and outstanding. An aggregate of at least
14,960,003 shares of Common Stock are reserved for issuance on exercise
of the Warrants. All of the issued and outstanding shares of Common
Stock are, and upon issuance and payment therefor in accordance with the
terms of this Agreement, all of the outstanding Series B Preferred Stock
will be, validly issued, fully paid and nonassessable. The Common Stock
and Preferred Shares have been offered, issued, sold, and delivered by
Company free from preemptive rights, rights of first refusal,
antidilution rights, cumulative voting rights or similar rights (except
as otherwise provided in this Agreement or in the powers, designations,
rights and preferences of the Preferred Stock contained in the
Certificate) and in compliance with applicable federal and state
securities laws. Except pursuant to this Agreement and the Certificate
and except for the Permitted Stock, the Company is not obligated to
issue or sell any Capital Stock, and, except for this Agreement and the
Shareholder Agreement, neither the Company nor the Shareholder is party
to, or otherwise bound by, any agreement affecting the voting of any
Capital Stock. Except for the Shareholder Agreement, the Company is
not, nor will it be, a party to, or otherwise bound by, any agreement
obligating it to register any of its Capital Stock.
(e) The Preferred Shares and the shares of Common Stock and
other consideration issuable on exercise of the Warrants have been duly
and validly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement or the Warrants, as the case
may be, will be validly issued, fully paid, and nonassessable and free
of preemptive rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and
marketable title to, and ownership of, all of its assets necessary for
the conduct of its business free and clear of all liens, pledges,
security interests, claims, or other encumbrances except those of Senior
Lender and those Liens set forth in Schedule 11.1(b) to the Note
Agreement.
(g) The Company has the exclusive right to use all patents,
patent rights, patent applications, licenses, inventions, trade secrets,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, and copyrights used in or
necessary to its business as presently, or presently proposed to be,
conducted (the "Intellectual Property"), and the use by the Company of
the Intellectual Property does not infringe the rights of any other
Person except that Southland Holding Company has a non-exclusive right
to use the names "Southland" and "Southland Container" and similar trade
names. No other Person is infringing the rights of the Company in any
of the Intellectual Property in any material respect. The Company owes
no royalties, honoraria, or fees to any Person by reason of its use of
any of the Intellectual Property.
(h) There is not now, and at no time during the term of this
Agreement or the Shareholder Agreement will there be, any agreement,
arrangement, or understanding involving the Company or the Shareholder,
other than this Agreement, the Shareholder Agreement, and the documents
contemplated hereby and thereby, modifying, restricting, or in any way
affecting the rights of any security holder to vote securities of the
Company.
(i) Each of the representations and warranties made by the
Company pursuant to the Note Agreement and the Shareholder Agreement and
the Shareholder pursuant to the Shareholder Agreement is true and
correct in all material respects.
(j) None of the documents, instruments, or other information
furnished to the Purchaser by the Company or the Shareholder, contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make any statements made therein not
misleading. No representation, warranty, or statement made (i) by the
Company in this Agreement, the Note Agreement, or the Shareholder
Agreement, or (ii) by the Shareholder made in this Agreement or the
Shareholder Agreement, or in any applicable document, certificate,
exhibit or schedule attached hereto or thereto or delivered in
connection herewith or therewith, contains or, at the Closing Date, will
contain any untrue statement of a material fact, or, at the Closing
Date, omits or will omit to state a material fact necessary to make any
statements made herein or therein not misleading; provided, however,
that neither the Company nor the Shareholder make any representation or
warranty of any information of any type or kind whatsoever which, at the
time it was created, was forward-looking or projected except as
expressly required by the Note Agreement. There is no fact that
materially and adversely affects the condition (financial or otherwise),
results of operations, business, properties, or prospects of the Company
or any of its Subsidiaries that has not been disclosed in the documents
provided to the Purchaser.
(k) All required filings have been, or, when required, will be,
made and all exemptions under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, remain in full force and effect
under applicable federal and state securities laws, to consummate the
transactions contemplated hereby.
3.02 Representations and Warranties of the Purchaser. Each Purchaser
represents and warrants severally and not jointly to the Company, F-Jotan and
the Shareholder:
(a) It is a limited partnership or limited liability company, as
the case may be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization.
(b) It has the right and power and is duly authorized to enter
into, execute, deliver, and perform this Agreement and the Shareholder
Agreement, and its officers, managers or agents executing and delivering
this Agreement and the Shareholder Agreement are duly authorized to do
so. This Agreement and the Shareholder Agreement have been duly and
validly executed, issued, and delivered and constitute the legal, valid,
and binding obligation of such Purchaser, enforceable in accordance with
their respective terms.
