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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): May 11, 1999
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U.S. Technologies Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-15960 73-1284747
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3901 Roswell Road, Suite 300, Marietta, Georgia 30062
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 565-4311
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On May 11, 1999, U.S. Technologies Inc., a Delaware corporation (the
"Company"), closed the sale of 500,000 shares of its Series A Convertible
Preferred Stock ("Convertible Preferred Stock"), par value $0.02 share, to USV
Partners, LLC, a Delaware limited liability company ("USV Partners"). The
Company also issued warrants ("Warrants") to purchase 500,000 shares of the
Company's common stock, par value $0.02 per share, to USV Partners. The
aggregate purchase price paid by USV Partners for the Convertible Preferred
Stock and the Warrants was $5,000,000. Gregory Earls, the Chairman, President
and Chief Executive of the Company, is also the sole member of USV Management,
LLC, the manager of USV Partners.
The Convertible Preferred Stock carries a 9% dividend, which is payable in
cash or in shares of the Company's common stock or Convertible Preferred Stock.
Each share of the Convertible Preferred Stock is convertible into approximately
24.39 shares of the Company's common stock, at the option of the holder, until
January 12, 2004. The Company has the right, subject to the holders' rights to
convert the Convertible Preferred Stock to common stock, to redeem the
Convertible Preferred Stock at its stated value of $10.00 per share (plus all
accrued and unpaid dividends) at any time after the common stock of the Company
trades at $3.00 or more per share (or at $2.50 or more per share if a certain
earnings target is achieved by the Company) for twenty consecutive trading days.
The Warrants entitle the holder thereof to purchase 500,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The Warrants
are exercisable until January 12, 2004.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: None
(b) Pro Forma Financial Statements: None
(c) Exhibits. The following exhibits are filed with this Report:
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
4.1 Amended Certificate of Designation, Preferences and Rights
of Series A Convertible Preferred Stock
10.1 Form of Investment Agreement entered into by and between
the Company and USV Partners
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
U.S. TECHNOLOGIES INC.
By: /s/ John P. Brocard
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John P. Brocard
Executive Vice President
and General Counsel
Dated: May 25, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
4.1 Amended Certificate of Designation, Preferences and Rights
of Series A Convertible Preferred Stock
10.1 Form of Investment Agreement entered into by and between the
Company and USV Partners
</TABLE>
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EXHIBIT 4.1
AMENDED CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
U.S. TECHNOLOGIES INC.
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
U.S. Technologies Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority contained in its Certificate of
Incorporation, as amended and restated, and in accordance with Section 151 of
the General Corporation Law of the State of Delaware, the following resolution
amending the terms of the Series A Convertible Preferred Stock, $0.02 par value,
was duly adopted by the Board of Directors of the Corporation (the "Board") as
of February 24, 1999:
RESOLVED, that the Board hereby amends the terms of the Corporation's
1,000,000 shares of Series A Convertible Preferred Stock, $0.02 par value, and
hereby adopts and prescribes therefore the designation, relative rights,
preferences and limitations, and other terms and conditions of such series as
set forth in, and governed by, Exhibit A attached to these minutes, with such
Exhibit A being hereby incorporated as part of this resolution; and
FURTHER RESOLVED, that the officers of the Corporation be and hereby
are authorized and directed to take any and all further action that may be
necessary or desirable to accomplish the above authorized action, including but
not limited to the execution and filing of all instruments or documents that may
be necessary to create, designate, issue or evidence shares of the Corporation's
Series A Convertible Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed in its name by the undersigned duly authorized officers of the
Corporation, this 24th day of February, 1999.
/s/ Gregory Earls
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By: C. Gregory Earls
Title: Chairman and Chief Executive Officer
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EXHIBIT A
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating,
optional or other rights of the Series A Convertible Preferred Stock of U.S.
Technologies Inc. (the "Corporation") are as stated below. Capitalized terms not
defined herein have the meaning given them in the Investment Agreement by and
between USV Partners, LLC and the Corporation, dated as of July 16, 1998 (the
"Investment Agreement").
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series A
Convertible Preferred Stock" and shall have a par value of $0.02 per share. The
number of authorized shares constituting this series shall be 1,000,000 shares.
Shares of the Series A Convertible Preferred Stock shall have a stated value of
$10.00 per share (the "Stated Value").
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of the Series A
Convertible Preferred Stock (each a "Preferred A Holder") shall be entitled to
receive annual dividends at the rate, in the form, at the times and in the
manner set forth in this Section 2. Such dividends shall accrue on any given
share of Series A Convertible Preferred Stock from the day of payment for such
share and shall accrue from day to day whether or not earned or declared.
(b) Form of Dividend. Any dividend payment made with respect to
the Series A Convertible Preferred Stock may, at the sole discretion of the
Board of Directors of the Corporation ("Board of Directors"), be made (i) in
cash out of funds legally available for such purpose, (ii) in Series A
Convertible Preferred Stock having an aggregate stated value equal to the amount
of the dividend or (iii) in Common Stock that has a Current Market Value (as
defined in Section 5(d)(ii)(C)) on the day before the dividends are distributed,
equal to the amount of the dividend.
(c) Dividend Rate. The dividend rate on the Series A Convertible
Preferred Stock shall be 9% of the Stated Value per share per annum; provided
that, upon the occurrence and during the continuance of any Triggering Event (as
defined in Section 7), the dividend rate on the Series A Convertible Preferred
Stock shall be 11% of the Stated Value per share per annum (such rate, as
applicable, the "Dividend Rate").
(d) Payment of Dividends. Dividends shall be payable in arrears on
April 1 of each year, commencing April 1, 1999 (each such annual payment date a
"Dividend Payment Date"), except that if any such date is a Saturday, Sunday or
legal holiday then such dividend shall be
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payable on the first immediately succeeding calendar day which is not a
Saturday, Sunday or legal holiday. Dividends shall accrue on each share of
Series A Convertible Preferred Stock from the date of payment for such share
which, in the case of the initial payment for the Series A Convertible Preferred
Stock, shall be from July 16, 1998 (the "Share Payment Date"), and, after
payment of a dividend as required hereunder, from and after each Dividend
Payment Date based on the number of days elapsed and a 360-day year. The
dividend payable on the first Dividend Payment Date, with respect to any share
of Series A Convertible Preferred Stock, shall be the pro rata portion of the
Dividend Rate based upon the number of days from and including the Share Payment
Date, up to and including such first Dividend Payment Date and a 360-day year.
Each dividend shall be paid to the Preferred A Holders of record as they appear
on the books of the Corporation on such record date, which shall be not more
than 45 days nor fewer than 10 days preceding the respective Dividend Payment
Date, as shall be fixed by the Board of Directors.
(e) Dividend Preference. Dividends on the Series A Convertible
Preferred Stock shall be payable before any dividends or distributions or other
payments shall be paid or set aside for payment, on the common stock, $0.02 par
value, of the Corporation (the "Common Stock"), or any other stock ranking on
liquidation or as to dividends or distributions junior to the Series A
Convertible Preferred Stock (any such stock together with the Common Stock,
being referred to hereinafter as "Junior Stock"). If at any time dividends on
the outstanding Series A Convertible Preferred Stock at the rate set forth
herein shall not have been paid or declared and set apart for payment with
respect to all preceding and current periods, the amount of the deficiency shall
be fully paid or declared and set apart for payment before any dividend,
distribution or payment shall be declared or paid upon or set apart for the
shares of any other class or series of stock of the Corporation; provided that a
dividend or distribution to the holders of Junior Stock may be made in shares of
Junior Stock so long as there has been no default in the payment of dividends to
any Preferred A Holder on any Dividend Payment Date.
3. LIQUIDATION PREFERENCE.
In the event of any bankruptcy, liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, each Preferred A Holder at
the time thereof shall be entitled to receive, prior and in preference to any
distribution of any of the assets or funds of the Corporation to the holders of
the Common Stock or other Junior Stock by reason of their ownership of such
stock, an amount per share of Series A Convertible Preferred Stock equal to the
Stated Value plus any accrued and unpaid dividends to the date of liquidation or
such lesser amount as permitted pursuant to the Restated Certificate of
Incorporation of U.S. Technologies Inc. filed with the Secretary of the State of
Delaware on December 31, 1997, as it may be amended and restated from time to
time ("Certificate of Incorporation"). If the assets and funds legally available
for distribution among the Preferred A Holders shall be insufficient to permit
the payment to the Preferred A Holders of the full aforesaid preferential
amount, then the assets and funds shall be distributed ratably among Preferred A
Holders in proportion to the number of shares of Series A Convertible Preferred
Stock owned by each Preferred A Holder.
