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Exhibit 10.7
AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT
AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT (the "Agreement"),
dated as of May __, 2001 by and between U.S. PLASTIC LUMBER CORP., a Nevada
corporation (the "Company"), and FUSION CAPITAL FUND II, LLC, an Illinois
limited liability company (the "Buyer"). Capitalized terms used herein and not
otherwise defined herein are defined in Section 10 hereof.
WHEREAS:
Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Six Million Dollars ($6,000,000) of the Company's common stock,
par value $.0001 per share (the "Common Stock"). The shares of Common Stock to
be purchased hereunder are referred to herein as the "Purchase Shares." In
addition, as set forth in Section 1(g) hereof, the Company may, in its sole
discretion, at any time after the date hereof and until 20 Trading Days after
such date as the Available Amount is equal to $0, deliver an irrevocable written
notice to the Buyer stating that the Company elects to enter into an additional
Common Stock Purchase Agreement with the Buyer for the purchase of Six Million
Dollars ($6,000,000) of additional Common Stock.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE OF COMMON STOCK.
Subject to the terms and conditions set forth in Sections 6, 7 and 9
below, the Company hereby agrees to sell to the Buyer, and the Buyer hereby
agrees to purchase from the Company, shares of Common Stock as follows:
(a) COMMENCEMENT OF PURCHASES OF COMMON STOCK. The purchase and sale of
Common Stock hereunder shall commence (the "Commencement") within five (5)
Trading Days following the date of satisfaction (or waiver) of the conditions to
the Commencement set forth in Sections 6 and 7 below, (the date of such
Commencement, the "Commencement Date").
(b) BUYER'S PURCHASE RIGHTS AND OBLIGATIONS. Subject to the Company's
right to suspend purchases under Section 1(d)(iii) hereof, the Buyer shall
purchase shares of Common Stock on each Trading Day during each Monthly Period
equal to the Daily Base Amount at the Purchase Price. Within three (3) Trading
Days of receipt of Purchase Shares, the Buyer shall pay to the Company an amount
equal to the Purchase Amount with respect to such Purchase Shares as full
payment for the purchase of the Purchase Shares so received. The Company shall
not issue any fraction of a share of Common Stock upon any purchase. All shares
of Common Stock (including fractions thereof) issuable upon a purchase under
this Agreement shall be aggregated for purposes of determining whether the
purchase would result in the issuance of a fraction of a share of Common Stock.
If, after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole share. All
payments made under this Agreement shall be made in lawful money of the United
States of America by check or wire transfer of immediately available funds to
such account as the Company may from time to time designate
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by written notice in accordance with the provisions of this Agreement. Whenever
any amount expressed to be due by the terms of this Agreement is due on any day
which is not a Trading Day, the same shall instead be due on the next succeeding
day which is a Trading Day.
(c) COMPANY'S RIGHT TO DECREASE OR INCREASE THE DAILY BASE AMOUNT.
(i) COMPANY'S RIGHT TO DECREASE THE DAILY BASE AMOUNT. The
Company shall always have the right at any time to decrease the amount
of the Daily Base Amount by delivering written notice (a "Daily Base
Amount Decrease Notice") to the Buyer which notice shall specify the
amount of the new Daily Base Amount. The decrease in the Daily Base
Amount shall become effective one Trading Day after receipt by the
Buyer of the Daily Base Amount Decrease. Any purchases by the Buyer
which have a Purchase Date on or prior to the first (1st) Trading Day
after receipt by the Buyer of a Daily Base Amount Decrease Notice must
be honored by the Company as otherwise provided herein. The decrease in
the Daily Base Amount shall remain in effect until the Company delivers
to the Buyer a Daily Base Amount Increase Notice (as defined below).
(ii) COMPANY'S RIGHT TO INCREASE DAILY BASE AMOUNT. The
Company shall always have the right at any time to increase the amount
of the Daily Base Amount up to the Original Daily Base Amount by
delivering written notice to the Buyer stating the new amount of the
Daily Base Amount (a "Daily Base Amount Increase Notice"). If the
Closing Sale Price of the Common Stock on each of the five (5)
consecutive Trading Days immediately prior to a Daily Base Amount
Increase Notice is at least $3.50, the Company shall have the right to
deliver a Daily Base Amount Increase Notice which increases the amount
of the Daily Base Amount to any amount above the Original Daily Base
Amount. A Daily Base Amount Increase Notice shall be effective one
Trading Day after receipt by the Buyer. Such increase in the amount of
the Daily Base Amount shall continue in effect until the delivery to
the Buyer of a Daily Base Amount Decrease Notice. Notwithstanding
anything to the contrary, if the Daily Base Amount then in effect is
greater than the Original Daily Base Amount and the Sale Price of the
Common Stock during any Trading Day is less than $3.50, the amount of
the Daily Base Amount for such Trading Day on which the Sale Price of
the Common Stock is less than $3.50 and for each Trading Day thereafter
shall be the Original Daily Base Amount or such lesser amount as
specified by the Company in a Daily Base Amount Decrease Notice.
Thereafter, the Company shall again have the right to increase the
amount of the Daily Base Amount to any amount above the Original Daily
Base Amount only if the Closing Sale Price of the Common Stock is at
least $3.50 on each of five (5) consecutive Trading Days.
(d) LIMITATIONS ON PURCHASES.
(i) EXCHANGE CAP LIMITATION. The Company shall not effect any
purchase under this Agreement and the Buyer shall not have the right to
purchase shares of Common Stock under this Agreement to the extent that
after giving effect to such purchase the "Exchange Cap" shall be deemed
to be reached. The "Exchange Cap" shall be deemed to be reached at such
time if, upon a purchase under this Agreement, the issuance of such
shares of Common Stock would exceed that number of shares of Common
Stock which the Company may issue under this Agreement without
breaching the Company's obligations under the rules or regulations of
the Principal Market.
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(ii) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not
effect any purchase under this Agreement and the Buyer shall not have
the right to purchase shares of Common Stock under this Agreement to
the extent that after giving effect to such purchase the Buyer together
with its affiliates would beneficially own in excess of 4.9% of the
outstanding shares of the Common Stock following such purchase. For
purposes hereof, the number of shares of Common Stock beneficially
owned by the Buyer and its affiliates or acquired by the Buyer and its
affiliates, as the case may be, shall include the number of shares of
Common Stock issuable in connection with a purchase under this
Agreement with respect to which the determination is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (1) a purchase of the remaining Available Amount which
has not been submitted for purchase, and (2) exercise or conversion of
the unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Buyer and its affiliates. If
the 4.9% limitation is ever reached the Company shall have the option
to increase such limitation to 9.9% by delivery of written notice to
the Buyer. Thereafter, if the 9.9% limitation is ever reached this
shall not effect or limit the Buyer's obligation to purchase the Daily
Base Amount as otherwise provided in this Agreement. For purposes of
this Section, in determining the number of outstanding shares of Common
Stock the Buyer may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-Q or Form
10-K, as the case may be, (2) a more recent public announcement by the
Company or (3) any other written communication by the Company or its
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the reasonable written or oral request of the Buyer,
the Company shall promptly confirm orally and in writing to the Buyer
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after
giving effect to any purchases under this Agreement by the Buyer since
the date as of which such number of outstanding shares of Common Stock
was reported. Except as otherwise set forth herein, for purposes of
this Section 1(d)(ii), beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended.
(iii) COMPANY'S RIGHT TO SUSPEND PURCHASES. The Company may at
any time give written notice (a "Purchase Suspension Notice") to the
Buyer suspending purchases by the Buyer under this Agreement. The
Purchase Suspension Notice shall be effective only for purchases that
have a Purchase Date later than three (3) Trading Days after receipt of
the Purchase Suspension Notice by the Buyer. Any purchases by the Buyer
which have a Purchase Date on or prior to the third (3rd) Trading Day
after receipt by the Buyer of the Company's Purchase Suspension Notice
must be honored by the Company as otherwise provided herein. Such
purchase suspension shall continue in effect until a revocation in
writing by the Company in its sole discretion. So long as a Purchase
Suspension Notice is in effect, the Buyer shall not be obligated to
purchase any Purchase Shares from the Company under Section 1 of this
Agreement."
