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As filed with the Securities and Exchange Commission on March 10, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
U.S. PLASTIC LUMBER CORP.
(Exact name of Registrant as specified in its charter)
NEVADA 87-0404343
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2300 W. Glades Road, Suite 400 W
Boca Raton, Florida 33431
Telephone (561)394-3511
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive
offices)
Bruce C. Rosetto
Vice President, General Counsel and Secretary
U.S. Plastic Lumber Corp.
2300 W. Glades Road, Suite 400 W
Boca Raton, Florida 33431
Telephone (561) 394-3511
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Jane K. Storero, Esq.
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Telephone: (215) 569-5488
Facsimile (215) 569-5555
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed Proposed
maximum maximum Amount of
Title of securities Amount to be offering price aggregate registration
to be registered registered per share (1) offering price fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per share,
issuable upon conversion of debentures......... 1,818,182(1) $ 9.6525(2) $17,500,002(2) $4,620
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Common Stock, par value $.0001 per share,
issuable upon exercise of warrants............. 300,000(3) $10.09125(4) $ 3,027,375(4) $ 800
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Total 2,118,182 $20,527,377 $5,420
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(1) This Registration Statement covers 1,818,182 shares of U.S. Plastic
Lumber common stock issuable upon the conversion of debentures owned by
Halifax Fund, L.P. of which shares may be offered from time to time.
(2) Based upon the maximum conversion price of $9.6525 as set forth in the
debentures, estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(g) under the Securities
Act of 1933, as amended.
(3) This Registration Statement covers 300,000 shares of U.S. Plastic
Lumber common stock issuable upon the exercise of warrants owned by
Halifax Fund, L.P. of which shares may be offered from time to time.
(4) Based upon the exercise price of $10.09125 as set forth in the
warrants, estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(g) under the Securities
Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. These securities may not be
sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
PROSPECTUS
U.S. PLASTIC LUMBER CORP.
2,118,182
SHARES OF COMMON STOCK
Halifax Fund, L.P. is using this prospectus to offer and sell up to
2,118,182 shares of U.S. Plastic Lumber Corp. common stock. 1,818,182 of the
shares of common stock being sold by Halifax Fund, L.P. are issuable upon the
conversion of debentures which were issued to Halifax Fund, L.P. on February 2,
2000. 300,000 of the shares of common stock being sold by Halifax Fund, L.P. are
issuable upon exercise of warrants which were granted to Halifax Fund, L.P. on
February 2, 2000. U.S. Plastic Lumber may receive proceeds upon exercise of the
warrants; however, U.S. Plastic Lumber will not receive any proceeds from the
sale of its common stock by Halifax Fund, L.P.
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER "RISK FACTORS"
BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
Halifax Fund, L.P. may sell their U.S. Plastic Lumber common stock in
one or more transactions on the Nasdaq Stock Market at market prices prevailing
at the time of sale or in private transactions at negotiated prices or via any
other method permitted under this Prospectus or the "Plan of Distribution".
U.S. Plastic Lumber's common stock is traded on the Nasdaq National
Market under the symbol "USPL."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ________ ___, 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................................................................... 2
Risk Factors................................................................................................ 2
Forward Looking Statements.................................................................................. 13
Where You Can Find More Information......................................................................... 13
Use of Proceeds............................................................................................. 14
Selling Shareholders........................................................................................ 14
Plan of Distribution........................................................................................ 15
Experts..................................................................................................... 17
Legal Matters............................................................................................... 17
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS. U.S. PLASTIC LUMBER HAS NOT AUTHORIZED ANYONE ELSE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. HALIFAX FUND, L.P. WILL NOT MAKE AN
OFFER OF THEIR SHARES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT PAGE OF THIS PROSPECTUS.
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PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the shares. You should read the entire
prospectus carefully.
U.S. Plastic Lumber Corp. is a diversified holding company with
subsidiaries operating in the plastic lumber manufacturing, plastic sheet
manufacturing, plastic raw material processing, and environmental recycling
industries. We are the largest manufacturer of plastic lumber in the United
States and are aggressively building our existing lines of business through
internal growth and acquisitions. We are actively negotiating to acquire
additional companies in our existing and complementary lines of business.
As used in this prospectus, the terms "we," "us," "our" and "U.S.
Plastic Lumber" mean U.S. Plastic Lumber Corp. and its subsidiaries.
Our principal executive offices are located at 2300 Glades Road, Suite
440W, Boca Raton, Florida 33431 and our telephone number is (561) 394-3511.
RISK FACTORS
In considering whether to acquire U.S. Plastic Lumber common stock, you
should consider carefully the risks associated with the ownership of U.S.
Plastic Lumber common stock. These risks are described in detail below. You
should consider carefully these risk factors, together with all of the other
information in this prospectus and the documents we have incorporated by
reference in the section "Where You Can Find More Information," before you
decide to purchase shares of our common stock.
WE HAVE A HISTORY OF LOSSES AND IF WE ARE NOT ABLE TO MAINTAIN OUR
CURRENT PROFITABILITY, IT COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.
We incurred an operating loss of $291,000 for the year ended December
31, 1996 and an operating loss of $321,000 for the year ended December 31, 1997.
We reported an operating profit of $1,437,226 for the year ended December 31,
1998, but we cannot assure you that our profitability will continue. If we are
not able to maintain our current profitability, which will depend largely on our
ability to substantially increase sales revenues and limit the growth of
overhead and direct expenses, it could adversely affect the market price of our
common stock.
OUR LIMITED ACCESS TO CAPITAL COULD RESULT IN OUR INABILITY TO OBTAIN
FINANCING IN ADEQUATE AMOUNTS AND ON ACCEPTABLE TERMS, WHICH COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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We have limited access to capital and there is no assurance that we
will be able to obtain the capital necessary and appropriate to operate our
business. We will require additional capital in order to:
o manufacture, market and sell our products;
o open new manufacturing facilities
o develop new products;
o manufacture, market and sell our new product line;
o consolidate our existing operations;
o implement our plan of operations;
o to fund other working capital needs; and
o capital expenditures.
While we do have existing lines of credit, we cannot be sure that this
debt financing will be available to us in the future or that it will be
available in the amounts we require or on terms acceptable to us. Our failure to
obtain financing in adequate amounts and on acceptable terms could have an
adverse effect on our business, financial condition and results of operations.
OUR PLASTIC LUMBER PRODUCTS CARRY LONG WARRANTIES, AS MUCH AS 50 YEARS
ON SOME PRODUCTS. AS THE PRODUCT IS FAIRLY NEW, WE DO NOT HAVE SUFFICIENT
HISTORICAL TRACK RECORD TO DETERMINE THE FUTURE LIABILITY THAT MAY RESULT FROM
OFFERING EXTENDED WARRANTIES OR FROM PRODUCT LIABILITY MATTERS, WHICH COULD HAVE
A MATERIAL ADVERSE AFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATION.
Our plastic lumber products are fairly new and have not been on the
market for long periods of time and may be used in applications that we may have
no knowledge of or limited experience in. Our plastic lumber products are used
in applications that we have little or no historical track record to measure our
potential liability as it relates to product warranty or product liability
issues. If our products fail to perform over the extended warranty periods,
which for some products is as long as 50 years, we may not have the ability to
adequately protect ourself against such potential liability which can cause a
material adverse affect on our business, financial condition and results of
operation.
IF WE ARE NOT ABLE TO ATTRACT AND KEEP EMPLOYEES WITH THE REQUISITE
LEVELS OF EXPERTISE, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATION.
Our business requires a significant amount of expertise in a wide
variety of functions. We cannot assure you that we will be able to maintain
employees with the requisite levels of expertise or that we will be able to
attract and keep these employees in the future. Our failure to attract and keep
employees with the requisite levels of expertise could have a material adverse
effect on our business, financial condition and results of operation.
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SEVERAL OF OUR DIRECTORS, OFFICERS AND EMPLOYEES ARE AFFILIATED WITH
ENTITIES WHICH ARE SIGNIFICANT SHAREHOLDERS OF OURS, WHICH COULD RESULT IN A
CONFLICT OF INTEREST.
Several of our directors, officers and employees are affiliated,
through ownership or otherwise, with the Stout Partnership and Schultes, Inc.,
each of which is a significant shareholder. When our directors who are
affiliated with these entities are faced with decisions where we have interests
adverse to those entities, a conflict of interest could arise. Since a majority
of our directors are affiliated with those entities, agreements related to
monies provided by those entities were not the result of arm's-length
negotiations. We have attempted to have these agreements be as similar to those
negotiated by us with third parties, however, these agreements may include terms
and conditions that may be more or less favorable to us than terms contained in
similar agreements negotiated with third parties.
IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY, IT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The success of our growth strategy depends on our ability to continue
to increase profit margins through:
o integration of acquisitions;
o consolidation of plants and operations;
o increased consumer acceptance of alternative wood products;
o an increased distribution network;
o increased production capacity; and
o ability to finance growth.
Our ability to implement this strategy will depend in large part on
whether we are able to:
o expand through strategic acquisitions of companies in new and
complementary industries;
o obtain adequate financing on favorable terms to fund this
growth strategy;
o develop and expand its customer base;
o hire, train and retain skilled employees;
o strengthen brand identity and successfully implement its
marketing campaigns;
o continue to expand in the face of increasing competition;
o continue to negotiate our supply contacts and sales agreements
on terms that increase or maintain our current profit margins;
and
o create sufficient demand for plastic lumber and other
products.
Our inability to implement any or all of these strategies could have a
material adverse effect on our business, financial condition and results of
operations.
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OUR GROWTH STRATEGY INCLUDES ACQUISITIONS AND IF WE ARE UNABLE TO MAKE
ACQUISITIONS, OR IF THOSE ACQUISITIONS ARE NOT SUCCESSFUL, IT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
As part of our growth strategy, we have made, and plan to continue to
make acquisitions of other companies. We may not be able to make acquisitions in
the future. In addition, any acquisition that we make could have a material
adverse effect on our business, financial condition and results of operations.
Future acquisitions are subject to many risks, including the risks that:
o we may not be able to identify suitable companies to buy;
o we may not be able to purchase companies at favorable prices,
or at all;
o we may not be able to obtain financing on favorable terms, or
at all, to pay for future acquisitions; and
o we may not be able to effectively integrate the acquired
businesses or technologies into our operations.
In addition, in order to consummate future acquisitions, we may be required to
borrow money or incur other liabilities, which could have a material adverse
effect on our liquidity and capital resources. We may also be required to issue
additional shares of stock, which could result in dilution to our shareholders.
AS A RESULT OF OUR ACQUISITION OR LEASE OF REAL ESTATE, WE MAY BECOME
LIABLE FOR THE REMEDIATION AND/OR REMOVAL OF HAZARDOUS OR TOXIC SUBSTANCES FROM
THAT REAL ESTATE.
From time to time, we acquire or lease storage facilities or other
properties in connection with the operation of our business. Under various U.S.
federal, state or local environmental laws, ordinances and regulations, we could
be required to investigate and clean up hazardous or toxic substances or
chemical releases at property we acquire or lease. We could also be held liable
to a governmental entity or to third parties for property damage, personal
injury and investigation and cleanup costs incurred by those parties in
connection with any contamination. The costs of investigation, remediation or
removal of hazardous or toxic substances may be substantial, and the presence of
those substances, or the failure to properly remediate the property, may
adversely affect our ability to sell or rent the property or to borrow using the
property as collateral. In addition, we could be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from these properties.
THE SEASONAL NATURE OF OUR BUSINESS COULD HAVE AN ADVERSE AFFECT ON OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our business is seasonal in nature. Historically, we have generated a
substantial portion of our revenues and profits during the second and third
quarters of our fiscal year. If for any reason our revenues fall below those
normally expected during the second and third quarters of
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our fiscal year, our business, financial condition and results of operation
could be adversely affected.
SOME OF OUR BUSINESSES OPERATE IN RELATIVELY NEW INDUSTRIES WHICH
PROSPECTIVE CUSTOMERS MAY RESIST.
The reclamation and recycling of plastic and the manufacture of plastic
lumber for use in construction, and other composite materials containing
recycled plastics, are relatively new industries. There is a general reluctance
in the construction industry to use new materials before they have been
extensively tested, particularly in certain segments which have exacting
performance standards for component materials. In the case of our recycled
plastic lumber and composite materials in particular, this testing may be
extensive for each prospective customer and may require substantial additional
time and resources. In addition, we may experience resistance from prospective
customers who are accustomed to more conventional, non-artificial wood
materials. Moreover, we may not have sufficient financial and other resources to
undertake extensive marketing and advertising activities or to afford the cost
of the necessary marketing and sales personnel when it becomes appropriate to
broaden our marketing efforts.
IF WE ARE NOT ABLE TO OBTAIN OUR RAW MATERIALS AT COMMERCIALLY
REASONABLE TERMS, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The availability of low-cost raw materials, namely post-consumer and
industrial plastic waste products, is a material factor in our costs of
operations. Historically, suppliers have provided adequate quantities of these
raw materials at favorable costs. We believe that our current sources of raw
materials will continue to be available on commercially reasonable terms.
However, unavailability, scarcity or increased cost of these raw materials could
have a material adverse effect upon our business. We purchase most of our raw
materials through generators of post-consumer and industrial recycled plastic
materials. We do not rely on contractual arrangements with our raw materials
suppliers and we have no long-term supply contracts. Disruption of our supply
sources could have a material adverse effect on our business, financial
condition and results of operations.
IF WE ARE UNABLE TO DEVELOP NEW TECHNOLOGIES, WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our products and services involve newly developing technologies and we
cannot be sure that we will be able to compete effectively in developing and
marketing new products and services or in developing or maintaining the
know-how, technology, and patents to compete effectively. There is a general
lack of public awareness of these newly developing products and services
generally, or as alternatives to more traditional and well established products.
To compete effectively, we must increase public knowledge and acceptance of our
products and services and develop and maintain certain levels of know-how and
technical expertise. Our failure to compete effectively could have an adverse
effect on our business, financial condition and results of operations.
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THERE IS A LACK OF UNIFORM STANDARDS IN THE PLASTIC LUMBER INDUSTRY IN
WHICH WE OPERATE WHICH COULD RESTRICT THE GROWTH OF PLASTIC LUMBER PRODUCTS AND
LIMIT THE MARKET FOR THESE PRODUCTS.
The American Society for Testing and Materials and other industry trade
organizations have established general standards and methods for measuring the
characteristics of specific building materials. Users of building materials (and
frequently, issuers of building codes) generally specify that the building
materials comply with the standards relative to the proposed applications. Since
uniform, recognized standards or methods have only recently been established for
measuring the characteristics of plastic lumber, potential users may not be
aware of this method of judging whether or not plastic lumber may be suitable
for their particular requirements, without being informed of such standards by
the plastic lumber supplier or otherwise becoming aware of them. The fact that
these standards are not well known for plastic lumber may limit the market
potential for our building materials and make potential purchasers of such
building materials reluctant to use them. The Plastic Lumber Trade Association,
of which we are a member, is pursuing increased public awareness of such
standards, but we cannot be sure that public awareness will successfully be
increased or that increased awareness will increase the market for our products.
THE INDUSTRIES IN WHICH WE OPERATE ARE SUBJECT TO EXTENSIVE REGULATION
AND THE COST OF COMPLYING WITH THOSE REGULATIONS, OR THE LIABILITY FOR NOT
COMPLYING, COULD BECOME SUBSTANTIAL, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our businesses are subject to extensive laws and regulations designed
to protect the environment from toxic wastes and hazardous substances or
emissions and to provide a safe workplace for employees. Under current federal
regulations, the Resource Conservation & Recovery Act, and Comprehensive
Environmental Responsibility, Compensation and Liability Act, the generator of
toxic or hazardous waste is financially and legally responsible for that waste
forever, and strictly liable for the clean up and disposal costs. In particular,
the business of treating or otherwise handling toxic or hazardous waste
materials is fraught with potential liability to such handlers if the handling
and tracking of such wastes is not completed properly. We believe we are either
in material compliance with all currently applicable laws and regulations or
that we are operating in accordance with appropriate variances or similar
arrangements, but we cannot be sure that we will always be deemed in compliance,
nor can we be sure that compliance with current laws and regulations will not
require significant capital expenditures that could have a material adverse
effect on our operations. These laws and regulations are always subject to
change and could become more stringent in the future. Although state and federal
legislation currently provide for certain procurement preferences for recycled
materials, the preferences for materials containing waste plastics are dependent
upon the eventual promulgation of product or performance standard guidelines by
state or federal regulatory agencies. The guidelines for recycled plastic
building materials may not be released
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or, if released, the product performance standards required by those guidelines
may be incompatible with our manufacturing capabilities. It may be necessary to
expend considerable time, effort and money to keep our existing or acquired
facilities in compliance with applicable environmental, zoning, health and
safety regulations and as to which there may not be adequate insurance coverage.
In addition, due to the possibility of unanticipated factual or regulatory
developments, the amounts and timing of future environmental expenditures and
compliance could vary substantially from those currently anticipated.
IF WE ARE NOT ABLE TO MAINTAIN OUR PERMITS AND LICENSES, IT COULD HAVE
AN ADVERSE AFFECT ON OUR BUSINESS.
Our business, especially our environmental recycling operation, depends
on our maintaining permits and licenses from many different federal, state, and
local agencies. We cannot assure you that we will be able to maintain our
permits and licenses in the future or that we will be able to modify our permits
and licenses, if necessary, to be able to compete effectively.
WE RELY SIGNIFICANTLY ON OUR TRADE SECRETS AND OUR INABILITY TO PROTECT
THOSE TRADE SECRETS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our businesses involve many proprietary trade secrets, including
certain methods, processes and equipment designs for which we have not sought
patent protection. Although we have taken measures to safeguard our trade
secrets by limiting access to manufacturing and processing facilities and
requiring confidentiality and nondisclosure agreements with third parties, we
cannot assure you that our trade secrets will not be disclosed or that others
will not independently develop comparable or superior technology. Rather than
rely on patent protection, we have generally chosen to rely on the unique and
proprietary nature of our processes. We have obtained exclusive worldwide
licensing rights with respect to patent technology related to railroad crossties
and the process to manufacture them, but there is no assurance we will be able
to maintain those rights for any specific length of time. We also purchased
patents to manufacture structural lumber.
To the extent we do have patents on some of our technology there can be
no assurances that our patents will adequately protect us from similar
technology being developed with different formulations or from use in countries
in which we do not have patent protection. The Company will seek to protect
itself against known infringement cases against our patents, but there can be no
assurance that our efforts will be successful.
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IF WE ARE NOT ABLE TO SUCCESSFULLY OBTAIN BID WORK AT SUITABLE
PROFITABLE MARGINS, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our environmental recycling operation consists of certain subsidiaries
which are highly reliant upon contract bidding as a significant source of
revenues. We cannot assure you that we will be successful in obtaining bid work
in the future or that if we do obtain bid work that it will be at suitable
profitable margins. Our failure to successfully obtain bid work at suitable
profitable margins could have a material adverse effect on our business,
financial condition and results of operations.
THE OCCURRENCE OF AN EVENT NOT FULLY COVERED BY INSURANCE COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Our business could be disrupted by a variety of occurrences, including:
o fires, explosions or blow outs;
o environmental hazards;
o hurricanes, floods, fires or other acts of God; or
o product liability occurrences.
Any of these occurrences could result in substantial losses due to:
o injury;
o loss of life;
o severe damage;
o clean-up responsibilities;
o regulatory investigation; or
o penalties and suspension of operations.
We maintain insurance coverage against some, but not all, potential
risks. However, we cannot assure you that our insurance will:
o be adequate to cover all losses or exposure for liability;
o continue to be available at premium levels that justify its
purchase; or
o continue to be available at all.
If an event occurs which is not fully covered by insurance, it could
have a material adverse effect on our business, financial condition and results
of operation.
A SUBSTANTIAL INCREASE IN INTEREST RATES COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATION, WHILE A
FAILURE TO COMPLY WITH OUR CREDIT AGREEMENTS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR LIQUIDITY AND CAPITAL RESOURCES.
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A substantial portion of our outstanding indebtedness is at floating
interest rates. Therefore, a substantial increase in interest rates could
adversely affect our cost of borrowed money, which could have an adverse effect
on our business, financial condition and results of operation. In addition, most
of our debt instruments contain covenants establishing certain financial and
operating restrictions. Our failure to comply with any covenant or obligation
contained in any credit agreement could result in an event of default which
could accelerate debt repayment terms under certain other credit agreements, all
of which could have a material adverse effect on our liquidity and capital
resources.
OUR PENDING OR FUTURE ADMINISTRATION AND LEGAL PROCEEDINGS COULD RESULT
IN A SIGNIFICANT JUDGMENT AGAINST US, THE LOSS OF A SIGNIFICANT PERMIT OR
LICENSE OR THE IMPOSITION OF A SIGNIFICANT FINE, ANY OF WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
A lawsuit was filed against our former Chairman in a matter entitled,
WASTE MANAGEMENT, INC. VS. PAOLINO, ET AL, U.S. District Court, District of
Delaware. Although we are not a named party in the lawsuit, it is not possible
for us to predict the implications of this lawsuit against Mr. Paolino and
others at the current time. Mr. Paolino and others have filed a lawsuit against
Waste Management, Inc. We are also not a named party in that litigation.
This dispute between Waste Management, Inc. and Mr. Paolino and others
may continue for a long period of time. The effects of this litigation may have
wide ranging implications on us which may result in material adverse effects
upon the business, financial condition and/or operating results of our Company
which cannot be reasonably foreseen by us at the current time.
We have not established any reserves on our Balance Sheet as a result
of any pending or threatened litigation.
We are generally involved in administrative and legal proceedings in
the ordinary course of our business. Citizen's groups have become increasingly
active in challenging the grant or renewal of permits and licenses for waste
facilities and responding to these challenges has further increased the costs
associated with establishing new facilities or expanding current facilities. A
significant judgment against us, the loss of a significant permit or license or
the imposition of a significant fine could have a material adverse effect on our
business, financial condition and results of operations.