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4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, and any voting rights provided by
law, the Preferred A Holders shall have the following voting rights; provided
that the voting rights set forth below in Sections 4(a) and 4(b), to the extent
not otherwise available under applicable law, shall thereupon terminate when the
number of Preferred Shares that have not been converted is less than 45% of the
number of Preferred Shares issued at Closing:
(a) Election of Directors
(i) Subject to the terms hereof, the Preferred A Holders
shall have the right to elect up to one-third of the members of the Board of
Directors (each a "Series A Preferred Director"); provided however, if the
Corporation receives additional financing (in the form of debt or equity) of at
least $5,000,000 from a third party that is not a Preferred A Holder or an
Affiliate of a Preferred A Holder then (A) if the Board of Directors consists of
one to five members, the Preferred A Holders shall have the right to elect one
director to the Board of Directors and (B) if the Board of Directors consists of
six or more members, the Preferred A Holders shall have the right to elect the
greater of (x) one-sixth of the Board of Directors or (y) two directors. Such
Series A Preferred Director(s) shall be elected by the Preferred A Holders (who
will have one vote for each Series A Preferred Director for each share held)
voting as a single class.
(ii) The initial terms of the Series A Preferred Directors
to be elected pursuant to Section 4(a)(i) will commence upon their election by
the Preferred A Holders and shall expire at the next annual meeting of
shareholders of the Corporation. Upon expiration of the initial terms of such
Series A Preferred Directors, so long as the Series A Convertible Preferred
Stock is outstanding, the Preferred A Holders shall have the right to elect
Series A Preferred Directors to replace such directors. A Series A Preferred
Director so elected shall hold office for a term expiring at the next annual
meeting of shareholders following the election of such director; provided that
when the Series A Convertible Preferred Stock ceases to be outstanding, the term
of office of each such director shall terminate. Notwithstanding the foregoing,
a Series A Preferred Director elected under Section 4(a)(i) shall serve until
such Series A Preferred Director's successor is appointed and qualified, duly
elected or until such director's earlier removal as provided in Section
4(a)(iii) or such director's death or resignation, and, in the event a vacancy
occurs while such Series A Convertible Preferred Stock remains outstanding (and
so long as a number of Preferred Shares equal to at least 45% of the number of
Preferred Shares issued at Closing have not been converted to Common Stock), a
replacement Series A Preferred Director shall be selected as provided in Section
4(a)(i).
(iii) While the Series A Convertible Preferred Stock
remains outstanding (and so long as a number of Preferred Shares equal to at
least 45% of the number of Preferred Shares issued at Closing have not been
converted to Common Stock), a Series A Preferred Director may
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be removed by, and shall not be removed except by, the vote of the Preferred A
Holders of record of a majority of the outstanding shares of Series A
Convertible Preferred Stock, voting together as a single class.
(b) Certain Corporate Actions.
So long as a number of Preferred Shares equal to at least 45% of the
number of Preferred Shares issued at Closing have not been converted to Common
Stock, the Corporation shall not, without first obtaining the affirmative vote
or written consent of the Preferred A Holders of not less than a majority of the
then outstanding shares of Series A Convertible Preferred Stock, voting as a
single class:
(i) repurchase, purchase or otherwise acquire any Common
Stock or other Junior Stock for any consideration (or pay or make available any
moneys, whether by means of a sinking fund or otherwise, for the repurchase of
any shares of Common Stock or other Junior Stock), except by conversion or
exchange of Common Stock or other Junior Stock for such stock that is not Series
A Convertible Preferred Stock;
(ii) after the first Share Payment Date, authorize or
permit the Corporation or any subsidiary of the Corporation, as the case may be,
(A) to issue, other than to the Investor, any equity securities or securities
convertible into or exchangeable for equity securities or any securities
granting the holder an option to acquire any such securities, each at a price
below the Current Market Value (and further provided that this provision does
not include any transaction that is consummated pursuant to Section 8.1(g) of
the Investment Agreement) or (B) to issue any additional Series A Convertible
Preferred Stock, other than in payment of accrued dividends on the outstanding
shares of Series A Convertible Preferred Stock or (C) to issue any other stock
of the Corporation with the same preference and priority as the Series A
Convertible Preferred Stock or with a preference or priority senior to the
Series A Convertible Preferred Stock, other than in payment of accrued dividends
on the outstanding shares of Series A Convertible Preferred Stock;
(iii) authorize or effect, in a single transaction or
through a series of related transactions, a consolidation, merger, business
combination of the Corporation with any other Person or a spin-off or
recapitalization of the Corporation; the liquidation, winding up or dissolution
of the Corporation or the sale, lease, exchange or other transfer of all or
substantially all of the assets of the Corporation to any other Person or adopt
any plan for the same;
(iv) amend, repeal, modify or supplement any provision of
the Amended and Restated Articles of Incorporation, the By-Laws as in effect on
July 16, 1998, or any successor Articles of Incorporation or By-Laws, other than
as necessary to effect an increase in the authorized Common Stock;
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(v) amend, repeal, modify, supplement or in any other
manner, affect or change the terms, designations, preferences or rights of the
Series A Convertible Preferred Stock set forth herein or in the Investment
Documents;
(vi) authorize or permit the Corporation to (A) make an
assignment for the benefit of the creditors, (B) file a petition in bankruptcy,
(C) petition or apply to any tribunal for appointment of a receiver, custodian
or any trustee for it or for a substantial part of its assets or (D) commence
any proceeding under any bankruptcy, reorganization or arrangement or
readjustment of debt law or statute in any jurisdiction;
(vii) authorize or permit the Corporation to materially
change the type of business conducted by the Corporation or contemplated to be
conducted by the Corporation pursuant to Executive Summary for Accredited
Investors dated April 22, 1998 (the "Executive Summary");
(viii) authorize or permit the Corporation to enter into any
transaction with any Affiliate (other than a wholly owned subsidiary) or
shareholder or the amendment, extension or renewal of such a transaction other
than on arm's-length terms; and
(ix) authorize or permit the Corporation to acquire an
equity interest in any other Person, except as contemplated by the Executive
Summary.
(c) Means of Voting. The rights of the Preferred A Holders under
this Section 4 may be exercised (i) at any meeting of shareholders of the
Corporation; (ii) at any meeting of the Preferred A Holders, called for such
purpose by the Corporation or the holders of record of 25% or more of the
outstanding shares of the Series A Convertible Preferred Stock, pursuant to
requests delivered in writing to the Secretary or Assistant Secretary of the
Corporation; or (iii) by written consent signed by all of the holders of the
requisite percentage required by Applicable Law of the then outstanding shares
of the Series A Convertible Preferred Stock, delivered to the Secretary or
Assistant Secretary of the Corporation. Except to the extent otherwise provided
herein, any meeting of Preferred A Holders shall be conducted in accordance with
the provisions of the By-Laws of the Corporation applicable to meetings of
shareholders. In the event of a conflict or inconsistency between the By-Laws of
the Corporation and any term of this Certificate of Designations, Preferences
and Rights of Series A Convertible Preferred Stock ("Certificate of
Designations") (including, but not limited to this Section 4) this Certificate
of Designations shall prevail.
(d) Other Matters. The Preferred A Holders shall be entitled to
vote on any matter as part of the class that includes holders of Common Stock.
Each share of Series A Convertible Preferred Stock shall be entitled to the
number of votes that is equal to the number of shares of Common Stock into which
such share of Series A Convertible Preferred Stock is then convertible.
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5. CONVERSION
Shares of Series A Convertible Preferred Stock may be converted into
shares of Common Stock, on the terms and conditions set forth in this Section 5.
(a) Optional Conversion. Commencing at 9:00 a.m. Eastern Standard
Time on January 12, 1999 (the "Commencement Date") and ending at 5:00 p.m.
Eastern Standard Time on January 12, 2004 (the "Expiration Date"), each
Preferred A Holder may convert any or all of the shares of Series A Convertible
Preferred Stock held by such Preferred A Holder into Common Stock by complying
with the procedures set forth in Section 5(f). The number of shares of Common
Stock into which each share of Series A Convertible Preferred Stock is
convertible shall be equal to the result obtained by (x) dividing (I) the Stated
Value plus any accrued but unpaid dividends on such share, by (II) the
Conversion Price determined in accordance with Section 5(b) below; and (y)
multiplying by the Conversion Factor on the date of conversion as determined in
accordance with Section 5(d) below.
(b) Conversion Price.
(i) The "Conversion Price" shall be the average last sale
price, per share of Common Stock, for the 20 trading days immediately prior to
February 24, 1999, as such last sale price is reported in the principal
consolidated transaction reporting system of the NASDAQ National Market System.
(c) References. References in this Section 5 to "Common Stock"
shall include all stock or other securities or property (including cash) into
which Common Stock is converted following any merger, reorganization or
reclassification of the capital stock of the Corporation.