(e) RECORDS OF PURCHASES. The Buyer and the Company shall each maintain
records showing the remaining Available Amount at any given time and the dates
and Purchase Amounts for each purchase or shall use such other method,
reasonably satisfactory to the Buyer and the Company.
(f) TAXES. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of any shares of Common Stock to the
Buyer made under of this Agreement.
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(g) OPTION FOR SECOND TRANCHE; ADDITIONAL COMMON STOCK PURCHASE
AGREEMENT. The Company may, in its sole discretion, at any time after the date
hereof and until 20 Trading Days after such date as the Available Amount is
equal to $0 (the "Second Tranche Expiration Date"), deliver an irrevocable
written notice (the "Second Tranche Notice") to the Buyer stating that the
Company elects to enter into an additional Common Stock Purchase Agreement (the
"Second Common Stock Purchase Agreement") with the Buyer for the purchase of Six
Million Dollars ($6,000,000) of additional Common Stock. It is agreed and
acknowledged by the parties hereto that entering into the Second Common Stock
Purchase Agreement shall be at the option of the Company in its sole discretion
until such time as the Company shall have delivered the Second Tranche Notice to
the Buyer. The Buyer shall not be obligated to enter into the Second Common
Stock Purchase Agreement unless the Company has delivered the Second Tranche
Notice prior to the Second Tranche Expiration Date. The Second Common Stock
Purchase Agreement may not be entered into until the aggregate Available Amount
under this Agreement is fully used to buy Purchase Shares hereunder. Upon
delivery of the Second Tranche Notice to the Buyer prior to the Second Tranche
Expiration Date, the Buyer and the Company shall be obligated to enter into the
Second Common Stock Purchase Agreement no later than the date that is 10 Trading
Days after the Second Tranche Expiration Date. If the Buyer and the Company have
not entered into the Second Common Stock Purchase Agreement by the date that is
10 Trading Days after the Second Tranche Expiration Date, the Buyer shall not be
obligated to enter into such additional Common Stock Purchase Agreement. The
terms and conditions of the Second Common Stock Purchase Agreement shall be in
form and substance identical in all respects to this Agreement, provided,
however, that for purposes of the Second Common Stock Purchase Agreement, (i)
this Section 1(g) shall be omitted, and (ii) the Commitment Shares shall be
equal to 8% of Six Million Dollars ($6,000,000) divided by the arithmetic
average of the Closing Bid Prices of the Common Stock for the ten (10)
consecutive Trading Days immediately preceding the date that the Second Tranche
Notice is delivered to the Buyer. Such second tranche Commitment Shares shall be
held by the Buyer until the Second Common Stock Purchase Agreement has been
terminated.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to the Company that:
(a) INVESTMENT PURPOSE. The Buyer is entering into this Agreement and
acquiring the Commitment Shares (as defined in Section 7(b) hereof) (this
Agreement and the Commitment Shares are collectively referred to herein as the
"Securities"), for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof; provided however, by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term.
(b) ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
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(d) INFORMATION. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) NO GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) TRANSFER OR RESALE. The Buyer understands that except as provided
in the Registration Rights Agreement (as defined in Section 6(a) hereof): (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.
(g) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(h) RESIDENCY. The Buyer is a resident of the State of Illinois.
(i) NO PRIOR SHORT SELLING. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, associates, representatives or affiliates engaged in or
effected, in any manner whatsoever, directly or indirectly, any (i) "short sale"
(as such term is defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock or
(ii) hedging transaction, which establishes a net short position with respect to
the Common Stock.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
(a) ORGANIZATION AND QUALIFICATION. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing could not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on
Schedule 3(a).
(b) AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement (as defined
in Section 6(a) hereof) and each of the other agreements to be entered into by
the parties on the Commencement Date and attached hereto as exhibits to this
Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation, the issuance of the Commitment Shares and the reservation for
issuance and the issuance of the Purchase Shares issuable under this Agreement,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its shareholders, (iii) this Agreement has been, and each other Transaction
Document shall be on the Commencement Date, duly executed and delivered by the
Company and (iv) this Agreement constitutes, and each other Transaction Document
upon its execution on behalf of the Company, shall constitute, the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
(c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of March 31, 2001, 35,041,772 shares are issued and outstanding, no shares are
held as treasury shares, 5,461,000 shares are reserved for issuance pursuant to
the Company's stock option plans of which only approximately 1,277,000 shares
remain available and 7,157,903 shares are issuable and reserved for issuance
pursuant to securities (other than stock options issued pursuant to the
Company's stock option plans) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 5,000,000 shares of Preferred Stock
authorized, of which as of the date hereof, 2,901,570 shares of Preferred Sock
are issued and outstanding of which 1,187,285 shares are Series D Preferred
Stock with a liquidation preference of $3.50 per share and 1,714,285 shares are
of Series E Preferred Stock with a liquidation preference of $1.75 per share.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
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permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (v) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and summaries of the terms of all securities convertible into or
exercisable for Common Stock, if any, and copies of any documents containing the
material rights of the holders thereof in respect thereto.
(d) ISSUANCE OF SECURITIES. The Commitment Shares have been duly
authorized, validly issued and are fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof. 500,000
shares of Common Stock have been duly authorized and reserved for issuance upon
purchase under this Agreement. Upon issuance and payment therefore in accordance
with the terms and conditions of this Agreement, the Purchase Shares shall be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market applicable to the Company or any
of its Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts, defaults
and violations under clause (ii), which could not reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in Schedule 3(e), neither the Company nor any of its
Subsidiaries is in violation of any term of or is in default under any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or
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any statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations or amendments which could
not reasonably be expected to have a Material Adverse Effect. The business of
the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, ordinance, regulation of any governmental
entity, except for possible violations, the sanctions for which either
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence shall be obtained or effected on or prior to
the Commencement Date. Except as disclosed in Schedule 3(e), the Company is not
and has not been since January 1, 1999, in violation of the listing requirements
of the Principal Market.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
Schedule 3(f), since January 1, 2000, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). As of their respective dates (except as
they have been correctly amended), the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC (except as they may have
been correctly amended), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates (except as they
have been correctly amended), the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g),
since December 31, 2000, there has been no material adverse change in the
business, properties, operations, financial condition or results of operations
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
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the Company's Subsidiaries' officers or directors in their capacities as such,
which could reasonably be expected to have a Material Adverse Effect. A
description of each action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body which, as of the date of this Agreement, is pending or threatened in
writing against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, is set forth in Schedule
3(h).
(i) ACKNOWLEDGMENT REGARDING BUYER'S STATUS. The Company acknowledges
and agrees that the Buyer is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that the Buyer
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the Buyer's
purchase of the Securities. The Company further represents to the Buyer that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives and
advisors.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
(k) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
(l) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Purchase Shares purchasable under this Agreement will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Purchase Shares under this Agreement in accordance with the term and
conditions hereof is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
(m) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(m), none of the
Company's material trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx
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registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(m), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service xxxx registrations, trade secret or other infringement,
which could reasonably be expected to have a Material Adverse Effect.
(n) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(o) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(o) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(p) INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
(q) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
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all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(s) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3(s)
and other than the grant or exercise of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has an interest or is an
officer, director, trustee or partner.
(t) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.
(u) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
(a) FILING OF REGISTRATION STATEMENT. The Company shall within fifteen
(15) Trading Days from the date hereof file a new registration statement
covering the sale of the Commitment Shares and at least 500,000 Purchase Shares.