(c) It (i) is an "accredited investor," as that term is defined
in Regulation D under the Securities Act; (ii) has such knowledge,
skill, and experience in business and financial matters, based on actual
participation, that it is capable of evaluating the merits and risks of
an investment in the Company and the suitability thereof as an
investment for each Purchaser; (iii) has received and reviewed all such
financial and other information and records of the Company as it
considered necessary or appropriate in deciding whether to purchase the
Preferred Shares and the Warrants and any securities issuable upon
exercise of the Warrants, and the Company and the Shareholder have made
available to it the opportunity to ask questions of, and to receive
answers and to obtain additional information from, representatives of
the Company and the Shareholder; (iv) all such additional information
has been provided to and reviewed by it; and (v) it has the ability to
bear the economic risks of losing its entire investment in the Preferred
Shares and the Warrants and any securities issuable upon exercise of the
Warrants.
(d) Except as otherwise contemplated by this Agreement and the
Shareholder Agreement, each Purchaser is acquiring its Series B
Preferred Stock, its portion of the Warrants and any securities issuable
upon exercise of the Warrants for investment for its own account and not
with a view to any distribution thereof in violation of applicable
securities laws.
(e) It agrees that the certificates representing its Preferred
Shares, its portion of the Warrants, and any Issued Warrant Shares will
bear the legends referenced in this Agreement, and such Preferred
Shares, Warrants or securities issuable upon exercise of the Warrants
and pursuant to the Shareholder Agreement, as the case may be, will not
be offered, sold, or transferred in the absence of registration or
exemption under applicable securities laws.
(f) It is not acquiring the Preferred Shares or the Warrants or
any securities issuable upon exercise of the Warrants based upon any
representation, oral or written, by the Company or the Shareholder or
any representative of the Company or the Shareholder with respect to the
future value of, income from, or tax consequences relating to, the
Preferred Shares or the Warrants or securities issuable upon exercise of
the Warrants, but rather upon an independent examination and judgment as
to the prospects of the Company. Further, it acknowledges that no
federal or state administrative entity responsible for securities
registration or enforcement has made any recommendation or endorsement
of the Preferred Shares or the Warrants or any securities issuable upon
exercise of the Warrants or any findings as to the fairness of an
investment in the Preferred Shares of the Warrants or any securities
issuable upon exercise of the Warrants.
(g) It has no current contract, undertaking, agreement,
arrangement or understanding with any Person to sell, transfer, grant
any participation in, or otherwise distribute any of the Preferred
Shares, the Warrants or any securities issuable upon exercise of the
Warrants to any Person.
3.03 Representation and Warranties of F-Jotan. F-Jotan represents and
warrants to the Company, the Shareholder and each Purchaser that, from and
after the Closing Date, it has no written or oral agreement with any Person
with respect to the Series A Preferred Stock that would be inconsistent with,
or otherwise limit or impair, the provisions or intent of this Agreement, the
Certificate or the Shareholder Agreement.
Article IV
Covenants
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books of account and
prepare financial statements and will cause to be furnished to each Purchaser
and each other Holder (all of the foregoing and following to be kept and
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis):
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company,
beginning with the fiscal year ending December 31, 1996, (i) a copy of
the financial statements of the Company for such fiscal year containing
a consolidated and consolidating balance sheet, statement of income,
statement of shareholders' equity, and statement of cash flows, each as
at the end of such fiscal year and for the period then ended and in each
case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by Ernst
& Young, or other independent certified public accountants of recognized
standing selected by the Company and consented to by the Holders and
(ii) a comparison of the actual results during such fiscal year to those
originally budgeted by the Company prior to the beginning of such fiscal
year and a narrative description and explanation of any budget
variances. The annual audit report required by this Agreement will not
be qualified by or make reference to any disclosure that the Company may
not continue as a going concern or otherwise be qualified or limited
because of restricted or limited examination by the accountant of any
portion of any of the records of the Company.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of unaudited
consolidated and consolidating financial statements of the Company as of
the end of such calendar month and for the portion of the fiscal year
then ended, containing a balance sheet, a statement of retained
earnings, statement of income, and statement of cash flows, in each case
setting forth in comparative form the figures for the corresponding
period of the preceding fiscal year and all in reasonable detail,
including, without limitation, a comparison of the actual results during
such period to those originally budgeted by the Company prior to the
beginning of such fiscal period and for the fiscal year to date.
(c) Within forty-five (45) days after the beginning of each
fiscal year, an annual budget or business plan for such fiscal year,
including a projected consolidated and consolidating balance sheet,
income statement, and cash flow statement for such year, and, promptly
during each fiscal year, all revisions thereto approved by the board of
directors of the Company.