(d) Conversion Factor. The "Conversion Factor" means 1.00, as
adjusted from time to time as follows:
(i) In case the Corporation shall at any time or from
time to time declare a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares or combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, and in each such case:
(A) The Conversion Factor shall be adjusted such
that the number of shares of Common Stock into which each
share of Series A Convertible Preferred Stock would be
convertible on the effective date of such adjustment is equal
to the number of shares of Common Stock that a Preferred A
Holder would have been entitled to receive after the happening
of any of the events described above had such share been
converted immediately prior to the happening of such event or
the record date therefor, whichever is earlier;
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(B) an adjustment made pursuant to this Section
5(d)(i) shall become effective (I) in the case of any such
dividend or distribution, immediately after the close of
business on the record date for the determination of holders
of shares of Common Stock entitled to receive such dividend or
distribution, or (II) in the case of any such subdivision,
reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common
Stock (or rights or warrants or other securities convertible into or
exchangeable for shares of Common Stock) after the first Share Payment
Date at a price per share (or having an exercise of conversion price
per share) less than the Current Market Price (as defined below) as of
the date of issuance of such shares (or of such rights, warrants or
other convertible securities), then, and in each such case:
(A) The Conversion Factor shall be adjusted such
that the number of shares of Common Stock into which each
share of Series A Convertible Preferred Stock would be
convertible on the effective date of such adjustment is equal
to the number of shares of Common Stock that would have been
received if there had been no issuance below the Current
Market Price (as determined in accordance with Section 5(a))
multiplied by a fraction, (I) the numerator of which is the
sum of (1) the number of shares of Common Stock outstanding on
the date immediately prior to the date of issuance and (2) the
number of additional shares of Common Stock issued (or into
which the convertible securities may convert), and (II) the
denominator of which is the sum of (1) the number of shares of
Common Stock outstanding on the date immediately prior to the
date of issuance and (2) the number of shares of Common Stock
which the aggregate consideration receivable by the
Corporation for the total number of shares of Common Stock so
issued (or into which the convertible securities may convert)
would purchase at the Current Market Price on such date. For
purposes of this subparagraph, the aggregate consideration
receivable by the Corporation in connection with the issuance
of shares of Common Stock or of securities convertible into
shares of Common Stock shall be deemed to be equal to the sum
of the net offering price (after deduction of underwriting
discounts or commissions and expenses payable to third
parties) of all such securities plus the minimum aggregate
amount, if any, payable upon conversion of any such
convertible securities into shares of Common Stock;
(B) such adjustment shall become effective
immediately after the date of such issuance.
(C) "Current Market Price" means the average of
the daily Closing Prices per share of Common Stock for the 15
consecutive trading days immediately prior to such date. The
"Closing Price" per share of Common Stock for each day shall
be (x) the last sale price, regular way, or, in case no such
sale takes place on such day, the average closing bid and
asked prices, regular way, in either case as reported in the
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principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on NASDAQ
National Market System, the New York Stock Exchange or the
American Stock Exchange, as applicable or (y) the last sale
price, regular way, before 5:00 p.m., or, in case no such sale
takes place on such day, the average closing bid and asked
prices, regular way, in either case as reported on the NASDAQ
OTC Bulletin Board. If on any such trading day or days such
securities are not quoted by any such organization, such
trading day or days shall be replaced for purposes of the
foregoing calculation by the requisite trading day or days
preceding the commencement of such 15 trading day period on
which such securities are so quoted. If shares of Common Stock
are not so listed or traded, the Current Market Price shall
mean the fair value per share of Common Stock as determined in
good faith by the Board of Directors, whose determination
shall be described in a notice to the Preferred A Holders,
based on (I) the most recently completed arm's-length
transaction between the Corporation and a Person other than an
existing shareholder or other Affiliate of the Corporation,
the closing of which occurred on such date or within the
three-month period preceding such date, or (II) if no such
transaction shall have occurred on such date or within such
three-month period, the advice of an independent financial
expert selected by the Board of Directors with the affirmative
vote of at least one of the Series A Preferred Directors, or
(III) a unanimous agreement of all Directors.
(e) Common Stock. The Common Stock to be issued upon
conversion hereunder shall be fully paid and nonassessable upon proper tender of
shares of Series A Convertible Preferred Stock and compliance hereunder.
(f) Procedures for Conversion.
(i) In order to convert shares of Series A
Convertible Preferred Stock into shares of Common Stock, the Preferred A Holder
shall surrender the certificate or certificates therefore, duly endorsed for
transfer, at any time during normal business hours, to the Corporation at its
principal office or at such other office or agency then maintained by it for
such purpose (the "Payment Office"), accompanied by (A) a written notice, in
substantially the form of the conversion notice appearing at the end of this
Certificate of Designations (the "Conversion Notice") of such Preferred A
Holder's election to convert and (B) (if so required by the Corporation or any
conversion agent) an instrument of transfer, in form reasonably satisfactory to
the Corporation and to any conversion agent, duly executed by the registered
Preferred A Holder or by his duly authorized attorney; provided, however, that a
Preferred A Holder's notice may specify that its election to convert is
contingent upon the sale pursuant to a registration statement under the
Securities Act of 1933 (or any successor statute) of the shares of Common Stock
into which such holder's shares of Series A Convertible Preferred Stock are
convertible, in which case such conversion shall occur only upon, and to the
extent of, such sales. As promptly as practicable after the surrender for
conversion of any share of the Series A Convertible Preferred Stock in the
manner provided in the preceding sentence but in any event within three Business
Days after receipt of the Conversion Notice, the Corporation will deliver or
cause to be delivered
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at the Payment Office to or upon the written order of the holder of such shares,
certificates representing the aggregate number of shares of Common Stock
issuable upon such conversion, issued in such name or names as such holder may
direct, and, if the Series A Convertible Preferred Stock is exercised in part, a
new certificate representing the Series A Convertible Preferred Stock that has
not been converted. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares in proper order for conversion, and all rights of the Preferred A Holder,
solely with respect to the shares converted, shall cease at such time and the
Person or Persons in whose name or names the certificates for such shares of
Common Stock are to be issued shall be treated for all purposes as having become
the record holder or holders thereof at such time; provided, however, that any
such surrender and payment on any date when the stock transfer books of the
Corporation shall be closed shall constitute the Person or Persons in whose name
or names the certificates for such shares of Common Stock are to be issued as
the record holder or holders thereof for all purposes immediately prior to the
close of business on the next succeeding day on which such stock transfer books
are opened and such conversion shall be at the conversion price in effect at
such time on such succeeding day.
(ii) In the event that some but not all of the Series A
Convertible Preferred Stock outstanding is converted pursuant to this Section 5,
if such conversion causes the Corporation to incur a disproportionate amount of
expenses as compared to the respective proportion of costs and expenses that the
Corporation would have incurred if all of the Series A Convertible Preferred
Stock had been converted, then the Preferred A Holder must pay such costs and
expenses, but only to the extent such expenses are disproportionate.
(iii) The Corporation shall not be required to issue
fractional shares of Common Stock upon conversion of shares of Series A
Convertible Preferred Stock. At the Corporation's discretion, in the event the
Corporation determines not to issue fractional shares, in lieu of any fractional
shares to which the Preferred A Holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Current
Market Price.
(iv) The issuance of certificates for shares of Common
Stock upon conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of record of the shares
converted, the Person or Persons requesting the issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish, to the satisfaction of
the Corporation, that such tax has been paid or is not payable.
(v) Upon conversion of any shares of Series A Preferred
Stock, the holder thereof shall be entitled to receive any accrued dividends in
respect of such converted shares to the date of conversion.
10
<PAGE> 11
(g) Reservation of Stock Issuable Upon Conversion. The Corporation
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Convertible Preferred Stock, 12,200,000 shares of Common Stock.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Convertible Preferred Stock, the Corporation 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, taking
appropriate board action, recommending such an increase to the holders of Common
Stock, holding shareholders meetings, soliciting votes and proxies in favor of
such increase to obtain the requisite shareholder approval and upon such
approval, the Corporation shall reserve and keep available such additional
shares solely for the purpose of effecting the conversion of the shares of the
Series A Convertible Preferred Stock.
(h) Notices. Whenever the Conversion Factor is adjusted as
provided in Section 5 hereof, the Corporation shall promptly mail to the holders
of record of the outstanding shares of Series A Convertible Preferred Stock at
their respective addresses as the same shall appear in the Corporation's stock
records a notice stating that the Conversion Factor has been adjusted and
setting forth the new Conversion Factor and number of shares of Common Stock (or
describing the new stock, securities, cash or other property) into which each
share of Preferred Stock would be convertible on the effective date of and as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof, and the time when such adjustment became
effective. Any notice required by the provisions of this Section to be given to
the Preferred A Holders shall be given by certified mail, return receipt
requested.
(i) Reorganization, Merger or Sale of the Corporation.
(i) Notwithstanding any other provision hereof, in case
of (A) any reorganization or any reclassification of the capital stock of the
Corporation or (B) any sale of the Corporation if such transaction does not
constitute a liquidation, dissolution or winding up as provided in Section 3,
then, at the election of each Preferred A Holder, concurrently with the
consummation of such reorganization, reclassification or sale of the
Corporation, provision shall be made so that each share of Series A Convertible
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property (including cash) to which a holder of the
number of shares of Common Stock deliverable upon conversion of such shares of
Series A Convertible Preferred Stock would have been entitled assuming
conversion on the day immediately prior to the initial announcement of the
transaction or a proposed transaction that ultimately resulted in the
transaction. In any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Preferred A Holders,
to the end that the provisions set forth herein shall thereafter be applicable,
as nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
conversion of the shares of Series A Convertible Preferred Stock.
11
<PAGE> 12
(ii) After the Corporation has determined to enter into a
transaction described in Section 5(i)(i)(B), and publicly announces that the
Corporation will enter into such transaction, the Corporation will provide
written notice to each Preferred A Holder setting forth the material terms of
the transaction, together with all relevant information regarding such
transaction a least 60 days prior to the proposed date of the transaction.