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THE INDUSTRIES IN WHICH WE OPERATE ARE VERY COMPETITIVE AND OUR
INABILITY TO COMPETE EFFECTIVELY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
All of our businesses operate in highly competitive industries. Our
recycled plastic lumber business faces competition from other producers of
recycled plastic lumber as well as producers of vinyl and aluminum decking, and
traditional wood, especially pressured treated wood. We compete against other
makers of recycled plastic principally upon the basis of price and quality, as
well as the immediate availability of the product, and compete against other
products such as pressure treated lumber by emphasizing the superior suitability
characteristics of plastic lumber for certain applications, as well as appealing
to the environmental consciousness of consumers. Our environmental recycling
operations face competition from several large competitors that provide similar
services throughout the northeast and midatlantic states. The resources of these
competitors, financial or otherwise are such that it is very difficult for us to
effectively compete. In some instances, our competitors have more revenues,
market share, better name recognition and capital available which could make it
difficult for us to compete. In addition, the environmental industry is changing
as a result of rapid consolidation and our future success may be affected by
those changes. Our failure to compete successfully in either the plastic lumber
or the environmental industry could have a material adverse effect on our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY
AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
There were approximately 32.5 million shares of our common stock
outstanding as of December 31, 1999. In addition, we intend to continue to issue
common stock in connection with acquisitions, financings or in other
transactions. Future sales of substantial amounts of our common stock in the
public market, or the perception that these sales could occur, could adversely
affect prevailing market prices of our common stock and could impair our ability
to raise capital through future offerings of equity securities.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND, IF WE ARE NOT ABLE TO
RETAIN THEM, IT COULD HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We believe that our success is dependent to a significant extent upon
the continued employment of certain key executive officers. The loss of services
of Mark S. Alsentzer, our Chief Executive Officer, John Poling, our Chief
Financial Officer, Bruce C. Rosetto, our Vice President and General Counsel, or
Michael D. Schmidt, our Vice President - Finance, for any reason could have a
material adverse effect upon our business, financial condition and results of
operations.
11
<PAGE> 14
ANTI-TAKEOVER PROVISIONS MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY
TO ACQUIRE CONTROL OF US, COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK AND COULD REDUCE THE AMOUNT THAT SHAREHOLDERS MIGHT RECEIVE IF WE ARE
SOLD.
"Anti-takeover" provisions contained in Nevada law and in our articles
of incorporation, bylaws and contracts could make it more difficult for a third
party to acquire control of us, even if that change in control would be
beneficial to shareholders. These provisions could adversely affect the market
price of our common stock and could reduce the amount that shareholders might
receive if we are sold. These anti-takeover provisions include the following:
o Our articles of incorporation give our board of directors the
authority to issue shares of preferred stock without
shareholder approval. Any preferred stock could have rights,
preferences and privileges that could adversely affect the
voting power and the other rights of the holders of our common
stock.
o Our articles of incorporation and bylaws provide for staggered
terms for the members of the board of directors, with each
board member serving a staggered four year term.
o Options to purchase our common stock will immediately become
exercisable upon a change in control.
12
<PAGE> 15
FORWARD LOOKING STATEMENTS
Some of the information in this prospectus may contain "forward-looking
statements". Forward-looking statements can be identified by the use of
forward-looking language such as "will likely result," "may," "are expected to,"
"is anticipated," "estimate," "projected," "intends to" or other similar words.
Our actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements.
Forward-looking statements are subject to certain risks and uncertainties,
including but not limited to the risks which are described in detail under "Risk
Factors" and elsewhere in this prospectus. When considering these
forward-looking statements, you should keep in mind these risk factors and other
cautionary statements in this prospectus. You should not place undue reliance on
any forward-looking statement which speaks only as of the date made.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
and other information we file with the SEC at the SEC's public reference room at
450 Fifth Street, NW, Washington, D.C., 20549 and at the SEC's regional offices
in Illinois and New York. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are
also available on the SEC's Internet site (http://www.sec.gov). You may also
inspect our SEC filings and other information concerning U.S. Plastic Lumber
Corp. at the offices the Nasdaq Stock Market, 1735 K Street, NW, Washington,
D.C. 20006-1500.
We have filed a registration statement on Form S-3 to register the
shares of common stock offered under this prospectus. This prospectus is a part
of the registration statement on Form S-3 and constitutes a prospectus of U.S.
Plastic Lumber. As allowed by SEC rules, this prospectus does not contain all
the information you can find in the registration statement on Form S-3 or the
exhibits to the registration statement on Form S-3.
The SEC also allows us to "incorporate by reference" the information we
file with the SEC, which means we can disclose information to you by referring
you to another document filed separately with the SEC. Information incorporated
by reference is deemed to be part of this prospectus. Later information filed by
us with the SEC updates and supersedes this prospectus.
THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT U.S. PLASTIC LUMBER THAT IS NOT INCLUDED IN OR DELIVERED WITH
THIS PROSPECTUS. COPIES OF ANY OF THAT INFORMATION ARE AVAILABLE WITHOUT CHARGE
TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST. WRITTEN REQUESTS FOR THOSE DOCUMENTS SHOULD BE DIRECTED TO THE
SECRETARY, U.S. PLASTIC LUMBER CORP., 2300 GLADES ROAD, SUITE 440W, BOCA RATON,
FLORIDA 33431, AND TELEPHONE REQUESTS MAY BE DIRECTED TO THE SECRETARY AT (561)
394-3511.
13
<PAGE> 16
We incorporate by reference the documents listed below which we
previously filed with the SEC:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SEC Filings Period
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Annual Report on Form 10-KSB (including those portions of our Year ended December 31, 1998
proxy statement for our 1999 annual meeting of shareholders
incorporated by reference to the Annual Report on Form 10-KSB)
- ----------------------------------------------------------------------------------------------------------------
Quarterly Reports on Form 10-QSB (as amended) Quarters ended March 31, 1999, June 30,
1999 and September 30, 1999
- ----------------------------------------------------------------------------------------------------------------
Current Reports on Form 8-K Filed on October 1, 1999, October 12,
1999 and February 4, 2000
- ----------------------------------------------------------------------------------------------------------------
Registration Statement on Form 8-A filed pursuant to Section Filed on March 2, 1998
12(g) of the Exchange Act
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
All documents we file with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act after the date of this prospectus until
this offering is completed will be deemed to be incorporated by reference in
this prospectus and to be a part of this prospectus from the date that document
is filed.
USE OF PROCEEDS
We may receive proceeds upon Halifax Fund, L.P.'s exercise of its warrants to
purchase our common stock. The proceeds received by us on the exercise of the
warrants will be used for general working capital purposes. All net proceeds
from the sale of U.S. Plastic Lumber common stock will go to Halifax Fund, L.P.
U.S. Plastic Lumber will not receive any proceeds from the sale of the common
stock sold by Halifax Fund, L.P.
SELLING SHAREHOLDERS
The following table provides certain information as of the date of this
prospectus regarding Halifax Fund, L.P.'s beneficial ownership of our common
stock prior to and after the sale of the shares offered under this prospectus.
Beneficial ownership is determined in accordance with the rules of the SEC, and
generally includes voting or investment power with respect to securities. In
accordance with SEC rules, shares which may be acquired upon conversion of
debentures or the exercise of warrants which are currently exercisable or which
become exercisable within sixty days of the date of this prospectus are deemed
to be beneficially owned by the debenture or warrant holder.
1,818,182 of the shares being offered by Halifax Fund, L.P. are
issuable upon the conversion of $7,500,000 aggregate principal amount of
subordinated debentures which were issued to Halifax Fund, L.P. on February 2,
2000. According to the terms of the debentures, the debentures are convertible
into common stock at the lower of $9.6525 per share or the lowest trading price
during the four trading days preceding the conversion date, but not to be lower
than $8.25 per share except in certain circumstances. In connection with Halifax
Fund, L.P.'s purchase of our convertible debentures we entered into a
registration rights agreement which
14
<PAGE> 17
requires us to register two times the sum of the number of shares of common
stock which are then issuable upon conversion of the debentures. For purposes of
this calculation and for determining the amount of securities to be registered
in connection with the conversion of the debentures, we assumed a conversion
price of $8.25.
300,000 of the shares being offered by Halifax Fund, L.P. are issuable
upon exercise of warrants which were granted to Halifax Fund, L.P. in connection
with Halifax Fund, L.P.'s purchase of our convertible debentures. On February 2,
2000 Halifax Fund, L.P. was issued a warrant to purchase 200,000 shares of our
common stock, subject to adjustment, at an exercise price of $10.09125 per
share, subject to adjustment. In addition, the warrants provide Halifax Fund,
L.P. a cashless exercise option, as Halifax Fund, L.P. can authorize us to
withhold from issuance a number of shares of common stock issuable upon the
exercise of their warrant which when multiplied by the exercise price would
equal the aggregate exercise price for the shares to be delivered to Halifax
Fund, L.P. Unless Halifax Fund, L.P. utilizes the cashless exercise option, upon
exercise of each of the warrants, we will receive $10.09125 per share, as
adjusted, of common stock. The registration rights agreement requires us to
register one and one-half times the number of shares issuable upon the exercise
of the warrants.
There are certain limitations on the ability of Halifax Fund, L.P. to
convert the debentures or exercise the warrants. One such limitation provides
that Halifax Fund, L.P. cannot convert the debentures or exercise the warrants
to the extent that such conversion and/or exercise would cause the number of
shares of common stock beneficially owned by it and its affiliates (other than
shares deemed beneficially owned through ownership of unconverted debentures and
unexercised warrants) to exceed 9.9% (subject to adjustment) of the then issued
and outstanding shares of common stock following such conversion and/or
exercise. As a result of this limitation on conversion as well as the fact that
the number of shares listed opposite the name of Halifax Fund, L.P. represent
amounts in excess of the number of shares into which the convertible debentures
are currently convertible and the warrants are exercisable as described below,
the number of shares listed opposite the name of Halifax Fund, L.P. do not
represent the number of shares of common stock beneficially owned by such
person.
<TABLE>
<CAPTION>
# of Shares Owned # of Shares Being # of Shares Owned
Selling Shareholder Prior to the Offering Offered for Sale After the Offering
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Halifax Fund, L.P. 2,968,147(1) 2,118,182 849,965
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 849,965 shares owned by the Halifax Fund, L.P. prior to this
offering
PLAN OF DISTRIBUTION
Halifax Fund, L.P., their pledges, donees, transferees or other
successors in interest may offer their shares of U.S. Plastic Lumber Corp.
common stock at various times through dealers or brokers or other agents or
directly to one or more purchasers in one or more of the following transactions:
o on the Nasdaq Stock Market or other exchange on which the
common stock may be listed for trading;
15
<PAGE> 18
o in the over-the-counter market;
o through block trades in which the broker or dealer so engaged
will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
o through purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to
this prospectus;
o in ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
o through options, swap or derivatives;
o in privately negotiated transactions;
o in connection with short sales of U.S. Plastic Lumber common
stock;
o in a combination of any of the above transactions;
o in accordance with Rule 144 under the Securities Act of 1933,
rather than pursuant to this Prospectus; or
o in any other manner permitted by law.
Halifax Fund, L.P., their pledges, donees, transferees or other
successors in interest may sell their shares:
o at market prices prevailing at the time of sale;
o at prices related to those prevailing market prices;
o at negotiated prices; or
o at fixed prices that may be changed.
Halifax Fund, L.P. may use broker, dealers or other agents to sell
their shares. If this happens, the brokers, dealers or other agents may receive
discounts, concessions or commissions from Halifax Fund, L.P., or they may
receive commissions from purchasers of common stock for whom they acted as
agents. Neither U.S. Plastic Lumber Corp. nor Halifax Fund, L.P. can presently
estimate the amount of this compensation. We know of no existing arrangements
between Halifax Fund, L.P. and any broker, dealer or other agent relating to the
sale or distribution of the common stock. Under applicable rules and regulations
under the Securities Exchange Act, any person engaged in a distribution of any
of the common stock may not simultaneously engage in market activities with
respect to the common stock for the applicable period under Regulation M prior
to the commencement of that distribution.
Halifax Fund, L.P. may be deemed to an "underwriter" within the meaning
of Section 2(11) of the Securities Act. Halifax Fund, L.P. will be subject to
the prospectus delivery requirements of the Securities Act. We have informed
Halifax Fund, L.P. that they may be subject to applicable provisions of the
Securities Exchange Act and its rules and regulations, including, without
limitation, Rule 10b-5 and Regulation M, which may limit the timing of purchases
and sales of any of the common stock by Halifax Fund, L.P. All of this may
affect the marketability of the common stock.
We have agreed to pay all of the expenses incident to this offering
other than certain fees and disbursements of counsel for Halifax Fund, L.P. and
certain selling expenses.
16
<PAGE> 19
EXPERTS
The audited consolidated financial statements and schedules of U.S.
Plastic Lumber as of December 31, 1998 and 1997 and for each of the two years in
the period ended December 31, 1998 incorporated by reference in this prospectus
have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in this prospectus in reliance upon the authority of
that firm as experts in accounting and auditing in giving those reports.
The engagement of the former independent accountant, Arthur Andersen
LLP was terminated by the Company on January 31, 2000 because the Board of
Directors of the Company and Arthur Andersen LLP mutually agreed that based upon
a potential conflict of interest, the best interests of the Company would be
served by engaging a new independent accounting firm. The conflict of interest
arises due to the fact that Arthur Andersen LLP is the principal auditor for
Waste Management, Inc. and are also assisting Waste Management, Inc. in a matter
entitled Waste Management, Inc. v. Louis D. Paolino, Jr. et al. Mr. Paolino was
the Chairman of the Board of Directors and Chairman of the Audit Committee of
the Board of Directors from May 5, 1999 through January 7, 2000. The Company is
not a named party in the lawsuit.
The principal accountant's report on the financial statements for
either of the past two years did not contain an adverse opinion or a disclaimer
of opinion, nor was the report qualified or modified as to uncertainty, audit
scope, or accounting principles. The decision to change accountants was approved
by the Board of Directors of the Company. During the Company's two most recent
fiscal years preceding such dismissal there were no matters of disagreements
between the Company and its former independent accountants. The former
independent accountants have not advised the Company during the two most recent
fiscal years preceding of any of the following events:
(a) that the internal controls necessary for the Company to
develop reliable financial statements do not exist;
(b) that it can no longer rely on management's representations or
that it is unwilling to be associated with the financial statements prepared by
management;
(c) that it needs to significantly expand the scope of its audit
or that information has come to its attention which may materially impact the
fairness or reliability of a previously issued audit report or financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report or that
it can longer rely on management's representations or that it is unwilling to
be associated with the financial statements prepared by management; or that due
to the accountant's dismissal, it did not expand the scope of its audit or
conduct such further investigation; or
(d) that there have been any issues that have not been resolved
to the satisfaction of the former independent accountants or that would
otherwise affect its ability to render an unqualified audit report.
The Company has provided a copy of the disclosures being made herein
to its former independent accountant in compliance with Item 304(a)(3) of
Regulation S-K.
The Company has engaged the firm of KPMG LLP as its new independent
accountants to conduct the 1999 audit. This action has been approved by the
Board of Directors of the Company. The newly engaged accountants have not been
consulted regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the registrant's financial statements; or any matter that
was either the subject of a disagreement or a reportable event.
LEGAL MATTERS
An opinion has been rendered by Bruce C. Rosetto, our Vice President,
General Counsel and Secretary, to the effect that the shares of common stock
issuable upon conversion of the debentures when converted as contemplated by the
debentures and the shares of common stock issuable upon exercise of the
warrants, when exercised, issued and paid for as contemplated by the warrants,
will be legally issued, fully paid and non-assessable. Mr. Rosetto did not
receive any additional compensation in connection with rendering this opinion
other than his salary and benefits as an officer of U.S. Plastic Lumber which
include options to purchase 150,000 shares of which 40,000 shares were granted
at an exercise price of $3.50 per share, 75,000 shares were granted at an
exercise price of $4.00 per share and the remaining 35,000 shares were granted
at $7.281 per share.
17
<PAGE> 20
- --------------------------------------------------------------------------------
2,118,182 SHARES
U.S. PLASTIC LUMBER CORP.
COMMON STOCK
--------------
PROSPECTUS
--------------
The date of this Prospectus is ________ ___, 2000
- --------------------------------------------------------------------------------
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities being registered, all of
which are being borne by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ 5,420*
Accounting Fees and Expenses............................................... 5,000**
Legal Fees and Expenses.................................................... 25,000**
Printing and Engraving Expenses............................................ 2,000**
-------
Total.................................................... $37,400
=======
</TABLE>
* Actual
** Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
U.S. Plastic Lumber's articles of incorporation (a copy of which is
filed as Exhibit 3.5 to the Company's Registration Statement on Form SB-2 filed
with the SEC on March 7, 1997) limit liability of its officers and directors to
the fullest extent permitted by the Nevada Business Corporation Act.
Sections 18.7502 and 78.751 of the Nevada Business Corporation Act
provides that each corporation:
(1) may indemnify any person who was or is a party or is threatened to
be made party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
II-1
<PAGE> 22
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful;
and
(2) may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
To the extent that a director, officer, employee or agent of a Nevada
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 above, or in defense
of any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
Any indemnification under Sections 1 and 2, unless ordered by a court
or advanced as provided by the Nevada statute and the Company's articles of
incorporation, must be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The determination
must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
II-2
<PAGE> 23
The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this Section do not affect any rights to
advancement of expenses to which corporate personnel other than director of
officers may be entitled under any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or
ordered by a court: (a) does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to the requirements of the Nevada statute
and the Company's articles of incorporation, may not be made to or on behalf of
any director or officer if a final adjudication establishes that his acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action, and (b) continues for a person who
has ceased to be a director, officer, employee or agent and inures to the
benefit of the heirs, executors and administrators of such a person."
The Company has obtained insurance to cover its directors and executive
officers for liabilities which may be incurred in connection with the offer,
sale and registration of the common stock.
ITEM 16. EXHIBITS.
4.1 5% Convertible Debenture due February 2, 2005 issued to
Halifax Fund, L.P.
4.2 Common Stock Purchase Warrant issued to Halifax Fund, L.P.
dated February 2, 2000.
5.1 Opinion of Bruce C. Rosetto.
23.1 Consent of Arthur Andersen LLP, independent certified public
accountants
23.2 Consent of Bruce C. Rosetto (included in Exhibit 5.1).
24.1 Power of Attorney of certain signatories (included on the
Signature Page).
II-3
<PAGE> 24
99.1 Convertible Debenture Purchase Agreement dated February 2,
2000 between U.S. Plastic Lumber and Halifax Fund, L.P.
99.2 Registration Rights Agreement dated February 2, 2000 between
U.S. Plastic Lumber and Halifax Fund, L.P.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in this
Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
SEC by the Registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 25
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 26
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Boca Raton, state of Florida on March 10,
2000.
U.S. PLASTIC LUMBER CORP.
Date: March 10, 2000 By: /s/ Mark S. Alsentzer
------------------------------------
Mark S. Alsentzer, Chairman, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on
March 10, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C> <C>
/s/ Mark S. Alsentzer Chairman, Chief Executive Officer and March 10, 2000
- --------------------------------- President (Principal Executive Officer) --------------
Mark S. Alsentzer Date
/s/ Michael D. Schmidt Vice President - Finance (Principal March 10, 2000
- --------------------------------- Accounting Officer) --------------
Michael D. Schmidt Date
/s/ John W. Poling Chief Financial Officer (Principal March 10, 2000
- --------------------------------- Financial Officer) --------------
John W. Poling Date
March 10, 2000
/s/ August C. Schultes, III Director --------------
- -------------------------------- Date
August C. Schultes III
March 10, 2000
/s/ Gary J. Ziegler Director --------------
- -------------------------------- Date
Gary J. Ziegler
March 10, 2000
/s/ Roger N. Zitrin Director --------------
- -------------------------------- Date
Roger N. Zitrin
March 10, 2000
/s/ Kenneth Leung Director --------------
- -------------------------------- Date
Kenneth Leung
March 10, 2000
/s/ Louis D. Paolino, Jr. Director --------------
- -------------------------------- Date
Louis D. Paolino, Jr.
</TABLE>
II-6
<PAGE> 27
EXHIBIT INDEX
4.1 5% Convertible Debenture due February 2, 2005 issued to
Halifax Fund, L.P.
4.2 Common Stock Purchase Warrant issued to Halifax Fund, L.P.
dated February 2, 2000.
5.1 Opinion of Bruce C. Rosetto.
23.1 Consent of Arthur Andersen LLP, independent certified public
accountants
23.2 Consent of Bruce C. Rosetto (included in Exhibit 5.1).
24.2 Power of Attorney of certain signatories (included on the
Signature Page).
99.1 Convertible Debenture Purchase Agreement dated February 2,
2000 between U.S. Plastic Lumber and Halifax Fund, L.P.
99.2 Registration Rights Agreement dated February 2, 2000 between
U.S. Plastic Lumber and Halifax Fund, L.P.
<PAGE> 1
EXHIBIT 4.1
This Security Has Not Been Registered Under The Securities Act Of 1933, As
Amended, or any State Securities Laws. It May Not Be Sold or Offered for Sale
Except Pursuant To An Effective Registration Statement Under Said Act and any
Applicable State Securities Law Or An Applicable Exemption From Such
Registration Requirements.
NO. 1 $7,500,000
DATED: FEBRUARY 2, 2000
U.S. PLASTIC LUMBER CORPORATION
5% CONVERTIBLE DEBENTURE DUE FEBRUARY 2, 2005
THIS DEBENTURE ("Debenture") is one of a duly authorized issue of
Debentures of U.S. PLASTIC LUMBER CORPORATION, a corporation duly organized and
existing under the laws of the State of Nevada (the "Company"), designated as
the Company's 5% Convertible Debentures Due February 2, 2005, in an aggregate
principal amount of Seven Million Five Hundred Thousand U.S. Dollars
(U.S.$7,500,000) (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to HALIFAX FUND, L.P.,
the initial holder hereof, or its order (including successors-in-interest, the
"Holder"), the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS
(U.S.$7,500,000) on February 2, 2005 (the "Maturity Date") and to pay interest
on the principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 5% per annum payable quarterly in arrears on the first
day of January, April, July and October of each year (each an "Interest Payment
Date"), with the first such payment due on April 1, 2000. Interest shall accrue
daily commencing on the date hereof and shall continue until payment in full of
all amounts due under this Debenture. The interest so payable will be paid to
the person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debenture (the "Debenture
Register"). Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Convertible Debenture Purchase Agreement dated as
of February 2, 2000 between the Company and the Holder (the "Purchase
Agreement") or the Registration Rights Agreement dated as of February 2, 2000
between the Company and the Holder (the "Registration Rights Agreement").