The Buyer and its counsel shall have a reasonable opportunity to review and
comment upon such registration statement or amendment to such registration
statement and any related prospectus prior to its filing with the SEC. The
Company shall use its best efforts to have such registration statement or
amendment declared effective by the SEC at the earliest possible date.
(b) BLUE SKY. The Company shall, on or before the Commencement Date,
take such action, if any, as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Commitment Shares and the
Purchase Shares for sale to the Buyer pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyer on or prior to
the Commencement Date. The Company shall make all filings and reports relating
to the offer and sale of the Commitment Shares and the Purchase Shares required
under applicable securities or "Blue Sky" laws of the states of the United
States following the Commencement Date.
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(c) NO VARIABLE PRICED FINANCING. Other than pursuant to this
Agreement, the Company agrees that beginning on the date of this Agreement and
ending on the date of termination of this Agreement (as provided in Section
11(k) hereof), neither the Company nor any of its Subsidiaries shall, without
the prior written consent of the Buyer, contract for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) which, in any case (i) are
convertible into or exchangeable for an indeterminate number of shares of common
stock, (ii) are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock, (iii) provide for any
"re-set" or adjustment of the purchase price, conversion rate or exercise price
after the issuance of the security, or (iv) contain any "make-whole" provision
based upon, directly or indirectly, the market price of the Common Stock after
the issuance of the security, in each case, other than reasonable and customary
anti-dilution adjustments for issuance of shares of Common Stock at a price
which is below the market price of the Common Stock.
(d) LISTING. The Company shall promptly secure the listing of all of
the Purchase Shares and Commitment Shares upon each national securities exchange
and automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all such
securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market. The
Company shall promptly, and in no event later than the following Trading Day,
provide to the Buyer copies of any notices it receives from the Principal Market
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section.
(e) LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.
(f) ISSUANCE OF COMMITMENT SHARES; LIMITATION ON SALES OF COMMITMENT
SHARES. The Company has issued to the Buyer 200,000 shares of Common Stock (the
"Commitment Shares"). The Buyer agrees that the Buyer shall not transfer or sell
the Commitment Shares until the earlier of 360 calendar days from the date
hereof or until this Agreement has been terminated, provided, however, that such
restrictions shall not apply: (i) in connection with any transfers to or among
affiliates (as defined in the Securities Exchange Act of 1934, as amended), (ii)
in connection with any pledge in connection with a bona fide loan or margin
account, or (iii) if an Event of Default has occurred, or any event which, after
notice and/or lapse of time, would become an Event of Default, including any
failure by the Company to timely issue Purchase Shares under this Agreement.
Notwithstanding the forgoing, the Buyer may transfer Commitment Shares to a
third party in order to settle a sale made by the Buyer where the Buyer
reasonably expects the Company to deliver Purchase Shares to the Buyer under
this Agreement so long as the Buyer maintains ownership of the same overall
number of shares of Common Stock by "replacing"
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the Commitment Shares so transferred with Purchase Shares when the Purchase
Shares are actually issued by the Company to the Buyer.
(h) DUE DILIGENCE. The Buyer shall have the right, from time to time as
the Buyer may reasonably deem appropriate, to perform reasonable due diligence
on the Company during normal business hours. The Company and its officers and
employees shall reasonably cooperate with the Buyer in connection with any
reasonable request by the Buyer related to the Buyer's due diligence of the
Company.
(i) RESERVATION OF SHARES. The Company shall, so long as any Available
Amount is outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the purchase of the
Available Amount, such number of shares of Common Stock as shall from time to
time be sufficient to effect the purchase of the entire remaining Available
Amount, without regard to any restrictions or limitations on purchases.
5. TRANSFER AGENT INSTRUCTIONS.
All of the Purchase Shares to be issued under this Agreement shall be
issued without any restrictive legend and shall be issued by the Company's
transfer agent via The DTC Fast Automated Securities Transfer Program, by
crediting the appropriate number of shares of Common Stock to which the Buyer
shall be entitled to the Buyer's or its designee's balance account with The DTC
through The DTC DWAC system. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue Purchase Shares
in the name of the Buyer or its respective nominee(s), for the Purchase Shares
(the "Irrevocable Transfer Agent Instructions"). The Company warrants to the
Buyer that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, will be given by the Company to its transfer
agent with respect to the Purchase Shares and that the Commitment Shares and the
Purchase Shares shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement subject to the provisions of Section 4(f) in the
case of the Commitment Shares.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO COMMENCE
SALES OF SHARES OF COMMON STOCK.
The obligation of the Company hereunder to commence sales of the
Purchase Shares is subject to the satisfaction of each of the following
conditions on or before the Commencement Date (the date that sales begin) and
once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred; provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion by providing the
Buyer with prior written notice thereof:
(a) The Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company including the
Registration Rights Agreement substantially in the form of EXHIBIT A hereto (the
"Registration Rights Agreement").
(b) Subject to the Company's compliance with Section 4(a), a
registration statement covering the sale of the Commitment Shares and at least
500,000 Purchase Shares shall have been
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declared effective under the 1933 Act by the SEC and no stop order with respect
to the Registration Statement shall be pending or threatened by the SEC.
(c) The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Commencement Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO COMMENCE
PURCHASES OF SHARES OF COMMON STOCK.
The obligation of the Buyer to commence purchases of Purchase Shares
under this Agreement is subject to the satisfaction of each of the following
conditions on or before the Commencement Date (the date that sales begin) and
once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred; provided that these conditions are for the Buyer's sole benefit and
may be waived by the Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer including the Registration Rights Agreement
substantially in the form of EXHIBIT A hereto.
(b) Any restrictive legend set forth on the certificate representing
the Commitment Shares shall be removed.
(c) The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the Principal Market and the Purchase Shares and the
Commitment Shares shall be approved for listing upon the Principal Market.
(d) The Buyer shall have received the opinions of the Company's legal
counsel dated as of the Commencement Date in the form of EXHIBIT B attached
hereto.
(e) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Commencement Date. The Buyer shall have
received a certificate, executed by the CEO, President or CFO of the Company,
dated as of the Commencement Date, to the foregoing effect in the form attached
hereto as EXHIBIT C.
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(f) The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as EXHIBIT D which shall be in full
force and effect without any amendment or supplement thereto as of the
Commencement Date.
(g) As of the Commencement Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
purchases of Purchase Shares hereunder, at least 500,000 shares of Common Stock.
(h) The Irrevocable Transfer Agent Instructions, in form acceptable to
the Buyer, shall have been delivered to and acknowledged in writing by the
Company and the Company's transfer agent.
(i) The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Nevada issued by the Secretary of State of the State of Nevada as of a date
within ten (10) Trading Days of the Commencement Date.
(j) The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of the Company
within ten (10) Trading Days of the Commencement Date.
(k) The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as EXHIBIT E.
(l) A registration statement covering the sale of all of the Commitment
Shares and at least 500,000 Purchase Shares shall have been declared effective
under the 1933 Act by the SEC and no stop order with respect to the registration
statement shall be pending or threatened by the SEC. The Company shall have
prepared and delivered to the Buyer a final form of Prospectus to be used by the
Buyer in connection with any sales of any Commitment Shares or any Purchase
Shares. The Company shall have made all filings under all applicable federal and
state securities laws necessary to consummate the issuance of the Commitment
Shares and the Purchase Shares pursuant to this Agreement in compliance with
such laws.
(m) No Event of Default has occurred, or any event which, after notice
and/or lapse of time, would become an Event of Default has occurred.
(n) On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and all of
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its affiliates, shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby. An Indemnitee shall not be entitled to
any indemnification under this Section 8 with respect to any Indemnified
Liabilities which directly and primarily result from the gross negligence or
willful misconduct of such Indemnitee. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. EVENTS OF DEFAULT.