(iii) In case of any merger, consolidation,
reclassification or other similar reorganization, to the extent the Corporation
is not the surviving entity, and the Corporation or the Preferred A Holders do
not otherwise redeem, repurchase or convert all outstanding shares of Series A
Convertible Stock, the Series A Convertible Preferred Stock shall be converted
into or exchanged for and shall become shares of the surviving Corporation
having, in respect of the surviving Corporation, substantially the same powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereon, that the Series A
Convertible Preferred Stock had immediately prior to such transaction.
6. REDEMPTION OPTION
(a) Redemption Price; Redemption Procedure. Subject to the
conversion rights set forth in Section 5 hereof, the Corporation shall have the
option (the "Redemption Option") to redeem the Series A Convertible Preferred
Stock, in whole or in part, at the Stated Value of the Series A Convertible
Preferred Stock ("Redemption Price") plus all accrued and unpaid dividends, at
any time after the daily average Closing Price for the Common Stock has been
$2.50 per share of Common Stock or above for 20 consecutive trading days;
provided, however, that if the Corporation achieves its Earnings Target and the
Conversion Price is adjusted as set forth in Section 5(b), the Redemption Option
may only be exercised, at any time after the daily average Closing Price for the
Common Stock has been $3.00 per share of Common Stock or above for 20
consecutive trading days. The Corporation shall exercise the Redemption Option
by giving the Preferred A Holders an irrevocable written notice (the "Redemption
Notice") specifying (A) the number of shares of Series A Convertible Stock to be
redeemed (and in the case of a partial redemption, the number of shares to be
redeemed with respect to each Preferred A Holder, as set forth below) and (B)
the proposed date of sale, which shall not be earlier than 30 days after the
delivery of the Redemption Notice. If the Redemption Notice is for some but not
all of the outstanding Series A Convertible Preferred Stock, the Redemption
Option shall be ratable among the Preferred A Holders in proportion to the
number of shares of Series A Convertible Preferred Stock owned by each Preferred
A Holder. Within the 30 days after the delivery of the Redemption Notice, each
of the Preferred A Holders may deliver a Conversion Notice with respect to all
or some of the Series A Convertible Preferred Stock held by such Preferred A
Holder in accordance with Section 5 hereof. On the 61st day after the Redemption
Notice, the Corporation shall redeem (ratably among the Preferred A Holders in
proportion to the number of shares of Series A Convertible Preferred Stock owned
by each Preferred A Holder) all of the Series A Convertible Preferred Stock for
which it has not received a Conversion Notice, up to the amount specified in the
Redemption Notice.
12
<PAGE> 13
(b) Redemption Closing. The redemption of Series A Convertible
Preferred Stock pursuant to the Redemption Option shall take place at the
offices of the Corporation at 10:00 a.m. local time on a Business Day (the
"Redemption Closing Date") that is no earlier than 61 days after the date of the
Redemption Notice and no later than 90 days after the date of the Redemption
Notice, which date shall be specified in the Redemption Notice. On or prior to
the Redemption Closing Date, the Corporation shall deliver a certified or bank
cashier's check to each Preferred A Holder that has not elected to convert its
Series A Convertible Preferred Stock, at his or its address as the same appears
in the transfer records of the Corporation, in an amount equal to the aggregate
of the Redemption Price multiplied by the number of shares redeemed plus all
accrued and unpaid dividends, or shall transfer such amount by wire transfer of
immediately available funds to any account specified in writing by such
Preferred A Holder to the Corporation. To the extent that less than all of the
shares of a Preferred A Holder's Series A Convertible Preferred Stock are
redeemed, the Corporation shall forthwith issue and deliver to such Preferred A
Holder, as appropriate, certificates representing outstanding Series A
Convertible Preferred Stock which the Preferred A Holder continues to own.
(c) Cessation of Dividends on Shares Redeemed. Provided that the
Redemption Notice has been mailed as stated in subsection (a) above, from and
after the close of business on the Redemption Closing Date (unless default shall
be made by the Corporation in providing money for the payment of the redemption
price of the shares called for redemption), dividends on the shares of the
Series A Convertible Preferred Stock redeemed shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Redemption Price) shall cease. Upon surrender in
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the Redemption Price aforesaid. If fewer than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(d) Status of Redeemed Shares. Upon redemption, any shares of the
Series A Convertible Preferred Stock which have been so redeemed shall be
retired and thereafter have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors or a
duly authorized committee thereof.
7. TRIGGERING EVENTS.
Each of the following actions or events shall constitute a
"Triggering Event" for purposes hereof:
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<PAGE> 14
(a) Failure to Redeem. The Corporation shall fail to redeem the
Series A Convertible Preferred Stock after providing the Redemption Notice to
the Preferred A Holders in accordance with Section 6.
(b) Failure to Pay Dividends. The Corporation shall fail to pay
any dividend on any Series A Convertible Preferred Stock on any Dividend Payment
Date in accordance with Section 2 for any reason, including but not limited to,
that such payment is prohibited by applicable law or the Board of Directors
elects not to pay such dividend, or shall otherwise violate any term of Section
2 and such failure shall not be cured within a period of 15 days after such
Dividend Payment Date or violation (which cure shall be effected in a manner
ensuring the holders the same yield as if such violation had not occurred).
(c) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by any Preferred A
Holders without obtaining the requisite approval of the Preferred A Holders,
including without limitation, the failure to elect the Board of Directors in
accordance with Section 4(a) above.
(d) Failure to Convert. The Corporation shall fail for any reason
to issue Common Stock as required under Section 5 upon the request of any
Preferred A Holder as provided in Section 5 or fail to comply with any other
term of Section 5 hereof or the Corporation.
(e) Registration Rights Agreement. The Corporation shall fail in
any material respect to comply with the Registration Rights Agreement dated as
of July 16, 1998 between the Corporation and USV Partners, LLC and their
permitted successors and assigns, and such failure shall continue for a period
of 30 days after notice from any such holder.
(f) Additional Financing. The Corporation shall fail in any
material respect to comply with Section 8.1(g) of the Investment Agreement
granting the Investor a right of first refusal in connection with any additional
debt or equity financing obtained by the Corporation.
(g) Accounting and Controls and Systems. The Corporation shall
fail in any material respect to comply with Section 8.1(h) of the Investment
Agreement regarding the employment of a controller and the establishment and
implementation of accounting systems and controls.
8. REMEDIES.
(a) Upon the occurrence and during the continuance of any
Triggering Event, the Dividend Rate on all outstanding Series A Convertible
Preferred Stock shall be increased as provided in Section 2 without any action
on the part of any Preferred A Holder.
(b) The Corporation stipulates that the remedies at law of each
Preferred A Holder in the event of any Triggering Event or threatened Triggering
Event or otherwise or other failure in the performance of or compliance with any
of the terms hereof are not and will not be adequate
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<PAGE> 15
and that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise without requiring any holder to post a bond or other security except
to the extent required by applicable law.
(c) Any Preferred A Holder shall be entitled to recover from the
Corporation the reasonable attorneys' fees and expenses incurred by such holder
in connection with any Triggering Event or enforcement by such holder of any
obligation of the Corporation hereunder.
(e) No failure or delay on the part of any Preferred A Holder in
exercising any right, power or remedy hereunder or under applicable law or
otherwise shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder
or thereunder. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law or otherwise.
15
<PAGE> 1
EXHIBIT 10.1
INVESTMENT AGREEMENT
between
U.S. TECHNOLOGIES INC.