The principal of, interest on, and default payments (referred to below)
in respect of this Debenture are payable in such coin or currency of the United
States as of the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time;
PROVIDED, HOWEVER, that, in lieu of paying such interest in coin or currency,
the Company may, at its option (provided it gives at least fifteen (15) business
days notice prior to an Interest Payment Date), pay interest on this Debenture
for any Interest Payment Date by adding the amount thereof to the Outstanding
Principal Amount due under this Debenture ("PIK Interest"), pursuant to an
irrevocable statement in the form of Exhibit 2 hereto ("PIK Statement")
delivered at least fifteen (15) business days prior to the Interest Payment Date
on which the Company plans to pay such PIK Interest and effective for such
<PAGE> 2
Interest Payment Date only. If neither the cash interest due hereunder is paid
when due, nor the PIK Statement delivered, to the Holder as provided above, the
Company shall no longer have the right to choose the PIK Interest option on that
Interest Payment Date or any future Interest Payment Dates and the Holder may
elect either cash interest or PIK Interest hereunder at its option. Any PIK
Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been part
of the principal indebtedness originally evidenced by this Debenture including,
without limitation, for purposes of determining interest payable hereunder after
the applicable Interest Payment Date for which such PIK Statement is delivered
by the Company and amounts convertible into Common Shares hereunder after the
applicable Interest Payment Date for which such PIK Statement is delivered by
the Company.
The Company will pay any principal due and all accrued and unpaid
interest due upon this Debenture to the person that is the Holder of this
Debenture on the records of the Company as of the applicable Interest Payment
Date and addressed to such Holder at the last address appearing on the Debenture
Register.
The Outstanding Principal Amount and interest due hereunder shall bear
interest, from and after the 31st day following the occurrence and during the
continuance of an Event of Default hereunder, at the rate equal to the lower of
the Citibank Prime Rate per annum plus six (6%) percent or the highest rate
permitted by law; PROVIDED that the interest rate of this Debenture shall not be
reduced below 5% as a result of this provision.
Additional cash payments (referred to as "default payments") may be
required pursuant to the Registration Rights Agreement if there occurs an
"Interfering Event" (as defined therein). Such default payments, if not paid in
cash when due, may be treated by the Holder in its sole discretion as being
added to the Outstanding Principal Amount due under this Debenture.
Subject to applicable law, any interest otherwise payable that is not
paid for any applicable period because it would exceed the highest rate
permitted by law shall become payable whenever the payment thereof, together
with other interest due for any such subsequent period, would not exceed such
highest legal rate.
The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.
This Debenture is subject to the following additional provisions:
1. DENOMINATION. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration or transfer or exchange.
2
<PAGE> 3
2. TRANSFERS. This Debenture may be transferred or exchanged in
the United States only in compliance with the Securities Act of 1933, as amended
(the "Act") and applicable state securities laws, or applicable exemptions
therefrom. Prior to due presentment for transfer of this Debenture, the Company
may treat the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided, whether or not this Debenture is overdue.
3. DEFINITIONS. For purposes hereof the following definitions
shall apply:
"ADJUSTABLE PRICES" shall have the meaning set forth in
Section 9(a).
"ADJUSTMENT EVENT" shall have the meaning set forth in Section
5(d).
"CHANGE IN CONTROL TRANSACTION" shall mean the occurrence of
(x) any consolidation or merger of the Company with or into any other
corporation or other entity or person (whether or not the Company is the
surviving corporation), or any other corporate reorganization or transaction or
series of related transactions in which in excess of 50% of the Company's voting
power is transferred through a merger, consolidation, tender offer or similar
transaction, or (y) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the Act),
beneficially owns or is deemed to beneficially own (as described in Rule 13d-3
under the Exchange Act without regard to the 60-day exercise period) in excess
of 50% of the Company's voting power.
"CLOSING DATE" shall mean the date of original issuance of
this Debenture.
"COMMON STOCK" shall mean the common stock, par value $0.0001,
of the Company.
"CONVERSION NOTICE" shall have the meaning set forth in
Section 5(e).
"CONVERSION PRICE" shall have the meaning set forth in Section
5(c).
"CONVERSION RATE" shall have the meaning set forth in Section
5(b).
"FIXED PRICE" shall have the meaning set forth in Section
5(c)(i).
"FLOATING PRICE" refers to the lowest trading price utilized
in the calculation of the Conversion Price under Section 5(c)(ii).
"FLOATING REFERENCE PERIOD" refers to the four (4) Trading Day
period referred to in Section 5(c)(ii).
"FLOATING REFERENCE PRICE" refers to any of the trading prices
calculated in the computation of the Floating Price set forth in Section
5(c)(ii).
3
<PAGE> 4
"FORCED CONVERSION DATE" shall mean the Maturity Date, without
taking into consideration any acceleration thereof by reason of default,
required redemption, or otherwise. The Forced Conversion Date shall be subject
to deferral as provided for herein and in the Registration Rights Agreement.
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Section 5(e).
"INITIAL PRICE" shall mean, with respect to the Common Stock,
$8.775.
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is listed on NASDAQ, the closing bid
price on the date of valuation;
(ii) If the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the closing bid price on such exchange
on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, on the pink
sheets or bulletin board, the lesser of (A) the lowest sales price or (B) the
mean between the last reported "bid" and "asked" prices thereof on the date of
valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm or
other nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
"MINIMUM FLOATING CONVERSION PRICE" shall have the meaning set
forth in Section 5(c).
"RESTRICTED OWNERSHIP PERCENTAGE" shall have the meaning set
forth in Section 12.
"TRADING DAY" shall mean a day on which the Common Stock is
traded on the NASDAQ or principal exchange on which the Common Stock has been
listed (or any similar organization or agency succeeding such market or
exchange's functions of reporting prices).
4. CHANGE IN CONTROL, ETC. If at any time there occurs any Change
in Control Transaction, Holder shall be entitled, at its sole option, to have
the Company redeem this Debenture in whole or in part at a redemption price
equal to 130% of the Outstanding Principal Amount of this Debenture plus all
accrued but unpaid interest and penalties on this Debenture. Such Holder shall
be entitled to make such election at any time after commencement and up to 10
days after the effective date of the Change in Control Transaction. For purposes
4
<PAGE> 5
of this Section 4, the commencement date shall be the day upon which the Change
in Control Transaction was publicly announced.
5. CONVERSION AT THE OPTION OF THE HOLDER. The Holder of this
Debenture shall have the following conversion rights.
(a) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock. If this Debenture is converted in part, the remaining portion of this
Debenture not so converted shall remain entitled to the conversion rights
provided herein.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The
Outstanding Principal Amount of this Debenture that is converted into shares of
Common Stock at the option of the Holder shall be convertible into the number of
shares of Common Stock which results from application of the following formula:
P + I + D
------------------------------
Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion
I = accrued but unpaid interest (not previously added to principal)
on P as of the Holder Conversion Date
D = default payments (not previously added to principal) on P as of
the Holder Conversion Date
The number of shares of Common Stock into which each
$1,000 principal amount of this Debenture hereto may be converted pursuant to
this paragraph hereof is hereafter referred to as the "Conversion Rate."
(c) CONVERSION PRICE. Subject to adjustments pursuant
to Section 9, this Debenture will have a conversion price (the "Conversion
Price") equal to the lesser of (i) $9.6525 (such price, as adjusted in
accordance with Section 9 of this Debenture, Section 3.9 of the Purchase
Agreement and Section 2(b)(i) of the Registration Rights Agreement, shall be
referred to herein as the "Fixed Price") or (ii) the Floating Price, which shall
be equal to the lowest trading price of the Common Stock on the principal
trading market for such Common Stock (which is currently the Nasdaq National
Market) during the four (4) Trading Days prior to but not including the Holder
Conversion Date; PROVIDED that the Floating Price shall not be less than $8.25,
subject to adjustment pursuant to Section 9 of this Debenture, Section 3.9 of
the Purchase Agreement and Section 2(b)(i) of the Registration Rights Agreement
(hereinafter, the "Minimum Floating Conversion Price").
5
<PAGE> 6
(d) ADJUSTMENTS TO FLOATING REFERENCE PRICES. In the
event that during the Floating Reference Period provided for above, the Company
shall pay any dividend on the Common Stock payable in Common Stock or in rights
to acquire Common Stock, or shall effect a stock split or reverse stock split
(each such Company action shall be referred to herein as an "Adjustment Event"),
then each Floating Reference Price prior to the date of such Adjustment Event
shall be proportionately decreased or increased, as appropriate, to give effect
to such event.
(e) MECHANICS OF CONVERSION. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder (i)
shall give written notice in the form of EXHIBIT 1 hereto (the "Conversion
Notice") by facsimile to the Company at such office that the Holder elects to
convert the principal amount (plus accrued but unpaid interest and default
payments) specified therein, which such notice and election shall be revocable
by the Holder at any time prior to its receipt of the Common Stock upon
conversion, and (ii) as soon as practicable after such notice, shall surrender
this Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company; PROVIDED, HOWEVER, that the Company shall
not be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon such conversion unless either the Debenture evidencing the
principal amount is delivered to the Company as provided above, or the Holder
notifies the Company that such Debenture(s) have been lost, stolen or destroyed
and promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such lost,
stolen or destroyed Debentures. If a Holder is converting less than the maximum
number of shares it may convert under its Debenture, the Company shall reissue
the Debenture with the appropriate remaining principal amount as soon as
practicable after the Company shall have received the Holder's surrendered
Debenture.
The Company shall issue and deliver within one
business day of the delivery to the Company of such Conversion Notice, to such
Holder of Debenture(s) at the address of the Holder, or to its designee, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid, together with a calculation of the
Conversion Rate and a Debenture or Debentures for the principal amount of
Debentures not submitted for conversion. The date on which the Conversion Notice
is given (the "Holder Conversion Date") shall be deemed to be the date the
Company received by facsimile the Conversion Notice, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
In lieu of delivering physical certificates
representing the Common Shares issuable upon conversion of Debentures or the
Warrant Shares (as defined in the Purchase Agreement) deliverable upon exercise
of Warrants (as defined in the Purchase Agreement), provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the holder, the
Company shall use its best efforts to cause its transfer agent to electronically
transmit the Common Shares and Warrant Shares issuable upon conversion or
exercise to the Holder, by crediting the account of Holder's prime broker with
6
<PAGE> 7
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic transmittals
through the DWAC system. The parties agree to coordinate with DTC to accomplish
this objective. The conversions pursuant to Sections 5 and 6 shall be deemed to
have been made immediately prior to the close of business on the Holder
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares at the close of business on the Holder
Conversion Date.
6. CONVERSION UPON MATURITY.
(a) At the Forced Conversion Date, the Outstanding Principal
Amount of, and all accrued and unpaid interest on, and default payments and all
other amounts owing under, all Debentures outstanding at such time shall be
automatically converted into Common Stock of the Company in accordance with the
terms of the Debentures, the Purchase Agreement and the Registration Rights
Agreement, without notice; PROVIDED, however, that such conversion will be
subject to the limitations on a Holder's right to convert as set forth in
Section 12 below; and, PROVIDED FURTHER that the Forced Conversion Date shall be
deferred for such number of days as is equal to 1.5 times the number of days (A)
there is not Effective Registration (as defined in the Purchase Agreement), but
not including the first 90 days after the Prior Closing Date (as defined in the
Registration Rights Agreement); (B) there is not a sufficient amount of shares
of Common Stock available for conversion of all outstanding Debentures; (C) for
any other reason there is a default in the obligations of the Company under this
Debenture, the Purchase Agreement or the Registration Rights Agreement; or (D)
there is a suspension, restriction or limitation in the ability of holders of
Debentures to sell shares of Common Stock received upon conversion of Debentures
under the Registration Statement and prospectus for any reason. The portion of
the Outstanding Principal Amount of the Debenture that may not be converted by
reason of such Section 12 limitation shall be paid to the Holder by the Company
in cash in an amount equal to 110% of the sum of (i) the Outstanding Principal
Amount and (ii) accrued but unpaid interest and default payments ("Cash
Payment").
The Company shall issue and deliver within T+3 after delivery
to the Company of this Debenture, or after receipt of the agreement and
indemnification described in Section 5(e) above, to the Holder of the Debenture
at the address of the Holder, or to its designee, a certificate or certificates
for the number of shares of Common Stock to which the Holder shall be entitled
hereunder, together with any Cash Payment and a calculation of the Conversion
Rate. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Forced Conversion Date.
The Forced Conversion Date shall be a "Holder Conversion Date" for purposes of
this Debenture.
(b) Notwithstanding the preceding subparagraph (6)(a), no
holder of Debentures shall be obligated to convert any Debentures held by such
Holder on the Forced Conversion Date unless and until each of the following
conditions has been satisfied or exists, each of which shall be a condition
precedent to any such automatic conversion:
7
<PAGE> 8
(i) no material default or breach exists, and no event
shall have occurred which constitutes (or would constitute
with notice or the passage of time or both) a material default
or breach of the Purchase Agreement, the Registration Rights
Agreement, any Warrant or this Debenture;
(ii) none of the events described in clauses (i)
through (iv) of Section 2(b) of the Registration Rights
Agreement shall have occurred and be continuing;
(iii) Effective Registration (as defined in the Purchase
Agreement) has occurred and is continuing and has continuously
existed for the prior 60 consecutive trading days;
(iv) the Company (and its direct and indirect
subsidiaries on a consolidated basis) has assets with a net
realizable fair market value exceeding its liabilities and is
able to pay all its debts as they become due in the ordinary
course of business, and the Company is not and has not been
subject to any liquidation, dissolution or winding up of its
affairs; and
(v) each Holder of Debentures shall have received a
certificate from an appropriate executive officer of the
Company certifying that each of the foregoing conditions
precedent exist or have been satisfied.
Such automatic conversion shall be subject to and governed by all the provisions
relating to voluntary conversion of the Debentures contained herein.
7. FORCED CONVERSION.
(a) At any time commencing three (3) months after Effective
Registration first exists, if the closing bid price of the Common Stock on its
principal market (assuming such market is an Approved Market as defined in the
Purchase Agreement) is at least 175% of the Fixed Price for twenty (20)
consecutive Trading Days ("Pre-Notice Period"), the Company may require the
Holder to deliver a Conversion Notice for this Debenture. To exercise such
right, the Company must deliver a notice to that effect ("Notice of Forced
Conversion") at least twenty (20) Trading Days prior to the date fixed for
conversion (the "Post-Notice Period").
(b) A Notice of Forced Conversion shall only be effective
if:
(i) Effective Registration existed during the entire
Pre-Notice Period and Post-Notice Period;
(ii) the provisions of Clauses (i) and (v) of Section
6(b) above have been satisfied; and
(iii) conversion by the Holder will not exceed the
limits on a Holder's right to convert under Section 14 below. The portion of the
Outstanding Principal Amount that may not be converted by reason of such Section
14 shall be paid to the Holder in cash as provided in Section 6(a) for the Cash
Payment.
8
<PAGE> 9
8. HOLDER PUT OPTION.
(a) In the event that the closing bid price of the Common
Stock on its principal market is less than the Minimum Floating Conversion Price
for ten (10) consecutive Trading Days after the first anniversary of the
Closing, the Holder may put to the Company an option (the "Company Option"),
which shall be in writing (the "Put Notice"), to elect to (i) repurchase this
Debenture (or any portion thereof as selected by Holder) for a cash price equal
to 110% of the Outstanding Principal Amount to be repurchased plus all accrued
but unpaid interest or (ii) have the Minimum Floating Conversion Price
permanently re-set to zero. The Put Notice shall indicate whether the Holder
seeks to have all or a portion of the Debenture repurchased and shall set the
date for the Company's repurchase of this Debenture (or such portion thereof),
which shall be at least 20 Trading Days after the date of the Put Notice (the
"Repurchase Date").
(b) Within three (3) Trading Days of its receipt of the Put
Notice, the Company must respond to the Put Notice by providing written notice
("Company Notice") to the Holder of its election. If the Company opts to
repurchase this Debenture (or such portion thereof as indicated in the Put
Notice), the repurchase shall occur on the Repurchase Date at the offices of
Holder's counsel. The Holder may continue to exercise its conversion rights
under the Debenture until the Repurchase Date, and thereafter, until the Company
pays for the Debenture as set forth below. If the Company opts to have the
Minimum Floating Conversion Price permanently re-set to zero, same shall be
deemed to have occurred as of the date of the Put Notice, and for the four (4)
Trading Days immediately following the receipt of the Company Notice (or the
expiration of the three (3) Trading Day period for delivery of such Company
Notice), the Conversion Price shall be computed as if the Floating Price was the
lowest trading price of the Common Stock during the Trading Days commencing with
the date of the Put Notice and expiring on the date of the Conversion Notice. If
the Company does not respond to the Put Notice within three (3) Trading Days of
its receipt thereof, then the Company shall be deemed to have opted to have the
Minimum Floating Conversion Price permanently re-set to zero.
(c) If the Company opts to repurchase the Debenture (or such
portion thereof as indicated in the Put Notice), but fails to pay for same in
full on the Repurchase Date in immediately available funds, then (i) the Minimum
Floating Conversion Price shall be permanently re-set to zero as of the date of
the Put Notice; and (ii) the Company shall be obligated to repurchase this
Debenture (or such portion thereof) in accordance with the Put Notice and (iii)
the Holder may, but shall not be obligated to, rescind, in whole or in part, its
put to the Company of the Company Option, at any time and from time to time,
prior to the repurchase by the Company, if any, of the Debenture (or such
portion thereof) pursuant to this Section 8.
(d) If the Company opts to repurchase the Debenture (or such
portion thereof as indicated in the Put Notice), but fails to pay for same in
full on the Repurchase Date in immediately available funds, then, for the four
(4) Trading Days following the Repurchase Date, the Holder shall have, in
addition to the conversion rights otherwise set forth in this Debenture, the
special option to convert (the "Special Conversion Option") the Debenture (or
any portion thereof as selected by Holder) at the "Special Conversion Price" (as
defined below). At the Holder's option, the Holder shall exercise its Special
Conversion Option by providing the Company with a Conversion Notice in
accordance with Section 5 hereof and indicating on such Conversion Notice that
the Holder is exercising its Special Conversion Option hereunder. The "Special
9
<PAGE> 10
Conversion Price" shall be equal to the Conversion Price except that, for the
purpose of determining the Special Conversion Price, the Floating Price shall be
equal to the lowest trading price of the Common Stock on the principal trading
market for such Common Stock from the date of the Put Notice through the date of
the relevant Conversion Notice. This Special Conversion Option shall be in
addition to, and not in lieu of, any other rights or remedies available to the
Holder. If the Holder exercises its Special Conversion Option in accordance with
this Section 8(d), except as expressly provided herein to the contrary, the
conversion shall occur in accordance with the provisions of Section 5.
9. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time while the Debentures are
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) issue any securities payable in shares of Common Stock, (iii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iv) combine outstanding shares of Common Stock into a smaller number of shares,
the Fixed Price and Minimum Floating Conversion Price ("Adjustable Prices")
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 9(a) shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of an issuance, a subdivision or a
combination.
(b) In the event that the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock or any convertible or exchangeable securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible or exchangeable securities (other than
shares or options issued (i) pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Purchase Agreement and listed in the Company's
most recent periodic report filed under the Exchange Act and (ii) as
compensation in connection with arrangements with consultants and promoters of
the Common Stock) at an effective purchase price per share which is less than
either or both of the Adjustable Prices then in effect, then the Adjustable
Price or Prices in effect immediately prior to such issue or sale shall be
reduced effective concurrently with such issue or sale to an amount determined
by multiplying such applicable Adjustable Price then in effect by a fraction,
(x) the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, plus (2) the
number of shares of Common Stock which the aggregate consideration received by
the Company for such additional shares would purchase at such Adjustable Price
then in effect; and (y) the denominator of which shall be the number of shares
of Common Stock of the Company outstanding immediately after such issue or sale.
10
<PAGE> 11
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible or exchangeable securities, warrants, options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of such Exchangeable Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Exchangeable Securities.
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Shares of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 9(b) above) then in each
such case each of the Adjustable Prices thereafter shall be determined by
multiplying the applicable Adjustable Price in effect immediately prior to the
record date fixed for determination of shareholders entitled to receive such
distribution by a fraction of which the denominator shall be the Market Price
for Shares of Common Stock determined as of the record date mentioned above, and
of which the numerator shall be such Market Price for Shares of Common Stock on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board of Directors in
good faith; PROVIDED, however that in the event of a distribution exceeding 25%
of the net assets of the Company, such fair market value shall be determined by
a nationally recognized or major regional investment banking firm or firm of
independent chartered accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Board of Directors and Holders of a
majority in interest of the Debentures. In either case the adjustments shall be
described in a statement provided to all holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one outstanding share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) (1) In the event that at any time or from time to time
after the Closing Date, the Common Stock issuable upon the conversion of the
Debentures is changed into the same or a different number of shares of any class
or classes of stock, whether by merger, consolidation, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or reorganization provided for elsewhere in this Section 9),
then and as a condition to each such event provision shall be made in a manner
reasonably acceptable to the Holders of Debentures so that each Holder of
Debentures shall have the right thereafter to convert such Debenture into the
kind of stock receivable upon such recapitalization, reclassification or other
change by holders of shares of Common Stock, all subject to further adjustment
as provided herein. In such event, the formulae set forth herein for conversion
and redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Fixed Price) issued in connection with the above described
transaction.
11
<PAGE> 12
(2) If at any time or from time to time after the
Closing Date there is a capital reorganization of the Common Stock, including by
way of a sale of all or substantially all of the assets of the Company (other
than a recapitalization, subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Section 9), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the Holders of the Debentures so that the Holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 9 with respect to the rights of the Holders of the Debentures
after the reorganization to the end that the provisions of this Section 9 shall
be applicable after that event and be as nearly equivalent as may be
practicable, including, by way of illustration and not limitation, by equitably
adjusting the formulae set forth herein for conversion and redemption to reflect
the market price of the securities or property (applying the same factors used
in determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(e) If at any time during the period ending twelve (12)
months after the Closing Date, the Company sells or agrees to sell (including
pursuant to a letter of intent, term sheet, or similar means) shares of Common
Stock or securities or options convertible into, exercisable for, or
exchangeable for, shares of Common Stock (other than (i) a sale pursuant to a
bona fide registered public offering of shares of Common Stock by the Company
conducted on the basis of a firm commitment underwriting raising at least
$10,000,000 and (ii) shares or options issued (x) pursuant to the Company's
employee, director or consultant stock option plans and (y) as compensation in
connection with arrangements with consultants and promoters of the Common
Stock), then, if the effective or maximum sales price of the shares of Common
Stock with respect to such transaction (including the effective or maximum
conversion exercise or exchange price) ("Other Price") is less than the Fixed
Price of the Debentures at such time, the Company, at the option of a holder
exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Conversion Price is adjusted
pursuant to Section 9(a), (b), (c), (d) or (e), the Company shall promptly mail
to each Holder of the Debentures, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(g) In the event of any taking by the Company of a record
date of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, any security or right convertible or exchangeable into or
entitling the holder thereof to receive additional shares of Common Stock, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
12
<PAGE> 13
the Company shall deliver to each Holder of Debentures at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution, security
or right and the amount and character of such dividend, distribution, security
or right.
10. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion shall be rounded up to the nearest whole share.
11. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
(a) RESERVATION REQUIREMENT. The Company covenants that it
will at all times reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of the
Debentures as herein provided, free from preemptive rights or any other present
or contingent purchase rights of persons other than the Holders of the
Debentures, 200% of the maximum number of shares of Common Stock as shall be
issuable (taking into account the adjustments and restrictions of Sections 5 and
9 hereof) upon the conversion of all of the Debentures pursuant hereto. The
Company covenants that all shares of Common Stock that shall be so issuable
shall upon issue, be duly and validly authorized, issued and fully paid and
nonassessable. Without in any way limiting the foregoing, so long as any
Debentures remain outstanding the Company agrees to reserve and at all times
keep available solely for purposes of conversion of Debentures such number of
authorized but unissued shares of Common Stock that is set forth in the Purchase
Agreement.
(b) DEFICIENCY. If the Company does not have a sufficient
number of shares of Common Stock available to satisfy the Company's obligations
to a Holder of Debentures upon receipt of a Conversion Notice or is otherwise
unable to issue such shares of Common Stock in accordance with the terms of this
Agreement such Holder shall be entitled to the rights and remedies set forth in
the Registration Rights Agreement.
12. NO REISSUANCE OF THE DEBENTURE. No Debentures acquired by the
Company by reason of redemption, purchase, exchange or otherwise shall be
reissued, and all such Debentures shall be retired.
13. NO IMPAIRMENT. The Company shall not intentionally take any
action which would impair the rights and privileges of the Debentures set forth
herein or the Holders thereof.
14. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(a) Notwithstanding anything to the contrary contained
herein, no Debenture may be converted to the extent that, after giving effect to
shares of Common Stock to be issued pursuant to a Conversion Notice, the total
number of shares of Common Stock deemed beneficially owned by such Holder (other
than by virtue of the ownership of Debentures or ownership of other securities
that have limitations on a Holder's rights to exchange, convert or exercise
similar to those limitations set forth herein), together with all shares of
Common Stock deemed beneficially owned by the holder's "affiliates" (as defined
in Rule 144 of the Act) that would be aggregated for purposes of determining
whether a group under Section 13(d) of the Securities Exchange Act of 1934, as
amended, exists (an "aggregation party"), would exceed 9.9% (the "Restricted
13
<PAGE> 14
Ownership Percentage") of the total issued and outstanding shares of the
Company's Common Stock; PROVIDED that (w) each holder shall have the right at
any time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company, (x) each Holder shall have the right at
any time and from time to time, to increase its Restricted Ownership Percentage
and otherwise waive in whole or in part the restrictions of this Section 14(a)
upon 61 days' prior notice to the Company or immediately in the event of the
announcement of a pending or proposed Change in Control Transaction, (y) each
holder can make subsequent adjustments pursuant to (w) or (x) any number of
times from time to time (which adjustment shall be effective immediately if it
results in a decrease in the percentage or shall be effective upon 61 days'
prior written notice or immediately in the event of the announcement of a
pending or proposed Change in Control Transaction if it results in an increase
in the percentage) and (z) each Holder may eliminate or reinstate this
limitation at any time and from time to time (which elimination will be
effective upon 61 days' prior notice and which reinstatement will be effective
immediately). Without limiting the foregoing, in the event of the announcement
of a pending or proposed Change in Control Transaction, any Holder may reinstate
immediately (in whole or in part) the requirement that any increase in its
Restricted Ownership Percentage be subject to 61 days' prior written notice,
notwithstanding such Change in Control Transaction, without imposing such
requirement on, or otherwise changing such Holder's rights with respect to, any
other Change in Control Transaction. For this purpose, any material modification
of the terms of a Change in Control Transaction will be deemed to result in a
new Change in Control Transaction. The term "deemed beneficially owned" as used
in this Debenture shall exclude shares that might otherwise be deemed
beneficially owned by reason of the convertibility of the Debentures. The
Company shall provide all Holders with the earlier of (i) 20 days' prior written
notice of any such Change in Control Transaction, to the extent the Company has
prior knowledge of a Change in Control Transaction; or (ii) notice on the day
immediately following the Company's learning of any such transaction, but only
after, in the case of (i) and (ii), such Change in Control Transaction has been
publicly disclosed.
(b) Each time (a "Covenant Time") the Holder makes a
Triggering Acquisition (as defined below) of shares of Common Stock (the
"Triggering Shares"), the Holder will be deemed to covenant that it will not,
during the balance of the day on which such Triggering Acquisition occurs, and
during the 61-day period beginning immediately after that day, acquire
additional shares of Common Stock pursuant to rights-to-acquire existing at that
Covenant Time, if the aggregate amount of such additional shares so acquired
(without reducing that amount by any dispositions) would exceed (x) the
Restricted Ownership Percentage of the number of shares of Common Stock
outstanding at that Covenant Time (including the Triggering Shares) minus (y)
the number of shares of Common Stock actually owned by the Holder at that
Covenant Time (regardless of how or when acquired, and including the Triggering
Shares). A "Triggering Acquisition" means the giving of a Conversion Notice or
any other acquisition of Common Stock by the Holder or an aggregation party;
provided, however, that with respect to the giving of such Conversion Notice, if
14
<PAGE> 15
the associated issuance of shares of Common Stock does not occur, such event
shall cease to be a Triggering Acquisition and the related covenant under this
paragraph shall terminate. At each Covenant Time, the holder shall be deemed to
waive any right it would otherwise have to acquire Common Shares to the extent
that such acquisition would violate any covenant given by the holder under this
paragraph. Notwithstanding anything to the contrary, in the event of a conflict
between any covenant given under this paragraph and any obligation of the Holder
to convert this Debenture, the former shall supersede the latter, and the latter
shall be reduced accordingly. For the avoidance of doubt:
(i) The covenant to be given pursuant to this
paragraph will be given at every Covenant Time and shall be calculated based on
the circumstances then in effect. The making of a covenant at one Covenant Time
shall not terminate or modify any prior covenants.
(ii) The holder may therefore from time to time be
subject to multiple such covenants, each one having been made at a different
Covenant Time, and some possibly being more restrictive than others. The holder
must comply with all such covenants then in effect.
(c) Under certain circumstances specified in Section 3.14 of
the Purchase Agreement, certain Debentures that are the subject of a Conversion
Notice must be converted for cash.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest and default payments on,
this Debenture at the time, place and rate, and in the manner, herein
prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly and
irrevocably waives demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or intent
to accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and will be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
17. REPLACEMENT DEBENTURE. In the event that any Holder notifies
the Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original Debenture(s)
(except for registration number and Outstanding Principal Amount, if different
than that shown on the original Debenture(s)), shall be issued to the Holder,
provided that the Holder executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such Debenture.
18. PAYMENT OF EXPENSES; ISSUE TAXES. The Company agrees to pay
all debts and expenses, including attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Purchase Agreement, any Warrant or the
15
<PAGE> 16
Registration Rights Agreement. The Company shall pay any and all issue and other
taxes (excluding any income, franchise or similar taxes) that maybe payable in
respect of any issue or delivery of shares of Common Stock on conversion of any
Debenture pursuant hereto.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest
on this Debenture (subject to the Company's option to
pay PIK Interest), and such default shall continue for
five (5) business days after the due date thereof, or
(ii) the principal of this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Purchase Agreement, the
Registration Rights Agreement, any Warrant or in any
certificate or financial or other statements heretofore
or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this
Debenture or such other documents shall be false or
misleading in any material respect at the time made; or
(c) The Company shall fail to materially perform or observe
any covenant or agreement in the Purchase Agreement or
the Registration Rights Agreement, or any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture and such
failure shall continue uncured for a period of ten (10)
business days after notice from the Holder of such
failure; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its inability to pay its debts generally as they
mature; (3) make an assignment for the benefit of
creditors or commence proceedings for its dissolution;
or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for it or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (30)
days thereafter; or
16
<PAGE> 17
(g) The Company shall sell or otherwise transfer all or
substantially all of its assets; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any
bankruptcy law or any law for the relief of debt shall
be instituted by or against the Company and, if
instituted against the Company shall not be dismissed
within thirty (30) days after such institution, or the
Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit to any material allegations of, or default in
answering a petition filed in any such proceeding; or
(i) The Company shall be in default of any of its
indebtedness, and the holders thereof shall have
accelerated such indebtedness; or
(j) The Company shall be in material default of any of its
indebtedness that gives the holder thereof the right to
accelerate such indebtedness; or
(k) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act shall have been
announced; or
(l) A tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act shall have been
announced;
THEN, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider the
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. In such event, the Debenture shall be
redeemed at a redemption price per Debenture equal to 125% of the Outstanding
Principal Amount of the Debenture, plus accrued but unpaid interest and default
payments on the Debenture.
20. SAVINGS CLAUSE. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby, and such provision shall remain
effective in all other jurisdictions.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred
to in this Debenture constitute the full and entire understanding and agreement
17
<PAGE> 18
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
22. ASSIGNMENT, ETC. The Holder (but not the Company) may without
notice, transfer or assign this Debenture or any interest herein and may
mortgage, encumber or transfer any of its rights or interest in and to this
Debenture or any part hereof and, without limitation, each assignee, transferee
and mortgagee (which may include any affiliate of the Holder) shall have the
right to transfer or assign its interest. Each such assignee, transferee and
mortgagee shall have all of the rights of the Holder under this Debenture. The
Company agrees that, subject to compliance with the Purchase Agreement, after
receipt by the Company of written notice of assignment from the Holder or from
the Holder's assignee, all principal, interest and other amounts which are then
and thereafter become due under this Debenture shall be paid to such assignee at
the place of payment designated in such notice. This Debenture shall be binding
upon the Company and its successors and affiliates and shall inure to the
benefit of the Holder and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
24. CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The Company
shall, upon the written request at any time of any Holder of Debentures, furnish
or cause to be furnished to such Holder a certificate prepared by the chief
financial officer of Company setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Debenture.
25. NOTICES. The Company shall distribute to the Holders of
Debentures copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Holder's prior written consent.
26. SPECIFIC ENFORCEMENT. The Company agrees that irreparable
damage would occur in the event that any of the provisions of this Debenture
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Holders of Debentures shall be
entitled to swift specific performance, injunctive relief or other equitable
remedies to prevent or cure breaches of the provisions of this Debenture and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which any of them may be entitled under agreement, at law or
in equity.
18
<PAGE> 19
27. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered, facsimiled or mailed to said party by
certified mail, return receipt requested, at its address set forth herein or
such other address as either may designate for itself in such notice to the
other and communications shall be deemed to have been received when delivered
personally or, if sent by mail or facsimile, then when actually received by the
party to whom it is addressed. Whenever the sense of this Debenture requires,
words in the singular shall be deemed to include the plural and words in the
plural shall be deemed to include the singular. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
28. GOVERNING LAW; CONSENT TO JURISDICTION. This Debenture shall
be governed by and construed and enforced in accordance with the laws of the
State of New York applicable to contracts to be executed and performed entirely
within such state. The Company (i) hereby irrevocably submits to the exclusive
jurisdiction of the state and federal court located in New York County, New York
for the purposes of any suit, action or proceeding arising out of or related to
this Debenture and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. The Company consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party as provided herein and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
SIGNATURE PAGE FOLLOWS
19
<PAGE> 20
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
U.S. PLASTIC LUMBER CORPORATION
By: /s/ Bruce C. Rosetto
-------------------------------------
Name: Bruce C. Rosetto
Title: Vice President and
General Counsel
SIGNATURE PAGE TO 5% CONVERTIBLE DEBENTURE OF
U.S. PLASTIC LUMBER CORPORATION
20
<PAGE> 21
EXHIBIT 1
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
5% CONVERTIBLE DEBENTURE DUE February 2, 2005
The undersigned, as Holder of the 5% Convertible Debenture Due February 2, 2005
of U.S. PLASTIC LUMBER Corporation (the "Company"), in the outstanding principal
amount of U.S.$7,500,000 (the "Debenture"), hereby irrevocably elects to convert
that portion of the outstanding principal amount of the Debenture shown on the
next page into shares of Common Stock, $0.0001 par value per share (the "Common
Stock"), of the Company according to the conditions of the Debenture, as of the
date written below. The undersigned hereby requests that share certificates for
the Common Stock to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Conversion Information: NAME OF HOLDER:____________________________
By:________________________________________
Print Name:
Print Title:
Print Address of Holder:
__________________________________________
__________________________________________
Issue Common Stock to: ___________________
at:_______________________________________
Electronically transmit and credit
Common Stock to: ________________ at: __________________
<PAGE> 22
__________________________________________
Date of Conversion
__________________________________________
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
2
<PAGE> 23
PAGE 2 TO CONVERSION NOTICE FOR: ______________________________________________
(NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
<TABLE>
<CAPTION>
<S> <C> <C>
A. Outstanding Principal Amount converted: $
B. Accrued, unpaid interest on Outstanding Principal Amount converted: $
C. Default payments due Holder on Outstanding Principal Amount converted: $
-----------------
TOTAL DOLLAR AMOUNT CONVERTED (TOTAL OF A + B + C) $
=================
EXCHANGE PRICE $
Number of Shares of Common Stock = TOTAL DOLLAR AMOUNT CONVERTED $
= $
Conversion Price
</TABLE>
NUMBER OF SHARES OF COMMON STOCK = ______________________________________
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):
_______________________________________________________________________________
_______________________________________________________________________________
3
<PAGE> 24
_______________________________________________________________________________
_______________________________________________________________________________
Please issue and deliver _____ new Debenture(s) in the following amounts:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
4
<PAGE> 25
EXHIBIT 2
PIK STATEMENT
Date:______________
To: [NAME OF HOLDER OF DEBENTURE] ("Holder")
RE: 5% CONVERTIBLE DEBENTURE DUE FEBRUARY 2, 2005 ("DEBENTURE") OF U.S.
PLASTIC LUMBER CORPORATION (THE "COMPANY"), IN THE FACE PRINCIPAL
AMOUNT OF US$7,500,000.
In lieu of paying interest on the above-referenced Debenture
in coin or currency, the Company hereby elects to pay interest on the Debenture,
for the Interest Payment Date indicated below, by having the amount of such
interest added to the Outstanding Principal Amount due under the Debenture. The
Company hereby certifies to the Holder, its successors and assigns that the
Outstanding Principal Amount due under the Debenture after delivery of this PIK
Statement equals the amount indicated below. Capitalized terms used in this PIK
Statement and not otherwise defined shall have the meaning ascribed thereto in
the Debenture.
Interest Payment Date: _____________
Outstanding Principal Amount prior
to issuance of this PIK Statement: US$_____________
PIK Interest: US$_____________
Outstanding Principal Amount after
issuance of this PIK Statement: US$_____________
IN WITNESS WHEREOF, this PIK Statement has been duly executed
and delivered on the date first written above.
U.S. PLASTIC LUMBER CORPORATION
By: ___________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
------------------------------------
February 2, 2000
U.S. PLASTIC LUMBER CORPORATION
------------------------------------
Common Stock Purchase Warrant
U.S. Plastic Lumber Corporation, a Nevada corporation (the "COMPANY"),
hereby certifies that for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HALIFAX FUND, L.P., having an
address at c/o The Palladin Group, L.P., Investment Manager, 195 Maplewood
Avenue, Maplewood, New Jersey 07040 ("PURCHASER") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time beginning on the date hereof and ending on the fifth
anniversary of the Closing Date, as extended 1.5 times the number of days
between the 90th day following the Closing Date and such anniversary on which
there had been no Effective Registration, 200,000 fully paid and nonassessable
shares of Common Stock, par value $0.0001, of the Company (the "COMMON STOCK"),
at a purchase price per share of Common Stock equal to 10.09125 (the "PURCHASE
PRICE"), as the same may be adjusted pursuant to Section 5 herein.
1. DEFINITIONS.
(a) The term "AGREEMENT" shall mean the Convertible Debenture Purchase
Agreement dated as of February 2, 2000, between the Company and the Investors
signatory thereto.
(b) The term "DEBENTURE" shall mean any of the Company's 5% Convertible
Debentures Due February 2, 2005.
(c) The term "EFFECTIVE REGISTRATION" shall have the meaning specified
in the Agreement.
(d) The term "CLOSING DATE" shall mean February 2, 2000.
<PAGE> 2
(e) The term "REGISTRATION RIGHTS AGREEMENT" shall mean the
Registration Rights Agreement, dated as of February 2, 2000, between the Company
and the Investor signatory thereto.
(f) The term "WARRANT HOLDER" shall mean the Purchaser or any
assignee of all or any portion of this Warrant.
(g) The term "WARRANT SHARES" shall mean the shares of Common
Stock or other securities issuable upon exercise of this Warrant.
Capitalized terms used but not defined in this Warrant shall have the
meanings specified in the Agreement or the Debentures.
2. EXERCISE OF WARRANT.
This Warrant may be exercised by the Warrant Holder, in whole or in
part, at any time and from time to time by either of the following methods:
(a) The Warrant Holder may surrender this Warrant, together
with the form of subscription at the end hereof duly executed by Warrant Holder
("SUBSCRIPTION NOTICE"), at the offices of the Company or any transfer agent for
the Common Stock; or
(b) The Warrant Holder may also exercise this Warrant, in
whole or in part, in a "cashless" or "net-issue" exercise by delivering to the
offices of the Company or any transfer agent for the Common Stock this Warrant,
together with a Subscription Notice specifying the number of Warrant Shares to
be delivered to such Warrant Holder ("DELIVERABLE SHARES") and the number of
Warrant Shares with respect to which this Warrant is being surrendered in
payment of the aggregate Purchase Price for the Deliverable Shares ("SURRENDERED
SHARES"); provided that the Purchase Price multiplied by the number of
Deliverable Shares shall not exceed the value of the Surrendered Shares. For the
purposes of this provision, each Warrant Share as to which this Warrant is
surrendered will be attributed a value equal to the fair market value (as
defined below) of the Warrant Share minus the Purchase Price of the Warrant
Share.
In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for which
this Warrant is exercised and/or surrendered, and the Company, at its expense,
shall within three (3) Trading Days (as defined below) issue and deliver to or
upon the order of Warrant Holder a new Warrant of like tenor in the name of
Warrant Holder or as Warrant Holder (upon payment by Warrant Holder of any
applicable transfer taxes) may request, reflecting such adjusted Warrant Shares.
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<PAGE> 3
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) Trading Days thereafter, the Company shall
transmit the certificates of the Warrant Shares (together with any other stock
or other securities or property to which Warrant Holder is entitled upon
exercise) by messenger or overnight delivery service to reach the address
designated by such holder within three (3) Trading Days after the receipt of the
Subscription Notice ("T+3"). If such certificates are not received by the
Warrant Holder within T+3, then the Warrant Holder will be entitled to revoke
and withdraw its exercise of its Warrant at any time prior to its receipt of
those certificates.
In lieu of delivering physical certificates representing the
Warrant Shares deliverable upon exercise of Warrants, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Warrant
Holder, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares issuable upon exercise to the Warrant
Holder, by crediting the account of Warrant Holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic transmittals
through the DWAC system. The parties agree to coordinate with DTC to accomplish
this objective. The exchange pursuant to Section 3 shall be deemed to have been
made immediately prior to the close of business on the date of the Subscription
Notice. The person or persons entitled to receive the Warrant Shares issuable
upon such exercise shall be treated for all purposes as the record holder or
holders of such Warrant Shares at the close of business on the date of the
Subscription Notice.
The term Trading Day means (x) if the Common Stock is listed
on the New York Stock Exchange or the American Stock Exchange, a day on which
there is trading on such stock exchange, (y) if the Common Stock is not listed
on either of such stock exchanges but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(b) This Warrant may not be exercised as to fractional shares
of Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, "FAIR
MARKET VALUE" shall equal the closing trading price of the Common Stock on the
Approved Market which is the principal trading exchange or market for the Common
Stock (the "PRINCIPAL MARKET") on the date of determination or, if the Common
Stock is not listed or admitted to trading on any Approved Market, the average
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<PAGE> 4
of the closing bid and asked prices on the over-the-counter market as furnished
by any New York Stock Exchange member firm reasonably selected from time to time
by the Company for that purpose and reasonably acceptable to the Warrant Holder,
or, if the Common Stock is not listed or admitted to trading on any Approved
Market or traded over-the-counter and the average price cannot be determined a
contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors with the
concurrence of the Warrant Holder.
4. (A) REPRESENTATIONS AND COVENANTS OF THE COMPANY.
(a) The Company shall comply with its obligations under the
Registration Rights Agreement with respect to the Warrant Shares, including,
without limitation, the Company's obligation to have filed and declared and
maintained effective a registration statement registering the Warrant Shares
under the Securities Act of 1933, as amended (the "ACT").
(b) The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of the Principal
Market, for the legal and valid issuance of this Warrant and the Warrant Shares
to the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps necessary to insure
that the Common Stock remains listed on the Principal Market.
(d) The Warrant Shares, when issued in accordance with the
terms hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and non-assessable.
The Company has authorized and reserved for issuance to Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.
(e) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, 200% of such
number of shares of Common Stock as shall from time to time be issuable
hereunder.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Act and any other rule or regulation
of the Securities and Exchange Commission ("SEC") that may at any time permit
Warrant Holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the
Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"); and
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<PAGE> 5
(iii) furnish to any Warrant Holder forthwith upon request
a written statement by the Company that it has complied with
the reporting requirements of Rule 144 and of the Act and the
Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested to permit
any such Warrant Holder to take advantage of any rule or
regulation of the SEC permitting the selling of any such
securities without registration.
