WARRANT PURCHASE AGREEMENT
Jotan, Inc.
the "Company"
--------------------
the "Shareholder"
and
Rice Partners II, L.P.
the "Purchaser"
[*], 199[*]
TABLE OF CONTENTS
Page
Article I Definitions................................................................................
Article II The Warrant.......................................................................
2.01 The Warrant.......................................................................
2.02 Legend............................................................................
2.03 Exercise Price....................................................................
2.04 Exercise..........................................................................
2.05 Taxes.............................................................................
2.06 Warrant Register..................................................................
2.07 Transfer and Exchange.............................................................
2.08 Adjustments to Number of Warrant
Shares Purchasable............................................................
2.09 Lost, Stolen, Mutilated, or
Destroyed Warrants............................................................
2.10 Stock Legend......................................................................
Article III Representations and Warranties....................................................
3.01 Representations and Warranties of the
Company [and the Shareholder].................................................
3.02 Representations and Warranties of the
Purchaser.....................................................................
Article IV Covenants.........................................................................
4.01 Financial Statements..............................................................
4.02 Laws..............................................................................
4.03 Inspection........................................................................
4.04 Certain Actions...................................................................
4.05 Records...........................................................................
4.06 Accountants.......................................................................
4.07 Existence.........................................................................
4.08 Notice............................................................................
4.09 Taxes.............................................................................
4.10 Warrant Rights....................................................................
[4.11 Financial Covenants]..........................................................
i
Page
Article V Conditions.................................................................................
5.01 Opinion...........................................................................
5.02 Note Agreement Conditions.........................................................
5.03 Material Change...................................................................
5.04 Shareholder Agreement.............................................................
5.05 Representations and Agreements....................................................
5.06 Proceedings; Consents.............................................................
Article VI Miscellaneous.....................................................................
6.01 Indemnification...................................................................
6.02 Default...........................................................................
6.03 Integration.......................................................................
6.04 Headings..........................................................................
6.05 Severability......................................................................
6.06 Notices...........................................................................
6.07 Successors........................................................................
6.08 Remedies..........................................................................
6.09 Survivors.........................................................................
6.10 Fees..............................................................................
6.11 Counterparts......................................................................
6.12 Other Business....................................................................
6.13 Choice of Law.....................................................................
6.14 Duties Among Holders..............................................................
ANNEX A Form of Shareholder Agreement
ANNEX B Form of Warrant
ii
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") made as of February 28, 1997, by and among JOTAN, INC., a Florida
corporation (the "Company"), RICE PARTNERS II, L.P., a Delaware limited
partnership ("Rice"), F-SOUTHLAND, L.L.C., a North Carolina limited liability
company ("F-Southland"), FF-Southland, L.P., a Delaware limited partnership
("FF-Southland" and together with F- Southland, the "Southland Purchasers",
which, together with Rice are individually and collectively, as the context
requires, referred to herein as the "Purchaser"), F-JOTAN, L.L.C., a North
Carolina limited liability corporation ("F-Jotan"), and each of the SHAREHOLDERS
named on the signature pages hereto (individually and collectively, as the
context requires, the "Shareholder").
W I T N E S S E T H:
WHEREAS, each Shareholder owns beneficially and of record the number of
shares or share equivalents set forth under the signature of such Shareholder on
this Agreement of the issued and outstanding capital stock of the Company;
WHEREAS, F-Jotan, which is the owner of the 1,329,357 shares of the
Series A Preferred Stock of the Company as of the date hereof, will acquire
certain rights and benefits herein and in the Shareholder Agreement in
consideration of terminating certain of its existing contractual rights in
respect of the Company as more fully described in Section 11.18 of the
Shareholder Agreement;
WHEREAS, the Company has entered into a Note Purchase Agreement (the
"Note Agreement") dated of even date with this Agreement with each Purchaser;
WHEREAS, the Company and the Shareholder have entered into a
Shareholder Agreement (the "Shareholder Agreement") dated of even date with this
Agreement with each Purchaser and F-Jotan; and
WHEREAS, each Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company, F-Jotan and each Shareholder enter into, and perform under, this
Agreement and the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser,
F-Jotan, the Shareholder, and the Company, intending to be legally bound, agree
as follows:
Page 1
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
Additional Securities. This term is defined in Section
2.08(a)(iv).
Adjustment Event. Any event in which (a) the Company issues
any shares of Capital Stock in an Adjustment Public Offering for
consideration per share that exceeds the amount received per share by
any Holder in connection with the exercise of the Call Option with
respect to such Holder; (b) any Person acquires Capital Stock in
connection with the acquisition of the beneficial ownership of more
than fifty percent (50%) of the voting securities of the Company, or
acquires Capital Stock and the right to elect a majority of the members
of the Company's board of directors for a consideration per share or
unit that exceeds the amount received per share by any such Holder in
connection with the exercise of such Call Option; (c) the Company sells
all or a majority of its assets or revenue or income generating
capacity for such amount of consideration that, if the Company were
liquidated on the date that such sale is consummated, the holders of
any class of Capital Stock would receive per share distributions
exceeding the amount received per share by any such Holder in
connection with the exercise of such Call Option; or (d) the Company
participates in any merger, consolidation, reorganization, share
exchange, recapitalization, or similar transaction or series of related
transactions involving a change of control of the Company or
disposition of all or a majority of its assets or revenue or income
generating capacity, directly or indirectly, in which the holders of
any class of Capital Stock receive per share consideration for, or
distributions with respect to, their shares in an amount that exceeds
the amount received per share by such Holder in connection with the
exercise of such Call Option.
Adjustment Public Offering. Each public offering of shares of
any class of Capital Stock pursuant to a registration statement filed
with the Commission.
Affiliate. With respect to any Person, (a) a Person that,
directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with, such Person; (b) any
Person of which such Person or such Person's spouse is an officer,
director, security holder, partner, or, in the case of a trust, the
beneficiary or trustee, and (c) any Person that is an officer,
director, security holder, partner, or, in the case of a trust, the
beneficiary or trustee of such Person. The term "control" as used with
respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Page 2
Appraised Value. The value determined in accordance with the
following procedures. For a period of thirty (30) days after the date
of a Valuation Event (the "Negotiation Period"), each party to this
Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date
of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. In the
event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period,
then the Appraised Value of such securities or property will be
determined for purposes of this Agreement by an Appraiser. An
"Appraiser" shall be a recognized appraisal or investment firm with
experience in making determinations of value of the type required to be
made under this definition. If the Holders and the Company cannot agree
on an Appraiser within thirty (30) days after the end of the
Negotiation Period, the Company, on the one hand, and the Holders, on
the other hand, shall each select an Appraiser within forty (40) days
after the end of the Negotiation Period and those two Appraisers shall
select within fifty (50) days after the end of the Negotiation Period
an independent Appraiser to determine the fair market value of such
securities or property, without premium for control or discount for
minority interests. Such independent Appraiser shall be directed to
determine fair market value of such securities or property as soon as
practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by an Appraiser of the fair market
value will be conclusive and binding on all parties to this Agreement.
Appraised Value of each share of Common Stock at a time when (i) the
Company is not a reporting company under the Exchange Act and (ii) the
Common Stock is not traded in the organized securities markets, will,
in all cases, be calculated by determining the Appraised Value of the
entire Company taken as a whole (plus the exercise price of all
options, warrants and other rights to acquire Capital Stock of the
Company having an exercise price per share less than the Fair Market
Value of such Capital Stock) and dividing that value by the sum of (x)
the number of shares of Common Stock then outstanding plus (y) the
number of shares of Common Stock Equivalents, without premium for
control or discount for minority interests, illiquidity, or
restrictions on transfer. The costs of the Appraiser or Appraisers will
be borne by the Company. In no event will the Appraised Value of the
Common Stock or Other Securities be less than the per share
consideration received or receivable with respect to the Common Stock
or securities or property of the same class as the Other Securities, as
the case may be, in connection with a pending transaction involving a
sale, merger, recapitalization, reorganization, consolidation, share
exchange, dissolution of the Company, sale or transfer of all or a
majority of its assets or revenue or income generating capacity, or
similar transaction. The prevailing market prices for any security or
property will not be dispositive of the Appraised Value thereof.