and
USV PARTNERS, LLC
Dated as of July 16, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I DEFINITIONS 1
1.1 Definitions 1
1.2 Interpretation 8
1.3 Accounting Terms 9
ARTICLE II PURCHASE AND SALE OF PREFERRED SHARES 10
2.1 Purchase and Sale of Preferred Shares and Warrants 10
2.3 Use of Proceeds 10
ARTICLE III TERMS OF PREFERRED SHARES AND WARRANTS 10
3.1 The Preferred Shares and Warrants 10
ARTICLE IV CONDITIONS PRECEDENT TO INVESTOR'S
OBLIGATION TO CLOSE 10
4.1 Representations and Warranties 10
4.2 Documentation at Closing 11
4.3 Amended Organizational Documents 12
4.4 Key Person Life and Directors and Officers Liability Insurance 12
4.5 Unaudited Financial Statements 12
4.6 No Material Adverse Change 12
4.7 Amended Form 10-K and Form 8-K 12
4.8 Closing Price 13
ARTICLE V CONDITIONS PRECEDENT TO THE
COMPANY'S OBLIGATION TO CLOSE 13
5.1 Representations and Warranties 13
5.2 Documentation at Closing 13
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE INVESTOR 13
6.1 Organization. 14
6.2 Authority. 14
6.3 Consents and Approvals. 14
6.4 No Conflict or Violation. 14
6.5 Litigation. 14
6.6 Certain Fees. 15
6.7 Disclosure. 15
6.8 Investment Representation. 15
ARTICLE VII REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY GROUP 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
7.1 Organization. 16
7.2 Corporate Action 16
7.3 Capitalization of the Company: Status of Capital Stock. 16
7.4 Capital Stock of Subsidiaries 17
7.5 Subsidiaries. 17
7.6 Governmental Approvals 17
7.7 No Conflict or Violation. 17
7.8 Taxes. 18
7.9 Financial Statements. 19
7.10 Absence of Certain Changes or Events. 19
7.11 Real Property. 20
7.12 Personal Property. 21
7.13 Litigation. 22
7.14 Legal Compliance. 22
7.15 Environmental Matters. 22
(a) Compliance. 22
(b) Environmental Permits. 22
(c) Environmental Claims. 22
(d) Release of Hazardous Materials. 23
(e) Underground Storage. 23
(f) Asbestos, PCBs, Etc. 23
7.16 Insurance. 23
7.17 Intellectual Property. 24
7.18 Labor Matters. 24
7.19 Employee Benefits 25
7.20 Contracts. 26
7.21 Absence of Undisclosed Liabilities. 27
7.22 No Illegal or Improper Transactions. 27
7.23 Certain Fees. 27
7.24 Substantial Customers and Suppliers 27
7.25 Books and Records. 27
7.26 Assumptions or Guarantees of Indebtedness of Other Persons. 28
7.27 Disclosure 28
7.28 Securities Act. 29
7.29 Registration Rights 29
7.30 U.S. Real Property Holding Corporation 29
7.31 Investments in Other Persons 29
7.32 Computer Programs and Software 29
ARTICLE VIII COVENANTS 29
8.1 Affirmative Covenants of the Company 30
(a) Financial and Business Information 30
(b) Notice of Certain Events 31
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
(c) Inspection Rights 31
(d) Keeping of Records and Books of Account 31
(e) U.S. Real Property Holding Corporation 31
(f) Board of Directors and Committees 31
(g) Additional Financing 32
(h) Accounting Controls and Systems 32
(i) Directors and Officers Liability Insurance 32
8.2 Covenants of the Investor 32
(a) Permitted Transfers 32
(b) Securities Laws 34
8.3 Affirmative Covenant of the Kenneth H. Smith 34
ARTICLE IX INDEMNIFICATION 34
9.1 Indemnification 34
ARTICLE X TERMINATION 35
10.1 Termination by Either of the Investor or the Company 35
10.2 Effect of Termination and Abandonment 35
ARTICLE XI MISCELLANEOUS 36
11.1 Severability 36
11.2 Specific Enforcement. 36
11.3 Entire Agreement; Amendments. 36
11.4 Notices. 36
11.5 Waivers. 37
11.6 Headings. 37
11.7 Successors and Assignees. 38
11.8 No Third Party Beneficiaries. 38
11.9 Counterparts. 38
11.10 Governing Law. 38
11.11 Dispute Resolution 38
11.12 Drafting. 39
11.13 Waiver of Jury Trial. 40
11.14 Costs, Expenses and Taxes. 40
11.15 Further Assurances. 40
11.16 Disclosure to Other Persons 40
</TABLE>
EXHIBIT 3.1(a) - CERTIFICATE OF DESIGNATIONS
EXHIBIT 3.1(b) - WARRANTS
SCHEDULES
<PAGE> 5
INVESTMENT AGREEMENT
This Investment Agreement (the "Agreement") is made as of this 16th day
of July 1998, by and between USV Partners, LLC, a limited liability company
organized under the laws of the State of Delaware (the "Investor"), and U.S.
Technologies Inc. (the "Company"), a Delaware corporation (each, individually, a
"Party" and, collectively, the "Parties").
WITNESSETH:
WHEREAS, the Company desires to issue and sell to the Investor, and the
Investor desires to purchase from the Company, certain securities of the
Company, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which is hereby mutually
acknowledged, the Parties hereto agree as follows:
ARTICLE I DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"AAA" shall have the meaning given to it in Section 11.11(a).
"ACM" shall have the meaning given to it in Section 7.15(f).
"Action or Proceeding" means any action, suit, arbitration, proceeding
or Government Entity investigation or audit.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, a Person
shall be deemed to control another Person if it possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other Person, whether through ownership of voting securities,
by contract or otherwise.
"Agreement" means this Investment Agreement as from time to time
amended and in effect between the Parties, including all schedules and exhibits
hereto.
"Audited Financial Statements" has the meaning given it in Section 7.9.
<PAGE> 6
"Benefit Arrangement" means any arrangement, obligation, custom, or
practice, whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to present or former directors,
employees, agents, or independent contractors, other than any obligation,
arrangement, custom or practice that is a Benefit Plan, including, without
limitation, employment agreements, severance agreements, executive compensation
arrangements, including but not limited to stock options, restricted stock
rights and performance unit awards, incentive programs or arrangements, sick
leave, vacation pay, severance pay policies, plant closing benefits, salary
continuation for disability, consulting, or other compensation arrangements,
workers' compensation, retirement, deferred compensation, bonus, stock purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement or
scholarship programs, employee discounts, employee loans, any plans subject to
Section 125 of the Code, and any plans providing benefits or payments in the
event of a change of control, change in ownership or sale of a substantial
portion (including all or substantially all) of the assets of any business or
portion thereof, in each case with respect to any present or former employees,
directors or agents.
"Benefit Plan" has the meaning given in Section 3(3) of ERISA.
"Benefits" means any employee retirement, severance, profit sharing,
bonus, vacation, insurance, medical, social contribution, contribution for
occupational accidents, meals, travel or vehicle allowances, or any similar
benefit granted by any Member, whether under any employment contract, collective
bargaining arrangement, any other employee compensation arrangement, or required
under any applicable Law or Order.
"Board" means the Board of Directors of the Company.
"Books and Records" means all titles, documents, instruments, papers,
books and records relating to the business and operations of any Member,
including financial statements, tax returns and related workpapers and letters
from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title
policies, minute books, stock certificates, corporate books, stock transfer
ledgers, contracts, Licenses, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans.
"Business Day" means any day other than a Saturday, Sunday or public
holiday or the equivalent for banks under the laws of Washington, D.C. or
Atlanta, GA.
"Capital Lease" means any lease of property (real, personal or mixed)
which, in accordance with GAAP, is required to be capitalized on the lessee's
balance sheet.
"Certificate of Designations" means the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred Stock of U.S.
Technologies Inc., adopted by the Board of Directors on July 10, 1998.
<PAGE> 7
"Closing" has the meaning given it in Section 2.2.
"Closing Price" shall mean for each share of Common Stock for any day
(x) the last sale price, regular way, or, in case no such sale takes place on
such day, the average closing bid and asked prices, regular way, in either case
as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on NASDAQ National Market
System, the New York Stock Exchange or the American Stock Exchange, as
applicable or (y) the last sale price, regular way, before 5:00 p.m., or, in
case no such sale takes place on such day, the average closing bid and asked
prices, regular way, in either case as reported on the NASDAQ OTC Bulletin
Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means (a) the Company's common stock, with a par value
of $0.02 per share, as authorized on the date of this Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount per share, either to all or to a share of
the balance of current dividends and liquidating distributions after the payment
of dividends and distributions on any shares entitled to preference in the
payment thereof, and the holders of which shall ordinarily, in the absence of
contingencies, be entitled to vote for the election of directors of the Company,
and (c) any other securities into which or for which any of the securities
described in (a) or (b) above may be converted or exchanged pursuant to a plan
or recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" means U.S. Technologies Inc., a Delaware corporation, and its
successors and permitted assigns.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored
or maintained by any Member or with respect to which any Member has or may have
any liability (whether actual, contingent, with respect to any of its assets or
otherwise) as of the Closing, in each case with respect to any present or former
directors, employees, or agents of the Company Group.
"Company Group" means the Company and each of its Subsidiaries,
including, without limitation, Labor-to-Industry Inc., a Texas corporation, and
Service-to-Industry Inc., a Delaware corporation.
"Company Group Business" means and includes, with respect to any date,
all businesses engaged in by any Member.
"Company Plan" means, as of the Closing, any Benefit Plan for which any
Member is the "plan sponsor" (as defined in Section 3(16)(B) of ERISA, without
regard to whether that statute applies) or any Benefit Plan maintained by any
Member or to which any Member is obligated to make payments, in each case with
respect to any present or former employees of the Company
<PAGE> 8
Group. Company Plan includes any Qualified Plan terminated since January 1,
1994.
"Contracts" has the meaning given it in Section 7.20(a).
"Environmental Claims" means any and all claims, actions, causes of
action, or other written notices by any Person alleging potential Liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, Government Entity response costs, natural resources damages,
property damages, personal injuries, or civil or criminal penalties) arising out
of or resulting from (a) the presence or release into the environment of any
Hazardous Material at any location, whether or not owned or operated by any
Member, or (b) circumstances forming the basis of any violation of any
Environmental Laws.
"Environmental Laws" means any and all applicable Laws, Orders and
Licenses having the effect of law under the laws of the United States or any
state, province, county, city or other political subdivision thereof relating to
human health, the environment or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Materials or wastes into the environment,
including without limitation, ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
Hazardous Materials or wastes or the clean-up or other remediation thereof.
"Environmental Permits" means any and all Licenses of any Government
Entity relating to or required by Environmental Laws and necessary or proper for
the Company Group Business.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" means any Person that together with any Member, would
be or was at any time treated as a single employer under Section 414 of the Code
or Section 4001 of ERISA and any general partnership of which any Member is or
has been a general partner.