(B) REPRESENTATIONS AND COVENANTS OF THE PURCHASER.
The Purchaser shall not resell Warrant Shares, unless such
resale is pursuant to an effective registration statement under the Act or
pursuant to an applicable exemption from such registration requirements.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate proportional adjustments
(decrease in the case of subdivision, increase in the case of combination) shall
also be made to the Purchase Price payable per share, so that the aggregate
Purchase Price payable for the total number of Warrant Shares purchasable under
this Warrant as of such date shall remain the same as it would have been before
such subdivision or combination.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("COMMON STOCK EQUIVALENTS") without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date is
set) for determining which holders of Common Stock shall be entitled to receive
such dividends, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of such
dividend, and the Purchase Price shall be proportionately reduced so that the
aggregate Purchase Price for all the Warrant Shares issuable hereunder
immediately after the record date (or on the date of such distribution, if
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<PAGE> 6
applicable) for such dividend shall equal the aggregate Purchase Price so
payable immediately before such record date (or on the date of such
distribution, if applicable). For the avoidance of doubt, the Purchaser
acknowledges that dividends paid by the Company on its Series A Preferred Stock
and Series B Preferred Stock shall not cause any of the adjustments described in
this paragraph.
(c) OTHER DISTRIBUTIONS. If at any time after the date
hereof the Company distributes to holders of its Common Stock, other than as
part of its dissolution, liquidation or the winding up of its affairs, any
shares of its capital stock, any evidence of indebtedness or any of its assets
(other than Common Stock), then the number of Warrant Shares for which this
Warrant is exercisable shall be increased to equal: (i) the number of Warrant
Shares for which this Warrant is exercisable immediately prior to such event,
(ii) multiplied by a fraction, (A) the numerator of which shall be the fair
market value per share of Common Stock on the record date for the dividend or
distribution, and (B) the denominator of which shall be the fair market value
price per share of Common Stock on the record date for the dividend or
distribution minus the amount allocable to one share of Common Stock of the
value (as jointly determined in good faith by the Board of Directors of the
Company and the Warrant Holder) of any and all such evidences of indebtedness,
shares of capital stock, other securities or property, so distributed. The
Purchase Price shall be reduced to equal: (i) the Purchase Price in effect
immediately before the occurrence of any event (ii) multiplied by a fraction,
(A) the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately before the adjustment, and (B) the
denominator of which is the number of Warrant Shares for which this Warrant is
exercisable immediately after the adjustment.
(d) MERGER, ETC. If at any time after the date hereof there
shall be a merger or consolidation of the Company with or into or a transfer of
all or substantially all of the assets of the Company to another entity, then
the Warrant Holder shall be entitled to receive upon or after such transfer,
merger or consolidation becoming effective, and upon payment of the Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior to
such transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be. The Company will not merge or
consolidate with or into any other corporation, or sell or otherwise transfer
its property, assets and business substantially as an entirety to another
corporation, unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, as the case may be, shall
expressly assume, by supplemental agreement reasonably satisfactory in form and
substance to the Warrant Holder, the due and punctual performance and observance
of each and every covenant and condition of this Warrant to be performed and
observed by the Company.
(e) RECLASSIFICATION, ETC. If at any time after the date
hereof there shall be a reorganization or reclassification of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
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<PAGE> 7
effect, the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that within
twelve (12) months of the Closing Date the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock or any convertible securities, or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of its Common Stock
or any such convertible securities (other than shares or options issued or which
may be issued (i) pursuant to the Company's employee or director option plans,
(ii) upon exercise of options, warrants or rights outstanding on the date of the
Agreement and listed in the Company's most recent periodic report filed under
the Exchange Act, (iii) as compensation in connection with arrangements with
consultants and promoters of the Common Stock and (iv) as performance-related
compensation to individuals that are employees of entities that have been
acquired by or merged into the Company, pursuant to "earn out" provisions of the
acquisition or merger agreements pursuant to which the Company acquired such
entities) at an effective purchase price per share which is less than the
greater of the Purchase Price then in effect or the fair market value (as
defined in Section 3(b) above) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying the
Purchase Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or, Purchase Price as the case may be,
then in effect; and (y) the denominator of which shall be the number of shares
of Common Stock of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
The number of shares which may be purchased hereunder shall be
increased proportionately to any reduction in Purchase Price pursuant to this
paragraph 5(f), so that after such adjustments the aggregate Purchase Price
payable hereunder for the increased number of shares shall be the same as the
aggregate Purchase Price in effect just prior to such adjustments.
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<PAGE> 8
In the event of any such issuance for a consideration which is
less than such fair market value and also less than the Purchase Price then in
effect, than there shall be only one such adjustment by reason of such issuance,
such adjustment to be that which results in the greatest reduction of the
Purchase Price computed as aforesaid.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrant Holder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS. Whenever the Purchase Price or number
of Shares purchasable hereunder shall be adjusted pursuant to Section 5 hereof,
the Company shall execute and deliver to the Warrant Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Purchase Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation) the
right to vote such shares, receive dividends or other distributions thereon or
be notified of stockholder meetings. However, in the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
each Warrant Holder, at least 10 Trading Days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
9. LIMITATION ON EXERCISE.
(a) Notwithstanding anything to the contrary contained
herein, this Warrant may not be exercised by the Warrant Holder to the extent
that, after giving effect to Warrant Shares to be issued pursuant to a
Subscription Notice, the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of ownership of this
Warrant, or ownership of other securities that have limitations on the holder's
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<PAGE> 9
rights to convert or exercise similar to the limitations set forth herein),
together with all shares of Common Stock deemed beneficially owned by the
holder's "affiliates" (as defined in Rule 144 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") exists (an
"AGGREGATION PARTY"), would exceed 9.9% (the "RESTRICTED OWNERSHIP PERCENTAGE")
of the total issued and outstanding shares of the Company's Common Stock;
PROVIDED that (w) the Warrant Holder shall have the right at any time and from
time to time to reduce its Restricted Ownership Percentage immediately upon
notice to the Company or in the event of a Change in Control Transaction, (x)
the Warrant Holder shall have the right at any time and from time to time to
increase its Restricted Ownership Percentage or otherwise waive in whole or in
part the restrictions of this Section 9 upon 61 days' prior notice to the
Company or immediately in the event of a Change in Control Transaction, (y) the
Warrant Holder can make subsequent adjustments pursuant to (w) or (x) any number
of times from time to time (which adjustment shall be effective immediately if
it results in a decrease in the Restricted Ownership Percentage or shall be
effective upon 61 days' prior written notice or immediately in the event of a
Change in Control Transaction if it results in an increase in the Restricted
Ownership Percentage) and (z) the Warrant Holder may eliminate or reinstate this
limitation at any time and from time to time (which elimination will be
effective upon 61 days' prior notice and which reinstatement will be effective
immediately). Without limiting the foregoing, in the event of a Change in
Control Transaction, the Warrant Holder may reinstate immediately (in whole or
in part) the requirement that any increase in its Restricted Ownership
Percentage be subject to 61 days' prior written notice, notwithstanding such
Change in Control Transaction, without imposing such requirement on, or
otherwise changing the Warrant Holder's rights with respect to, any other Change
in Control Transaction. For this purpose, any material modification of the terms
of a Change in Control Transaction will be deemed to create a new Change in
Control Transaction. The term "DEEMED BENEFICIALLY OWNED" as used in this
Warrant shall exclude shares that might otherwise be deemed beneficially owned
by reason of the exercisability of the Warrants. A "CHANGE IN CONTROL
TRANSACTION" will be deemed to have occurred upon the earlier of the
announcement or consummation of a transaction or series of transactions (other
than the Merger) involving (x) any consolidation or merger of the Company with
or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in excess of 50% of the
Company's voting power is transferred through a merger, consolidation, tender
offer or similar transaction, or (y) in excess of 50% of the Corporation's Board
of Directors consists of directors not nominated by the prior Board of Directors
of the Company, or (z) any person (as defined in Section 13(d) of the Exchange
Act) together with its affiliates and associates (as such terms are defined in
Rule 405 under the Act), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's voting power.
(b) Each time (a "COVENANT TIME") the Warrant Holder makes a
Triggering Acquisition (as defined below) of shares of Common Stock (the
"TRIGGERING SHARES"), the Warrant Holder will be deemed to covenant that it will
not, during the balance of the day on which such Triggering Acquisition occurs,
and during the 61-day period beginning immediately after that day, acquire
additional shares of Common Stock pursuant to rights-to-acquire existing at that
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Covenant Time, if the aggregate amount of such additional shares so acquired
(without reducing that amount by any dispositions) would exceed (x) the
Restricted Ownership Percentage of the number of shares of Common Stock
outstanding at that Covenant Time (including the Triggering Shares) minus (y)
the number of shares of Common Stock actually owned by the Warrant Holder at
that Covenant Time (regardless of how or when acquired, and including the
Triggering Shares). A "TRIGGERING ACQUISITION" means the giving of a
Subscription Notice or any other acquisition of Common Stock by the Warrant
Holder or an aggregation party; provided, however, that with respect to the
giving of such Subscription Notice, if the associated issuance of shares of
Common Stock does not occur, such event shall cease to be a Triggering
Acquisition and the related covenant under this paragraph shall terminate. At
each Covenant Time, the Warrant Holder shall be deemed to waive any right it
would otherwise have to acquire Common Shares to the extent that such
acquisition would violate any covenant given by the Warrant Holder under this
paragraph. For the avoidance of doubt:
(i) The covenant to be given pursuant to this
paragraph will be given at every Covenant Time and shall be
calculated based on the circumstances then in effect. The
making of a covenant at one Covenant Time shall not terminate
or modify any prior covenants.
(ii) The Warrant Holder may therefore from time to time
be subject to multiple such covenants, each one having been
made at a different Covenant Time, and some possibly being
more restrictive than others. The Warrant Holder must comply
with all such covenants then in effect.
(c) The delivery of a Subscription Notice by the Warrant
Holder shall be deemed a representation by the Warrant Holder that it is in
compliance with this Section 9.
10. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense promptly will execute and deliver, in lieu thereof a new Warrant of like
tenor.
11. SPECIFIC PERFORMANCE; CONSENT TO JURISDICTION; CHOICE OF LAW.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall he entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
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<PAGE> 11
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts located in New York County, New York for the purposes of any suit, action
or proceeding arising out of or relating to this warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Warrant
Holder consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under this Warrant and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve process in any other manner permitted
by applicable law.
(c) The Company and the Warrant Holder irrevocably waive
their right to trial by jury.
(d) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
applicable to contracts executed and to be performed entirely within such State.
12. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits
hereto and the provisions contained in the Agreement or the Registration Rights
Agreement or the Debentures contain the entire understanding of the parties with
respect to the matters covered hereby and thereby and, except as specifically
set forth herein and therein, neither the Company nor the Warrant Holder makes
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
13. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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to the Company:
U.S. Plastic Lumber Corporation
2300 Glades Road
Suite 440 West
Boca Raton, Florida 33431
Attention: Bruce Rosetto
Facsimile: (561) 394-5335
to the Warrant Holder:
Halifax Fund, L.P.
c/o The Palladin Group, L.P.
Investment Manager
195 Maplewood Avenue
Maplewood, NJ 07040
Attention: Robert Chender
Facsimile: (973) 313-6491
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Attention: Stephen M. Schultz, Esq.
Facsimile: (212) 986-8866
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days' prior written notice of such changed
address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
15. ASSIGNMENT. This Warrant may be transferred or assigned, in
whole or in part, at any time and from time to time by the then Warrant Holder
by submitting this Warrant to the Company together with a duly executed
Assignment in substantially the form and substance of the Form of Assignment
which accompanies this Warrant and, upon the Company's receipt hereof, and in
any event, within three (3) business days thereafter, the Company shall issue a
Warrant to the Warrant Holder to evidence that portion of this Warrant, if any,
as shall not have been so transferred or assigned.
12
<PAGE> 13
Dated: February 2, 2000 U.S. PLASTIC LUMBER CORPORATION
By: /s/ Bruce C. Rosetto
----------------------------------
Name: Bruce C. Rosetto
Title: Vice President and General Counsel
CORPORATE SEAL
Attest:
By: /s/
-----------------------------------
(SIGNATURE PAGE OF U.S. PLASTIC LUMBER CORPORATION
COMMON STOCK PURCHASE WARRANT)
13
<PAGE> 14
(SUBSCRIPTION NOTICE)
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO: U.S. PLASTIC LUMBER CORPORATION
ATTN: SECRETARY
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant:
___ (A) for, and to purchase thereunder, shares of Common Stock of
U.S. Plastic Lumber Corporation, a Nevada corporation (the
"Common Stock"), and herewith, or by wire transfer, makes payment
of $ therefor; or
___ (B) in a "cashless" or "net-issue exercise" for, and to purchase
thereunder, shares of Common Stock, and herewith makes payment
therefor with Surrendered Warrant Shares.
The undersigned requests that the certificates for such shares be issued in the
name of, and
___ (A) delivered to , whose address is ; or
___ (B) electronically transmitted and credited to the account of ,
undersigned's prime broker (Account No. ) with
Depository Trust Company through its Deposit Withdrawal Agent
Commission system.
Dated:___________________________ ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Tax Identification Number:_________
14
<PAGE> 15
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_______________________ the right represented by the within Warrant to purchase
____________________ shares of Common Stock of U.S. PLASTIC LUMBER CORPORATION,
a Nevada corporation, to which the within Warrant relates, and appoints
__________________ Attorney to transfer such right on the books of U.S. PLASTIC
LUMBER CORPORATION, a Nevada corporation, with full power of substitution of
premises.
Dated: ___________________________ ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Signed in the presence of:
__________________________________
15
<PAGE> 1
EXHIBIT 5.1
OPINION OF BRUCE C. ROSETTO, ESQUIRE
March 7, 2000
U.S. Plastic Lumber Corp.
2300 Glades Road, Suite 440W
Boca Raton, Florida 33431
RE: U.S. PLASTIC LUMBER CORP. REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
I have acted as general counsel to U.S. Plastic Lumber Corp. (the
"Company") in connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, relating to the
offer and sale of up to 2,118,182 shares of common stock, par value $.0001 per
share (the "Common Stock"), by the certain Selling Shareholders ("Selling
Shareholders") set forth on the Registration Statement. This opinion is
furnished pursuant to the requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, I have examined only the following
documents: (i) the Company's articles of incorporation and bylaws, (ii)
resolutions adopted by the Board of Directors of the Company related to the
issuance of shares being registered hereby and (iii) the Registration Statement.
I have not performed any independent investigation other than the document
examination described above. My opinion is therefore qualified in all respects
by the scope of that document examination. I have assumed and relied, as to
questions of fact and mixed questions of law and fact, on the truth,
completeness, authenticity and due authorization of all certificates, documents,
and records examined and the genuineness of all signatures. This opinion is
limited to the laws of the State of Nevada.
Based upon and subject to the foregoing, I am of the opinion that the
outstanding shares of Common Stock offered by the Selling Shareholders are
legally issued, fully paid and non-assessable.
<PAGE> 2
This opinion is given as of the date hereof. I assume no obligation to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to my attention or any changes in laws which may hereafter
occur.
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
/s/ Bruce C. Rosetto
Bruce C. Rosetto
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accounts, we consent to the reference
to our firm under the caption "Experts" in the Registration Statement on Form
S-3 and related Prospectus of U.S. Plastic Lumber Corp. pertaining to the
resale, from time to time, of 2,118,182 shares of Common Stock and to the
incorporation by reference therein of our report dated October 8, 1999, with
respect to the restated consolidated financial statements of U.S. Plastic Lumber
Corp. included in its Form 8K filed with the Securities and Exchange Commission
on October 12, 1999.
/s/ ARTHUR ANDERSEN LLP
Miami, FL
March 7, 2000
<PAGE> 1
EXHIBIT 99.1
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("AGREEMENT") dated as of
February 2, 2000 between U.S. Plastic Lumber Corporation, a Nevada corporation
(the "COMPANY"), and the entity listed as an investor on SCHEDULE I attached to
this Agreement (the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investor, and the
Investor wishes to purchase from the Company, 5% Convertible Debentures due
February 2, 2005 (the "DEBENTURES"), in the aggregate principal amount of
$7,500,000 at an aggregate price of $7,500,000, having the rights and privileges
set forth in the Debentures in the form of EXHIBIT 1.1A attached hereto (the
"ISSUANCE"), on the terms and conditions set forth herein; and
WHEREAS, the Debentures will be convertible into shares ("COMMON
SHARES") of common stock, par value $.0001 of the Company ("COMMON STOCK"),
pursuant to the terms of the Debentures, and the Investor will have registration
rights with respect to such Common Shares and the Warrant Shares (as defined
herein), pursuant to the terms of that certain Registration Rights Agreement to
be entered into between the Company and the Investor substantially in the form
of EXHIBIT 4.2(F) hereto ("REGISTRATION RIGHTS AGREEMENT"); and
WHEREAS, to induce the Investor to purchase the Debentures, the Company
has agreed to issue to the Investor warrants exercisable for 200,000 shares of
Common Stock in the form attached as EXHIBIT 1.1B (the "WARRANTS"; and, together
with the Debentures, the "SECURITIES");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
PURCHASE AND SALE OF DEBENTURES AND WARRANTS
Section 1.1 ISSUANCE OF DEBENTURES AND WARRANTS.
(a) ISSUANCE. Upon the following terms and conditions, the
Company shall issue and sell to the Investor, and the Investor shall purchase
from the Company, the outstanding principal amount of Debentures and the number
of Warrants indicated next to such Investor's name on SCHEDULE I attached
hereto.
<PAGE> 2
(b) PURCHASE PRICE. The purchase price for the Debentures to
be acquired by the Investor (the "PURCHASE PRICE") shall be the Purchase Price
set forth next to such Investor's name on SCHEDULE I.
(c) THE CLOSING.
(i) The closing of the purchase and sale of the
Debentures and the Warrants (the "CLOSING") in the
Issuance, shall take place at the offices of Kleinberg,
Kaplan, Wolff & Cohen, P.C. ("INVESTOR'S COUNSEL") or at
such other place as is mutually agreeable, at 10:00 am.,
local time on the later of the following: (x) the date
on which the last to be fulfilled or waived of the
conditions set forth in Article IV hereof and applicable
to the Closing shall be fulfilled or waived in
accordance herewith, or (y) such other time and place
and/or on such other date as the Investor and the
Company may agree. The date on which the Closing occurs
is referred to herein as the "CLOSING DATE".
(ii) On the Closing Date, the Company shall deliver to
the Investor (x) certificates (with the number of and
outstanding principal amount of such certificates
requested by such Investor) representing the Debentures
purchased hereunder by such Investor at the Closing
registered in the name of such Investor or its nominee
and (y) the Warrants registered in the name of Investor
or its nominee in such denominations as reasonably
requested by such Investor, and such Investor shall
deliver to the Company the Purchase Price for the
Debentures purchased by such Investor hereunder by wire
transfer in immediately available funds to an account
designated in writing by the Company. The delivery of
payment by the Investor of the Purchase Price applicable
to it as set forth in this paragraph shall constitute a
payment delivered to the Company in satisfaction of such
Investor's obligation to pay the Purchase Price
hereunder. In addition, each party shall deliver all
documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or
prior to the applicable Closing.
2
<PAGE> 3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Investor as of the date hereof and on each Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the State of Nevada and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company does not have any direct or indirect subsidiaries other than the
subsidiaries listed on SCHEDULE 2.1(a) attached hereto. Except where
specifically indicated to the contrary, all references in this Agreement to
subsidiaries shall be deemed to refer to all direct and indirect subsidiaries of
the Company. 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 the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
adverse effect on the business, operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
(either alone or together with all other adverse effects) material to such
entity and other entities controlling or controlled by such entity taken as a
whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Registration Rights Agreement or any other agreement or
document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Warrants and the Registration Rights Agreement and to issue the
Debentures and Warrants in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Debentures, the
Common Shares and the Warrant Shares, have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors (or any committee or subcommittee thereof) or stockholders is
required, (iii) this Agreement, the Warrants, the Debentures and the
Registration Rights Agreement have been duly executed and delivered by the
Company, and (iv) this Agreement, the Warrants, the Debentures and the
Registration Rights Agreement constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 895,000 shares of
3
<PAGE> 4
preferred stock; as of December 31, 1999 there were 32,689,901 shares of Common
Stock and no shares of preferred stock issued and outstanding; and 6,341,453
shares of Common Stock and no shares of preferred stock were reserved for
issuance to persons other than the Investor. All of the outstanding shares of
the Company's Common Stock and preferred stock have been validly issued and are
fully paid and nonassessable. Except as set forth in SCHEDULE 2.1(C), no shares
of capital stock are entitled to preemptive rights; and there are as of December
31, 1999 outstanding options for 4,009,918 shares of Common Stock and
outstanding warrants for shares of Common Stock (excluding the Warrants). The
Company's issued and outstanding preferred stock is, and will be, in all
respects junior to the Debentures. Except as set forth in SCHEDULE 2.1(C), there
are no other scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights exchangeable for or
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible or exchangeable into
shares, of capital stock of the Company. Except where such information has been
clearly set forth in the SEC Documents (as defined below), the Company agrees to
update the information contained in the preceding sentences of this Section
2.1(c) and in SCHEDULE 2.1(C) in a certificate delivered to the Investor on a
quarterly basis. Attached hereto as EXHIBIT 2.1(C)(I) is a true and correct copy
of the Company's Certificate of Incorporation (the "CHARTER"), as in effect on
the date hereof, and attached hereto as EXHIBIT 2.1(C)(II) is a true and correct
copy of the Company's By-Laws, as in effect on the date hereof (the "BY-LAWS").