Appraiser. This term is defined in the definition of
Appraised Value.
Average Market Value. The average of the Closing Prices for
the security in question
Page 3
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.
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Closing Price.
(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System
-- National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for such day,
or, if there has not been a sale on such trading day, the highest
closing or last bid quotation therefor on such trading day (excluding,
in any case, any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid
or asked quotation by disinterested Persons in the over-the-counter
market on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate from time to time.
Common Stock. The common stock, $0.01 par value, of the
Company.
Common Stock Equivalent. Any option, warrant, right, or
similar security exercisable into, exchangeable for, or convertible to
Common Stock.
Commission. The Securities and Exchange Commission and any
successor federal agency having similar powers.
Company. Jotan, Inc. and any successor or assign, and, unless
the context requires otherwise, the term Company includes any
Subsidiary.
Co-Sell Shares. This term is defined in Section 6.02(d) of
the Shareholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the
Shareholder Agreement.
Dilution Fee. This term is defined in Article III of the
Shareholder Agreement.
Election Notice. This term is defined in Section 6.02(b) of
the Shareholder Agreement.
Employment Agreements. This term is defined in Section 11.1
of the Note Agreement.
Excess Consideration. The amount that a Holder would have
realized following the Adjustment Event had the Call Option not been
exercised by the Company until such time, minus the amount that such
Holder realized due to the exercise of the Call Option; provided,
however, that the amount of Excess Consideration will in all events be
deemed
Page 5
to be at least zero.
Exchange Act. The Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12
of the Shareholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03
as adjusted from time to time pursuant to the provisions of this
Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities not regularly traded in the
securities markets and other property, the fair market value of such
securities or property as determined in good faith by disinterested
members of the Board of Directors of the Company at the time it
authorizes the transaction (a "Valuation Event") requiring a
determination of Fair Market Value under this Agreement; provided,
however, that, at the election of the Holders or if there are no
disinterested members of the Board of Directors of the Company, the
Fair Market Value of such securities and other property will be the
Appraised Value.
Holders. Each Purchaser, and all other Persons holding
Registrable Securities so long as such Purchasers or other Person holds
Registrable Securities, except that none of the Company, F-Jotan, any
Shareholder or any Affiliate of the Company, F-Jotan (other than the
Southland Purchasers) or the Shareholder will at any time be a Holder.
Unless otherwise provided in this Agreement, in each instance that any
Purchaser is required to request or consent to or otherwise approve an
action, such Purchaser will be deemed to have requested or consented to
or otherwise approved such action if the Holders of a
majority-in-interest of the Registrable Securities initially issued to
the Southland Purchasers and Rice on the date hereof so request,
consent or otherwise approve.
Indemnified Party. This term is defined in Section 6.01
hereof and in Section 11.01 of the Shareholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of such
Purchaser to which any of the Warrants or any part of or interest in
the Warrants is assigned.
Page 6
Intellectual Property. This term is defined in Section 3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other
Securities issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other
Securities issued on exercise of the Warrants.
Negotiation Period. This term is defined in the definition of
Fair Market Value. New Securities. Any Capital Stock other than Warrant
Shares and other than the Permitted Stock.
Notes. All or any portion of any of the Senior Subordinated
Notes (as defined in the Note Agreement) and any and all documents
evidencing the indebtedness under the Notes and any refinancing,
refunding, or replacement of the Notes.
Note Agreement. This term is defined in the preamble and
includes the Note Purchase Agreement of even date with this Agreement
among the Company and each Purchaser and all documents evidencing
indebtedness thereunder or otherwise related to the Note Agreement as
the same may be amended from time to time, and any refinancing,
refunding, or replacements of the indebtedness under the Note
Agreement.
Notice of Sale. This term is defined in Section 6.02(a) of
the Shareholder Agreement.
Other Securities. Any stock, other securities, property, or
other property or rights (other than Common Stock) that the Holders
become entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to
acquire Common Stock, constituting, in the aggregate, 2,000,000 shares
or less of the outstanding Common Stock issued or reserved for issuance
to present and future key management and directors of the Company
pursuant to a stock incentive program approved or to be approved by the
board of directors.
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company,
institution, entity, party, or government (whether national, federal,
state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body, or department
of any of the foregoing).
Preferred Shares. This term is defined in Section 2.01.
Page 7
Preferred Stock. This term means collectively, Series A
Preferred Stock and Series B Preferred Stock.
Purchase Agreement. This term is defined in the preamble to
the Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the
Shareholder Agreement.
Put Option Closing. This term is defined in Section 4.05 of
the Shareholder Agreement.
Put Option Period. This term is defined in Section 4.01 of
the Shareholder Agreement.
Put Price. This term is defined in Section 4.02 of the
Shareholder Agreement.
Put Shares. The Warrant Shares plus any other shares of Capital Stock
owned from time to time by a Holder which were issued in respect of the
Warrant Shares.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
Registrable Securities. (a) The Issuable Warrant Shares, (b)
the Issued Warrant Shares and (c) the Preferred Shares that have not
been previously sold to the public.
Related Party. An entity wholly owned by a Selling
Shareholder or one or more Related Parties.
Selling Shareholder. This term is defined in Section 6.02 of
the Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Senior Lenders. This term is defined in Section 11.1 of the
Note Agreement.
Series A Preferred Stock. Series A Convertible Preferred
Stock, $0.01 par value, of the Company having the rights, restrictions,
privileges and preferences of the series of preferred stock designated
as "Series A Convertible Preferred Stock" set forth in the Certificate.
Page 8
Senior Loan Agreement. This term is defined in Section 11.1
of the Note Agreement.
Series B Preferred Stock. Series B Preferred Stock, $0.01 par
value, of the Company having the rights, restrictions, privileges and
preferences of the series of preferred stock designated as "Series B
Preferred Stock" set forth in the Certificate.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble
and includes the Shareholder Agreement dated as of February 28, 1997
between the Company, the Shareholder, F-Jotan and the Purchaser in
substantially the form attached to this Agreement as Annex A and
incorporated in this Agreement by reference.
Senior Subordination Agreement. This term is defined in
Section 11.1 of the Note Agreement.
Subsidiary. Each Person of which or in which the Company or
its other Subsidiaries own directly or indirectly fifty percent (50%)
or more of (i) the combined voting power of all classes of stock having
general voting power under ordinary circumstances to elect a majority
of the board of directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or profits
interest of such Person, if it is a partnership, joint venture, or
similar entity; or (iii) the beneficial interest of such Person, if it
is a trust, association, or other unincorporated organization.
Valuation Event. This term is defined in the definition of
Fair Market Value.
Warrant A-1. Warrant A-1 referred to in Section 2.01(a)(i),
dated as of February 28, 1997, issued to Rice, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
A-1.
Warrant A-2. Warrant A-2 referred to in Section 2.01(a)(ii),
dated as of February 28, 1997, issued to Rice, and all Warrants issued
upon the transfer or division of, or in substitution for, such Warrant
A-2.
Warrant B-1. Warrant B-1 referred to in Section 2.01(b)(i),
dated as of February 28, 1997, issued to F-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant B-1.
Warrant B-2. Warrant B-2 referred to in Section 2.01(b)(ii),
dated as of February 28, 1997, issued to F-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant B-2.
Warrant C-1. Warrant C-1 referred to in Section 2.01(c)(i),
dated as of February 28,
Page 9
1997, issued to FF-Southland, and all Warrant issued upon the transfer
or division of, or in substitution for, such Warrant C-1.