(d) Concurrently with the delivery of each of the financial
statements referred to in Section 4.01(a) and, on the request of any
Purchaser, Section 4.01(b), a certificate of an authorized officer of
the Company in form and substance satisfactory to the Holders (i)
certifying that the financial statements attached to such certificates
have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly and accurately present
(subject to year-end audit adjustments) the consolidated and
consolidating financial condition and results of operations of the
Company at the date and for the period indicated therein, and (ii)
containing a narrative report of the business and affairs of the Company
that includes, but is not limited to, a discussion of the results of
operations compared to those originally budgeted for such period by the
Company prior to the beginning of such period.
(e) As soon as available, a copy of each (i) financial
statement, report, notice, or proxy statement sent by the Company to its
shareholders; (ii) regular, periodic, or special report, registration
statement, or prospectus filed by the Company with any securities
exchange, state securities regulator, or the Commission; (iii) material
order issued by any court, governmental authority, or arbitrator in any
material proceeding to which the Company is a party or to which any of
its assets is subject; (iv) press release or other statement made
available generally by the Company or the Shareholder to the public
generally concerning material developments in the business of the
Company; and (v) a copy of all correspondence, reports, and other
information sent by the Company to any holder of any indebtedness,
including, without limitation the Senior Lender.
(f) Promptly, such additional information concerning the Company
as any Holder may request, including, without limitation, auditor
management reports and audit "waive" lists.
4.02 Laws. The Company will comply, in all material respects, with all
applicable statutes, regulations, and orders of the United States, domestic
and foreign states, and municipalities, agencies, and instrumentalities of the
foregoing applicable to the Company.
4.03 Inspection. The Company will permit any representative designated
by a Holder to (a) visit and inspect any of the properties of the Company; (b)
examine the corporate and financial records of Company and make copies thereof
or extracts therefrom; and (c) discuss the affairs, finances, and accounts of
the Company with the directors, officers, key employees, and independent
accountants of the Company. The inspections, examinations and discussions
provided for in the preceding sentence shall be conducted during normal
business hours, shall be reasonable in scope and shall not disrupt or
adversely affect any aspect of the operations of the Company.
4.04 Certain Actions. Without the prior written consent of the
Holders, which consent may be withheld in the sole discretion of the Holders,
the Company will not, and will not permit any Subsidiary to:
(a) permit to occur any amendment, alteration, or modification
of the Bylaws of the Company, as constituted on the date of this
Agreement, the effect of which, in the sole judgment of the Holders,
would be to alter, impair, or affect adversely, either the rights and
benefits of the Holders or the duties and obligations of the Company
under this Agreement, the Warrants, the Certificate or the Shareholder
Agreement or permit to occur any amendment, alteration, or modification
of the Restated Articles of Incorporation or other charter or
organizational documents of the Company, as constituted on the date of
this Agreement except to the extent necessary to comply with Section
4.04(j) or 4.10;
(b) except as otherwise permitted in the Certificate or required
by the Shareholder Agreement, (i) declare or make any dividends or
distributions of its cash, stock, property, or assets or redeem, retire,
purchase, or otherwise acquire, directly or indirectly, any of the
Capital Stock or capital stock or securities of any Affiliate or any
Subsidiary of the Company, or any securities convertible or exchangeable
into Capital Stock or capital stock or securities of any Affiliate or
any Subsidiary of the Company or otherwise make any distribution on
account of the purchase, repurchase, redemption, put, call or other
retirement of any shares of Capital Stock of the Company or any
Subsidiary thereof or of any warrant, option or other right to acquire
such shares (except pursuant to the Purchase Documents or the
Certificate) (each as defined in Section 11.1 of the Note Agreement), or
(ii) make any payment or distribution on account of any Indebtedness of
the Company which is subordinate to the Senior Subordinated Notes
(except that Subsidiaries may make distributions to the Company), and
(iii) except as otherwise provided for in the Note Agreement, pay any
professional consulting or management fees or any other payments to any
shareholders of Parent or any Subsidiary; provided, however, that the
following shall be permitted as exceptions to the preceding provisions
of this clause (b): declare and make payments of (A) dividends in cash
from Subsidiaries of the Company to the Company to the extent necessary
to permit the Company or its Subsidiaries to pay the Senior Subordinated