(d) ISSUANCE OF COMMON SHARES. The Common Shares and the
shares of Common Stock issuable upon the exercise of the Warrants (the "WARRANT
SHARES") are duly authorized and reserved for issuance and, upon such conversion
in accordance with the Debentures and/or exercise in accordance with the
Warrants such Common Shares and Warrant Shares will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, claims and
encumbrances, and entitled to be traded on the Nasdaq National Market ("NASDAQ
NM") (or the American Stock Exchange or the New York Stock Exchange,
collectively with the Nasdaq NM, the "APPROVED MARKETS"), and the holders of
such Common Shares and Warrant Shares shall be entitled to all rights and
preferences accorded to a holder of Common Stock. The outstanding shares of
Common Stock are currently listed on the Nasdaq NM.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby and the issuance of the Debentures and the Warrants do not
and will not (i) result in a violation of the Company's Charter or 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, patent, patent license or instrument to which the Company
or any of its subsidiaries is a party (collectively, "COMPANY AGREEMENTS"), or
(iii) result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) 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
4
<PAGE> 5
or affected. The business of the Company and its direct and indirect
subsidiaries is being conducted in material compliance with (i) its charter and
bylaws, (ii) all Company Agreements and (iii) all applicable laws, ordinances or
regulations of any governmental entity. The Company is not required under
Federal, state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants or issue and sell the Debentures in accordance with
the terms hereof and issue the Common Shares upon conversion thereof and issue
the Warrant Shares on exercise of the Warrants and for the registration
provisions provided in the Registration Rights Agreement.
(f) SEC DOCUMENTS; NO NON-PUBLIC INFORMATION; FINANCIAL
STATEMENTS. The Common Stock of the Company is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
and the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
("SEC") pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC DOCUMENTS"). The Company has
delivered or made available to the Investor true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since December 31,
1998. The Company has not directly or indirectly provided to the Investor any
material non-public information or any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents 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. Except as may
otherwise be disclosed in any of the Schedules attached hereto, the SEC
Documents contain all material information concerning the Company, and no event
or circumstance has occurred which would require the Company to disclose such
event or circumstance in order to make the statements in the SEC Documents not
misleading on the date hereof or on the Closing Date but which has not been so
disclosed. The financial statements of the Company included in the SEC Documents
comply as to form and substance in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with United States generally
5
<PAGE> 6
accepted accounting principles applied on a consistent basis 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 not include 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 operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) PRINCIPAL EXCHANGE/MARKET. The principal market on which
the Common Stock is currently traded is the Nasdaq NM.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 1998, no
Material Adverse Effect has occurred or exists, and no event or circumstance has
occurred that with notice or the passage of time or both is reasonably likely to
result in a Material Adverse Effect with respect to the Company or its
subsidiaries.
(i) NO UNDISCLOSED LIABILITIES. The Company and its
subsidiaries have no liabilities or obligations not disclosed in the
Pre-Agreement SEC Documents (as defined below) or in any Schedule attached
hereto, other than those liabilities incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since December 31, 1998,
which liabilities, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its direct or indirect subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the best
knowledge of the Company, no material event or circumstance has occurred or
exists with respect to the Company or its direct or indirect subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed, other than as set forth in the Schedules attached
hereto.
(k) NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, or, to its knowledge, 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 Securities Act of 1933, as amended (the
"ACT")) in connection with the offer or sale of the Debentures or Common Shares.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor to its knowledge 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 the Debentures, the Warrants or the Common Shares or Warrant
Shares under the Act.
The issuance of the Debentures, Warrants, Common Shares, or Warrant
Shares to the Investor will not be integrated with any other issuance of the
Company's securities (past, current or future) which requires stockholder
approval under the rules of the Nasdaq NM.
6
<PAGE> 7
(m) FORM S-3. The Company is eligible to file the
Registration Statement (as defined in the Registration Rights Agreement) on Form
S-3 under the Act and rules promulgated thereunder, and Form S-3 is permitted to
be used for the transactions contemplated hereby under the Act and rules
promulgated thereunder.
(n) INTELLECTUAL PROPERTY. The Company (and/or its
wholly-owned subsidiaries) owns or has licenses to use certain patents,
copyrights and trademarks ("INTELLECTUAL PROPERTY") associated with its
business. The Company and its subsidiaries have all intellectual property rights
which are needed to conduct the business of the Company and its subsidiaries as
it is now being conducted or as proposed to be conducted as disclosed in the SEC
Documents. The Company and its subsidiaries have no reason to believe that the
intellectual property rights which it owns are invalid or unenforceable or that
the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict. The Company and its subsidiaries have no knowledge of any
infringement of its intellectual property by any third party.
(o) SHAREHOLDER RIGHTS PLAN. None of the acquisition of
Debentures, Warrants, Common Shares or Warrant Shares nor the deemed beneficial
ownership of shares of Common Stock prior to, or the acquisition of such shares
pursuant to, the conversion of Debentures or the exercise of the Warrants will
in any event under any circumstance trigger the poison pill provisions of any
stockholders' rights or similar agreements, or a substantially similar
occurrence under any successor or similar plan.
(p) NO LITIGATION. Except as set forth in Schedule 2.1(p)
and in the Pre-Agreement SEC Documents (as defined in Section 2.2(c) (i) below),
no litigation or claim (including those for unpaid taxes) against the Company or
any of its subsidiaries is pending or, to the Company's knowledge, threatened,
and no other event has occurred, which if determined adversely could reasonably
be expected to have a Material Adverse Effect on the Company or could reasonably
be expected to materially and adversely effect the transactions contemplated
hereby. The legal proceedings described in the Pre-Agreement SEC Documents will
not have an effect on the transactions contemplated hereby, and will not have a
Material Adverse Effect on the Company.
(q) BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or any Investor relating to this Agreement or
the transactions contemplated hereby.
(r) ACKNOWLEDGEMENT OF DILUTION. The number of shares of
Common Stock constituting Common Shares or Warrant Shares may increase
substantially in certain circumstances, including the circumstance where the
trading price of the Common Stock declines. The Company acknowledges that its
obligation to issue Common Shares upon conversion of Debentures and Warrant
Shares upon exercise of the Warrants is absolute and unconditional, regardless
of the dilution that such issuance may have on other shareholders of the
Company.
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<PAGE> 8
(s) OTHER INVESTORS. Except as set forth on SCHEDULE 2.1(S),
there are no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in SCHEDULE 2.1(S), there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, or that have anti-dilution or similar rights that
would be affected by the issuance of the Debentures, the Common Shares, the
Warrants or the Warrant Shares.
(t) CERTAIN TRANSACTIONS. Except as disclosed in the
Pre-Agreement SEC Documents, 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 a substantial interest or is an officer, director, trustee or
partner.
(u) PERMITS; COMPLIANCE. The Company and each of its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits
except for such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a material effect on the Company. To the best of its knowledge,
neither the Company nor any of its subsidiaries is in material conflict with, or
in material default or material violation of, any of the Company Permits. Since
December 31, 1998, neither the Company nor any of its subsidiaries has received
any notification with respect to possible material conflicts, material defaults
or material violations of applicable laws.
(v) 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 direct and
indirect subsidiaries are engaged. 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
without a significant increase in cost.
(w) INTERNAL ACCOUNTING CONTROLS. The Company and each of
its subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
8
<PAGE> 9
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(x) ENVIRONMENTAL MATTERS. Except as otherwise disclosed in
the Pre-Agreement SEC Documents, the Company and each of its subsidiaries is in
compliance in all material respects with all applicable state and federal
environmental laws and no event or condition has occurred that may interfere
with the compliance by the Company or any of its subsidiaries with any
environmental law or that may give rise to any liability under any environmental
law that, individually or in the aggregate, would have a Material Adverse
Effect.
(y) SOLVENCY.
(i) Based on the financial condition of the Company as
of the Closing Date, the Company's fair saleable value
of its assets exceeds the amount that will be required
to be paid on or in respect of the Company's existing
debts and other liabilities (including contingent
liabilities) as they mature.
(ii) Based on the financial condition of the Company as
of the Closing Date, the Company's assets do not
constitute unreasonably small capital to carry out its
business as now conducted and as proposed to be
conducted including the Company's capital needs taking
into account the particular capital requirements of the
business conducted by the Company, and projected capital
requirements and capital availability thereof.
(iii) The Company does not intend to incur debts beyond
its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be
payable on or in respect of its debt). Based on the
financial condition of the Company as of the Closing
Date, the current cash flow of the Company, together
with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to
pay all amounts on or in respect of its debt when such
amounts are required to be paid.
(iv) The Company does not intend, and does not believe,
that final judgments against the Company in actions for
money damages will be rendered at a time when, or in an
amount such that, the Company will be unable to satisfy
any such judgments promptly in accordance with their
terms (taking into account the maximum reasonable amount
of such judgments in any such actions and the earliest
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reasonable time at which such judgments might be
rendered). The Company's cash flow, after taking into
account all other anticipated uses of the cash
(including the payments on or in respect of debt
referred to in paragraph (iii) above), will at all times
be sufficient to pay all such judgments promptly in
accordance with their terms.
(v) Neither the Company nor any of its subsidiaries is
subject to any bankruptcy, insolvency or similar
proceeding.
(z) TAXES. All federal, state, city and other tax returns,
reports and declarations required to be filed by or on behalf of the Company and
each of its subsidiaries have been filed and such returns are complete and
accurate and disclose all taxes (whether based upon income, operations,
purchases, sales, payroll, licenses, compensation, business, capital, properties
or assets or otherwise) required to be paid in the periods covered thereby.
Copies of all such returns have been provided to the Investor. All taxes shown
on such returns and any deficiency assessments, penalties and interest have been
paid. All taxes required to be withheld by or on behalf of the Company or any
such subsidiary in connection with amounts paid or owing to any employees,
independent contractor, creditor or other party have been withheld, and such
withheld taxes have either been duly and timely paid to the proper governmental
authorities or set aside in accounts for such purposes.
(aa) TITLE TO PROPERTIES; ENCUMBRANCES. SCHEDULE 2.1(AA)
contains a complete and accurate list of all real property, leaseholds, or other
interests therein owned by the Company and its subsidiaries. Each of the Company
and its subsidiaries owns (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible) that it purports to own. All material properties
and assets listed on SCHEDULE 2.1(AA) are free and clear of all encumbrances and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations or limitations of any
nature, except, with respect to all such properties and assets, (a) mortgages or
security interests shown on SCHEDULE 2.1(AA) as securing specified liabilities
or obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) liens for current
taxes not yet due, and (c) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations the Company or any of its subsidiaries, and
(ii) zoning laws and other land use restrictions (including, but not limited to,
easements of records) that do not impair the present or anticipated use of the
property subject thereto. All buildings, plans, and structures owned by the
Company or any of its subsidiaries lie wholly within the boundaries of the real
property owned by the Company or such subsidiaries, and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
person.
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Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor hereby makes the following representations and warranties to the
Company as of the date hereof and on the Closing Date:
(a) AUTHORIZATION; ENFORCEMENT. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to purchase the Debentures and to acquire the
Warrants being sold to it hereunder, (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by such Investor and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and (iii) this
Agreement and the Registration Rights Agreement constitute valid and binding
obligations of such Investor enforceable against such Investor in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of creditors' rights and
remedies or by other equitable principles of general application.
(b) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the performance under
the Debentures and Warrants and the consummation by such Investor of the
transactions contemplated hereby and thereby do not and will not (i) result in a
violation of such Investor's organizational documents, or (ii) conflict with any
agreement, indenture or instrument to which such Investor is a party, or (iii)
result in a material violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such
Investor. Such Investor is not required to obtain any consent or authorization
of any governmental agency in order for it to perform its obligations under this
Agreement, the Registration Rights Agreement, the Warrants or the Debentures.
(c) INVESTMENT REPRESENTATIONS.
(i) INFORMATION. The Company has furnished such
Investor with its annual report on Form 10-K for its
fiscal year ended December 31, 1998 (the "FISCAL YEAR
END"), its quarterly reports on Form 10-Q for the fiscal
quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, and all other reports or documents
filed by the Company pursuant to Section 13(a) or 15(d)
of the Exchange Act prior to the Closing Date (the
"PRE-AGREEMENT SEC DOCUMENTS").
(ii) ACCESS TO OTHER INFORMATION. Such Investor
acknowledges that the Company has made available to such
Investor the opportunity to examine such additional
documents from the Company and to ask questions of, and
receive full answers from, the Company concerning, among
other things, the Company, its financial condition, its
management, its prior activities and any other
information which such Investor considers relevant or
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appropriate in connection with entering into this
Agreement.
(iii) RISKS OF INVESTMENT. Such Investor acknowledges
that the Debentures have not been registered under the
Act. Such Investor is familiar with the provisions of
Rule 144 and understands that in the event all of the
applicable requirements of Rule 144 are not satisfied,
registration under the Act or some other exemption from
the registration requirements of the Act will be
required in order to dispose of the Debentures, and that
such Investor may be required to hold its Debentures
received under this Agreement for a significant period
of time prior to reselling them, subject to the Company
successfully registering the Common Shares pursuant to
the Registration Rights Agreement. Such Investor is
capable of assessing the risks of an investment in the
Debentures and is fully aware of the economic risks
thereof. Such Investor acknowledges that the Company's
operating results have in the past and may in the
current period and in future periods not meet the
expectations of securities analysts and that failure to
meet such expectations would be likely to have a
material adverse effect on the trading price and
salability of the Common Shares.
(iv) INVESTMENT REPRESENTATION. Such Investor is
purchasing the Debentures and the Warrants for its own
account and not with a view to distribution in violation
of any securities laws. Such Investor has no present
intention to sell the Debentures, Warrants, Common
Shares, or Warrant Shares in violation of federal or
state securities laws and such Investor has no present
arrangement (whether or not legally binding) to sell the
Debentures, Warrants, Common Shares or Warrant Shares to
or through any person or entity; PROVIDED, however, that
by making the representations herein, such
Investor does not agree to hold the Debentures,
Warrants, Common Shares or Warrant Shares for any
minimum or other specific term and reserves the right to
dispose of the Debentures, Warrants, Common Shares or
Warrant Shares at any time in accordance with federal
and state securities laws applicable to such
disposition.
(v) RESTRICTED SECURITIES. It acknowledges and
understands that the terms of Issuance have not been
reviewed by the SEC or by any state securities
authorities and that the Debentures have been issued in
reliance on the certain exemptions for non-public
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offerings under the Act, which exemptions depend upon,
among other things, the representations made and
information furnished by such Investor, including the
bona fide nature of such Investor's investment intent as
expressed above.
(vi) ACCURACY OF INFORMATION. All information that such
Investor provides to the Company hereunder is correct
and complete as of the date set forth above.
(vii) ABILITY TO BEAR ECONOMIC RISK. It is an
"accredited" investor, and that it (i) is able to bear
the economic risk of its investment in the Debentures,
(ii) is able to hold the Debentures for an indefinite
period of time, (iii) can afford a complete loss of its
investment in the Debentures and (iv) has adequate means
of providing for its current needs.
(viii) NO PUBLIC SOLICITATION. At no time was such
Investor presented with or solicited by any general
mailing, leaflet, public promotional meeting, newspaper
or magazine article, radio or television advertisement,
or any other form of general advertising or general
solicitation in connection with the Issuance.
(ix) RELIANCE BY THE COMPANY. Such Investor understands
that the Debentures and Warrant are being offered and
sold in reliance on a transactional exemptions from the
registration requirements of federal and state
securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such
Investor set forth herein in order to determine the
applicability of such exemptions and the suitability of
such Investor to acquire the Debentures and Warrants.
(d) BROKERS. Such Investor has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
(e) ADDITIONAL ISSUANCES. Upon the Closing, the parties
agree that the Investor shall no longer have the Investor Call Option (as
defined in Section 3.15(a) of the Convertible Debenture Purchase Agreement dated
December 22, 1998) and that the Company shall no longer have the Company Put
Option (as defined in Section 3.15(a) of the Convertible Debenture Purchase
Agreement dated December 22, 1998) with respect to sales to the Investor under
the aforesaid agreement.
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ARTICLE 3
COVENANTS
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION.
Until the second anniversary of the issuance of the Debentures and the Warrants,
the Company will cause the Common Stock issuable upon the exercise of the
Securities to continue at all times to be registered under Section 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such reporting and filing obligations. Until such time
as no Debentures or Warrants are outstanding, the Company shall continue the
listing or trading of the Common Stock on the Nasdaq NM or one of the other
Approved Markets and comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the Approved Market on which
the Common Stock is listed. The Company shall cause the Common Stock to be
listed on the Nasdaq NM no later than the registration of the Common Stock under
the Act, and at all times shall continue such listing(s) on one of the Approved
Markets. As used herein and in the Registration Rights Agreement, the Debenture
and the Warrants, the term "EFFECTIVE REGISTRATION" shall mean that all
registration obligations of the Company pursuant to the Registration Rights
Agreement and this Agreement have been satisfied, such registration is not
subject to any suspension or stop order, the prospectus for the Common Stock
issuable upon conversion and/or exercise of the Securities is current and
deliverable and such shares of Common Stock are listed for trading on one of the
Approved Markets and such trading has not been suspended for any reason, none of
the Company or any direct or indirect subsidiary of the Company is subject to
any bankruptcy, insolvency or similar proceeding, and no Interfering Event (as
defined in Section 2(b) of the Registration Rights Agreement) exists.
SECTION 3.2 DEBENTURES ON CONVERSION AND WARRANTS ON EXERCISE.
(a) Upon any conversion by the Investor (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company shall
issue and deliver to such Investor (or holder) within three (3) Trading Days (as
such term is defined in the Debenture) of the Conversion Date (as defined in the
Debenture), a new certificate or certificates for the principal amount of
Debentures which such Investor (or holder) has not yet elected to convert but
which is evidenced in part by the certificate(s) submitted to the Company in
connection with such conversion (with the number of and denomination of such new
certificate(s) designated by such Investor or holder).
(b) Upon any partial exercise by the Investor (or then
holder of the Warrants) of the Warrants, the Company shall issue and deliver to
such Investor (or holder) within three (3) days of the date on which such
Warrants are exercised, a new Warrant or Warrants representing the number of
adjusted Warrant Shares, in accordance with the terms of Section 2 of the
Warrants.
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SECTION 3.3 REPLACEMENT DEBENTURES AND WARRANTS.
(a) The certificate(s) representing the Debentures held by
the Investor (or then holder) may be exchanged by such Investor (or such holder)
at any time and from time to time for certificates with different denominations
representing an equal aggregate number of Debentures, as requested by such
Investor (or such holder) upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the
Investor (or then holder of the Warrants) at the office of the Company for other
Warrants of different denominations entitling the holder thereof to purchase in
the aggregate the same number of Warrant Shares as are purchasable under such
Warrants. No service charge will be made for such transfer or exchange.
Section 3.4 EXPENSES. The Company shall pay in immediately
available funds, at the Closing and promptly upon receipt of any further
invoices relating to same, all reasonable due diligence fees and expenses and
attorneys' fees and expenses of the Investor's Counsel, incurred by the Investor
in connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement, the Debentures, the Warrants and
the related agreements and documents and the transactions contemplated hereunder
and thereunder, up to a maximum of $25,000. At Closing, the Company shall pay
the amount due for such fees and expenses (which may include fees and expenses
estimated to be incurred for completion of the transaction including
post-closing matters). In the event such amount is ultimately less than the
actual fees and expenses, the Company shall promptly pay such deficiency upon
receipt of an invoice regarding same.
SECTION 3.5 SECURITIES COMPLIANCE. The Company shall notify the
SEC and the Nasdaq NM, in accordance with their requirements, of the
transactions contemplated by this Agreement, the Debenture, the Registration
Rights Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Debentures hereunder, the
Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
SECTION 3.6 DIVIDENDS OR DISTRIBUTIONS; PURCHASES OF EQUITY
SECURITIES. So long as any Debentures or Warrants remain outstanding, the
Company agrees that it shall not (a) declare or pay any dividends or make any
distributions to any holder or holders of Common Stock, or (b) purchase or
otherwise acquire for value, directly or indirectly, any shares of Common Stock
or other equity security of the Company; PROVIDED that the Company may purchase
or acquire shares of Common Stock so long as the Company (i) purchases or
acquires such shares on the open market or pursuant to a tender offer directed
to all of the Company's shareholders and (ii) does not utilize the proceeds of
the issuances of the Debentures for such purpose.
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SECTION 3.7 NOTICES. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
SECTION 3.8 USE OF PROCEEDS. The Company agrees that the proceeds
received by the Company from the sale of the Debentures hereunder shall be used
for working capital purposes.
SECTION 3.9 NOTIFICATION OF ADDITIONAL FINANCINGS; ADJUSTMENTS.
(a) Intentionally omitted.
(b) If at any time within twelve (12) months from the
Closing Date ("MFN PERIOD") the Company issues Common Stock (or securities or
rights exercisable or exchangeable for, or convertible into, Common Stock
("DERIVATIVE SECURITIES") in a private placement at a discount or in the
Investor's judgment on terms more favorable to the purchaser thereof than the
terms specified in Section 5(c) of the Debentures or at a ceiling price less
than the Conversion Price (as defined in the Debentures and as adjusted pursuant
to the terms thereof), then the Debentures will automatically (at the Investor's
request) be adjusted to provide for such discount or lower or more favorable
Conversion Price, as applicable. If at any time within the MFN Period (i) the
Company has issued and outstanding any Floating Rate Derivative Securities (as
defined below) and (ii) under the terms of such Floating Rate Derivative
Securities a holder thereof could have exercised, exchanged or converted them
for Common Stock at a price per share less than the Minimum Floating Conversion
Price (as defined in Section 5(c) of the Debentures) then the Minimum Floating
Conversion Price shall be reduced to equal the lowest of such exercise, exchange
or conversion prices from time to time. For purposes hereof, a Floating Rate
Derivative Security is a Derivative Security that is exercisable, exchangeable
or convertible into or for Common Stock at a price that varies or is subject to
adjustment or reset based upon market prices after the initial issuance of the
security.
Section 3.10 RESERVATION OF STOCK ISSUABLE UPON CONVERSION AND
UPON EXERCISE OF THE WARRANTS. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the Debentures and the exercise of
the Warrants, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Debentures and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Debentures and the full exercise of the
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures and the exercise of the Warrants such number of
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authorized but unissued shares of Common Stock that is at least equal to 200% of
the aggregate shares issuable upon conversion of Debentures, and 200% of the
aggregate shares issuable on exercise of Warrants, which number may be reduced
by the number of Common Shares or Warrant Shares actually delivered pursuant to
conversion of Debentures or exercise of the Warrants and shall be appropriately
adjusted for any stock split, reverse split, stock dividend or reclassification
of the Common Stock. If the Company falls below the reserves specified in the
immediately preceding sentence and does not cure such non-compliance within 30
days of its start, then the Investor will be entitled to the discount
adjustments specified in Section 2(b)(i) of the Registration Rights Agreement.