Warrant C-2. Warrant C-2 referred to in Section 2.01(c)(ii),
dated as of February 28, 1997, issued to FF-Southland, and all Warrants
issued upon the transfer or division of, or in substitution for, such
Warrant C-2.
Warrants. Collectively, Warrant 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
Page 10
this Agreement as Annex D and incorporated in this
Agreement by reference to purchase, at a purchase price of $100 the
number of shares of Common Stock set forth beneath the name of
F-Southland on the signature page of this Agreement for such Warrant
B-1;
(ii) a Warrant B-2 (relating to the Series B Preferred Stock)
in substantially the form attached to this Agreement as Annex E and
incorporated in this Agreement by reference to purchase, at a purchase
price of $100 the number of shares of Common Stock set forth beneath
the name of F-Southland on the signature page of this Agreement for
such Warrant B-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
(c) On the Closing Date, the FF-Southland agrees to purchase from the
Company, and the Company agrees to issue to the FF-Southland, all in accordance
with the terms and conditions of this Agreement:
(i) a Warrant C-1 (relating to the Notes) in substantially the
form attached to this Agreement as Annex F and incorporated in this
Agreement by reference to purchase, at a purchase price of $100 the
number of shares of Common Stock set forth beneath the name of
F-Southland on the signature page of this Agreement for such Warrant
C-1;
(ii) a Warrant C-2 (relating to the Series B Preferred Stock)
in substantially the form attached to this Agreement as Annex G and
incorporated in this Agreement by reference to purchase, at a purchase
price of $100 the number of shares of Common Stock set forth beneath
the name of F-Southland on the signature page of this Agreement for
such Warrant C-2;
(iii) 5,000 shares of Series B Preferred Stock, at a purchase
price of $1,000,000, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
The Company has, on or before the Closing Date, duly authorized the Series B
Preferred Stock being purchased and sold pursuant to the terms of this Agreement
by duly filing the Certificate with the Secretary of State of the State of
Florida. On the Closing Date, the Company will deliver to each of Rice and the
Southland Purchasers a certificate evidencing and representing the shares of
Series B Preferred Stock issued to each such Purchaser, which certificate shall
be issued in such Purchaser's name or in the name of its designee. The shares of
Series B Preferred Stock and Series A Preferred Stock subject to the terms of
this Agreement are sometimes referred to in this Agreement collectively as the
"Preferred Shares."
2.02 Legend. The Company will deliver to the appropriate Purchaser on
the Closing
Page 11
Date one or more certificates representing each of (i) Warrant A-1,
(ii) Warrant A-2, (iii) Warrant B-1, (iv) Warrant B-2, (v) Warrant C-1, (vi)
Warrant C-2 and (vii) the Series B Preferred Stock, purchased by Rice or the
Southland Purchasers, as the case may be, in such denominations as such
Purchaser requests. Such certificates will be issued in the respective
Purchaser's name or, subject to compliance with transfer and registration
requirements under applicable Federal and state securities laws, in the name or
names of its respective designee or designees. It is understood and agreed that
the certificates evidencing the Warrants will bear the following legends:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR
SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
INCLUDING, WITHOUT LIMITATION, THE NORTH CAROLINA SECURITIES ACT, AS
AMENDED, THE TEXAS SECURITIES ACT OF 1957, AS AMENDED, AND THE GEORGIA
SECURITIES ACT OF 1973, AS AMENDED, AND MAY NOT BE PLEDGED, SOLD,
OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
ARE SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS
OF FEBRUARY 28, 1997, BY AND AMONG JOTAN, INC. (THE "COMPANY"), RICE
PARTNERS II, L.P., F-SOUTHLAND, L.L.C. AND FF-SOUTHLAND, L.P., F-JOTAN,
L.L.C. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO SUCH
SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS").
COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE
COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF
1973,' AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
It is further understood and agreed that the certificates evidencing the
Preferred Stock will bear substantially the same as the following legends:
Page 12
"THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE
SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, INCLUDING, WITHOUT LIMITATION,
THE NORTH CAROLINA SECURITIES ACT, AS AMENDED, THE TEXAS SECURITIES ACT
OF 1957, AS AMENDED, AND THE GEORGIA SECURITIES ACT OF 1973, AS
AMENDED, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED,
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF
1973,' AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
"THESE SHARES ARE SUBJECT TO THE TERMS AND PROVISIONS OF A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH
DATED AS OF FEBRUARY 28, 1997, BETWEEN JOTAN, INC. (THE "COMPANY"),
RICE PARTNERS II, L.P., F-JOTAN, L.L.C., AND F-SOUTHLAND, L.L.C.,
FF-SOUTHLAND, L.P. AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES
TO SUCH SHAREHOLDER AGREEMENT (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS").
COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE
COMPANY."
2.03 Exercise Price. The Exercise Price per share will be $0.01 for
each share of Common Stock covered by the Warrants; provided, however, that in
no event will either (i) the aggregate Exercise Price for all of the shares of
Common Stock covered by Warrant A-1 exceed $100.00, (ii) the aggregate Exercise
Price for all of the shares of Common Stock covered by Warrant A-2 exceed
$100.00, (iii) the aggregate Exercise Price for all of the shares of Common
Stock covered by Warrant B-1 exceed $100.00, (iv) the aggregate Exercise Price
for all of the shares of Common Stock covered by Warrant B-2 exceed $100.00, (v)
the aggregate Exercise Price for all of the shares of Common Stock covered by
Warrant C-1 exceed $100.00 or (vi) the aggregate Exercise Price for all of the
shares of Common Stock covered by Warrant C-2 exceed $100.00, whether as a
result of any change in the par value of the Common Stock or Other Securities,
as a result of any change in the number of shares purchasable as provided in
this Article II, or otherwise; provided, further, that such limitation of the
aggregate Exercise Price will have no effect whatsoever upon the amount or
number of Warrant Shares for which the Warrants may be exercised.
Page 13
2.04 Exercise of Warrants.
(a) Each of the Warrants may be exercised at any time or from
time to time on or after the Closing Date until the tenth (10th)
anniversary of the Closing Date, on any day that is a Business Day, for
all or any part of the number of Issuable Warrant Shares purchasable
upon its exercise. In order to exercise its Warrant, in whole or in
part, the Holder will deliver to the Company at the address designated
by the Company pursuant to Section 6.06, (i) a written notice of such
Holder's election to exercise its Warrant, which notice will specify
the number of Issuable Warrant Shares to be purchased pursuant to such
exercise, (ii) payment of the Exercise Price, in an amount equal to the
aggregate purchase price for all Issuable Warrant Shares to be
purchased pursuant to such exercise, and (iii) the Warrant. Such notice
will be substantially in the form of the Subscription Form appearing at
the end of the Warrants. Upon receipt of such notice, the Company will,
as promptly as practicable, and in any event within ten (10) business
days, execute, or cause to be executed, and deliver to such Holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock and Other Securities issuable upon such
exercise, as provided in this Agreement. The stock certificate or
certificates so delivered will be in such denominations as may be
specified in such notice and will be registered in the name of such
Holder, or, subject to compliance with transfer and
registration requirements under applicable Federal and state securities
laws, such other name as designated in such notice. A Warrant will be
deemed to have been exercised, such certificate or certificates will be
deemed to have been issued, and such Holder or any other Person so
designated or named in such notice will be deemed to have become a
holder of record of such shares for all purposes, as of the date that
such notice, together with payment of the Exercise Price and the
Warrant is received by the Company. If the Warrant has been exercised
in part, the Company will, at the time of delivery of such certificate
of certificates, deliver to such Holder a new Warrant evidencing the
rights of such Holder to purchase the number of Issuable Warrant Shares
with respect to which the Warrant has not been exercised, which new
Warrant will, in all other respects, be identical with the Warrants,
or, at the request of such Holder, appropriate notation may be made on
the original Warrant and the original Warrant returned to such Holder.