Obligations (as defined in Section 11.1 of the Note Agreement) due and
payable from the Company or its Subsidiaries to each Purchaser, (B)
dividends or stock repurchases permitted by the Senior Loan Agreement
(as defined in Section 11.1 of the Note Agreement), and (C) dividends on
the Preferred Stock as provided in the Certificate and payments made
pursuant to the Purchase Documents (as defined in Section 11.1 of the
Note Agreement);
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any material portion of the assets or operations or the
revenue or income generating capacity of the Company (other than
inventory in the ordinary course of business and other assets reasonably
and in good faith determined by the Company to be obsolete or no longer
necessary to the business of the Company and other asset dispositions
permitted by the Senior Loan Agreement including the Asset Transfer (as
defined in the Senior Loan Agreement)) or to take any such action that
has the effect of any of the foregoing;
(d) except for issuances of stock permitted by the Senior Loan
Agreement, the Permitted Stock, the Acquisition Merger, the Subsidiary
Mergers (each as defined in Section 11.1 of the Note Agreement) and the
other mergers permitted by the Senior Loan Agreement or pursuant to the
express terms of this Agreement or the Shareholder Agreement, issue or
sell, or otherwise dispose of any Capital Stock (including the Series B
Preferred Stock) or Capital Stock of any Subsidiary, dissolve or
liquidate, or effect any consolidation or merger involving the Company
or any Subsidiary or any reclassification, corporate reorganization,
stock split or reverse stock split, or other change of any class of
Capital Stock of the Company or of any Subsidiary;
(e) enter into any business that the Company or any Subsidiary
is not conducting on the date of this Agreement or acquire any
substantial business operation or assets (through a stock or asset
purchase or otherwise except for businesses and acquisitions permitted
by the Senior Loan Agreement);
(f) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement and except for Permitted Stock, enter into
any transaction or transactions with any director, officer, employee, or
shareholder of the Company, or any Affiliate or relative of the
foregoing except upon terms that, in the opinion of the Holders, are
fair and reasonable and that are, in any event, at least as favorable as
would result in a comparable arm's-length transaction with a Person not
a director, officer, employee, shareholder, or Affiliate of the Company
or any Affiliate or related party of the foregoing, or advance any
monies to any such Persons, except for travel advances in the ordinary
course of business;
(g) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement, increase the amount of remuneration
permitted under Section 7.10 of the Note Agreement;
(h) except for (i) acquisitions permitted under the Note
Agreement and Section 9.2 of the Senior Loan Agreement, (ii) Permitted
Indebtedness (as defined in Section 11.1 of the Note Agreement), and
(iii) other capital contributions, permitted purchases, advances and
loans permitted by the Senior Loan Agreement, acquire any debt or equity
interest in any Person or establish or acquire a Subsidiary or make any
additional capital contribution or purchase any additional equity in any
Subsidiary or make any advances or loans to any Subsidiary or transfer
any technology or assets to any Subsidiary;
(i) except for the employment agreements disclosed in Schedule
7.10 of the Note Agreement, modify, amend, terminate or waive any
material provision of the Employment Agreements;
(j) allow the aggregate par value of the Capital Stock subject
to the Warrants from time to time to exceed the price payable upon
exercise of the Warrants, as adjusted from time to time; or
(k) obligate itself or otherwise agree to take, permit or enter
into any of the events described in subsections (a) through (j) above.
4.05 Records. The Company and each of its Subsidiaries will keep books
and records of account in which full, true, and correct entries will be made
of all dealings and transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated and, at Purchaser's request,
consolidating financial statements of the Company and its Subsidiaries at the
end of each fiscal year, and in the event that the services of the independent
public accountants so selected, or any firm of independent public accounts
hereafter employed by Company or any Subsidiary, are terminated, the Company
will promptly thereafter notify each Holder and upon the Holders' request, the
Company will request the firm of independent public accountants whose services
are terminated to deliver (without liability for such firm) to each Holder a
letter of such firm setting forth the reasons for the termination of their
services and in its notice to each Holder the Company or such Subsidiary will
state whether the change of accountants was recommended or approved by the
board of directors of the Company or any Subsidiaries or any committee
thereof.
4.07 Existence. Except as otherwise expressly required or permitted by
the Note Agreement or this Agreement, the Company will maintain in full force
and effect its corporate existence, rights, and franchises and all licenses
and other rights to use Intellectual Property.