If at any time the number of authorized but unissued shares of Common Stock is
not sufficient to effect the conversion of all the then outstanding Debentures
or the full exercise of the Warrants, the Investor shall be entitled to, INTER
ALIA, the premium price redemption rights provided in the Registration Rights
Agreement.
SECTION 3.11 BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Article IV of this
Agreement.
SECTION 3.12 FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Debentures, Warrants, Common Shares and Warrant
Shares, as required under Regulation D and to provide a copy thereof to the
Investor promptly after such filing. The Company shall, on or before each
Closing Date, take such action as the Company shall have reasonably determined
is necessary to qualify the Debentures, Warrants, Common Shares and Warrant
Shares for sale to the Investor at the Closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Investor on or prior to the Closing Date.
SECTION 3.13 NO SENIOR INDEBTEDNESS; LIMITATION ON ISSUANCE OF
EQUITY.
(a) Until the six month anniversary of the Closing Date,
the Company agrees that neither the Company nor any direct or indirect
subsidiary of the Company shall create, incur, assume, guarantee, secure or in
any manner become liable in respect of any indebtedness, or permit any liens,
claims or encumbrances to exist against the Company or any direct or indirect
subsidiary of the Company or any of their assets, unless junior to the
Debentures in all respects, except for (i) trade payables incurred in the
ordinary course of business consistent with past practices, (ii) indebtedness
incurred in connection with the acquisition by the Company of another entity (or
any assets of such entity), and (iii) except for a senior credit facility and/or
equipment and real estate financing which, in the aggregate, shall not exceed
$75.0 million. The Company agrees that it shall at all times between the Closing
Date and April 1, 2001 maintain at least $4.0 million of available credit under
the facility described in clause (iii) of the preceding sentence.
(b) Intentionally omitted.
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SECTION 3.14 DELISTING; BEST EFFORTS. If a conversion of a
Debenture for Common Shares by the Investor could result in the Company being
delisted from the Nasdaq NM for issuing in excess of 20% of its outstanding
Common Stock to the Investor without the approval of the Company's shareholders,
then the Company must redeem any and all Debentures covered by the applicable
Conversion Notice (as defined in the Debentures) and any and all Debentures that
would, if a Conversion Notice for all Debentures were then delivered, result in
the Company being subject to such delisting, at a price equal to 130% of the
Outstanding Principal Amount (as defined in the Debentures) plus accrued but
unpaid interest and default payments in effect at that time. The Company will
use its best efforts to obtain promptly shareholder approval pursuant to NASD
Rule 4460(i) authorizing the issuance of all Common Shares and Warrant Shares
issuable upon the conversion of any Debentures or the exercise of any Warrants,
including by calling a special meeting of such shareholders and having the
Company's Board of Directors recommend such approval in a proxy statement.
Section 3.15 Intentionally omitted.
SECTION 3.16 CONVERSION OF EXISTING DEBENTURES. The Investor
agrees to deliver, within twenty (20) Trading Days after the Closing, conversion
notices for debentures previously acquired from the Company pursuant to
Convertible Debenture Purchase Agreements, dated as of December 22, 1998 and
January 26, 1999, respectively. However, the foregoing obligation is conditioned
upon the shares of Common Stock into which such debentures are convertible being
subject to Effective Registration at all times commencing with the date hereof
through the conversion date.
SECTION 3.17 ACKNOWLEDGEMENT AND RELEASE. Investor releases all
claims against the Company arising out of the Company's failure to provide
proper notice to the Investor pursuant to Section 3.9(a) of the Convertible
Debenture Purchase Agreements dated December 22, 1998 and January 26, 1999 with
respect to Common Stock private financing in the amount of $17.3 million
consummated on or about September 1, 1999.
ARTICLE 4
CONDITIONS TO CLOSINGS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE DEBENTURES. The obligation hereunder of the Company to issue and/or
sell the Debentures to the Investor at the Closing (unless otherwise specified)
is subject to the satisfaction, at or before the Closing, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Investor will be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties as
of an earlier date, which will be true and correct in all material respects as
of such date).
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(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by such Investor at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement or the
Debentures or the Warrants.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
INVESTOR TO PURCHASE THE DEBENTURES. The obligation hereunder of the Investor to
acquire and pay for the Debentures at the Closing (unless otherwise specified)
is subject to the satisfaction, at or before the Closing, of each of the
applicable conditions set forth below. These conditions are for the Investor's
benefit and may be waived by the Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties as
of an earlier date, which shall be true and correct in all material respects as
of such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Company at or prior to the Closing.
(c) Intentionally omitted.
(d) NO INJUNCTION. No statute, rule, regulation,
executive, judicial or administrative order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement or the Registration Rights
Agreement or the Debenture or the Warrants.
(e) OPINION OF COUNSEL. At the Closing, the Investor
shall have received an opinion of the general counsel of the Company, Bruce C.
Rosetto, in the form attached hereto as EXHIBIT 4.2(E) and such other opinions,
certificates and documents as the Investor or their counsel shall reasonably
require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the
Investor shall have executed and delivered the Registration Rights Agreement in
the form and substance of EXHIBIT 4.2(F) attached hereto.
(g) ADVERSE CHANGES. Except as otherwise disclosed in the
Pre-Agreement SEC Documents, since December 31, 1998, no event which had or is
likely to have, in the reasonable judgment of the Investor, a Material Adverse
Effect on the Company or any of its direct or indirect subsidiaries shall have
occurred.
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(h) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Investor a certificate in form and substance satisfactory to
the Investor and the Investor's Counsel, executed by an officer of the Company,
certifying as to satisfaction of closing conditions, incumbency of signing
officers, and the true, correct and complete nature of the Charter, By-Laws,
good standing and authorizing resolutions of the Company.
(i) DEBENTURES AND WARRANTS. The Investor shall have
received certificates representing the Debentures and Warrants in the form and
substance of EXHIBIT 1.1A and EXHIBIT 1.1B hereto.
(j) DUE DILIGENCE. The Investor shall have completed its
financial, accounting, operational and legal due diligence in a manner
satisfactory to such Investor in its sole discretion.
ARTICLE 5
LEGEND AND STOCK
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the Investor and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Debentures and Warrants without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Debentures and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Debentures and/or Warrants are sold to a purchaser or purchasers who (in
the opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the Act.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Debentures or Warrant Shares issued upon exercise of the Warrants
shall bear a legend in the same form as the legend indicated above. Upon such
Registration Statement becoming effective, the Company agrees to promptly, but
no later than three (3) business days thereafter, issue new certificates
representing such Common Shares and Warrant Shares without such legend. Any
Common Shares issued pursuant to conversion of Debentures or Warrant Shares
20
<PAGE> 21
issued upon exercise of the Warrants after the Registration Statement has become
effective shall be free and clear of any legends, transfer restrictions and stop
orders. Notwithstanding the removal of such legend, the Investor agrees to sell
the Common Shares and Warrant Shares represented by the new certificates in
accordance with the applicable prospectus delivery requirements (if copies of a
current prospectus are provided to such Investor by the Company) or in
accordance with an exception from the registration requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 STAMP TAXES. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Debentures
and Warrants pursuant hereto, the Common Shares issued upon conversion thereof,
and the Warrant Shares issued upon exercise of the Warrants.
SECTION 6.2 SPECIFIC PERFORMANCE; CONSENT TO JURISDICTION; JURY
TRIAL.
(a) The Company and the Investor acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) THE COMPANY AND THE INVESTOR (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE
NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN NEW YORK
COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND THE INVESTOR CONSENTS TO
PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE
LAW.
(c) THE COMPANY AND THE INVESTOR HEREBY WAIVES ALL RIGHTS
TO A TRIAL BY JURY.
21
<PAGE> 22
SECTION 6.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together
with the Registration Rights Agreement, the Warrants, the Debentures and the
agreements and documents executed in connection herewith and therewith, contains
the entire understanding of the parties with respect to the matters covered
hereby and thereby and, except as specifically set forth herein or therein,
neither the Company nor any Investor makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought.
SECTION 6.4 NOTICES. Any notice or other communication required
or permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice.
The addresses for such communications shall be:
to the Company:
U.S. Plastic Lumber Corporation
2300 Glades Road
Suite 440 West
Boca Raton, Florida 33431
Attention: Bruce Rosetto
Facsimile: (561) 394-5335
to the Investor:
To the Investor at the address and/or fax number
set forth on SCHEDULE I of this Agreement.
with copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Attention: Stephen M. Schultz, Esq.
Facsimile: (212) 986-8866
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
SECTION 6.5 INDEMNITY. Each party shall indemnify each other
party against any loss, cost or damages (including reasonable attorney's fees
but excluding consequential damages) incurred as a result of such parties'
breach of any representation, warranty, covenant or agreement in this Agreement.
SECTION 6.6 WAIVERS. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
22
<PAGE> 23
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
SECTION 6.7 HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
SECTION 6.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The parties hereto may amend
this Agreement without notice to or the consent of any third party. The Company
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that the Company may assign this
Agreement in connection with the sale of all or substantially all of its assets
provided that the Company is not released from any of its obligations hereunder,
such assignee assumes all obligations of the Company hereunder, and appropriate
adjustment of the provisions contained in this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants is made, in form and substance
satisfactory to the Investors, to place the Investors in the same position as
they would have been but for such assignment, in accordance with the terms of
the Debentures and the Warrants. No Investor may assign this Agreement (in whole
or in part) or any rights or obligations hereunder without the consent of the
Company (which shall not be unreasonably withheld).
SECTION 6.9 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.
SECTION 6.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE.
SECTION 6.11 SURVIVAL. The representations and warranties and the
agreements and covenants of the Company and the Investor contained herein shall
survive the Closing.
SECTION 6.12 EXECUTION. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement,
it being understood that all parties need not sign the same counterpart.
SECTION 6.13 PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of any
Investor without the express written agreement of such Investor, unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement. The Company agrees that it will deliver a
copy of any public announcement regarding the matters covered by this Agreement
23
<PAGE> 24
or any agreement and document executed herewith to the Investor and any public
announcement including the name of the Investor to such Investor, reasonably in
advance of the release of such announcements.
SECTION 6.14 SEVERABILITY. Intentionally omitted.
SECTION 6.15 LIKE TREATMENT OF HOLDERS; REDEMPTION. Neither the
Company nor any of its affiliates shall, directly or indirectly, pay or cause to
be paid any consideration (immediate or contingent), whether by way of interest,
fee, payment for the redemption or conversion of Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or Warrants, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment of any terms or provisions of the Debenture or this Agreement or the
Registration Rights Agreement or the Warrants, unless such consideration is
required to be paid to all holders of Debentures and Warrants bound by such
consent, waiver or amendment whether or not such holders so consent, waive or
agree to amend and whether or not such holders tender their Debentures or
Warrants for redemption, conversion or exercise. The Company shall not, directly
or indirectly, redeem any Debentures unless such offer of redemption is made pro
rata to all holders of Debentures on identical terms.
SECTION 6.16 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
[SIGNATURE PAGE FOLLOWS]
24
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
COMPANY:
U.S. PLASTIC LUMBER CORPORATION
By: /s/ Bruce C. Rosetto
---------------------------------------
Name: Bruce C. Rosetto
Title: Vice President and General Counsel
INVESTOR:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By:
---------------------------------------
Name:
Title:
[SIGNATURE PAGE TO U.S. PLASTIC LUMBER CORPORATION
DEBENTURE PURCHASE AGREEMENT]
25
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
COMPANY:
U.S. PLASTIC LUMBER CORPORATION
By:
---------------------------------------
Name:
Title:
INVESTOR:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: /s/ Robert Chender
---------------------------------------
Name: Robert Chender
Title: Managing Director
[SIGNATURE PAGE TO U.S. PLASTIC LUMBER CORPORATION
DEBENTURE PURCHASE AGREEMENT]
25
<PAGE> 27
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule I List of Investors
Exhibit 1.1A Form of Debenture
Exhibit 1.1B Form of Warrant
Schedule 2.1(a) List of Subsidiaries
Schedule 2.1(c) Capitalization; Preemptive Rights
Exhibit 2.1(c)(i) Certificate of Incorporation of the Company
Exhibit 2.1(c)(ii) By-Laws of the Company
Schedule 2.1(f) SEC Disclosures
Schedule 2.1(p) Litigation Disclosure
Schedule 2.1(s) Outstanding Securities Subject to Registration Rights, ETC.
Schedule 2.1(aa) Real Property
Exhibit 4.2(e) Opinion of Company Counsel
Exhibit 4.2(f) Registration Rights Agreement
</TABLE>
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
OUTSTANDING PRINCIPAL NUMBER
AMOUNT OF
INVESTOR OF DEBENTURES WARRANTS PURCHASE PRICE
- -------- ---------------------- -------- --------------
<S> <C> <C> <C>
HALIFAX FUND, LP $7,500,000 200,000 $7,500,000
c/o The Palladin Group, L.P.
Investment Manager
195 Maplewood Avenue
Maplewood, New Jersey 07040
Attn: Robert Chender
Tax I.D. No.:
Facsimile: (973) 313-6491
</TABLE>
<PAGE> 29
SCHEDULE 2.1(s)
LIST OF SUBSIDIARIES
SEE ATTACHED CORPORATE ORGANIZATIONAL CHART.
<PAGE> 30
SCHEDULE 2.1(a)
COMPANY ORGANIZATION CHART
U.S. PLASTIC LUMBER CORP.
<PAGE> 31
SCHEDULE 2.1(c)
CAPITALIZATION; PREEMPTIVE RIGHTS
NONE.
<PAGE> 32
SCHEDULE 2.1 (f)
SEE LITIGATION DISCLOSURE REPORTS ATTACHED TO SCHEDULE 2.1 (p).
<PAGE> 33
SCHEDULE 2.1 (p)
SEE ATTACHED LITIGATION DISCLOSURE REPORTS FROM BRUCE C. ROSETTO, DATED JANUARY
17, 2000, AND BLANK ROME COMISKY AND MCCAULEY, DATE JANUARY 19, 2000 TO KPMG,
LLP.
<PAGE> 34
SCHEDULE 2.1(s)
OUTSTANDING SECURITIES SUBJECT TO REGISTRATION RIGHTS, ETC.
WARRANTS OF LOUIS D. PAOLINO, JR., LOUIS D. PAOLINO, SR., MATTHEW PAOLINO, AND
JOSEPH PAOLINO TOTALING 500,000 SHARES IN THE AGGREGATE, EXERCISABLE AT $6.00
PER SHARE.
OPTIONS TO CERTAIN EMPLOYEES NOT PART OF THE 1999 STOCK OPTION PLAN, TOTALING
825,000 SHARES IN AGGREGATE, EXERCISABLE AT $6.00 PER SHARE.
<PAGE> 35
SCHEDULE 2.1 (aa)
REAL PROPERTY, LEASEHOLDS AND CERTAIN OTHER INTEREST, ETC.
SEE ATTACHED LIST.
<PAGE> 1
EXHIBIT 99.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
February 2, 2000 between U.S. PLASTIC LUMBER CORPORATION, a Nevada corporation
with offices at 2300 Glades Road, Suite 440 West, Boca Raton, Florida 33431 (the
"Company") and HALIFAX FUND, L.P., with offices at c/o The Palladin Group, L.P.,
Investment Manager, 195 Maplewood Avenue, Maplewood, New Jersey 07040 (the
"Investor").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Convertible Debenture Purchase
Agreement by and between the Company and the Investor (the "Purchase
Agreement"), the Company has agreed to sell and issue to the Investor, and the
Investor has agreed to purchase from the Company, an aggregate of $7.5 million
principal amount of the Company's 5% Convertible Debentures Due February 2, 2005
(the "Debentures") on the terms and conditions set forth therein;
WHEREAS, the Purchase Agreement contemplates that the Debentures will
be convertible into shares (the "Common Shares") of common stock, par value
$0.0001, of the Company ("Common Stock") pursuant to the terms and conditions
set forth in the Debentures; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Purchase Agreement, the Company has
agreed (i) to issue warrants exercisable for 200,000 shares of Common Stock of
the Company (the "Warrants") in connection with the issuance of the Debentures
(shares of Common Stock issuable under the Warrants are referred to herein as
the "Warrant Shares") and (ii) to provide the Investor with certain registration
rights with respect to the Common Shares and Warrant Shares and certain other
rights and remedies with respect to the Debentures as set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Agreement, the Company and the Investor agrees as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement, the
Warrants or the Debentures. As used in this Agreement, the following terms shall
have the following respective meanings:
"CLOSING" and "CLOSING DATE" shall have the meanings ascribed to such
terms in the Purchase Agreement.
<PAGE> 2
"COMMISSION" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"COMPANY REPORTING EVENT" shall mean a transaction (such as a merger or
an acquisition or disposition of a business) or other corporate event which,
under applicable securities laws or SEC regulations, requires the Company to
delay or restate its financial statements to comply with such laws or rules.
"DEFAULT PAYMENT RATE" shall have the meaning set forth in
Section 2(b)(ii).
"HOLDER" and "HOLDERS" shall mean the Investor, and any transferee of
the Debentures, Warrants, Warrant Shares or Common Shares or Registrable
Securities which have not been sold to the public to whom the registration
rights conferred by this Agreement have been transferred in compliance with this
Agreement.
"OUTSTANDING PRINCIPAL AMOUNT" shall have the meaning ascribed to such
term in the Debentures.
"REGISTRABLE SECURITIES" shall mean: (i) the Common Shares and Warrant
Shares issued to each Holder or its permitted transferee or designee upon
conversion of the Debentures or exercise of the Warrants, as applicable, or upon
any stock split, stock dividend, recapitalization or similar event with respect
to such Common Shares or Warrant Shares; (ii) any securities issued or issuable
to each Holder upon the conversion, exercise or exchange of any Debentures,
Warrants, Warrant Shares, or Common Shares; and (iii) any other security of the
Company issued as a dividend or other distribution with respect to, conversion
or exchange of, or in replacement of, Registrable Securities.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRATION EXPENSES" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, "Blue Sky"
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for a
"due diligence" examination of the Company and review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company); PROVIDED that the Company shall not be obligated to pay fees and
expenses of Investor and Investor's counsel in excess of $7,500 in connection
with the due diligence examination of the Company described above.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
2(a) herein.
2
<PAGE> 3
"REGULATION D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"SECURITIES ACT" or "ACT" shall mean the Securities Act of 1933,
as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
2. REGISTRATION REQUIREMENTS. The Company shall use its best
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable "Blue Sky" or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as would permit or facilitate the sale or distribution
of all the Registrable Securities in the manner (including manner of sale) and
in all states reasonably requested by the Holder. Such best efforts by the
Company shall include the following:
(a) The Company shall, as expeditiously as reasonably
possible after the Closing Date:
(i) But in any event within 60 days thereafter,
prepare and file a registration statement with the Commission
pursuant to Rule 415 under the Securities Act on Form S-3
under the Securities Act (or in the event that the Company is
ineligible to use such form, such other form as the Company is
eligible to use under the Securities Act) covering the
Registrable Securities (such registration statement, including
all of the documents incorporated or deemed to be incorporated
by reference therein, is referred to herein as the
"Registration Statement"), which Registration Statement, to
the extent allowable under the Securities Act and the rules
promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become
issuable upon conversion of the Debentures or exercise of the
Warrants. The number of shares of Common Stock initially
included in such Registration Statement shall be no less than
the sum of (A) two times the sum of the number of Common
Shares that are then issuable upon conversion of the
Debentures plus (B) one and one-half times the number of
Warrant Shares issuable upon exercise of the Warrants in each
case without regard to any limitation on the Investor's
ability to convert the Debentures or Warrants. Thereafter, the
Company shall use its best efforts to cause such Registration
Statement and other filings to be declared effective as soon
as possible, and in any event prior to 90 days following the
Closing Date. The Company shall provide Holders and their
legal counsel reasonable opportunity to review any such
Registration Statement or amendment or supplement thereto
prior to filing.
3
<PAGE> 4
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus
used in connection with such Registration Statement as may be
necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such
Registration Statement and notify the Holders of the filing
and effectiveness of such Registration Statement and any
amendments or supplements.
(iii) Furnish to each Holder such numbers of copies of a
current prospectus conforming with the requirements of the
Act, copies of the Registration Statement, any amendment or
supplement thereto and any documents incorporated by reference
therein and such other documents as such Holder may reasonably
require in order to facilitate the disposition of Registrable
Securities owned by such Holder.
(iv) Use its best efforts to register and qualify the
securities covered by such Registration Statement under such
other securities or "Blue Sky" laws of such jurisdictions as
shall be reasonably requested by each Holder; provided that
the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
(v) Notify each Holder immediately of the happening of
any event as a result of which the prospectus (including any
supplements thereto or thereof and any information
incorporated or deemed to be incorporated by reference
therein) included in such Registration Statement, as then in
effect, includes an untrue statement of material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing, and use its best
efforts to promptly update and/or correct such prospectus.
(vi) Notify each Holder immediately of the issuance by
the Commission or any state securities commission or agency of
any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings
for that purpose. The Company shall use its best efforts to
prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest
possible time.
(vii) Permit a single firm of counsel, designated as
Holders' counsel by the Holders of a majority of the
Registrable Securities included in the Registration Statement,
to review the Registration Statement and all amendments and
supplements thereto within a reasonable period of time prior
to each filing, and shall not file any document in a form to
which such counsel reasonably objects.
4
<PAGE> 5
(viii) Use its best efforts to list the Registrable
Securities covered by such Registration Statement with all
securities exchange(s) and/or markets on which the Common
Stock is then listed and prepare and file any required filings
with the National Association of Securities Dealers, Inc. or
any exchange or market where the Common Stock is then traded.
(ix) Take all steps necessary to enable Holders to
avail themselves of the prospectus delivery mechanism set
forth in Rule 153 (or successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events that
may arise that the Investor considers will interfere with the full enjoyment of
its rights under the Debentures, the Purchase Agreement and this Agreement (the
"Interfering Events"), and (II) certain remedies applicable in each of these
events.
Paragraphs (i) through (iv) of this Section 2(b) describe the
Interfering Events, provide a remedy to the Investor if an Interfering Event
occurs and provide that the Investor may require that the Company redeem
outstanding Debentures at a specified price if certain Interfering Events are
not timely cured.
Paragraph (vi) provides, INTER ALIA, that if cash payments
required as the remedy in the case of certain of the Interfering Events are not
paid when due, the Company may be required by the Investor to redeem outstanding
Debentures at a specified price.