(b) Payment of the Exercise Price will be made, at the option
of the Holder, by (i) company or individual check, certified or
official bank check, (ii) cancellation of any debt owed by the Company
to the Holder, or (iii) cancellation of Warrant Shares, valued at Fair
Market Value. If the Holder surrenders a combination of cash or
cancellation of any debt owed by the Company to the Holder or Warrants,
the Holder will specify the respective number of shares of Common Stock
to be purchased with each form of consideration, and the foregoing
provisions will be applied to each form of consideration with the same
effect as if the Warrant were being separately exercised with respect
to each form of consideration; provided, however, that a Holder may
designate that any cash to be remitted to a Holder in payment of debt
be applied, together with
Page 14
other monies, to the exercise of the portion of the Warrant being
exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other Securities upon
the exercise of any of the Warrants will be made without charge to any Holder
for any tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Register. The Company will, at all times while any of the Warrants
or Preferred Shares remain outstanding, keep and maintain at its principal
office a register in which the registration, transfer, and exchange of the
Warrants and Preferred Shares will be provided for. The Company will not at any
time, except upon the dissolution, liquidation, or winding up of the Company,
close such register so as to result in preventing or delaying the exercise or
transfer, as the case may be, of any of the Warrants or Preferred Shares.
2.07 Transfer and Exchange. The Warrants, all options and rights under
the Warrants, and the Preferred Shares are transferable, in whole or in part, in
person or by duly authorized attorney, on the books of the Company upon
surrender of the Warrants or the Preferred Shares, as the case may be, at the
principal offices of the Company, together with the form of transfer
authorization attached to the Warrants duly executed or by endorsement of the
certificates representing the Preferred Shares; provided, however, that such
transfers of the Warrants and Preferred Shares will be made only to Persons that
the transferor in good faith believes to be an "accredited investor" as such
term is defined in Regulation D under the Securities Act. Absent any such
transfer and subject to the Shareholder Agreement, the Company may deem and
treat the registered Holders of the Warrants or the Preferred Shares, as the
case may be, at any time as the absolute owners of the Warrants or the Preferred
Shares, as the case may be, for all purposes and will not be affected by any
notice to the contrary. If any of the Warrants or Preferred Shares are
transferred in part, the Company will, at the time of surrender of such Warrant
or Preferred Shares, as the case may be, issue to the transferee a Warrant or a
certificate for Preferred Shares, as the case may be, covering the number of
shares transferred and to the transferor a Warrant or a certificate for
Preferred Shares, as the case may be, covering the number of shares not
transferred. Notwithstanding the foregoing, each Purchaser agrees that it will
not effect a transfer of any of the Warrants to any Person or Affiliate of such
Person engaged in the type of business set forth on Annex I attached hereto and
incorporated herein by reference unless such transfer is made in connection with
a transaction resulting in a change of control of the Company.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of shares
of Common Stock in such manner that, following the complete and full
exercise of the Warrants of each Holder, the amount of Common Stock
issued to all Holders will equal the aggregate number of shares of
Common Stock set forth beneath the name of the Purchaser on the
signature pages of this Agreement, as adjusted, to the extent
necessary, to give effect to the following events:
Page 15
(i) In case at any time or from time to
time, the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date
fixed for the determination of shareholders eligible to
receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by way of
dividend or distribution; or
(B) consideration (including cash) by way of
spin-off, split-up, reclassification (including any
reclassification in connection with a consolidation
or merger in which the Company is the surviving
corporation), recapitalization, combination of shares
into a smaller number of shares, or similar corporate
restructuring;
other than additional shares of Common Stock issued
as a stock dividend or in a stock-split (adjustments in
respect of which are provided for in Sections 2.08(a)(ii) and
(iii)), then, and in each such case, the Holders, on the
exercise of Warrants, will be entitled to receive for each
share of Common Stock issuable under the Warrants as of the
record date fixed for such distribution, the greatest per
share amount of consideration received by any holder of any
class of Common Stock or Common Stock Equivalent or to which
such Holder is entitled less the amount of any Dilution Fee
actually and irrevocably paid to such Holders. All such
consideration receivable upon exercise of such Warrant with
respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of
determining the amount of consideration to which
such Holder is entitled upon exercise of the Warrant with
respect to any subsequent distribution.
(ii) If at any time there occurs any stock
split, stock dividend or distribution, reverse stock split, or
other subdivision of the Common Stock, then the number of
shares of Common Stock to be received by the Holder of the
Warrant and the Exercise Price, subject to the limitations set
forth in this Agreement, will be proportionately adjusted.
(iii) In case of any reclassification or
change of outstanding shares of any class of Common Stock or
Common Stock Equivalent (other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any consolidation of the Company
with, or merger or share exchange of the Company with or into,
another Person, or in case of any sale of all or a majority of
the property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide
that the Holder of this
Page 16
Warrant will thereafter be entitled to receive the highest per
share kind and amount of consideration received or receivable
(including cash) upon such reclassification, change,
consolidation, merger, share exchange, or sale by any holder
of any class of Common Stock or Common Stock Equivalent that
this Warrant entitles the Holder to receive immediately prior
to such reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section 2.08(a)(i)
and otherwise in this Agreement). Any such successor Person,
which thereafter will be deemed to be the Company for purposes
of the Warrants, will provide for adjustments that are as
nearly equivalent as may be possible to the adjustments
provided for by this Section 2.08.
(iv) If at any time the Company issues or
sells any shares of any Common Stock or any Common Stock
Equivalent at a per unit or share consideration (which
consideration will include the price paid upon issuance plus
the minimum amount of any exercise, conversion, or similar
payment made upon exercise or conversion of any Common Stock
Equivalent) less than the Exercise Price or the then current
Fair Market Value per share of Common Stock immediately prior
to the time such Common Stock or Common Stock Equivalent is
issued or sold (the "Additional Securities"), then:
(A) the Exercise Price will be reduced (but not
increased) to the lower of the prices calculated by:
(I) dividing (x) an amount equal
to the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted
basis immediately prior to such issuance or
sale multiplied by the then existing
Exercise Price plus (2) the aggregate
consideration, if any, received by the
Company upon such issuance or sale, by (y)
the total number of shares of Common Stock
outstanding immediately after such issuance
or sale on a fully diluted basis; and
(II) multiplying the then existing
Exercise Price by a fraction, the numerator
of which is (x) the sum of (1) the number of
shares of Common Stock outstanding on a
fully diluted basis immediately prior to
such issuance or sale, multiplied by the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration
received by the Company upon such issuance
or sale, (y) divided by the total number of
shares of Common Stock outstanding on a
fully diluted basis immediately after such
issuance or sale, and the denominator of
which is the Fair Market Value per share of
Common Stock immediately prior to such
issuance or
Page 17
sale (for purposes of this subsection (II),
the date as of which the Fair Market
Value per share of Common Stock
will be computed will be the earlier of the
date upon which the Company will (aa) enters
into a firm contract for the issuance of
such shares, or (bb) issues such shares);
and
(B) the number of shares of Common Stock for
which any of the Warrants may be exercised at the
Exercise Price resulting from the adjustment
described in subsection (A) above will be equal to
the product of the number of shares of Common Stock
purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the
numerator of which is the Exercise Price in effect
immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting
from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and
principles of this Agreement, then, in each such case, the
Holders may appoint an independent investment bank or firm of
independent public accountants, which will give its opinion as
to the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Agreement,
necessary to preserve the purchase rights represented by the
Warrants. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holders and
will make the adjustments described in such opinion. The fees
and expenses of such investment bank or independent public
accountants will be borne equally by the Holders and the
Company.