An "Event of Default" shall be deemed to have occurred at any time as
any of the following events occurs:
(a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days or for more than an aggregate of thirty (30) Trading
Days in any 365-day period;
(b) the suspension from trading or failure of the Common Stock to be
listed on the Principal Market for a period of ten (10) consecutive Trading Days
or for more than an aggregate of thirty (30) Trading Days in any 365-day period;
(c) the failure of the Company or the Common Stock to fully meet the
requirements for continued listing on the Principal Market for a period of ten
(10) consecutive Trading Days or for more than an aggregate of thirty (30)
Trading Days in any 365-day period;
(d) the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Buyer within five (5) Trading Days after the applicable Purchase
Date which the Buyer is entitled to receive;
(e) if at any time after the Commencement Date, the "Exchange Cap" is
reached (the "Exchange Cap" shall be deemed to be reached at such time if, upon
submission of a Purchase Notice under this Agreement, the issuance of such
shares of Common Stock would exceed that number of shares
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of Common Stock which the Company may issue under this Agreement without
breaching the Company's obligations under the rules or regulations of the
Principal Market);
(f) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least ten (10) Trading Days;
(g) any payment default under any contract whatsoever or any
acceleration prior to maturity of any mortgage, indenture, contract or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or for money
borrowed the repayment of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, which in any
case, is in excess of $1,500,000;
(h) if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law;
(i) if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due; or
(j) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that; (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.
In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, the Buyer shall not be obligated to purchase any
shares of Common Stock under this Agreement. If pursuant to or within the
meaning of any Bankruptcy Law, the Company commences a voluntary case or any
Person commences a proceeding against the Company, a Custodian is appointed for
the Company or for all or substantially all of its property, or the Company
makes a general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof) this
Agreement shall automatically terminate without any liability or payment to the
Company without further action or notice by any Person. No such termination of
this Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's
obligations under this Agreement with respect to pending purchases and the
Company and the Buyer shall complete their respective obligations with respect
to any pending purchases under this Agreement.
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10. CERTAIN DEFINED TERMS.
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Available Amount" means initially Six Million Dollars ($6,000,000)
in the aggregate which amount shall be reduced by the Purchase Amount as the
Buyer purchases shares of Common Stock pursuant to Section 1 hereof.
(c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.
(d) "Closing Bid Price" means, for any security as of any date, the
last closing bid price for such security on the Principal Market as reported by
Bloomberg Financial Markets ("Bloomberg"), or, if the Principal Market is not
the principal securities exchange or trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg.
(e) "Closing Sale Price" means, for any security as of any date, the
last closing trade price for such security on the Principal Market as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg.
(f) "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
(g) "Daily Base Amount" means initially Twenty Five Thousand Dollars
($25,000) per Trading Day, which amount may be increased or decreased from time
to time pursuant to Section 1(c) hereof.
(h) "Maturity Date" means the date that is 360 calendar days (12
Monthly Periods) from the Commencement Date which such date may be extended by
up to an additional Six (6) Monthly Periods by the Company, in its sole
discretion, by written notice to the Buyer.
(i) "Original Daily Base Amount" means Twenty Five Thousand Dollars
($25,000) per Trading Day.
(j) "Monthly Base Amount" means Five Hundred Thousand Dollars
($500,000) per Monthly Period.
(k) "Monthly Period" means each successive 20 Trading Day period
commencing with the Commencement Date.
(l) "Person" means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
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(m) "Principal Market" means The Nasdaq National Market.
(n) "Purchase Amount" means the portion of the Available Amount to be
purchased by the Buyer pursuant to Section 1 hereof.
(o) "Purchase Date" means the actual date that the Buyer is to purchase
Purchase Shares pursuant to Section 1 hereof.
(p) "Purchase Price" means as of any Purchase Date the lower of: (A)
the lowest Sale Price of the Common Stock on the Purchase Date or (B) the
arithmetic average of the five (5) lowest Closing Bid Prices for the Common
Stock during the fifteen (15) consecutive Trading Days ending on the Trading Day
immediately preceding such Purchase Date (to be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend with respect to the Common
Stock, stock split or other similar transaction occurring during the fifteen
(15) consecutive Trading Days).
(q) "Sale Price" means, for any security as of any date, the trade
price for such security on the Principal Market as reported by Bloomberg, or, if
the Principal Market is not the principal securities exchange or trading market
for such security, the trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg.
(r) "SEC" means the United States Securities and Exchange Commission.
(s) "Trading Day" means any day on which the Principal Market is open
for customary trading.
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11. MISCELLANEOUS.
(a) GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its shareholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Buyer, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
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(f) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Trading Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
U.S. Plastic Lumber Corp.
0000 Xxxxxx Xxxx, Xxxxx 000X
Xxxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx X. Xxxxxxx
With a copy to:
U.S. Plastic Lumber Corp.
0000 Xxxxxx Xxxx, Xxxxx 000X
Xxxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxx X. Xxxxxx
If to the Buyer:
Fusion Capital Fund II, LLC
000 Xxxxxxxxxxx Xxxx Xxxxx, Xxxxx 0-000
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxx
If to the Transfer Agent:
Interwest Transfer Co., Inc.
0000 X. Xxxxxx Xxxxxxx Xxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Telephone: 0-000-000-0000
Facsimile: 1-801-277-3147
Attention: Xxxxxx Xxxxx
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally recognized
overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
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(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights or obligations under this
Agreement.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) PUBLICITY. The Buyer shall have the right to approve before
issuance any press releases or any other public disclosure (including any
filings with the SEC) with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
(including any filings with the SEC) with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
(j) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) TERMINATION. This Agreement may be terminated only as follows:
(i) By the Buyer any time an Event of Default exists without
any liability or payment to the Company. However, if pursuant to or
within the meaning of any Bankruptcy Law, the Company commences a
voluntary case or any Person commences a proceeding against the
Company, a Custodian is appointed for the Company or for all or
substantially all of its property, or the Company makes a general
assignment for the benefit of its creditors, (any of which would be an
Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof)
this Agreement shall automatically terminate without any liability or
payment to the Company without further action or notice by any Person.
No such termination of this Agreement under this Section 11(k)(i) shall
affect the Company's or the Buyer's obligations under this Agreement
with respect to pending purchases and the Company and the Buyer shall
complete their respective obligations with respect to any pending
purchases under this Agreement.
(ii) In the event that the Commencement shall not have
occurred the Company shall have the option to terminate this Agreement
for any reason or for no reason without liability of any party to any
other party.
(iii) In the event that the Commencement shall not have
occurred on or before August 31, 2001, due to the failure to satisfy
the conditions set forth in Sections 6 and 7 above with respect to the
Commencement (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option
to terminate this Agreement at the close of business on such date or
thereafter without liability of any party to any other party.
(iv) If by the Maturity Date (including any extension thereof
by the Company pursuant to Section 10(g) hereof), for any reason or for
no reason the full Available Amount under this Agreement has not been
22
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purchased as provided for in Section 1 of this Agreement, by the Buyer
without any liability or payment to the Company.
(v) At any time after the Commencement Date the Company shall
have the option to terminate this Agreement for any reason or for no
reason by delivering notice (a "Company Termination Notice") to the
Buyer electing to terminate this Agreement without any liability or
payment to the Buyer. The Company Termination Notice shall not be
effective until three (3) Trading Days after it has been received by
the Buyer.
(vi) This Agreement shall automatically terminate on the date
that the Company sells and the Buyer purchases Six Million Dollars
($6,000,000) of Common Stock as provided herein, without any action or
notice on the part of any party.
Except as set forth in Sections 11(k)(i) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2 and 3 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 1(g) and 11, shall survive the Commencement
and any termination of this Agreement.
(l) NO FINANCIAL ADVISOR, PLACEMENT AGENT, BROKER OR FINDER. The
Company represents and warrants to the Buyer that it has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Buyer represents and warrants to the
Company that it has not engaged any financial advisor, placement agent, broker
or finder in connection with the transactions contemplated hereby. The Company
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out of pocket expenses) arising in connection
with any such claim.