"GAAP" shall mean the generally accepted accounting principles of the
United States consistently applied.
"Government Entity" means any court or tribunal or administrative,
governmental or regulatory body, agency, commission, division, department,
public body or other authority.
"Hazardous Materials" means any and all toxic, radioactive, caustic or
otherwise hazardous substances, including petroleum, its derivatives, petroleum
derivative gases, by-products and other hydrocarbons, and any and all substances
having any constituent elements displaying any of the foregoing characteristics,
including, without limitation, any and all substances regulated under
Environmental Laws.
"Indebtedness" means all obligations, contingent and otherwise which
should, in accordance
<PAGE> 9
with GAAP, be classified upon the obligor's balance sheet as liabilities, but in
any event including, without limitation, liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (a) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be so
reflected in said balance sheet except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, and (b) the present value of any Capital Leases.
"Indebtedness for Money Borrowed" of a Person means at any time the sum
at such time, without duplication, of (a) Indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services, (b)
any obligations of such Person in respect of letters of credit, banker's or
other acceptances or similar obligations issued or created for the account of
such Person, (c) obligations of such Person with respect to Capital Leases, (d)
all liabilities secured by any Lien on any property owned by such Person, to the
extent attached to such Person's interest in such property even though such
Person has not assumed or become personally liable for the payment thereof, and
(e) obligations of third parties which are being guaranteed or indemnified
against by such Person or which are secured by the property of such Person; but
excluding trade and other accounts payable in the ordinary course of business in
accordance with customary trade terms and which are not overdue (as determined
in accordance with past practices) or which are being disputed in good faith by
such Person and for which adequate reserves are being provided on the books of
such Person in accordance with GAAP.
"Indemnified Liability" has the meaning given it in Section 9.1.
"Indemnitees" has the meaning given it in Section 9.1.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by any Member.
"Investment Documents" shall mean this Agreement, the Preferred Shares,
the Certificate of Designations, the Warrants and the Registration Rights
Agreement.
"Investor" means USV Partners, LLC, a Delaware limited liability
company.
"Knowledge" means, with respect to any Person except the Company, the
knowledge that such Person has or should have after reasonable inquiry.
"Knowledge of the Company" means the actual or constructive knowledge
of the Company and of the directors and Principal Officers of any Member, other
than Gregory C. Earls.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements
<PAGE> 10
having the effect of law in the United States, or any state, province, county,
municipality or other political subdivision thereof.
"Leased Real Property" has the meaning given it in Section 7.11(b).
"Leased Real Property Tangible Assets" has the meaning given it in
Section 7.11(d).
"Liabilities" means all Indebtedness, obligations, and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates, approvals,
registrations, franchises and similar consents granted or issued by a Government
Entity or any other Person.
"Lien" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge, preference, priority or other security agreement, option, warrant,
attachment, right of first refusal, preemptive, conversion, put, call or other
claim or right, restriction on transfer (other than restrictions imposed by
applicable securities Laws), or preferential arrangement of any kind or nature
whatsoever (including any restriction on the transfer of any assets), any
conditional sale or other title retention agreement, any financing lease
involving substantially the same economic effect as any of the foregoing and the
filing of any financing statement or similar document with any pertinent public
or private registry.
"Losses" has the meaning given it in Section 9.1(a).
"Material Adverse Effect" means, with respect to any Member, a material
adverse effect on the business, assets, liabilities, revenues, costs and
expenses, income before provision for income taxes, operations or condition,
financial or otherwise, of the Company Group as a whole. In determining whether
any individual event would result in a Material Adverse Effect, notwithstanding
that such event does not of itself have such effect, a Material Adverse Effect
shall be deemed to have occurred if the cumulative effect of such event and all
other then existing events could reasonably be expected to result in a Material
Adverse Effect.
"Member" means any member of the Company Group.
"Net Worth" means, with respect to any Member and as of any date, the
assets of such Member less the liabilities of such Member, in each case as of
such date and calculated in accordance with GAAP.
"Order" means any writ, judgment, decree, injunction or similar order
of any Government Entity (in each case whether preliminary or final).
"Organizational Documents" means with respect to any Person, articles
of incorporation, certificates of incorporation, by-laws, partnership agreement,
articles of association, joint venture
<PAGE> 11
or other agreement, instrument or document, individually or collectively,
pursuant to which such Person is established or organized, and that governs the
internal affairs of such Person, as such documents may be amended from time to
time.
"Owned Real Property" has the meaning given it in Section 7.11(a).
"Party" means any party to this Agreement.
"PCBs" has the meaning given to it in Section 7.15(f).
"Person" means and includes any individual, partnership, joint venture,
corporation, trust, limited liability company, joint stock company,
unincorporated organization, Government Entity or any political subdivision or
agency thereof, or any other entity.
"Personal Property" has the meaning given it in Section 7.12.
"Preferred Shares" has the meaning given it in Section 2.1.
"Preferred Stock" means all series of preferred stock of the Company.
"Principal Officer" means any management level employee.
"Purchase Price" has the meaning given it in Section 2.1.
"Qualified Plan" means any Company Plan that meets, purports to meet,
or is intended to meet the requirements of Section 401(a) of the Code.
"Registration Rights Agreement" means the registration rights agreement
by and between the Company and the Investor dated as of July 16, 1998.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor federal statute, and the rules and regulations of the United
States Securities and Exchange Commission (or any other federal agency at that
time administering the Securities Act) thereunder, all as the same shall be in
effect at the time.
"Software" has the meaning given to it in Section 7.32.
"Subsidiary" or "Subsidiaries" means (a) any entity with more than
fifty percent (50%) of whose capital stock of any class or classes having by the
terms thereof ordinary voting power to elect directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such entity shall have or might have voting power by reason of the happening of
any contingency) is at the time owned directly or indirectly by any one or more
Members and (b) any partnership association, joint venture or other entity in
which any one or more of its Members has more than a
<PAGE> 12
fifty percent (50%) equity interest at the time.
"Tangible Assets" shall have the meaning given to it in Section
7.11(c).
"Tax Return" means any report, return, statement or other written
information required to be supplied to a taxing authority in connection with
Taxes.
"Taxes" means (a) any and all taxes, levies or other like assessments,
charges or fees (including estimated taxes, charges and fees), including,
without limitation, income, corporation, add-on minimum, ad valorem, advances,
gross receipts, transfer, excise, property, sales, use, value-added, License,
payroll, employment, severance, pay as you earn, withholding on amounts paid by
or to the relevant party, social security and franchise or other governmental
taxes or charges, imposed by the United States or by any other nation, state,
province, county, local or foreign government or by any subdivision or agency of
the foregoing; and such term shall include any interest (punitive or otherwise),
penalties or additions to tax related or attributable to such taxes; and (b)
Liability for the payment of any amounts of the type described in (a) as a
result of any obligation to indemnify any other Person.
"Third Party Claim" shall have the meaning given to it in Section
9.2(a).
"Third Party Offer" shall have the meaning given to it in Section
8.1(g).
"Unaudited Financial Statements" has the meaning given in it in Section
4.5.
"Warrants" shall have the meaning given it in Section 2.1.
1.2 Interpretation. Unless otherwise expressly provided herein (a)
defined terms in the singular include the plural and vice versa, and the
masculine, feminine and neuter gender include all genders; (b) the words
"hereof," "herein" and "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular provision of this Agreement; (c)
the words "include," "includes," and "including" mean include, includes and
including "without limitation" and "without limitation by specification"; and
(d) references to any Person shall be construed as a reference to such Person
and any permitted successors or assigns of such Person; (e) references to
"consent" shall mean prior consent evidenced in writing; (f) terms such as
"satisfactory to ______" "acceptable to _________," "in such manner as ______
may determine," to ______'s satisfaction," and phrases of similar import
authorize and permit such Party to approve, disapprove, act or decline to act,
unless otherwise specified herein, in its reasonable discretion without
unreasonable delay or condition; and (g) references to Sections refer to
Sections of this Agreement.
1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement and all financial tests to be
calculated in accordance with this Agreement shall be prepared and calculated in
accordance with GAAP. All financial tests described herein relating to the
Company shall be calculated with respect to the Company Group on a consolidated
basis.
<PAGE> 13
ARTICLE II PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
2.1 Purchase and Sale of Preferred Shares and Warrants. The
Company agrees to issue and sell to the Investor, and, subject to and in
reliance upon the representations, warranties, terms and conditions of this
Agreement, the Investor agrees to purchase (a) 500,000 shares of the Company's
Series A Convertible Preferred Stock, with a par value of $0.02 per, duly
authorized, validly issued, fully paid, non-assessable and free and clear of any
and all Liens (the "Preferred Shares"), and (b) a warrant to purchase 500,000
shares of Common Stock with a par value of $0.02 per share (the "Warrants"). The
aggregate purchase price for the Preferred Stock and the Warrants shall be
$5,000,000 (the "Purchase Price")
2.2 The Closing. Such purchase and sale shall take place at a
closing ("Closing") to be held at the offices of Wilmer, Cutler & Pickering at
10:00 a.m. local time on July 16, 1998. At the Closing, (i) the Company will
issue to the Investor a certificate evidencing the Preferred Shares, registered
in the name of the Investor; (ii) the Company will issue to the Investor a
certificate evidencing the Warrants registered in the name of the Investor; and
(iii) the Investor will pay the Purchase Price to the Company in immediately
available funds by wire transfer, to an account or accounts designated by the
Company prior to the Closing.