(b) The Company and the Shareholder will not by any action
including, without limitation, amending, or permitting the amendment
of, the charter documents, bylaws, or similar instruments of the
Company or through any reorganization, reclassification, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities, or any other similar voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without limiting the generality
of the foregoing, each of the Company and the Shareholder will (i) take
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock and Other Securities, free and clear of all
liens, encumbrances, equities, and claims and (ii) use its best efforts
to obtain all such authorizations, exemptions, or consents from any
public regulatory body having
Page 18
jurisdiction as may be necessary to enable the Company to perform its
obligations under the Warrants. Without limiting the generality of the
foregoing, the Company represents and warrants that the board of
directors of the Company has determined the Exercise Price to be
adequate and the issuance of the Warrants to be in the best interests
of the Company.
(c) Any calculation under this Section 2.08 will be made to
the nearest one ten-thousandth of a share and the number of Issuable
Warrant Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock or Other Securities comprising
Issuable Warrant Shares.
(d) The Company will not, and will not permit any Subsidiary
to, issue any Capital Stock other than Common Stock and Common Stock
Equivalents.
2.09 Lost, Stolen, Mutilated, or Destroyed Instruments. If any of the
Warrants or certificates for Preferred Shares are lost, stolen, mutilated, or
destroyed and if the Company receives a lost security affidavit containing an
indemnification from the Holder of such Warrant or Preferred Shares and
containing such other terms and providing for such bonding as may be reasonably
requested by the Company, the Company will issue a new Warrant or certificate
for Preferred Shares, as the case may be, of like denomination, tenor, and date
as the Warrant or certificate for Preferred Shares, as the case may be, so lost,
stolen, mutilated, or destroyed. Any such new Warrant or certificate for
Preferred Shares, as the case may be, will constitute an original obligation of
the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed
Warrant or certificate for Preferred Shares, as the case may be, is at any time
enforceable by any Person.
2.10 Stock Legend. Without limiting the provisions of Section 2.02
hereof, the Warrants, the Warrant Shares and the Preferred Shares have not been
registered under the Securities Act or qualified under applicable state
securities laws. Accordingly, unless there is an effective registration
statement and qualification respecting the Warrants, the Warrant Shares or the
Preferred Shares, as the case may be, under the Securities Act or under
applicable state securities laws, the Preferred Shares and, at the time of
exercise of a Warrant, any stock certificate issued pursuant to the exercise of
a Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS, INCLUDING, WITHOUT LIMITATION, THE NORTH CAROLINA SECURITIES ACT,
AS AMENDED, THE TEXAS SECURITIES ACT OF 1957, AS AMENDED, AND THE
GEORGIA SECURITIES ACT OF 1973, AS AMENDED, AND (B) ARE SUBJECT TO THE
Page 19
TERMS OF AND PROVISIONS OF A PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF FEBRUARY 28,
1997 AMONG JOTAN, INC. (THE "COMPANY"), RICE PARTNERS II, L.P.,
F-SOUTHLAND, FF-SOUTHLAND, L.P., F-JOTAN, L.L.C. AND THE OTHER PARTIES
LISTED ON THE SIGNATURE PAGES OF SUCH SHAREHOLDER AGREEMENT (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM
TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE
AT THE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,'
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT."
All shares of Capital Stock of the Company subject to the Shareholder Agreement
will bear a legend to such effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company and the Shareholder.
The Company and the Shareholder severally and not jointly represent and warrant
to each Purchaser and F-Jotan that:
(a) The Company is a corporation duly organized and existing
and in good standing under the laws of its state of incorporation and
is qualified or licensed to do business in all other countries, states,
and jurisdictions the laws of which require it to be so qualified or
licensed. The Company has no Subsidiaries except as disclosed in
Schedule 4.16 to the Note Agreement or debt or equity investment in any
Person. Giving effect to the transactions contemplated herein, the
Shareholder owns beneficially and of record the number of shares in the
aggregate of the issued and outstanding capital stock or stock
equivalents of the Company on a fully converted and diluted basis as of
the Closing Date set forth under the signature of such Shareholder on
this Agreement, all being free and clear of all liens, claims and
encumbrances. Other than Purchaser and F-Jotan, and, except any other
stock issuable under any employee or director stock plan which
constitutes Permitted Stock, no Person has any rights, whether granted
by the Company or any other Person, to acquire any portion of the
equity interest of the Company or the assets of the Company.
(b) Each of the Company and the Shareholder has, and at all
times that this Agreement is in force will have, the right and power,
and is duly authorized, to enter
Page 20
into, execute, deliver, and perform this Agreement, the Shareholder
Agreement, and, in the case of the Company, the Warrants, and the
officers of Company executing and delivering this Agreement, the
Shareholder Agreement, and the Warrants are duly authorized to do so.
This Agreement, the Shareholder Agreement, and the Warrants have been
duly and validly executed, issued, and delivered and constitute the
legal, valid, and binding obligations of Company and the Shareholder,
enforceable in accordance with their respective terms.
(c) The execution, delivery, and performance of this
Agreement, the Shareholder Agreement, and the Warrants will not, by the
lapse of time, the giving of notice, or otherwise, constitute a
violation of any applicable provision contained in the charter, bylaws,
or organizational documents of the Company or contained in any
agreement, instrument, or document to which the Company or the
Shareholder is a party or by which any of them is bound.
(d) As of the Closing Date, the authorized capital stock of
the Company consists of (i) 40,000,000 shares of Common Stock, of which
5,679,411 shares are issued and outstanding and (ii) 10,000,000 shares
of Preferred Stock, of which 1,329,357 shares of Series A Preferred
Stock are issued and outstanding and of which 50,000 shares of Series B
Preferred Stock are issued and outstanding. An aggregate of at least
14,960,003 shares of Common Stock are reserved for issuance on exercise
of the Warrants. All of the issued and outstanding shares of Common
Stock are, and upon issuance and payment therefor in accordance with
the terms of this Agreement, all of the outstanding Series B Preferred
Stock will be, validly issued, fully paid and nonassessable. The Common
Stock and Preferred Shares have been offered, issued, sold, and
delivered by Company free from preemptive rights, rights of first
refusal, antidilution rights, cumulative voting rights or similar
rights (except as otherwise provided in this Agreement or in the
powers, designations, rights and preferences of the Preferred Stock
contained in the Certificate) and in compliance with applicable federal
and state securities laws. Except pursuant to this Agreement and the
Certificate and except for the Permitted Stock, the Company is not
obligated to issue or sell any Capital Stock, and, except for this
Agreement and the Shareholder Agreement, neither the Company nor the
Shareholder is party to, or otherwise bound by, any agreement affecting
the voting of any Capital Stock. Except for the Shareholder Agreement,
the Company is not, nor will it be, a party to, or otherwise bound by,
any agreement obligating it to register any of its Capital Stock.
(e) The Preferred Shares and the shares of Common Stock and
other consideration issuable on exercise of the Warrants have been duly
and validly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement or the Warrants, as the
case may be, will be validly issued, fully paid, and nonassessable and
free of preemptive rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and
marketable title
Page 21
to, and ownership of, all of its assets necessary for the conduct of
its business free and clear of all liens, pledges, security interests,
claims, or other encumbrances except those of Senior Lender and those
Liens set forth in Schedule 11.1(b) to the Note Agreement.
(g) The Company has the exclusive right to use all patents,
patent rights, patent applications, licenses, inventions, trade
secrets, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names, and copyrights used
in or necessary to its business as presently, or presently proposed to
be, conducted (the "Intellectual Property"), and the use by the Company
of the Intellectual Property does not infringe the rights of any other \
Person except that Southland Holding Company has a non-exclusive right
to use the names "Southland" and "Southland Container" and similar
trade names. No other Person is infringing the rights of the Company
in any of the Intellectual Property in any material respect. The
Company owes no royalties, honoraria, or fees to any Person by reason
of its use of any of the Intellectual Property.