4.08 Notice.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of Capital Stock for the
purpose of determining which of such holders are entitled to dividends,
repurchases of securities or other distributions, or any right to
subscribe for, purchase or otherwise acquire any shares of Capital Stock
or other property or to receive any other right; or (ii) any capital
reorganization of the Company, or reclassification or recapitalization
of the Capital Stock or any transfer of all or a majority of the assets,
business, or revenue or income generating capacity of the Company, or
consolidation, merger, share exchange, reorganization, or similar
transaction involving the Company; or (iii) any voluntary or involuntary
dissolution, liquidation, or winding up of the Company; or (iv) any
proposed issue or grant by the Company of any Capital Stock, or any
right or option to subscribe for, purchase, or otherwise acquire any
Capital Stock (other than the issue of Issuable Warrant Shares upon
exercise of the Warrants), then, in each such event, the Company will
deliver or cause to be delivered to the Holders a notice specifying, as
the case may be, (A) the date on which any such record is to be set for
the purpose of such dividend, distribution, or right, and stating the
amount and character of such dividend, distribution, or right; (B) the
date as of which the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any is to
be fixed, as of which the holders of record of any class of Capital
Stock will be entitled to exchange their shares of Capital Stock for
securities or other property deliverable upon such event; and (D) the
amount and character of any Capital Stock, property, or rights proposed
to be issued or granted, the consideration to be received therefor, and,
in the case of rights or options, the exercise price thereof, and the
date of such proposed issue or grant and the Persons or class of Persons
to whom such proposed issue or grant will be offered or made. Any such
notice will be deposited in the United States mail, postage prepaid, at
least thirty (30) days prior to the date therein specified, and
notwithstanding anything in this Agreement or the Warrants to the
contrary the Holders may exercise the Warrants within thirty (30) days
from the mailing of such notice. The Company shall, promptly on request
of a Holder, provide such other information as the Holders may
reasonably request.
(b) If there is any adjustment as provided above in Article II,
or if any Other Securities become issuable in lieu of shares of such
Common Stock upon exercise of the Warrants, the Company will immediately
cause written notice thereof to be sent to each Holder, which notice
will be accompanied by a certificate of the independent public
accountants of the Company setting forth in reasonable detail the basis
for the Holders' becoming entitled to receive such Other Securities, the
facts requiring any such adjustment in the number of shares receivable
after such adjustment, or the kind and amount of any Other Securities so
purchasable upon the exercise of the Warrants, as the case may be. At
the request of any Holder and upon surrender of the Warrant of such
Holder, the Company will reissue such Warrant of such Holder in a form
conforming to such adjustments.
4.09 Taxes. The Company will, and will cause its Subsidiaries to, file
all required tax returns, reports, and requests for refunds on a timely basis
and will, and will cause its Subsidiaries to, pay on a timely basis all taxes
imposed on either it or its Subsidiaries, as the case may be, or upon any of
its assets, income or franchises or those of its Subsidiaries, as the case may
be; provided, however, that neither the Company nor any Subsidiary shall be
required to pay or discharge any tax, levy, assessment, or governmental charge
(a) which is being contested in good faith by appropriate proceedings
diligently pursued, and for which adequate reserves in accordance with GAAP
(as defined in Section 11.1 of the Note Agreement) have been established or
(b) if the failure to pay the same would not (i) result in a material Lien (as
defined in Section 11.1 of the Note Agreement) on the property of the Company
or any Subsidiary and (ii) would not otherwise result in a Material Adverse
Effect (as defined in Section 11.1 of the Note Agreement).
4.10 Warrant Rights. The Company covenants and agrees that during the
term of this Agreement and so long as any of the Warrants are outstanding, (a)
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock and Other Securities, to provide for the exercise in
full of the rights represented by the Warrants and the exercise in full of the
rights of the Holders under the Shareholder Agreement; (b) the Company will
not increase or permit to be increased the par value per share or stated
capital of the Issuable Warrant Shares or the consideration receivable upon
issuance of its Issuable Warrant Shares; and (c) in the event that the
exercise of the Warrants would require the payment by the Holder of
consideration for the Common Stock or Other Securities receivable upon such
exercise of less than the par or stated value of such Issuable Warrant Shares,
the Company and the Shareholder will promptly take such action as may be
necessary to change the par or stated value of such Issuable Warrant Shares to
an amount less than or equal to such consideration.
4.11 Board Observation and Membership. The Company will deliver to each
Holder a copy of the minutes of and all materials distributed at or prior to
all meetings of the board of directors (including the executive, compensation
or other committee thereof) or shareholders of the Company, certified as true
and accurate by the Secretary of the Company, promptly following each such
meeting. The Company will (a) permit each Holder to designate one (1) person
to attend all meetings of the Company's board of directors (including
executive, compensation or other committee meetings), (b) provide such
designees not less than twenty-one (21) calendar days' actual notice of all
regular meetings and seven (7) calendar days' actual notice of all special
meetings of the Company's board of directors (including the executive,
compensation or other committees thereof) or shareholders, (c) permit such
designees to attend such meetings as an observer, (d) permit Rice (or Rice's
representatives), so long as Rice is a Holder or owns any stock, warrants or
other equity interest in the Company, to designate not more than a majority in
number of the members of the board of directors and a majority in number of
the members of each committee thereof, (e) permit the Southland Purchasers (or
the Southland Purchasers' representative which may be F-Jotan or its
representatives), so long as the Southland Purchasers are Holders or otherwise
own, directly or indirectly, any Common Stock, Warrants or other beneficial or
equity interest in respect of the Capital Stock of the Company, to designate
one (1) individual to serve as a member of the Company's board of directors,
and provide to such designees a copy of all materials distributed at such
meetings or otherwise to the board of directors of the Company.