2.3 Use of Proceeds. The Company agrees to use the full proceeds
from the sale of the Preferred Shares and the Warrants for general corporate
purposes and to pay the Investor's expenses as set forth in Section 11.14.
ARTICLE III TERMS OF PREFERRED SHARES AND WARRANTS
3.1 The Preferred Shares and Warrants. (a) The Company has
authorized the issuance and sale to the Investor of the Preferred Shares. The
terms of the Preferred Shares shall be as set forth in the Certificate of
Designations in the form of Exhibit 3.1(a).
(b) The Company has authorized the issuance and sale to
the Investor of the Warrants. The terms of the Warrants shall be as set forth in
the form of Warrant attached as Exhibit 3.1(b).
ARTICLE IV CONDITIONS PRECEDENT TO INVESTOR'S OBLIGATION TO CLOSE
The obligation of the Investor to purchase and pay for the Preferred
Shares and the Warrants at the Closing is subject to satisfaction of each the
following conditions, all or any of which may be waived in writing by the
Investor:
4.1 Representations and Warranties. Each of the representations
and warranties of the Company set forth in Article VII hereof shall be true and
correct in all material respects.
<PAGE> 14
4.2 Documentation at Closing. The Investor shall have received
prior to or at the Closing all of the following, each in form and substance
satisfactory to the Investor and its special counsel:
(a) The Certificate of Designations as adopted by the
Board, attested by the Secretary or Assistant Secretary of the Company and filed
with the Secretary of State of the State of Delaware.
(b) Stock certificates, duly executed by the Company,
representing the Preferred Shares; and copies of the stock book of the Company
containing board minutes or consent resolutions, executed by the directors of
the Company, evidencing the issuance of the Preferred Shares to the Investor,
which shall occur prior to or simultaneously with the consummation of the
transactions contemplated hereby.
(c) The Warrants, duly executed by the Company, and
copies of the stock book of the Company containing board minutes or consent
resolutions, executed by the directors of the Company, evidencing the issuance
of the Warrants to the Investor, which shall occur prior to or simultaneously
with the consummation of the transactions contemplated hereby.
(d) A certificate of the Secretary or an Assistant
Secretary of the Company dated the date of Closing, which shall certify the
names of the officers of the Company authorized to sign the Investment Documents
and any other documents or certificates to be delivered pursuant thereto,
together with the true signatures of such officers.
(e) Certified copies of the resolutions of the Board of
Directors and, to the extent required, the shareholders of the Company
evidencing approval of: (i) the Investment Documents, (ii) all other matters
contemplated thereby and (iii) this transaction by not less than two "Continuing
Directors" such that the Investor will not be deemed to be an "Acquiring Person"
(as such terms are defined in the Rights Agreement dated as of October 31, 1997
between the Company and American Securities Transfer & Trust, Inc.).
(f) Certified copies of the Organizational Documents of
each Member and certified copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, with respect to
the Investment Documents and all other matters contemplated thereby.
(g) The opinion of Smith, Gambrell & Russell, LLP,
counsel for the Company, in form acceptable to the Investor's counsel.
(h) A certificate from a duly authorized officer of the
Company stating that each of the representations and warranties contained in
Article VII hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct in all material
respects and that all the conditions set forth in this Article IV have been
satisfied other than those, if any, waived by the Investor in writing.
<PAGE> 15
(i) Such other documents referenced in any Schedule
hereto or relating to the transactions contemplated by the Investment Documents
as the Investor or its special counsel may reasonably request.
4.3 Amended Organizational Documents. The Board of Directors of
the Company shall have duly authorized the issuance of the Preferred Shares on
the terms set forth in the Certificate of Designations attached hereto as
Exhibit 3.1(a) and the issuance of the Warrants on the terms set forth in the
form of Warrant attached hereto as Exhibit 3.1(b). The Board of Directors shall
have adopted a resolution setting forth the proposed amendment to the Company's
Restated Certificate of Incorporation to eliminate the provision set forth in
Section 4 thereof restricting the preferential amount payable with respect to
preferred shares in the event of an involuntary liquidation and directing that
such proposed amendment be considered at the next annual shareholders meeting,
if it has not been approved prior to such annual meeting by the written consent
of the shareholders.
4.4 Key Person Life and Directors and Officers Liability
Insurance. The Company shall have obtained, and shall maintain, with a
financially sound and reputable insurance company term life insurance on the
life of Kenneth H. Smith in the face amount of at least $2,000,000.
4.5 Unaudited Financial Statements. The Investor shall have
received a copy of the unaudited financial statements for the Company Group for
the three-month period ended March 31, 1998 (prepared on a basis consistent in
all material respects with the audited financial statements for the year ended
December 31, 1997 described in Section 7.9), including therein consolidated and
consolidating balance sheets of the Company Group as of the end of such
three-month period and consolidated and consolidating statements of income and
of shareholders' equity and of cash flows of the Company Group for such
three-month period, together with all schedules and notes thereto (the
"Unaudited Financial Statements"); and the financial conditions and performance
of the Company Group so reflected in the Unaudited Financial Statements shall be
satisfactory to the Investor in its sole discretion.
4.6 No Material Adverse Change. Since March 31, 1998, there shall
have been no Material Adverse Effect.
4.7 Amended Form 10-K and Form 8-K. The Company shall have amended
the Form 10-K filed with the U.S. Securities Exchange Commission on May 19, 1998
to reflect the conditional nature of the financing set forth in Section 8.1(g),
by filing an amended Form 10-K with the U.S. Securities Exchange Commission. The
Company shall have amended the Form 8-K filed with the U.S. Securities Exchange
Commission on September 26, 1997 to reflect the option granted by GWP, Inc. to
Komen Holdings Pty., Ltd. to purchase 400,000 shares of common stock of the
Company by filing an amended Form 8-K with the U.S. Securities Exchange
Commission.
4.8 Closing Price. The Closing Price for the Common Stock for the
day immediately preceding the date of Closing is $0.70 per share of Common Stock
or more.
<PAGE> 16
ARTICLE V CONDITIONS PRECEDENT TO THE
COMPANY'S OBLIGATION TO CLOSE
The obligation of the Company to issue and sell to the Investor the
Preferred Shares and the Warrants at the Closing is subject to satisfaction of
each the following conditions, all or any of which may be waived in writing by
the Company:
5.1 Representations and Warranties. Each of the representations
and warranties of the Investor set forth in Article VI hereof shall be true and
correct in all material respects.
5.2 Documentation at Closing. The Company shall have received
prior to or at the Closing all of the following, each in form and substance
satisfactory to the Company and its special counsel:
(a) Certified copies of the resolutions of the Investor
and, to the extent required, the members of the Investor evidencing approval of
the Investment Documents and all other matters contemplated thereby; certified
copies of the Certificate of Formation of the Investor and certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to the Investment Documents and all
other matters contemplated thereby.
(b) The opinion of Wilmer, Cutler & Pickering, special
counsel for the Investor, in form acceptable to the Company's counsel.
(c) A certificate from a duly authorized officer of the
Investor stating that each of the representations and warranties contained in
Article VI hereof and otherwise made by the Investor in writing in connection
with the transactions contemplated hereby are true and correct in all material
respects and that all the conditions set forth in this Article V have been
satisfied other than those, if any, waived by the Company in writing.
(d) Such other documents referenced or relating to the
transactions contemplated by the Investment Documents as the Company or its
special counsel may reasonably request.
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants as of the date of this
Agreement and as of the Closing that:
6.1 Organization. It is duly organized, validly existing and in
good standing under the laws of the State of Delaware.
6.2 Authority. It has the power and authority to enter into the
Investment Documents, as applicable, and to carry out its obligations
thereunder. The execution, delivery and performance
<PAGE> 17
of the Investment Documents by the Investor and the consummation by the Investor
of the transactions contemplated thereby have been duly authorized by all
necessary internal proceedings, and no other internal proceedings on the part of
the Investor are necessary to authorize the Investment Documents or the
transactions contemplated thereby. Each Investment Document to which the
Investor is a party has been duly and validly executed and delivered by the
Investor and (assuming this Agreement constitutes a valid and binding obligation
of the Company) constitutes a valid and binding agreement of the Investor,
enforceable against the Investor in accordance with its respective terms, except
as enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally and by general principles of equity.
6.3 Consents and Approvals. No filing with, and no License of, any
Government Entity is necessary for the execution, delivery and performance of
this Agreement or the other documents contemplated hereby by the Investor and
the consummation by the Investor of the transactions contemplated by the
Investment Documents.