(m) NO STRICT CONSTRUCTION. The language used in this Agreement is the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
(n) REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
Buyer's remedies provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy of the Buyer contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Buyer's right to pursue actual damages for any failure by the
Company to comply with the terms of this Agreement. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(o) CHANGES TO THE TERMS OF THIS AGREEMENT. This Agreement and any
provision hereof may only be amended by an instrument in writing signed by the
Company and the Buyer. The term
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"Agreement" and all reference thereto, as used throughout this instrument, shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
(p) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in
the hands of an attorney for enforcement or is enforced by the Buyer through any
legal proceeding; or (ii) an attorney is retained to represent the Buyer in any
bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii) an
attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.
(q) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
* * * * *
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IN WITNESS WHEREOF, the Buyer and the Company have caused this Amended
and Restated Common Stock Purchase Agreement to be duly executed as of the date
first written above.
THE COMPANY:
U.S. PLASTIC LUMBER CORP.
By:______________________
Name: Xxxxx X. Xxxxxxx
Title: Vice President and General Counsel
BUYER:
FUSION CAPITAL FUND II, LLC
BY: FUSION CAPITAL PARTNERS II, LLC
BY: SGM HOLDINGS CORP.
By:_______________________
Name: Xxxxxx X. Xxxxxx
Title: President
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SCHEDULES
---------
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(f) 1934 Act Filings
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(m) Intellectual Property
Schedule 3(o) Liens
Schedule 3(s) Certain Transactions
EXHIBITS
--------
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Company Counsel Opinion
Exhibit C Form of Officer's Certificate
Exhibit D Form of Resolutions of Board of Directors of the Company
Exhibit E Form of Secretary's Certificate
27
DISCLOSURE SCHEDULES
--------------------
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - No Conflicts
Schedule 3(f) - 1934 Act Filings
Schedule 3(g) - Absence of Certain Changes
Schedule 3(h) - Litigation
Schedule 3(m) - Intellectual Property Rights
Schedule 3(o) - Title
Schedule 3(s) - Transactions with Affiliates
28
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
[SENT SEPARATELY]
29
EXHIBIT B
FORM OF COMPANY COUNSEL OPINION
Capitalized terms used herein but not defined herein, have the meaning
set forth in the Amended and Restated Common Stock Purchase Agreement. Based on
the foregoing, and subject to the assumptions and qualifications set forth
herein, we are of the opinion that:
1. The Company is a corporation existing and in good standing under the laws
of the State of Nevada.
2. The Company has the corporate power to execute and deliver, and perform its
obligations under, each Transaction Document to which it is a party. The
Company has the corporate power to conduct its business as, to the best of
our knowledge, it is now conducted, and to own and use the properties owned
and used by it.
3. The execution, delivery and performance by the Company of the Transaction
Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of the Company. The execution and delivery of
the Transaction Documents by the Company, the performance of the
obligations of the Company thereunder and the consummation by it of the
transactions contemplated therein have been duly authorized and approved by
the Company's Board of Directors and no further consent, approval or
authorization of the Company, its Board of Directors or its stockholders is
required. The Transaction Documents to which the Company is a party have
been duly executed and delivered by the Company and are the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms except as such enforceability may be limited by
general principals of equity or applicable bankruptcy, insolvency,
liquidation or similar laws relating to, or affecting creditor's rights and
remedies.
4. The issuance and sale of the Commitment Shares and the Purchase Shares
pursuant to the terms and conditions of the Amended and Restated Common
Stock Purchase Agreement has been duly authorized. 500,000 shares of Common
Stock have been properly reserved for issuance as Purchase Shares in
accordance with the Amended and Restated Common Stock Purchase Agreement.
The Commitment Shares have been issued in accordance with the Amended and
Restated Common Stock Purchase Agreement and are validly issued, fully paid
and non-assessable and free of all taxes, liens, charges, restrictions,
rights of first refusal and preemptive rights. When issued and paid for in
accordance with the Amended and Restated Common Stock Purchase Agreement,
the Purchase Shares shall be validly issued, fully paid and non-assessable
and free of all taxes, liens, charges, restrictions, rights of first
refusal and preemptive rights. To our knowledge, the execution and delivery
of the Registration Rights Agreement do not, and the performance by the
Company of its obligations thereunder shall not, give rise to any rights of
any other person for the registration under the Securities Act of any
shares of Common Stock or other securities of the Company which have not
been waived.
5. The execution, delivery and performance by the Company of the Transaction
Documents, the consummation by the Company of the transactions contemplated
thereby including the offering, sale and issuance of the Commitment Shares
and the Purchase Shares in accordance with the terms and conditions of the
Amended and Restated Common Stock Purchase Agreement, and fulfillment and
compliance with terms of the Transaction Documents, does not and shall not:
(i) conflict with, constitute a breach of or default (or an event which,
with the giving of notice or lapse of time or both,
30
constitutes or could constitute a breach or a default), under (a) the
Certificate of Incorporation or the Bylaws of the Company, (b) any material
agreement, note, lease, mortgage, deed or other material instrument to
which to our knowledge the Company is a party or by which the Company or
any of its assets are bound, (ii) result in any violation of any statute,
law, rule or regulation applicable to the Company, or (iii) to our
knowledge, violate any order, writ, injunction or decree applicable to the
Company or any of its subsidiaries.
6. As of the date hereof, the authorized capital stock of the Company consists
of (i) ___________ shares of Common Stock, par value $_____ per share, of
which to our knowledge ___________ shares are issued and outstanding, and
(ii) ________ shares of preferred stock, par value $_____ per share of
which to our knowledge ________ shares are issued and outstanding. Except
as set forth on Schedule 3(c) of the Amended and Restated Common Stock
Purchase Agreement, to our knowledge, there are no outstanding shares of
capital stock or other securities convertible into or exchangeable or
exercisable for shares of the capital stock of the Company.
7. The Common Stock is registered pursuant to Section 12(g) of the Exchange
Act. To our knowledge, since January 1, 1999, the Company has been in
compliance with the reporting requirements of the Exchange Act applicable
to it. To our knowledge, since January 1, 1999, the Company has not
received any written notice from the Principal Market stating that the
Company has not been in compliance with any of the rules and regulations
(including the requirements for continued listing) of the Principal Market.
8. Other then which has been obtained and completed prior to the date hereof,
no authorization, approval, consent, filing or other order of any federal
or state governmental body, regulatory agency, self-regulatory organization
or stock exchange or market, or the shareholders of the Company, or any
court, or, to our knowledge, any third party, is required to be obtained by
the Company to enter into and perform its obligations under the Transaction
Documents or for the issuance and sale of the Commitment Shares or the
Purchase Shares as contemplated by the Transaction Documents.
We further advise you that to our knowledge, except as disclosed on
Schedule 3(h) in the Amended and Restated Common Stock Purchase Agreement, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body, any governmental agency, any stock exchange or market, or
self-regulatory organization, which has been threatened in writing or which is
currently pending against the Company, any of its subsidiaries, any officers or
directors of the Company or any of its subsidiaries or any of the properties of
the Company or any of its subsidiaries which could have a material adverse
affect on the Company.
In addition, we have participated in the preparation of the
Registration Statement (SEC File #________) covering the sale of the Purchase
Shares and the Commitment Shares including the prospectus dated ____________,
contained therein and in conferences with officers and other representatives of
the Company (including the Company's independent auditors) during which the
contents of the Registration Statement and related matters were discussed and
reviewed and, although we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, on the basis of the information that
was developed in the course of the performance of the services referred to
above, considered in the light of our understanding of the applicable law,
nothing came to our attention that caused us to believe that the Registration
Statement (other than the financial statements and schedules and the other
financial and statistical data included therein, as to which we express no
belief), as of their dates, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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EXHIBIT C
FORM OF OFFICER'S CERTIFICATE
This Officer's Certificate ("CERTIFICATE") is being delivered
pursuant to Section 7(e) of that certain Amended and Restated Common Stock
Purchase Agreement dated as of ______, 2001 ("COMMON STOCK PURCHASE AGREEMENT"),
by and between U.S. PLASTIC LUMBER CORP., a Nevada corporation (the "COMPANY"),
and FUSION CAPITAL FUND II, LLC (the "BUYER"). Terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Common Stock
Purchase Agreement.