Paragraph (ix) provides, INTER ALIA, that the Investor has the
right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to serve only
as an introduction to this Section 2(b), are for convenience only, and are not
to be considered in applying, construing or interpreting this Section 2(b).
(i) DELAY IN EFFECTIVENESS OF REGISTRATION STATEMENT.
The Company shall use its best efforts to cause the
Registration Statement to become effective as soon as possible
and in any event within 90 days from the Closing Date. In the
event that such Registration Statement has not been declared
effective within 90 days from the Closing Date, then (x) the
percentage (initially 100%) employed to determine the
"Conversion Price" pursuant to Section 5(c)(ii) of the
Debentures and all Conversion Price resets pursuant to Section
5(d) of the Debentures (the "Agreed Percentage") shall be
reduced and (y) the Minimum Floating Conversion Price shall be
5
<PAGE> 6
reduced, by 1% during and after the 30-day period ("Default
Period") from and after the 90th day following the Closing
Date during any part of which such Registration Statement is
not effective, and such Agreed Percentage and the Minimum
Floating Conversion Price shall be further reduced by an
additional 1.5% during and after each Default Period
thereafter; PROVIDED that, upon the occurrence of a
Company Reporting Event at any time during or prior to such
90-day period, such penalties shall only take effect 150 days
from the Closing Date. For example (assuming no Company
Reporting Event has occurred), if the Registration Statement
does not become effective until 120 days from the Closing
Date, the Agreed Percentage from and after day 91 shall be
equal to 99% and the Minimum Floating Conversion Price shall
be equal to $8.1675. If the Registration Statement is not
effective until the 150th day after the Closing Date (assuming
no Company Reporting Event has occurred), the Agreed
Percentage from and after day 121 from the Closing Date shall
be 97.5% and the Minimum Floating Conversion Price shall be
equal to $8.04375. In each case, (x) the Agreed Percentage and
the Conversion Price, and the Minimum Floating Conversion
Price, shall be subject to further adjustment as set forth in
the Debenture and the Purchase Agreement and (y) if a Company
Reporting Event has occurred, the examples in the preceding
two sentences will be adjusted by adding 60 days thereto. If
the Registration Statement has not been declared effective
within 180 days after the Closing Date, then each Holder shall
have the right in its sole discretion to sell to the Company
its Debentures, Common Shares and/or Warrant Shares to the
Company (in whole or in part) at a price in immediately
available funds (the "Premium Redemption Price") equal to (A)
as to the Debentures, 1.3 times (I.E., 130% of) the
Outstanding Principal Amount of the Debentures plus any
accrued but unpaid or unrecognized interest or default
payments and (B) as to the Common Shares and/or Warrant
Shares, 1.3 times the dollar amount which is the product of
(x) the number of shares so to be redeemed pursuant to this
paragraph, and (y) the Market Price for Shares of Common Stock
(as defined in the Debentures) at the time such shares were
received pursuant to conversion of Debentures or exercise of
Warrants; PROVIDED that, upon the -------- occurrence of a
Company Reporting Event at any time during or prior to such
180-day period, such rights to compel the Company to purchase
securities of the Investor shall only take effect 225 days
from the Closing Date. Payment of such amount shall be due and
payable within 3 business days of demand therefor, which
demand shall be revocable by the Holder at any time prior to
its actual receipt of the Premium Redemption Price.
(ii) NO LISTING; PREMIUM PRICE REDEMPTION FOR DELISTING
OF CLASS OF SHARES.
(A) In the event that the Company fails, refuses
or is unable to cause the Registrable Securities covered by
the Registration Statement to be listed with the Approved
Market and each other securities exchange and market on which
the Common Stock is then traded at all times during the period
("Listing Period") commencing the earlier of the effective
date of the Registration Statement or the 90th day following
the Closing Date, and continuing thereafter for so long as the
Debentures are outstanding, then the Company shall pay in cash
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<PAGE> 7
to each Holder a default payment at a rate (the "Default
Payment Rate") equal to two and one half percent (2.5%) of the
sum of (x) the Outstanding Principal Amount of, (y) the
accrued but unpaid interest on, plus (z) the accrued but
unpaid or unrecognized default payments on the Debentures (the
"Debenture Amount") held by such Holder for each 30-day period
(or portion thereof) during the Listing Period from and after
such failure, refusal or inability to so list the Registrable
Securities until the Registrable Securities are so listed.
(B) In the event that shares of Common Stock of
the Company are delisted from the Approved Market at any time
following the Closing Date and remain delisted for 5
consecutive days, then at the option of each Holder and to the
extent such Holder so elects, the Company shall on 2 business
days notice redeem the Debentures and/or Common Shares and/or
Warrant Shares held by such Holder, in whole or in part, at a
redemption price equal to the Premium Redemption Price (as
defined above); PROVIDED, however, that such Holder may revoke
such request at any time prior to -------- receipt of such
payment of such redemption price. Default payments shall no
longer accrue on Debentures after such shares have been
redeemed by the Company pursuant to the foregoing provision.
(iii) BLACKOUT PERIODS. In the event any Holder is
unable to sell Registrable Securities under the Registration
Statement for more than (i) five (5) consecutive days or (ii)
ten (10) days in any calendar year ("Suspension Grace
Period"), including without limitation by reason of a
suspension of trading of the Common Stock on the Approved
Market, any suspension or stop order with respect to the
Registration Statement or the fact that an event has occurred
as a result of which the prospectus (including any supplements
thereto) included in such Registration Statement then in
effect includes an untrue statement of material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing, or the number of
shares of Common Stock covered by the Registration Statement
is insufficient at such time to make such sales, then the
Company shall pay in cash to each Holder a default payment at
the Default Payment Rate of the Debenture Amount for the
Debentures held by such Holder for each 30-day period (or
portion thereof) from and after the expiration of the
Suspension Grace Period. Alternatively, a Holder shall have
the right but not the obligation to have the Company redeem
its Debentures and Common Shares and Warrant Shares at the
price and on the terms (and subject to the right to revoke)
set forth in Section 2(b)(i) above.
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<PAGE> 8
(iv) CONVERSION DEFICIENCY; PREMIUM PRICE REDEMPTION
FOR CONVERSION DEFICIENCY. In the event that the Company does
not have a sufficient number of Common Shares available to
satisfy the Company's obligations to any Holder upon receipt
of a Conversion Notice (as defined in the Debenture) or is
otherwise unable or unwilling to issue such Common Shares
(including without limitation by reason of the limit described
in Section 10 below) in accordance with the terms of the
Debenture for any reason after receipt of a Conversion Notice,
then:
(A) The Company shall pay in cash to each Holder
a default payment at the Default Payment Rate on the Debenture
Amount for the Debentures held by such Holder for each 30-day
period (or portion thereof) that the Company fails or refuses
to issue Common Shares in accordance with the Debenture terms;
and
(B) At any time five days after the commencement
of the running of the first 30-day period described above in
clause (A) of this paragraph (iv), at the request of any
Holder pursuant to a redemption notice, the Company promptly
(1) shall purchase from such Holder, at a purchase price equal
to the Premium Redemption Price, the Debenture Amount of
Debentures equal to such Holder's pro rata share of the
"Deficiency" (as such term is defined below), if the failure
to issue Common Shares results from the lack of a sufficient
number thereof and (2) shall purchase all (or such portion as
such Holder may elect) of such Holder's Debentures at such
Premium Redemption Price if the failure to issue Common Shares
results from any other cause. The "Deficiency" shall be equal
to the Debenture Amount of Debentures that would not be able
to be converted for Common Shares, due to an insufficient
number of Common Shares available, if all the outstanding
Debentures were submitted for conversion at the Conversion
Price set forth in the Debentures as of the date such
Deficiency is determined. Any request by a Holder pursuant to
this paragraph (iv)(B) shall be revocable by that Holder at
any time prior to its receipt of the Premium Redemption Price.
(v) DEFAULT PAYMENT TERMS; STATUS OF UNPAID DEFAULT
PAYMENTS.
All default payments (which payments shall
be pro rata on a per diem basis for any period of less than 30
days) required to be made in connection with the above
provisions shall be paid in cash at any time upon demand, and
whether or not a demand is made, by the tenth (10th) day of
each calendar month for each partial or full 30-day period
occurring prior to that date. Until paid as required in this
Agreement, default payments shall be deemed added to, and a
part of, the Outstanding Principal Amount of a Holder's
Debentures.
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<PAGE> 9
(vi) PREMIUM PRICE REDEMPTION FOR CASH PAYMENT
DEFAULTS.
In the event that the Company fails or
refuses to pay any default payment or honor any discount
provided for in the foregoing paragraphs (i) through (iv) when
due, at any Holder's request and option the Company shall
purchase all or a portion of the Debentures, Common Shares
and/or Warrant Shares held by such Holder (with default
payments accruing through the date of such purchase), within
five (5) days of such request, at a purchase price equal to
the Premium Redemption Price (as defined above); PROVIDED that
such Holder may revoke such request at any time prior to
receipt of such payment of such purchase price. Until such
time as the Company purchases such Debentures at the request
of such Holder pursuant to the preceding sentence, at any
Holder's request and option the Company shall as to such
Holder pay such amount by adding and including the amount of
such default payment to the Outstanding Principal Amount of a
Holder's Debentures.
(vii) CUMULATIVE REMEDIES. Each default payment
triggered by an Interfering Event provided for in the
foregoing paragraphs (ii) through (iv) shall be in addition to
each other default payment triggered by another Interfering
Event; PROVIDED, however, that in no event shall the Company
be obligated to pay to any Holder default payments in an
aggregate amount greater than the Default Payment Rate of the
Outstanding Principal Amount of the Debentures held by such
Holder for any 30-day period (or portion thereof). The default
payments and mandatory redemptions provided for above are in
addition to and not in lieu or limitation of any other rights
the Holders may have at law, in equity or under the terms of
the Debentures, the Purchase Agreement, the Warrants or this
Agreement, including without limitation the right to specific
performance. Each Holder shall be entitled to specific
performance of any and all obligations of the Company in
connection with the registration rights of the Holders
hereunder.
(viii) DEFERRAL OF FORCED CONVERSION DATE. In the
event of a failure of Effective Registration, including
without limitation by reason of any of the circumstances
described in the foregoing clauses (i) through (iv) above,
then the Forced Conversion Date (as defined in the Debentures)
shall be deferred by 1.5 days for each day that any of the
circumstances in clauses (i), (ii), (iii) (without regard to
the applicability of the Suspension Grace Period), or (iv)
exist.
(ix) CERTAIN ACKNOWLEDGMENTS. The Company
acknowledges that any failure, refusal or inability by the
Company described in the foregoing paragraphs (i) through (iv)
and paragraph (vi) will cause the Holders to suffer damages in
an amount that will be difficult to ascertain, including
without limitation damages resulting from the loss of
liquidity in the Registrable Securities and the additional
investment risk in holding the Registrable Securities.
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<PAGE> 10
Accordingly, the parties agree that it is appropriate to
include in this Agreement the foregoing provisions for default
payments, discounts and mandatory redemptions in order to
compensate the Holders for such damages. The parties
acknowledge and agree that the default payments, discounts and
mandatory redemptions set forth above represent the parties'
good faith effort to quantify such damages and, as such, agree
that the form and amount of such default payments, discounts
and mandatory redemptions are reasonable and will not
constitute a penalty. The parties agree that the provisions of
this clause (ix) consist of certain acknowledgments and
agreements concerning the remedies of the Holders set forth in
clauses (i) through (iv) and paragraph (vi) of this paragraph;
nothing in this clause (ix) imposes any additional default
payments, discounts and mandatory redemptions for violations
under this Agreement.
(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder(s) shall so advise the
Company. Any such underwriting may only be administered by investment bankers
reasonably satisfactory to the Company. The Company shall only be obligated to
permit one underwritten offering, which offering shall be determined by a
majority-in-interest of the Holders.
(d) The Company shall enter into such customary agreements
for secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities. Whether or not an
underwriting agreement is entered into and whether or not the Registrable
Securities are to be sold in an underwritten offering the Company shall:
(i) make such representations and warranties to the
Holders and the underwriter or underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of
Registrable Securities and the underwriter or underwriters, if
any, opinions of independent counsel to the Company, on and
dated as of the effective day (or in the case of an
underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the
Registration Statement, and within ninety (90) days following
the end of each fiscal year thereafter, which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the Holders and the underwriter(s), if any,
and their counsel and covering, without limitation, such
matters as the due authorization and issuance of the
securities being registered and compliance with securities
laws by the Company in connection with the authorization,
issuance and registration thereof and other matters that are
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<PAGE> 11
customarily given to underwriters in underwritten offerings,
addressed to the Holders and each underwriter, if any.
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case
of an underwritten offering, at the time of delivery of any
Registrable Securities sold pursuant thereto), and at the
beginning of each fiscal year following a year during which
the Company's independent certified public accountants shall
have reviewed any of the Company's books or records, a
"comfort" letter from the Company's independent certified
public accountants addressed to the Holders and each
underwriter, if any, stating that such accountants are
independent public accountants within the meaning of the
Securities Act and the applicable published rules and
regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are
customarily covered by letters of the independent certified
public accountants delivered in connection with secondary
offerings; such accountants shall have undertaken in each such
letter to update the same during each such fiscal year in
which such books or records are being reviewed so that each
such letter shall remain current, correct and complete
throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the
Holders.
(iv) if an underwriting agreement is entered into, the
same shall include customary indemnification and contribution
provisions to and from the underwriters and procedures for
secondary underwritten offerings;
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any; and
(vi) deliver to the Holders on the effective day (or in
the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
of the Registration Statement, and at the beginning of each
fiscal quarter thereafter, a certificate in form and substance
as shall be reasonably satisfactory to the Holders, executed
by an executive officer of the Company and to the effect that
all the representations and warranties of the Company
contained in the Purchase Agreement are still true and correct
except as disclosed in such certificate; the Company shall, as
to each such certificate delivered at the beginning of each
fiscal quarter, update or cause to be updated each such
certificate during such quarter so that it shall remain
current, complete and correct throughout such quarter; and
such updates received by the Holders during such quarter, if
any, shall have been reasonably satisfactory to the Holders.
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<PAGE> 12
(e) The Company shall make available for inspection by the
Holders, representative(s) of all the Holders together, any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney or accountant retained by any Holder or underwriter, all financial and
other records customary for purposes of the Holders' due diligence examination
of the Company and review of any Registration Statement, all SEC Documents (as
defined in the Purchase Agreement) filed subsequent to the Closing, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, the Company may suspend
the use of any prospectus used in connection with the Registration Statement
only in the event, and for such period of time as, such a suspension is required
by the rules and regulations of the Commission. The Company will use its best
efforts to cause such suspension to terminate at the earliest possible date.
(g) The Company shall file a Registration Statement with
respect to any newly authorized and/or reserved shares within five (5) business
days of any shareholders meeting authorizing same and shall use its best efforts
to cause such Registration Statement to become effective within sixty (60) days
of such shareholders meeting. If the Holders become entitled, pursuant to an
event described in clause (iii) of the definition of Registrable Securities, to
receive any securities in respect of Registrable Securities that were already
included in a Registration Statement, subsequent to the date such Registration
Statement is declared effective, and the Company is unable under the securities
laws to add such securities to the then effective Registration Statement, the
Company shall promptly file, in accordance with the procedures set forth herein,
an additional Registration Statement with respect to such newly Registrable
Securities. The Company shall use its best efforts to (i) cause any such
additional Registration Statement, when filed, to become effective under the
Securities Act, and (ii) keep such additional Registration Statement effective
during the period described in Section 5 below. All of the registration rights
and remedies under this Agreement shall apply to the registration of such newly
reserved shares and such new Registrable Securities, including without
limitation the provisions providing for default payments contained herein.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance with
registration pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses of a Holder shall be borne by such Holder.
4. REGISTRATION ON FORM S-3; OTHER FORMS. The Company shall use
its best efforts to qualify for registration on Form S-3 or any comparable or
successor form or forms, or in the event that the Company is ineligible to use
such form, such form as the Company is eligible to use under the Securities Act.
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<PAGE> 13
5. REGISTRATION PERIOD. In the case of the registration effected
by the Company pursuant to this Agreement, the Company will use its best efforts
to keep such registration effective until all the Holders have completed the
sales or distribution described in the Registration Statement relating thereto
or, if earlier, until such Registrable Securities may be sold under Rule 144(k)
(provided that the Company's transfer agent has accepted an instruction from the
Company to such effect).
6. INDEMNIFICATION.
(a) THE COMPANY INDEMNITY. The Company will indemnify each
Holder, each of its officers, directors and partners, and each person
controlling each Holder, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each Holder, each of its officers, directors and partners,
and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to a Holder to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
Holder or the underwriter (if any) therefor and stated to be specifically for
use therein. The indemnity agreement contained in this Section 6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, partners, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, each other Holder (if any), and each of their officers, directors
and partners, and each person controlling such other Holder(s), against all
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<PAGE> 14
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, and will reimburse the Company and such other
Holder(s) and their directors, officers and partners, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating and defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use therein, and
provided that the maximum amount for which such Holder shall be liable under
this indemnity shall not exceed the net proceeds received by such Holder from
the sale of the Registrable Securities. The indemnity agreement contained in
this Section 6(b) shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably withheld).
(c) PROCEDURE. Each party entitled to indemnification under
this Section 6 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to provide notice. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
7. CONTRIBUTION. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying each of such Indemnified Parties, shall contribute to the amount
paid or payable by each such Indemnified Party as a result of such losses,
claims, damages or liabilities as between the Company on the one hand and any
Holder on the other, in such proportion as is appropriate to reflect the
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<PAGE> 15
relative fault of the Company and of such Holder in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of any Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by such
Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by PRO
RATA allocation (even if the Holders or the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this section, no Holder or
underwriter shall be required to contribute any amount in excess of the amount
by which (i) in the case of any Holder, the net proceeds received by such Holder
from the sale of Registrable Securities or (ii) in the case of an underwriter,
the total price at which the Registrable Securities purchased by it and
distributed to the public were offered to the public exceeds, in any such case,
the amount of any damages that such Holder or underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. SURVIVAL. The indemnity and contribution agreements contained
in Sections 6 and 7 and the representations and warranties of the Company
referred to in Section 2(d)(i) shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or the Purchase
Agreement or any underwriting agreement, (ii) any investigation made by or on
behalf of any Indemnified Party or by or on behalf of the Company, and (iii) the
consummation of the sale or successive resales of the Registrable Securities.
9. INFORMATION BY HOLDERS. Each Holder shall furnish to the
Company such information regarding such Holder and the distribution and/or sale
proposed by such Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Agreement. The intended method or methods of
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<PAGE> 16
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder.
10. NASDAQ LIMIT ON STOCK ISSUANCES. Section 3.14 of the Purchase
Agreement shall govern limits imposed by NASDAQ rules on the conversion of
Debentures or the exercise of Warrants.
11. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Common Shares or Warrant Shares held by the Investor (or then Holder) may be
exchanged by the Investor (or such Holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Common Shares or Warrant Shares, as reasonably requested by the Investor (or
such Holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
12. TRANSFER OR ASSIGNMENT. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investor by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or assigned (in whole or in part) to a transferee
or assignee of Debentures or Warrants, and all other rights granted to the
Investor by the Company hereunder may be transferred or assigned to any
transferee or assignee of any Debentures or Warrants; provided in each case that
the Company must be given written notice by the such Investor at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned; and
provided further that the transferee or assignee of such rights agrees in
writing to be bound by the registration provisions of this Agreement.
13. MISCELLANEOUS.
(a) REMEDIES. The Company and the Investor acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled by law or equity.
(b) JURISDICTION. The Company and the Investor (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court, the New York State courts and other courts of the United States sitting
in New York County, New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
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<PAGE> 17
action or proceeding is improper. The Company and the Investor consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
(c) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing by facsimile, mail or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
U.S. Plastic Lumber Corporation
2300 Glades Road
Suite 440 West
Boca Raton, Florida 33431
Facsimile: (561) 394-5335
Attention: Bruce Rosetto
to the Investor:
Halifax Fund, L.P.
c/o The Palladin Group, L.P.
Investment Manager
195 Maplewood Avenue
Maplewood, New Jersey 07040
Facsimile: (973) 313-6491
Attention: Robert Chender
with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, Esq.
Any party hereto may from time to time change its address for notices
by giving at least 10 days' written notice of such changed address to the other
parties hereto.
(d) INDEMNITY. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
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<PAGE> 18
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement.
(e) WAIVERS. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. The representations and warranties and
the agreements and covenants of the Company and the Investor contained herein
shall survive the Closing.
(f) EXECUTION. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(g) PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Investor
without its express written approval, unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. The Company agrees to deliver a copy of any public announcement
regarding the matters covered by this Agreement or any agreement or document
executed herewith to each Investor and any public announcement including the
name of an Investor to such Investor, prior to the publication of such
announcements.
(h) ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement, the Debentures, the Warrants and the agreements and
documents contemplated hereby and thereby, contains the entire understanding and
agreement of the parties, and may not be modified or terminated except by a
written agreement signed by both parties.
(i) GOVERNING LAW. This Agreement and the validity and
performance of the terms hereof shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York applicable to
contracts executed and to be performed entirely in such State.
(j) SEVERABILITY. INTENTIONALLY OMITTED.
(k) JURY TRIAL. EACH PARTY HERETO WAIVES THE RIGHT TO A
TRIAL BY JURY.
(l) TITLES. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
SIGNATURE PAGE FOLLOWS
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
U.S. PLASTIC LUMBER CORPORATION
By: /s/ Bruce C. Rosetto
-------------------------------------------
Name: Bruce C. Rosetto
Title: Vice President and General Counsel
INVESTOR:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.,
Attorney-in-Fact
By:
------------------------------------------
Name:
Title:
SIGNATURE PAGE TO U.S. PLASTIC LUMBER CORPORATION
REGISTRATION RIGHTS AGREEMENT
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
U.S. PLASTIC LUMBER CORPORATION
By:
-------------------------------------------
Name:
Title:
INVESTOR:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.,
Attorney-in-Fact
By: /s/ Robert Chender
------------------------------------------
Name: Robert Chender
Title: Managing Director
SIGNATURE PAGE TO U.S. PLASTIC LUMBER CORPORATION
REGISTRATION RIGHTS AGREEMENT
19