(h) There is not now, and at no time during the term of this
Agreement or the Shareholder Agreement will there be, any agreement,
arrangement, or understanding involving the Company or the Shareholder,
other than this Agreement, the Shareholder Agreement, and the documents
contemplated hereby and thereby, modifying, restricting, or in any way
affecting the rights of any security holder to vote securities of the
Company.
(i) Each of the representations and warranties made by the
Company pursuant to the Note Agreement and the Shareholder Agreement
and the Shareholder pursuant to the Shareholder Agreement is true and
correct in all material respects.
(j) None of the documents, instruments, or other information
furnished to the Purchaser by the Company or the Shareholder, contains
any untrue statement of a material fact or omits to state any material
fact necessary in order to make any statements made therein not
misleading. No representation, warranty, or statement made (i) by the
Company in this Agreement, the Note Agreement, or the Shareholder
Agreement, or (ii) by the Shareholder made in this Agreement or the
Shareholder Agreement, or in any applicable document, certificate,
exhibit or schedule attached hereto or thereto or delivered in
connection herewith or therewith, contains or, at the Closing Date,
will contain any untrue statement of a material fact, or, at the
Closing Date, omits or will omit to state a material fact necessary to
make any statements made herein or therein not misleading; provided,
however, that neither the Company nor the Shareholder make any
representation or warranty of any information of any type or kind
whatsoever which, at the time it was created, was forward-looking or
projected except as expressly required by the Note Agreement. There is
no fact that materially and adversely affects the condition (financial
or otherwise), results of operations, business, properties, or
prospects of the Company or any of its Subsidiaries that has not been
disclosed in the documents
Page 22
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
Page 23
of the Warrants, and any Issued Warrant Shares will bear the legends
referenced in this Agreement, and such Preferred Shares, Warrants or
securities issuable upon exercise of the Warrants and pursuant to the
Shareholder Agreement, as the case may be, will not be offered, sold,
or transferred in the absence of registration or exemption under
applicable securities laws.
(f) It is not acquiring the Preferred Shares or the Warrants
or any securities issuable upon exercise of the Warrants based upon any
representation, oral or written, by the Company or the Shareholder or
any representative of the Company or the Shareholder with respect to
the future value of, income from, or tax consequences relating to, the
Preferred Shares or the Warrants or securities issuable upon exercise
of the Warrants, but
rather upon an independent examination and judgment as to the prospects
of the Company. Further, it acknowledges that no federal or state
administrative entity responsible for securities registration or
enforcement has made any recommendation or endorsement of the Preferred
Shares or the Warrants or any securities issuable upon exercise of the
Warrants or any findings as to the fairness of an investment in the
Preferred Shares of the Warrants or any securities issuable upon
exercise of the Warrants.
(g) It has no current contract, undertaking, agreement,
arrangement or understanding with any Person to sell, transfer, grant
any participation in, or otherwise distribute any of the Preferred
Shares, the Warrants or any securities issuable upon exercise of the
Warrants to any Person.
3.03 Representation and Warranties of F-Jotan. F-Jotan represents and
warrants to the Company, the Shareholder and each Purchaser that, from and after
the Closing Date, it has no written or oral agreement with any Person with
respect to the Series A Preferred Stock that would be inconsistent with, or
otherwise limit or impair, the provisions or intent of this Agreement, the
Certificate or the Shareholder Agreement.
ARTICLE IV
COVENANTS
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books of account and
prepare financial statements and will cause to be furnished to each Purchaser
and each other Holder (all of the foregoing and following to be kept and
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis):
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company,
beginning with the fiscal year ending December 31, 1996, (i) a copy of
the financial statements of the Company for
Page 24
such fiscal year containing a consolidated and consolidating balance
sheet, statement of income, statement of shareholders' equity, and
statement of cash flows, each as at the end of such fiscal year and for
the period then ended and in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by Ernst & Young, or other independent
certified public accountants of recognized standing selected by the
Company and consented to by the Holders and (ii) a comparison of the
actual results during such fiscal year to those originally budgeted by
the Company prior to the beginning of such fiscal year and a narrative
description and explanation of any budget variances. The annual audit
report required by this Agreement will not be qualified by or make
reference to any disclosure that the Company may not continue as a
going concern or otherwise be qualified or limited because of
restricted or limited examination by the accountant of any portion of
any of the records of the Company.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of unaudited
consolidated and consolidating financial statements of the Company as
of the end of such calendar month and for the portion of the fiscal
year then ended, containing a balance sheet, a statement of retained
earnings, statement of income, and statement of cash flows, in each
case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year and all in
reasonable detail, including, without limitation, a comparison of the
actual results during such period to those originally budgeted by the
Company prior to the beginning of such fiscal period and for the fiscal
year to date.
(c) Within forty-five (45) days after the beginning of each
fiscal year, an annual budget or business plan for such fiscal year,
including a projected consolidated and consolidating balance sheet,
income statement, and cash flow statement for such year, and, promptly
during each fiscal year, all revisions thereto approved by the board of
directors of the Company.
(d) Concurrently with the delivery of each of the financial
statements referred to in Section 4.01(a) and, on the request of any
Purchaser, Section 4.01(b), a certificate of an authorized officer of
the Company in form and substance satisfactory to the Holders (i)
certifying that the financial statements attached to such certificates
have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly and accurately present
(subject to year-end audit adjustments) the consolidated and
consolidating financial condition and results of operations of the
Company at the date and for the period indicated therein, and (ii)
containing a narrative report of the business and affairs of the
Company that includes, but is not limited to, a discussion of the
results of operations compared to those originally budgeted for such
period by the Company prior to the beginning of such period.
(e) As soon as available, a copy of each (i) financial
statement, report, notice,
Page 25
or proxy statement sent by the Company to its shareholders; (ii)
regular, periodic, or special report, registration statement, or
prospectus filed by the Company with any securities exchange, state
securities regulator, or the Commission; (iii) material order issued by
any court, governmental authority, or arbitrator in any material
proceeding to which the Company is a party or to which any of its
assets is subject; (iv) press release or other statement made available
generally by the Company or the Shareholder to the public generally
concerning material developments in the business of the Company; and
(v) a copy of all correspondence, reports, and other information sent
by the Company to any holder of any indebtedness, including, without
limitation the Senior Lender.
(f) Promptly, such additional information concerning the
Company as any Holder may request, including, without limitation,
auditor management reports and audit "waive" lists.
4.02 Laws. The Company will comply, in all material respects, with all
applicable statutes, regulations, and orders of the United States, domestic and
foreign states, and municipalities, agencies, and instrumentalities of the
foregoing applicable to the Company.
4.03 Inspection. The Company will permit any representative designated
by a Holder to (a) visit and inspect any of the properties of the Company; (b)
examine the corporate and financial records of Company and make copies thereof
or extracts therefrom; and (c) discuss the affairs, finances, and accounts of
the Company with the directors, officers, key employees, and independent
accountants of the Company. The inspections, examinations and discussions
provided for in the preceding sentence shall be conducted during normal business
hours, shall be reasonable in scope and shall not disrupt or adversely affect
any aspect of the operations of the Company.