The undersigned, Xxxxx X. Xxxxxxx, Secretary of the Company, hereby
certifies as follows:
1. I am the Secretary of the Company and make the statements
contained in this Certificate;
2. The representations and warranties of the Company contained
in the Common Stock Purchase Agreement are true and correct as of the
date hereof;
3. The Company has performed, satisfied and complied in all
material respects with covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with
by the Company at or prior to the Commencement Date.
IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
___________, 2001.
----------------------
Name: Xxxxx X. Xxxxxxx
Title: Secretary
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EXHIBIT D
FORM OF COMPANY RESOLUTIONS
WHEREAS, there has been presented to the Board of Directors of U.S.
PLASTIC LUMBER CORP., (the "Corporation") a draft of an Amended and Restated
Common Stock Purchase Agreement (the "Purchase Agreement") by and among the
Corporation and Fusion Capital Fund II, LLC ("Fusion"), providing for the
purchase by Fusion of up to Six Million Dollars ($6,000,000) of the
Corporation's common stock, par value $.0001 (the "Common Stock"); and
WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has determined that it is advisable and in the
best interests of the Corporation to engage in to transactions contemplated by
the Purchase Agreement.
TRANSACTION DOCUMENTS
RESOLVED, that the transactions described in the Purchase Agreement are
hereby approved and ____________________________________________ (the
"Authorized Officers") are severally authorized to execute and deliver the
Purchase Agreement, and any other agreements or documents contemplated thereby
(including, without limitation, a registration rights agreement (the
"Registration Rights Agreement") providing for the sale of the shares of the
Company's Common Stock issuable in respect of the Purchase Agreement) on behalf
of the Corporation, with such amendments, changes, additions and deletions as
the Authorized Officers may deem to be appropriate and approve on behalf of, the
Corporation, such approval to be conclusively evidenced by the signature of an
Authorized Officer thereon; and
FURTHER RESOLVED, that the terms and provisions of the Registration
Rights Agreement by and among the Corporation and Fusion are hereby approved and
the Authorized Officers are authorized to execute and deliver the Registration
Rights Agreement (pursuant to the terms of the Purchase Agreement), with such
amendments, changes, additions and deletions as the Authorized Officer may deem
appropriate and approve on behalf of, an Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and
FURTHER RESOLVED, that the terms and provisions of the Form of Transfer
Agent Instructions (the "Instructions") are hereby approved and the Authorized
Officers are authorized to execute and deliver the Instructions (pursuant to the
terms of the Purchase Agreement), with such amendments, changes, additions and
deletions as the Authorized Officers may deem appropriate and approve on behalf
of, the Corporation, such approval to be conclusively evidenced by the signature
of an Authorized Officer thereon; and
EXECUTION OF PURCHASE AGREEMENT
FURTHER RESOLVED, that the Corporation be and it hereby is authorized
to execute the Purchase Agreement providing for the purchase of common stock of
the Corporation having an aggregate value of up to $___________; and
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ISSUANCE OF COMMON STOCK
FURTHER RESOLVED, that the Corporation is hereby authorized to issue
the Commitment Shares (as defined in the Purchase Agreement) and that, upon
issuance of the Commitment Shares pursuant to the Purchase Agreement, the
Commitment Shares will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof; and
FURTHER RESOLVED, that the Corporation is hereby authorized to issue
shares of Common Stock upon the purchase of shares of Common Stock up to the
available amount under the Purchase Agreement (the "Purchase Shares") in
accordance with the terms of the Purchase Agreement and that, upon issuance of
the Purchase Shares pursuant to the Purchase Agreement, the Purchase Shares will
be duly authorized, validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof; and
FURTHER RESOLVED, that the Corporation shall initially reserve
_________ shares of Common Stock for issuance as Purchase Shares under the
Purchase Agreement.
REGISTRATION STATEMENT
The management of the Corporation has prepared an initial draft of a
Registration Statement on Form ___ (the "Registration Statement") in order to
register the sale of the Purchase Shares and the Commitment Shares
(collectively, the "Shares"); and
The Board of Directors has determined to approve the Registration
Statement and to authorize the appropriate officers of the Corporation to take
all such actions as they may deem appropriate to effect the Offering; and
NOW, THEREFORE, BE IT RESOLVED, that the officers and directors of the
Corporation be, and each of them hereby is, authorized and directed, with the
assistance of counsel and accountants for the Corporation, to prepare, execute
and file with the Securities and Exchange Commission (the "Commission") the
Registration Statement, which Registration Statement shall be filed
substantially in the form presented to the Board of Directors, with such changes
therein as the Chief Executive Officer of the Corporation or any Vice President
of the Corporation shall deem desirable and in the best interest of the
Corporation and its shareholders (such officer's execution thereof including
such changes shall be deemed to evidence conclusively such determination); and
FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed, with the assistance of counsel and
accountants for the Corporation, to prepare, execute and file with the
Commission all amendments, including post-effective amendments, and supplements
to the Registration Statement, and all certificates, exhibits, schedules,
documents and other instruments relating to the Registration Statement, as such
officers shall deem necessary or appropriate (such officer's execution and
filing thereof shall be deemed to evidence conclusively such determination); and
FURTHER RESOLVED, that the execution of the Registration Statement and
of any amendments and supplements thereto by the officers and directors of the
Corporation be, and the same hereby is, specifically authorized either
personally or by the Authorized Officers as such officer's or director's true
and lawful attorneys-in-fact and agents; and
FURTHER RESOLVED, that the Authorized Officers are hereby is designated
as "Agent for Service" of the Corporation in connection with the Registration
Statement and the filing thereof with the
34
Commission, and the Authorized Officers hereby are, authorized to receive
communications and notices from the Commission with respect to the Registration
Statement; and
FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed to pay all fees, costs and expenses that
may be incurred by the Corporation in connection with the Registration
Statement; and
FURTHER RESOLVED, that it is desirable and in the best interest of the
Corporation that the Shares be qualified or registered for sale in various
states; that the officers of the Corporation be, and each of them hereby is,
authorized to determine the states in which appropriate action shall be taken to
qualify or register for sale all or such part of the Shares as they may deem
advisable; that said officers be, and each of them hereby is, authorized to
perform on behalf of the Corporation any and all such acts as they may deem
necessary or advisable in order to comply with the applicable laws of any such
states, and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents, appointments of attorneys for service of process and
resolutions; and the execution by such officers of any such paper or document or
the doing by them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Corporation and the
approval and ratification by the Corporation of the papers and documents so
executed and the actions so taken; and
FURTHER RESOLVED, that if, in any state where the securities to be
registered or qualified for sale to the public, or where the Corporation is to
be registered in connection with the public offering of the Securities, a
prescribed form of resolution or resolutions is required to be adopted by the
Board of Directors, each such resolution shall be deemed to have been and hereby
is adopted, and the Secretary is hereby authorized to certify the adoption of
all such resolutions as though such resolutions were now presented to and
adopted by the Board of Directors; and
FURTHER RESOLVED, that the officers of the Corporation with the
assistance of counsel be, and each of them hereby is, authorized and directed to
take all necessary steps and do all other things necessary and appropriate to
effect the listing of the Shares on the __________.
APPROVAL OF ACTIONS
RESOLVED, that, without limiting the foregoing, the Authorized Officers
are, and each of them hereby is, authorized and directed to proceed on behalf of
the Corporation and to take all such steps as deemed necessary or appropriate,
with the advice and assistance of counsel, to cause the Corporation to
consummate the agreements referred to herein and to perform its obligations
under such agreements; and
RESOLVED, that the Authorized Officers be, and each of them hereby is,
authorized, empowered and directed on behalf of and in the name of the
Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.