For so long as any Purchaser is a Holder or owns any stock, warrants or
other equity interest in the Company, at all times the board of directors will
consist of no more than seven (7) members (at least one of whom will be an
independent director selected by the board of directors); provided, however,
that if a majority of the board of directors shall at any time not consist of
Rice designees, the board of directors shall, on Rice's request, immediately
be increased in size so as to permit Rice to elect a majority of the board of
directors as contemplated herein and in paragraph B.4 of Section 4.2 of
Article IV of the Articles of Amendment of the Restated Articles of
Incorporation of the Company as in effect as of the Closing Date (as amended
from time to time with the approval of the board of directors) ("Articles").
Rice may designate one or more of its designees (but not necessarily all of
its designees at any one time) to serve on the Board of Directors at such time
or times as its shall determine in its sole discretion (such appointments, if
Rice so determines, at all times, to constitute at least a majority of the
board of directors).
Notwithstanding anything contained herein or in the Articles, if Rice
shall at any time own, directly or indirectly, less than ten (10%) percent of
the beneficial or other equity interest in respect of the Capital Stock of the
Company (subject to adjustments therein as contemplated by Section 2.08(a)(ii)
and (iii) hereof) that it acquires on the Closing Date, then the rights of
Rice, set forth in this Agreement, the Shareholder Agreement and the Articles
(as a Holder of Series B Preferred Stock), to designate a majority in number
of the board of directors shall expire and terminate on the first day of the
month next following such change in ownership, except that Rice may designate
one (1) individual to continue to serve as a member of the Company's board of
directors and as a member of each committee thereof, with all rights and
privileges attendant thereto, as contemplated herein, so long as Rice owns,
directly or indirectly, any beneficial or other equity interest in respect of
the Capital Stock of the Company.
Such meetings shall be held in person at least quarterly, and the
Company will cause its board of directors to call a meeting at any time upon
the request of any such designated observer on not more than two (2) occasions
per calendar year upon seven (7) calendar days' actual notice to the Company.
The Company agrees to compensate designees of Rice referred to in Subsection
(d) and designees of the Southland Purchasers referred to in Subsection (e)
above in the same manner as each of the other members of the Company's board
of directors and agrees to reimburse each individual referred to in
Subsections (a), (d) and (e) above for all reasonable expenses incurred in
traveling to and from such meetings and attending such meetings
4.12 Going Private Vote. If the Board of Directors shall resolve that
it is in the best interests of the Company to discontinue reporting to the
Securities and Exchange Commission as a public company in accordance with the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder ("going private"), such resolution shall take effect if
and only if the majority of the shareholders of the Company exclusive of Rice,
the Southland Purchasers and F-Jotan (the "Non-Purchaser Shareholders") shall
also approve such action. Notwithstanding the foregoing, such special voting
rights of the Non-Purchaser Shareholders shall not apply to any transaction in
which (a) the Company may sell all or any part of its assets or Capital Stock,
(b) Rice, the Southland Purchasers and/or F-Jotan may sell all or any part of
their respective Capital Stock of the Company, or (c) any of Rice, the
Southland Purchasers and/or F-Jotan may enter into any similar or related
transaction of any kind or description, it being the intent of the parties
hereto to address, in this Section 4.12, only the vote required by the Non-
Purchaser Shareholders for the consummation by the Company of a going private
transaction.
Article V
Conditions
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions
precedent:
5.01 Opinion. Each Purchaser will have received favorable opinions,
dated the Closing Date, from Xxxxxx & Bird and Xxxxx & Lardner counsel for
Company covering matters raised by this Agreement, the Shareholder Agreement,
and such other matters as any Purchaser or its counsel may request, and
otherwise in form and substance satisfactory to each Purchaser and its
counsel.
5.02 Note Agreement Conditions. All of the conditions precedent to the
obligations of Purchaser under the Note Agreement will have been satisfied in
full.
5.03 Material Change. There will have occurred no material adverse
change in the business, prospects, results of operations, or condition,
financial or otherwise, of the Company.
5.04 Shareholder Agreement. The Company, F-Jotan and the Shareholder
will have entered into the Shareholder Agreement with Purchaser.