4.04 Certain Actions. Without the prior written consent of the Holders,
which consent may be withheld in the sole discretion of the Holders, the Company
will not, and will not permit any Subsidiary to:
(a) permit to occur any amendment, alteration, or modification
of the Bylaws of the Company, as constituted on the date of this
Agreement, the effect of which, in the sole judgment of the Holders,
would be to alter, impair, or affect adversely, either the rights and
benefits of the Holders or the duties and obligations of the Company
under this Agreement, the Warrants, the Certificate or the Shareholder
Agreement or permit to occur any amendment, alteration, or modification
of the Restated Articles of Incorporation or other charter or
organizational documents of the Company, as constituted on the date of
this Agreement except to the extent necessary to comply with Section
4.04(j) or 4.10;
(b) except as otherwise permitted in the Certificate or
required by the Shareholder Agreement, (i) declare or make any
dividends or distributions of its cash,
Page 26
stock, property, or assets or redeem, retire, purchase, or otherwise
acquire, directly or indirectly, any of the Capital Stock or capital
stock or securities of any Affiliate or any Subsidiary of the Company,
or any securities convertible or exchangeable into Capital Stock or
capital stock or securities of any Affiliate or any Subsidiary of the
Company or otherwise make any distribution on account of the purchase,
repurchase, redemption, put, call or other retirement of any shares of
Capital Stock of the Company or any Subsidiary thereof or of any
warrant, option or other right to acquire such shares (except pursuant
to the Purchase Documents or the Certificate) (each as defined in
Section 11.1 of the Note Agreement), or (ii) make any payment or
distribution on account of any Indebtedness of the Company which is
subordinate to the Senior Subordinated Notes (except that Subsidiaries
may make distributions to the Company), and (iii) except as otherwise
provided for in the Note Agreement, pay any professional consulting or
management fees or any other payments to any shareholders of Parent or
any Subsidiary; provided, however, that the following shall be
permitted as exceptions to the preceding provisions of this clause (b):
declare and make payments of (A) dividends in cash from Subsidiaries of
the Company to the Company to the extent necessary to permit the
Company or its Subsidiaries to pay the Senior Subordinated Obligations
(as defined in Section 11.1 of the Note Agreement) due and payable from
the Company or its Subsidiaries to each Purchaser, (B) dividends or
stock repurchases permitted by the Senior Loan Agreement (as defined in
Section 11.1 of the Note Agreement), and (C) dividends on the Preferred
Stock as provided in the Certificate and payments made pursuant to the
Purchase Documents (as defined in Section 11.1 of the Note Agreement);
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any material portion of the assets or operations or the
revenue or income generating capacity of the Company (other than
inventory in the ordinary course of business and other assets
reasonably and in good faith determined by the Company to be obsolete
or no longer necessary to the business of the Company and other asset
dispositions permitted by the Senior Loan Agreement including the Asset
Transfer (as defined in the Senior Loan Agreement)) or to take any such
action that has the effect of any of the foregoing;
(d) except for issuances of stock permitted by the Senior Loan
Agreement, the Permitted Stock, the Acquisition Merger, the Subsidiary
Mergers (each as defined in Section 11.1 of the Note Agreement) and the
other mergers permitted by the Senior Loan Agreement or pursuant to the
express terms of this Agreement or the Shareholder Agreement, issue or
sell, or otherwise dispose of any Capital Stock (including the Series B
Preferred Stock) or Capital Stock of any Subsidiary, dissolve or
liquidate, or effect any consolidation or merger involving the Company
or any Subsidiary or any reclassification, corporate reorganization,
stock split or reverse stock split, or other change of any class of
Capital Stock of the Company or of any Subsidiary;
(e) enter into any business that the Company or any Subsidiary
is not conducting on the date of this Agreement or acquire any
substantial business operation
Page 27
or assets (through a stock or asset purchase or otherwise except for
businesses and acquisitions permitted by the Senior Loan Agreement);
(f) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement and except for Permitted Stock, enter into
any transaction or transactions with any director, officer, employee,
or shareholder of the Company, or any Affiliate or relative of the
foregoing except upon terms that, in the opinion of the Holders, are
fair and reasonable and that are, in any event, at least as favorable
as would result in a comparable arm's-length transaction with a Person
not a director, officer, employee, shareholder, or Affiliate of the
Company or any Affiliate or related party of the foregoing, or advance
any monies to any such Persons, except for travel advances in the
ordinary course of business;
(g) except for the employment agreements disclosed in Schedule
7.10 to the Note Agreement, increase the amount of remuneration
permitted under Section 7.10 of the Note Agreement;
(h) except for (i) acquisitions permitted under the Note
Agreement and Section 9.2 of the Senior Loan Agreement, (ii) Permitted
Indebtedness (as defined in Section 11.1 of the Note Agreement), and
(iii) other capital contributions, permitted purchases, advances and
loans permitted by the Senior Loan Agreement, acquire any debt or
equity interest in any Person or establish or acquire a Subsidiary or
make any additional capital contribution or purchase any additional
equity in any Subsidiary or make any advances or loans to any
Subsidiary or transfer any technology or assets to any Subsidiary;
(i) except for the employment agreements disclosed in
Schedule 7.10 of the Note Agreement, modify, amend, terminate or
waive any material provision of the Employment Agreements;
(j) allow the aggregate par value of the Capital Stock subject
to the Warrants from time to time to exceed the price payable upon
exercise of the Warrants, as adjusted from time to time; or
(k) obligate itself or otherwise agree to take, permit or
enter into any of the events described in subsections (a) through (j)
above.
4.05 Records. The Company and each of its Subsidiaries will keep books
and records of account in which full, true, and correct entries will be made of
all dealings and transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a consistent
basis.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated and, at Purchaser's request,
consolidating financial statements of the
Page 28
Company and its Subsidiaries at the end of each fiscal year, and in the event
that the services of the independent public accountants so selected, or any firm
of independent public accounts hereafter employed by Company or any Subsidiary,
are terminated, the Company will promptly thereafter notify each Holder and upon
the Holders' request, the Company will request the firm of independent public
accountants whose services are terminated to deliver (without liability for such
firm) to each Holder a letter of such firm setting forth the reasons for the
termination of their services and in its notice to each Holder the Company or
such Subsidiary will state whether the change of accountants was recommended or
approved by the board of directors of the Company or any Subsidiaries or any
committee thereof.
4.07 Existence. Except as otherwise expressly required or permitted by
the Note Agreement or this Agreement, the Company will maintain in full force
and effect its corporate existence, rights, and franchises and all licenses and
other rights to use Intellectual Property.
Page 29
4.08 Notice.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of Capital Stock for the
purpose of determining which of such holders are entitled to dividends,
repurchases of securities or other distributions, or any right to
subscribe for, purchase or otherwise acquire any shares of Capital
Stock or other property or to receive any other right; or (ii) any
capital reorganization of the Company, or reclassification or
recapitalization of the Capital Stock or any transfer of all or a
majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of
the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock (other than the issue of Issuable
Warrant Shares upon exercise of the Warrants), then, in each such
event, the Company will deliver or cause to be delivered to the Holders
a notice specifying, as the case may be, (A) the date on which any such
record is to be set for the purpose of such dividend, distribution, or
right, and stating the amount and character of such dividend,
distribution, or right; (B) the date as of which the holders of record
will be entitled to vote on any reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding-up; (C) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, share exchange, conveyance,
dissolution, liquidation, or winding-up is to take place and the time,
if any is to be fixed, as of which the holders of record of any class
of Capital Stock will be entitled to exchange their shares of Capital
Stock for securities or other property deliverable upon such event; and
(D) the amount and character of any Capital Stock, property, or rights
proposed to be issued or granted, the consideration to be received
therefor, and, in the case of rights or options, the exercise price
thereof, and the date of such proposed issue or grant and the Persons
or class of Persons to whom such proposed issue or grant will be
offered or made. Any such notice will be deposited in the United States
mail, postage prepaid, at least thirty (30) days prior to the date
therein specified, and notwithstanding anything in this Agreement or
the Warrants to the contrary the Holders may exercise the Warrants
within thirty (30) days from the mailing of such notice. The Company
shall, promptly on request of a Holder, provide such other information
as the Holders may reasonably request.