35
EXHIBIT E
FORM OF SECRETARY'S CERTIFICATE
This Secretary's Certificate ("Certificate") is being delivered
pursuant to Section 7(k) of that certain Amended and Restated Common Stock
Purchase Agreement dated as of _____, 2001 ("Common Stock Purchase Agreement"),
by and between U.S. PLASTIC LUMBER CORP., a Nevada corporation (the "Company")
and FUSION CAPITAL FUND II, LLC (the "Buyer"), pursuant to which the Company may
sell to the Buyer up to Six Million Dollars ($6,000,000) of the Company's Common
Stock, par value $.0001 per share (the "Common Stock"). Terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Common
Stock Purchase Agreement.
The undersigned, Xxxxx X. Xxxxxxx, Secretary of the Company, hereby certifies as
follows:
1. I am the Secretary of the Company and make the statements
contained in this Secretary's Certificate.
2. Attached hereto as EXHIBIT A and EXHIBIT B are true,
correct and complete copies of the Company's bylaws ("Bylaws") and
Certificate of Incorporation ("Articles"), in each case, as amended
through the date hereof, and no action has been taken by the Company,
its directors, officers or shareholders, in contemplation of the filing
of any further amendment relating to or affecting the Bylaws or
Articles.
3. Attached hereto as EXHIBIT C are true, correct and complete
copies of the resolutions duly adopted by the Board of Directors of the
Company on _____________, at which a quorum was present and acting
throughout. Such resolutions have not been amended, modified or
rescinded and remain in full force and effect and such resolutions are
the only resolutions adopted by the Company's Board of Directors, or
any committee thereof, or the shareholders of the Company relating to
or affecting (i) the entering into and performance of the Common Stock
Purchase Agreement, or the issuance, offering and sale of the Purchase
Shares and the Commitment Shares and (ii) and the performance of the
Company of its obligation under the Transaction Documents as
contemplated therein.
4. As of the date hereof, the authorized, issued and reserved
capital stock of the Company is as set forth on EXHIBIT D hereto.
36
IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
____________.
-------------------------
Xxxxx X. Xxxxxxx, Secretary
-----------------------------------
Xxxxxxx X. Xxxxxxx
37
SCHEDULE 3(a)
SUBSIDIARIES
U.S. Plastic Lumber Corp.
Nevada corp.
------------
U.S. Plastic Lumber Ltd. Clean Earth Inc. U.S. Plastic Lumber
Delaware Delaware Finance Corp.
-------- ------------------------------------------------------------- -------------
Eaglebrook Group Clean Earth of New Castle Integrated Technical Services U.S. Plastic Lumber
Chicago, IL New Castle, DE Winslow, NJ IP Corp.
Clean Earth of Carteret Consolidated Technologies
Carteret, NJ Norristown, PA
Clean Earth of North Jersey Clean Earth of Phila.
Xxxxxxx, NJ Phila., PA
Allied Waste Services Clean Earth of Maryland
Long Island, NY Hagerstown, MD
Clean Rock Properties
Hagerstown, MD
38
SCHEDULE 3(c)
CAPITALIZATION
(i) None.
(ii) The Company has issued convertible debentures in the amount of
$7,500,000 to the Halifax Fund X.X. XX.
(iii) None.
(iv) The Company has an obligation to maintain the effectiveness of existing
registration statements as have been previously filed by the Company in
its Public Filings.
(v) The Company has the right to redeem the Series D and E Preferred Stock.
(vi) None.
(vii) None.
39
SCHEDULE 3(e)
NO CONFLICTS
None.
40
SCHEDULE 3(f)
1934 ACT FILINGS
None.
41
SCHEDULE 3(g)
ABSENCE OF CERTAIN CHANGES
See Waiver and Second Amendment with Bank of America, and Amendment with GE
Capital.
42
SCHEDULE 3(h)
LITIGATION
A. PENDING MATTERS:
With the exception of litigation in the ordinary course of business, the Company
has no other litigation pending, or to its knowledge, threatened other than as
specifically set forth below.
1. CLEAN EARTH, INC. V. XXXXXXX XXXXXXX AND NEW ENGLAND WHOLESALE TRUCK. This
matter was filed by the Company against Xx. Xxxxxxx on June 9, 2000 alleging
usurpation of corporate opportunity, damages from unauthorized taking of
corporate assets, and seeking a declaratory ruling against Xx. Xxxxxxx with
respect to his non-competition provisions of his Employment Agreement. Xx.
Xxxxxxx was terminated from employment with the Company for cause in April 2000.
Xx. Xxxxxxx was employed as the General Manager of Clean Rock Industries, Inc.,
a subsidiary of the Company. A Settlement Agreement was reached upholding the
non-compete provisions of the Employment Agreement and prohibiting Xx. Xxxxxxx
from defaming or harassing the Company. Xx. Xxxxxxx has violated the Settlement
Agreement so we have provided notice that the shares held in escrow from the
acquisition of CRI will not be released. This action has resulted in an
arbitration proceeding regarding the disposition of the escrow shares. We have
filed a counterclaim in the arbitration action for damages relative to breach of
the Settlement Agreement and defamation.
2. INTEGRATED TECHNICAL SERVICES, INC. V. PUGMILL SYSTEMS, INC. We filed our
Complaint in this matter in early March, 1999. It involves over $300,000 in
damages we allege were sustained by our subsidiary, Integrated Technical
Services, Inc. due to the failure of equipment manufactured by Pugmill Systems,
Inc. to perform to the specifications represented to the Company relative to the
Company's handling and processing of dredge material. We will aggressively seek
to recover our actual damages of $9,000 and consequential damages of $300,000.
Pugmill claims it does not owe consequential damages under contract. Discovery
is on-going. Settlement negotiations are likely but have not yet been set.
3. XXXXXX VS. CLEAN EARTH, ET AL. This matter was filed in the Common Pleas
Court of Philadelphia on April 17, 2001. It has named 7 defendants, several of
which are subsidiaries of Clean Earth, alleging negligence relative to
performance of work at the Xxxxxxx Xxxxx facility. Xx. Xxxxxx fell off a roof at
that facility and died. Xx. Xxxxxx was not an employee of the company but worked
for a subcontractor hired by the company. Xx. Xxxxxx was not wearing his safety
harness when he fell. The Company will file an Answer to the Complaint denying
the allegations being made. The Company has submitted this matter to its
insurance carrier for defense.
4. EGINIZA VS. INTEGRATED TECHNICAL SERVICES, INC. This matter was filed in the
Superior Court of New Jersey in July 2000 and is the result of an automobile
accident in which the plaintiff died. The driver of the automobile which caused
the accident was an employee of our subsidiary, Integrated Technical Services,
Inc. The automobile involved in the accident was not owned by the Company. This
matter has been submitted to our insurance carrier for defense.
5. There are numerous xxxxxx in which S & Waste Inc. was named as a PRP in
several cases dating back ten years or more. The vast majority of those case
have been settled. A few remain. See Case Status report of Xxxx Xxxxx dated June
2000.
6. ROA V. MAGNETIC SEPARATORS V. USPL: Brought in Chicago as a result of a
personal injury Roa sustained in 1995 while operating a conveyor manufactured by
defendant. USPL anticipates it will be covered by our insurance carrier, but
initial investigation appears to support conclusion that Roa was entirely
negligent as he put his hand, intentionally, into the debaling unit for no
apparent reason and the equipment had all appropriate safety mechanisms attached
and in full working order. We will be filing a Motion for Summary Judgment to
dismiss the case.