5.05 Representations and Agreements. Each representation and warranty
of the Company and the Shareholder set forth in this Agreement will be true
and correct in all material respects when made and as of the Closing Date, and
the Company and the Shareholder will have fully performed all their covenants
and agreements set forth in this Agreement in all material respects.
5.06 Proceedings; Consents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary
to the consummation of this Agreement, will be satisfactory in form and
substance to the Purchaser and its counsel, and the Purchaser and its counsel
will have received certificates of compliance and copies (executed or
certified as may be appropriate) of all documents, instruments, and agreements
that the Purchaser or its counsel reasonably may request in connection with
the consummation of such transactions. All consents of any Person necessary
to the consummation of the transactions contemplated by this Agreement and the
Shareholder Agreement will have been received, be in full force and effect,
and not be subject to any onerous condition.
5.07 Reservation of Common Stock. The Purchaser will have received
evidence satisfactory to the Purchaser that the Company has reserved a
sufficient number of shares of Common Stock for the Purchaser to exercise the
Warrants and convert the Preferred Shares.
5.08 Origination Fee. The Company shall have paid to Rice an
origination fee of $200,000.00, F-Southland an origination fee of $25,000 and
FF-Southland an origination fee of $25,000, in immediately available funds, on
the Closing Date, which fee shall be deemed fully earned and nonrefundable on
the Closing Date.
5.09 Government Filings. All filings under (a) the Xxxx-Xxxxx-Xxxxxx
Act and (b) all applicable state and federal securities laws, rules and
regulations shall have been made and all requirements in connection therewith
shall have been met by the Company, each Purchaser and the Shareholder.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies to
which the Purchaser and the Holders may be entitled, the Company and the
Shareholder (solely with respect to the representations and warranties made by
him) severally and not jointly agree to and will indemnify and hold harmless
the Purchaser and F-Jotan, the Holders, and their Affiliates and their
respective successors, assigns, officers, directors, managers, employees,
attorneys, and agents (individually and collectively, an "Indemnified Party")
from and against any and all losses, claims, obligations, liabilities,
deficiencies, penalties, causes of action, damages, costs, and expenses
(including, without limitation, costs of investigation and defense, attorneys'
fees, and expenses), including, without limitation, those arising out of the
contributory negligence of any Indemnified Party, that the Indemnified Party
may suffer, incur, or be responsible for, arising or resulting from, to the
extent applicable, any misrepresentation, breach of warranty, or
nonfulfillment of any covenant or agreement on the part of the Company or the
Shareholder (solely with respect to the representations and warranties made by
him) under this Agreement, the Shareholder Agreement, or under any other
agreement to which the Company or the Shareholder is a party in connection
with this transaction, or from any misrepresentation in or omission from any
certificate or other instrument furnished or to be furnished to the Purchaser
or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nondefaulting party. It
is, therefore, agreed that in the event of any breach or threatened breach by
a party to this Agreement of the terms and conditions set forth in this
Agreement, the nondefaulting party will be entitled, in addition to any and
all other rights and remedies that it may have in law or in equity, to apply
for and obtain injunctive relief requiring the defaulting party to be
restrained from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
6.03 Integration. This Agreement, the Warrants and the Shareholder
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations, understandings,
arrangements, and agreements. This Agreement may not be amended or
supplemented except by a writing signed by Company, the Shareholder, and each
Holder.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that
it is not the intention of any of them to violate any public policy, statutory
or common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section, sentence, word,
clause, or combination thereof causing such violation will be inoperative (and
in lieu thereof there will be inserted such provision, sentence, word, clause,
or combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under
the circumstances.
6.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
addressed to the party to be notified as set forth below. Notices shall be
deemed to have been validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon actual receipt thereof with written
acknowledgment of receipt (whether by noncertified mail, telecopy, telegram,
facsimile, express delivery, hand delivery or otherwise), whichever is
earlier.
If to Rice, at: Address of Rice beneath the name of Rice on the
signature pages of this Agreement
If to the Southland
Purchasers, at: Address of the Southland Purchasers beneath the
name of the Southland Purchasers on the
signature pages of this Agreement
with courtesy copies to: Wyrick, Robins, Xxxxx & Xxxxxx, L.L.P.
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Attn: Xxxxx X. Xxxxx, Xx.
Facsimile: (000) 000-0000
If to F-Jotan, at: Address of F-Jotan beneath the name of F-Jotan
on the signature pages of this Agreement
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxx, Esq.