(b) If there is any adjustment as provided above in Article
II, or if any Other Securities become issuable in lieu of shares of
such Common Stock upon exercise of the Warrants, the Company will
immediately cause written notice thereof to be sent to each Holder,
which notice will be accompanied by a certificate of the independent
public accountants of the Company setting forth in reasonable detail
the basis for the Holders' becoming entitled to receive such Other
Securities, the facts requiring any such adjustment
in the number of shares receivable after such adjustment, or the kind
and
Page 30
amount of any Other Securities so purchasable upon the exercise of
the Warrants, as the case may be. At the request of any Holder and upon
surrender of the Warrant of such Holder, the Company will reissue such
Warrant of such Holder in a form conforming to such adjustments.
4.09 Taxes. The Company will, and will cause its Subsidiaries to, file
all required tax returns, reports, and requests for refunds on a timely basis
and will, and will cause its Subsidiaries to, pay on a timely basis all taxes
imposed on either it or its Subsidiaries, as the case may be, or upon any of its
assets, income or franchises or those of its Subsidiaries, as the case may be;
provided, however, that neither the Company nor any Subsidiary shall be required
to pay or discharge any tax, levy, assessment, or governmental charge (a) which
is being contested in good faith by appropriate proceedings diligently pursued,
and for which adequate reserves in accordance with GAAP (as defined in Section
11.1 of the Note Agreement) have been established or (b) if the failure to pay
the same would not (i) result in a material Lien (as defined in Section 11.1 of
the Note Agreement) on the property of the Company or any Subsidiary and (ii)
would not otherwise result in a Material Adverse Effect (as defined in Section
11.1 of the Note Agreement).
4.10 Warrant Rights. The Company covenants and agrees that during the
term of this Agreement and so long as any of the Warrants are outstanding, (a)
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock and Other Securities, to provide for the exercise in
full of the rights represented by the Warrants and the exercise in full of the
rights of the Holders under the Shareholder Agreement; (b) the Company will not
increase or permit to be increased the par value per share or stated capital of
the Issuable Warrant Shares or the consideration receivable upon issuance of its
Issuable Warrant Shares; and (c) in the event that the exercise of the Warrants
would require the payment by the Holder of consideration for the Common Stock or
Other Securities receivable upon such exercise of less than the par or stated
value of such Issuable Warrant Shares, the Company and the Shareholder will
promptly take such action as may be necessary to change the par or stated value
of such Issuable Warrant Shares to an amount less than or equal to such
consideration.
4.11 Board Observation and Membership. The Company will deliver to each
Holder a copy of the minutes of and all materials distributed at or prior to all
meetings of the board of directors (including the executive, compensation or
other committee thereof) or shareholders of the Company, certified as true and
accurate by the Secretary of the Company, promptly following each such meeting.
The Company will (a) permit each Holder to designate one (1) person to attend
all meetings of the Company's board of directors (including executive,
compensation or other committee meetings), (b) provide such designees not less
than twenty-one (21) calendar days' actual notice of all regular meetings and
seven (7) calendar days' actual notice of all special meetings of the Company's
board of directors (including the executive, compensation or other committees
thereof) or shareholders, (c) permit such designees to attend such meetings as
an observer, (d) permit Rice (or Rice's representatives), so long as Rice is a
Holder or owns any stock, warrants or other equity interest in the Company, to
designate not
Page 31
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
Page 33
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.
Page 34
6.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money damages,
and that any breach or threatened breach of this Agreement by a party to this
Agreement would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to
be restrained from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
6.03 Integration. This Agreement, the Warrants and the Shareholder
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations, understandings,
arrangements, and agreements. This Agreement may not be amended or supplemented
except by a writing signed by Company, the Shareholder, and each Holder.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement. References
in this Agreement to Sections and Articles are references to the Sections and
Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that
it is not the intention of any of them to violate any public policy, statutory
or common law rules, regulations, or decisions of any governmental or regulatory
body. If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such policy, rule,
regulation, or decision, the provision, section, sentence, word, clause, or
combination thereof causing such violation will be inoperative (and in lieu
thereof there will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
6.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
addressed to the party to be notified as set forth below. Notices shall be
deemed to have been validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon actual receipt thereof with written
acknowledgment of receipt (whether by noncertified mail, telecopy, telegram,
facsimile, express delivery, hand delivery or otherwise), whichever is earlier.
Page 35
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
Page 36
Holder other than the Purchaser will be delivered as set forth
above to the address shown on the stock transfer books of the Company or the
Warrant Register unless such Holder has advised the Company in writing of a
different address to which notices are to be sent under this Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until it
sets forth all items of information required to be set forth therein pursuant to
the terms of this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns; provided,
however, that no sale, assignment or other transfer by any party to this
Agreement of any of its Capital Stock or rights hereunder to another Person will
be valid and effective unless and until the transferee or assignee first agrees
in writing to be bound by the terms and conditions of this Agreement and the
Shareholders Agreement, and the agreements and instruments related hereto and
thereto, in a form and substance reasonably satisfactory to the Company. .
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will not
constitute a waiver thereof, nor give rise to any estoppel against such party,
nor excuse any other party from its obligations under this Agreement. Any waiver
of any such right or remedy by any party must be in writing and signed by the
party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument delivered
by such party or on its behalf under this Agreement will be considered to have
been relied upon by the party to which it is delivered and will survive the
Closing Date, regardless of any investigation made by such party or on its
behalf. All statements in any such certificate or other instrument will
constitute warranties and representations under this Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will be borne and paid by the
Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
Page 37
6.12 Other Business. It is understood and accepted that the Purchaser,
F-Jotan, the Holders, and their Affiliates have interests in other business
ventures that may be in conflict with the activities of the Company and that
nothing in this Agreement will limit the current or future business activities
of such parties whether or not such activities are competitive with those of the
Company. The Company and the Shareholder agree that all business opportunities
that may be available to such parties in any field substantially related to the
business of the Company will be pursued exclusively through the Company.
6.13 CHOICE OF LAW. THIS AGREEMENT WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF FLORIDA
APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT
GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder will
by virtue of this Agreement be under any fiduciary or other duty to give or
withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other Holder
may, in its discretion, elect.
6.15 WAIVER OF JURY TRIAL. AFTER REVIEWING THIS SECTION 6.15 WITH ITS
COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY,
F-JOTAN, EACH PURCHASER AND EACH SHAREHOLDER HEREBY KNOWINGLY, INTELLIGENTLY AND
INTENTIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENTS ENTERED
INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
OR THE ACTIONS OF THE COMPANY, F-JOTAN, EACH PURCHASER AND EACH SHAREHOLDER IN
THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR THEREOF. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH PURCHASER TO PURCHASE THE WARRANTS
AND PREFERRED STOCK FROM THE COMPANY.
6.16 Continuation of Directors' and Officers' Insurance and
Indemnification. For a period of two (2) years from the Closing Date, the
Company shall maintain in effect $1,000,000 of directors' and officers'
insurance for the benefit of directors serving in the capacity of directors of
the Company immediately prior to the Closing Date. Such insurance shall be
provided to the extent that (a) such insurance remains commercially available,
(b) the Company
Page 38
may purchase substantially similar coverage as exists at the
Closing Date and (c) such insurance may be obtained at a reasonable cost to the
Company not to exceed $30,000 per annum. The Company shall also retain, in
effect for the same period, those written indemnification provisions that exist
in the articles of incorporation or bylaws of the Company on the Closing Date
for the benefit of such directors (or other written provisions reasonably
equivalent thereto in effect on the Closing Date that are acceptable to
Purchaser). All such insurance and indemnifications shall apply only to the
actual period of service of each director.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 39
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
Page 40
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
Page 41
F-JOTAN, L.L.C.
By: Franklin Street/Fairview 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
Page 42
THE SOUTHLAND PURCHASERS:
F-SOUTHLAND, L.L.C.
By: Franklin Street/Fairview 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
Page 43
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
Page 44
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 Other Equity Interests
Page 45
ANNEX H
[NON-PERMITTED TRANSFERS]
[To be completed by Jotan]
Page 46