7. FRONTIER RECYCLING: USPL is seeking to bring an action against an Engineer
who designed our plant and
43
production capacity expansion in a very poor manner causing substantial delays
and cost overruns. USPL is seeking credits for equipment not needed nor
functioning appropriately. USPL paid Frontier $2.7 million and balance claimed
by Frontier is $300,000. USPL has refused to pay balance as much of the
equipment never worked to specifications designed and many items of equipment
were never delivered, although USPL was billed for them. USPL records reveal
approximately half million dollars of equipment was never delivered so that
rather than USPL owing any money to Frontier, it appears from the discovery that
Frontier owes USPL money. Litigation has been filed in this matter by a third
party vendor against Frontier, who then joined USPL as a third party defendant.
USPL will counterclaim that all money has been paid to Frontier and that, in
fact, Frontier has been overpaid by USPL. We will defend this matter vigorously.
8. USPL VS. XXXXXX: We filed a lawsuit against Xxxxxx claiming theft of goods
from USPL by former manager of USPL location in CA. Approximate value of
material: $250,000. Xxxxxx has filed a counterclaim for wrongful discharge of
employment, defamation, breach of contract, invasion of privacy, and emotional
distress. We will be vigorous in our defense of the counterclaim.
9. XXXXXX VS. EAGLEBROOK PRODUCTS, INC. This action was filed in the common
please court of Xxxxxxxxxx County, Ohio on April 19, 2001 seeking $25,000 in
damages for defective SmartDeck product. We have inspected the deck and believe
the problem is poor installation by the contractor and not a problem with our
product. We will file an Answer defending our position.
10. USPL VS. AMERICAN COMPOSITE: No action has been filed, but USPL is
researching a possible infringement action against its structural plastic lumber
patent. Material is being ordered for lab testing to determine likelihood of
success of infringement action.
11. XXXXXX VS. USPL: Action filed in the Superior Court of New Jersey on January
29, 2001. Claim is for less than $50,000. Claim is based upon breach of
warranty. Plastic deck was purchased from RPI in 1996, a company subsequently
merged into USPL. Claim alleges the plastic deck has faded and plaintiff seeks
damages for breach of an express warranty by RPI and its distributor at the time
of sale that said product would not fade. Our experts have inspected the deck
and find no problems. We will vigorously defend.
12. SOUTHERN WOOD SERVICES V. USPL. We executed a contract with Southern Wood
Services in 2000 to provide woodflour whereby Southern Wood Services will claim
it was a "take or pay" contract. They currently provide sawdust as a feedstock
for our SmartDeck manufacturing process in Ocala, FL. Their woodflour operation
was delayed in construction and start-up. They will claim that Southern Wood
Services built this plant in reliance upon our contract. We still purchase
sawdust from Southern Wood Services despite the dispute on woodflour. They are
seeking to try to force us to purchase woodflour in lieu of the sawdust. We no
longer need the woodflour as we have purchased capital equipment in Ocala to
allow us to use the sawdust in lieu of the woodflour. Sawdust is a much less
expensive raw material. Our claim is that the contract was breached by Southern
Wood Services by their failure to become operational by October 2000 as required
in the contract, therefore we needed to mitigate our damages by transforming our
operation to handle sawdust. An arbitration action has been filed by Southern
Wood Services seeking $3.3 million in damages. We will vigorously defend this
action.
13. DIESEL ENTERPRISES V. USPL. This action was filed on April 26, 2001. It is a
claim for approximately $40,000 for trucking services to USPL. We will
vigorously defend this matter claiming we were overcharged and improperly
billed.
14. RAM ASSETS VS. USPL. Our landlord in Chicago has filed an eviction action in
Municipal Court of Chicago on or about May 4, 2001. They claim that USPL is in
default of the Lease for the following reasons: (i) failure to pay rent by the
first day of the month on three occasions during the last 12 months, (ii)
failure to maintain the property with respect to a water tower which was a
dangerous condition, and (iii) allowing a construction lien on the property.
USPL and its outside counsel believe the eviction action is completely
unmeritorious and is designed solely as a strategy to increase the amount of
money USPL is required to pay the landlord for exercising the option on the
property. USPL has invested $3 million in real estate improvements to the
property and has an agreement to do a sale/leaseback on the property for $14.9
million. The option purchase price is $3 million. USPL has never failed to pay
44
rent in any month, albeit not by the first day of the month, but there is no
language in the lease that requires the rent be paid on or about the first day
of the month. With respect to the water tower issue, as soon as USPL had
knowledge of issues relative to the water tower condition, USPL sought
permission from the landlord to dismantle the water tower. Once written
permission was received, USPL immediately dismantled the water tower. During
this time, USPL determined that the landlord was familiar with the dangerous
condition of the water tower dating back to 1993, 1996 and 1997 when the
landlord had retained engineers to review the condition of the water tower. None
of these engineering reports or conditions of the water tower were disclosed to
USPL prior to entering into the Chicago lease. With respect to the construction
lien, the general contractor in charge of the $3 million plant improvement on
the property had filed a construction lien in the fall of 2000 without the
knowledge or consent of USPL. In April 2001, when the landlord requested the
lien be removed from the property, USPL was able to get the general contractor
to remove the lien within three days of notification by the landlord. USPL will
vigorously defend this matter and believes there is a very substantial
likelihood of success on the merits. In addition, USPL is preparing a Complaint
to be filed against the landlord for tortious interference, breach of fiduciary
duty (the landlord was formerly President of USPL Ltd and was terminated by the
Company for failure to effectively manage that division), fraudulent
misrepresentation, and other potential causes of action.
Although, USPL will likely succeed in the eviction action, the litigation may
cause a delay or inability of USPL to close on either the Chicago sale/leaseback
transaction or the Halifax transaction.
The Company has not established any reserves on its Balance Sheet as a result of
any of the above pending litigation.
B. ACCOUNTS RECEIVABLE CLAIMS:
1. CTI from New York DOS - approximately $500,000. Met with account executive in
NYDOS and informed that claim is being processed.
2. Quakertown - claim has been submitted to PA DEP in the approximate amount of
$6 million. Settlement discussions are on-going.
3. Xxxxxxx Hook - Intent to file claim has been filed. Approximately $1.1
million. Claim will probably be filed within next few weeks.
4. Reaches B, C & D - Notice of claim has been filed. Approximately $300,000.
5. Xxxxx Brass Industrial: Claim has been made for approximately $97,000. Xxxxx
has refused to pay alleging that ITS owes an indemnity obligation back to Xxxxx
as a result of DEP issues that Xxxxx has incurred with PA DEP. The PA DEP has
issued an Order and Civil Penalty Assessment against Xxxxx. Our claim is that we
completed all work in accordance with specifications and that issues between
Xxxxx and DEP are not related to any work performed by ITS. Lien has been placed
on property.
6. Xxxxx & R: Approximately $500,000. We filed Complaint. Discovery is
undergoing. We are aggressively seeking to collect. However, one of the
defendants, American Appliance, recently filed Chapter 11 Reorganization.
American Appliance is not related to Xxxxx & R, except as a customer. As a
result of Bankruptcy action, and automatic stay is in place so we are now
requesting permission from the Bankruptcy court to proceed with our litigation
against the non-related defendants that are not a part of the Bankruptcy action.
7. 1113 Building Group: Claim for $113,000. We filed lien. Seeking to collect.
Property has been sold so we expect to collect at closing, perhaps within 30
days.
8. Xxxxxxx Xxxxx: USPL has a claim for approximately $1 million. Notice has been
provided. Claim report has not been submitted yet. Likely to negotiate a
settlement once claim is filed. Claim should be ready in next few weeks.
C. POTENTIAL THREATENED LITIGATION
None that we are aware of.
45
SCHEDULE 3(m)
INTELLECTUAL PROPERTY RIGHTS
None.
46
SCHEDULE 3(o)
TITLE
All Real and Personal Property owned by the Company is subject to either
Purchase Money Mortgages or are otherwise encumbered by Bank of America.
47
SCHEDULE 3(s)
TRANSACTIONS WITH AFFILIATES
See Certain Transactions in the Form 10K filed by the Company with the
Securities and Exchange Commission on April 3, 2001.