FAX: 000-000-0000
If to the Company, at: Jotan, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000
Attn: President
Fax: 000-000-0000
with courtesy copies to: Xxxxxx & Bird
One Atlantic Center
0000 X. Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: 000-000-0000
If to the Shareholder, Address of such Shareholder beneath his/her name
on the signature pages of this Agreement
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than the Purchaser will be delivered as
set forth above to the address shown on the stock transfer books of the
Company or the Warrant Register unless such Holder has advised the Company in
writing of a different address to which notices are to be sent under this
Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until
it sets forth all items of information required to be set forth therein
pursuant to the terms of this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns; provided,
however, that no sale, assignment or other transfer by any party to this
Agreement of any of its Capital Stock or rights hereunder to another Person
will be valid and effective unless and until the transferee or assignee first
agrees in writing to be bound by the terms and conditions of this Agreement
and the Shareholders Agreement, and the agreements and instruments related
hereto and thereto, in a form and substance reasonably satisfactory to the
Company.
.
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will
not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement.
Any waiver of any such right or remedy by any party must be in writing and
signed by the party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
considered to have been relied upon by the party to which it is delivered and
will survive the Closing Date, regardless of any investigation made by such
party or on its behalf. All statements in any such certificate or other
instrument will constitute warranties and representations under this
Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will be borne and paid by
the Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
6.12 Other Business. It is understood and accepted that the Purchaser,
F-Jotan, the Holders, and their Affiliates have interests in other business
ventures that may be in conflict with the activities of the Company and that
nothing in this Agreement will limit the current or future business activities
of such parties whether or not such activities are competitive with those of
the Company. The Company and the Shareholder agree that all business
opportunities that may be available to such parties in any field substantially
related to the business of the Company will be pursued exclusively through the
Company.
6.13 Choice of Law. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS
OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF FLORIDA APPLICABLE TO
AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT
TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE
THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give
or withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other
Holder may, in its discretion, elect.
6.15 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.15 WITH ITS
COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY, F-
JOTAN, EACH PURCHASER AND EACH SHAREHOLDER HEREBY KNOWINGLY, INTELLIGENTLY AND
INTENTIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY OR THE ACTIONS OF THE COMPANY, F-JOTAN, EACH PURCHASER AND EACH
SHAREHOLDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR
THEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH PURCHASER TO
PURCHASE THE WARRANTS AND PREFERRED STOCK FROM THE COMPANY.
6.16 Continuation of Directors' and Officers' Insurance and
Indemnification. For a period of two (2) years from the Closing Date, the
Company shall maintain in effect $1,000,000 of directors' and officers'
insurance for the benefit of directors serving in the capacity of directors of
the Company immediately prior to the Closing Date. Such insurance shall be
provided to the extent that (a) such insurance remains commercially available,
(b) the Company may purchase substantially similar coverage as exists at the
Closing Date and (c) such insurance may be obtained at a reasonable cost to
the Company not to exceed $30,000 per annum. The Company shall also retain, in
effect for the same period, those written indemnification provisions that
exist in the articles of incorporation or bylaws of the Company on the Closing
Date for the benefit of such directors (or other written provisions reasonably
equivalent thereto in effect on the Closing Date that are acceptable to
Purchaser). All such insurance and indemnifications shall apply only to the
actual period of service of each director.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
JOTAN, INC.
BY:__________________________
Xxxx X. Xxxxx
Chief Executive Officer
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000
Attn: President
Fax: (000) 000-0000
RICE:
RICE PARTNERS II, L.P.
By: Rice Capital Group IV, L.P.,
Its general partner
By: RMC Fund Management, L.P.,
Its general partner
By: Rice Mezzanine Corporation,
Its general partner
By:_________________________
Name: Xxxxxxx X. Xxxxxxxx
Its: Managing Director
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
OWNED ON CLOSING DATE:
None Shares of Series A
Convertible Preferred Stock
40,000 Shares of Series B
Redeemable Preferred Stock
None Shares of Common Stock
2,515,203 Warrant A-1 Shares
9,581,726 Warrant A-2 Shares
F-JOTAN, L.L.C.
By: Franklin Street/Fairview Capital, L.L.C.,
its manager
By: Franklin Capital, L.L.C.,
its manager
By:___________________________
Xxxxxxxx X. Xxxxxxxx,
Manager
000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
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:_______________________________
Xxxxxxxx X. Xxxxxxxx,
Manager
000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
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:_________________________
Xxxxxxxx X. Xxxxxxxx,
Manager
000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
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:
Xxxxx Xxxxxxxx
___________________________________
OWNED ON CLOSING DATE:
None Shares of Common Stock
Owned on Closing Date
275,000 Common Stock Options
Xxxx X. Xxxxx
_____________________________________
OWNED ON CLOSING DATE:
950,000 Shares of Common Stock
Owned on Closing Date
33,000 Common Stock Options
ANNEX H
[Non-Permitted Transfers]
[To be completed by Jotan]