6.4 No Conflict or Violation. The execution, delivery and
performance of the Investment Documents to which the Investor is a party, the
consummation of the transactions contemplated thereby, the fulfillment of the
terms thereof, and the compliance with any of the provisions thereof will not:
(a) conflict with or result in a breach or violation of the Organizational
Documents of the Investor; (b) conflict with, or result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation, vesting,
payment, exercise, acceleration, suspension, revocation or modification) under,
any of the terms, conditions or provisions of any note, credit agreement, bond,
mortgage, deed of trust, security instrument, indenture, lease, License,
Contract, plan or other instrument or obligation to which the Investor is a
party or by which it or any of its respective properties or assets may be bound
or affected; (c) violate any Order or Law applicable to the Investor or any of
its properties or assets, except, in the case of clauses (a) or (b), for such
violations, breaches, defaults or rights of termination, cancellation,
acceleration, creation, imposition, suspension, revocation or modification as to
which requisite waivers or consents have been obtained by the Investor on or
prior to the Closing.
6.5 Litigation. There is no claim, Action or Proceeding (whether
at law or equity, before or by any Government Entity or before any arbitrator)
pending or, to the Knowledge of the Investor, threatened against or affecting
the Investor, the outcome of which would in any manner impair the ability of the
Investor to perform its obligations under the Investment Documents.
6.6 Certain Fees. The Investor has not entered into, nor will it
enter into, during the term of this Agreement, any agreement, arrangement or
understanding with any Person that will result in the obligation of the Company
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby.
6.7 Disclosure. No representation or warranty by the Investor in
this Agreement or any
<PAGE> 18
Exhibit or Schedule hereto, or any certificate furnished or to be furnished by
the Investor in connection with this Agreement, contains or will contain an
untrue statement of material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading.
6.8 Investment Representation.
(a) The Investor acknowledges that the Preferred Shares
and Warrants are not registered under the securities laws of any jurisdiction
and that it is acquiring the Preferred Shares for its own account, and not as
nominee or agent.
(b) The Preferred Shares and Warrants are being and will
be acquired for the purpose of investment and not with a view to distribution or
resale thereof, subject, nevertheless, to the condition that, except as
otherwise provided herein and subject to compliance with applicable securities
laws, the disposition of the property of the Investor shall at all times be
within its control.
(c) It hereby acknowledges that the Preferred Shares and
Warrants and any other securities issued in respect of such securities upon any
stock split, stock dividend, recapitalization, merger or similar event (unless
no longer required in the opinion of counsel) shall bear a legend substantially
in the following form (in addition to any other legend required by the
Investment Documents):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN OPINION OF
LEGAL COUNSEL (REASONABLY SATISFACTORY TO U.S. TECHNOLOGIES INC. AND
ITS LEGAL COUNSEL) THAT SUCH SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION IS IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
The acquisition by the Investor of the Preferred Shares and Warrants shall
constitute a confirmation by it of the foregoing representations and warranties.
ARTICLE VII REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY GROUP
The Company represents and warrants as of the date hereof and as of the
Closing that:
7.1 Organization. The Company is a corporation, duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Labor-to-Industry Inc. is a corporation, duly organized, validly
existing and in good standing under the Laws of the State of Texas.
Service-
<PAGE> 19
to-Industry Inc. is a corporation duly organized, validly existing and in good
standing under the Laws of Delaware. Each Member (a) has all requisite corporate
power and authority to own, lease and operate its property and to conduct its
business as it is now being conducted and presently proposed to be conducted;
(b) is in compliance with all Laws applicable to it or its business, including
but not limited to any tax Laws, and (c) has obtained and maintained all
Licenses required to conduct its business as it is currently being conducted and
presently proposed to be conducted. Each Member is duly qualified, licensed or
admitted to do business and is in good standing in all jurisdictions in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary. Schedule 7.1 contains a list of each Member and of all jurisdictions
in which each Member is so qualified and all lines of business in which each
Member is currently participating or is currently engaged. True, complete and
correct copies of the Organizational Documents presently in effect for each
Member have been delivered to the Investor. No Member is in violation of its
Organizational Documents.
7.2 Corporate Action. The Company has all necessary corporate
power and has taken all corporate action required to make all the provisions of
the Investment Documents and any other agreements and executed by it in
connection therewith valid and enforceable obligations of the Company. The
Company has duly executed and delivered each of the Investment Documents and
each other agreement and instrument executed by it in connection therewith, and
each is a legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally and by general
principles of equity. Neither the issuance of the Preferred Shares nor the
Warrants is subject to preemptive or other similar statutory or contractual
rights.
7.3 Capitalization of the Company: Status of Capital Stock. (a)
The Preferred Shares, when issued and paid for at the Closing, will be duly
authorized, validly issued and fully paid and nonassessable and free and clear
of all Liens other than Liens created by the Investor. As of the Closing, the
Company shall have a total authorized capitalization consisting of 40,000,000
shares of Common Stock, of which 28,671,278 shares will be issued and
outstanding, and 10,000,000 shares of Preferred Stock of which 500,000 shares
will be issued and outstanding.
(b) Except for the Warrants and as disclosed on Schedule
7.3(b), as of the Closing there will be no options, warrants or rights to
purchase shares of capital stock or other securities of the Company authorized,
issued or outstanding, nor will the Company be obligated in any other manner to
issue shares of its capital stock or other securities. There are no restrictions
on the transfer of shares of capital stock of the Company other than those
imposed by relevant state and federal securities laws. Except as set forth in
this Agreement, no holder of any security of the Company is entitled to
preemptive or similar statutory or contractual rights, either arising pursuant
to any agreement or instrument to which the Company is a party, or which are
otherwise binding upon the Company. The offer and sale of all shares of capital
stock and other securities of the Company issued before the Closing complied
with or were exempt from all federal and state securities laws.
<PAGE> 20
7.4 Capital Stock of Subsidiaries. Schedule 7.4 sets forth a list
of each Subsidiary of the Company and its jurisdiction of incorporation or
organization. As of the Closing, the Company owns, directly or indirectly, all
of the outstanding capital stock of each of the Subsidiaries, beneficially and
of record, free and clear of all Liens. All the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized, are validly issued
and are fully paid and nonassessable and free and clear of all Liens. There are
no options, warrants or rights to purchase shares of capital stock or other
securities of any of the Subsidiaries authorized, issued or outstanding, nor is
any Subsidiary obligated in any other manner to issue shares of its capital
stock or other securities.
7.5 Subsidiaries. Other than the outstanding capital stock of each
of the Subsidiaries set forth on Schedule 7.4, no Member has any Subsidiaries or
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock, or any other
equity or similar interest, in any Person; nor is any Member directly or
indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
7.6 Governmental Approvals. No authorization, consent, approval,
License, exemption, of or filing or registration with any court or Government
Entity is or will be necessary for, or in connection with, the offer, issuance,
sale, execution or delivery by the Company of, or for the performance by the
Company of its obligations under any of the Investment Documents other than
under applicable securities laws with respect to the transactions contemplated
by the registration rights set forth in the Registration Rights Agreement.
7.7 No Conflict or Violation. The execution, delivery and
performance of the Investment Documents, the consummation of the transactions
contemplated thereby, the fulfillment of the terms hereof, and the compliance
with any of the provisions hereof will not:
(a) conflict with, or result in a breach or violation of
the Organizational Documents of any Member;
(b) conflict with, or result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation, vesting, payment,
exercise, acceleration, suspension, revocation or modification) under, any of
the terms, conditions or provisions of any note, credit agreement, bond,
mortgage, deed of trust, security instrument, indenture, lease, License,
Contract, plan or other instrument or obligation to which any Member is a party
or by which any Member or any of their respective properties or assets may be
bound or affected, or result in the creation or imposition of any material Lien
on any of the assets or properties of any Member pursuant to (i) any Law to
which any Member or any of its property is subject, or (ii) any Order to which
any Member is bound or any of its respective property is subject;
(c) violate any Order or Law applicable to any Member or
any of its respective properties or assets.
<PAGE> 21
7.8 Taxes.
(a) Each Member has (i) duly filed (or has had filed on
its behalf) with the appropriate Government Entities all Tax Returns required to
be filed by it, all of which Tax Returns are true, correct and complete in all
respects and (ii) duly paid in full all Taxes owed by it whether or not shown on
any Tax Return;
(b) Each Member has withheld and paid to the proper
Government Entity all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party;
(c) No Actions or Proceedings, or other administrative or
court claims are presently pending or, to the Knowledge of the Company,
threatened or contemplated with regard to any Taxes or Tax Returns of any
Member;
(d) The income Tax Returns of each Member have been filed
with the appropriate Government Entities for all periods through and including
December 31, 1997, and no deficiencies were asserted as a result of any such
filings that have not been resolved and fully paid; no Member has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment, collection or payment of any Taxes for
which any Member may be liable;
(e) There are no Liens outstanding against any assets,
properties or business of any Member which arise from
or are otherwise related to Taxes or Tax Returns;
(f) True, correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or agreed to
by any Member since December 31, 1997 have been made available to the Investor
or its Affiliates for review; and
(g) No Member is a party to any Tax sharing, Tax
indemnity or other agreement or arrangement relating to Taxes with any Person.
7.9 Financial Statements. The Company has delivered to the
Investor true, correct and complete copies of its audited consolidated balance
sheets as of December 31, 1997 and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the fiscal year then
ended, together with all schedules and notes thereto and an unqualified
auditor's opinion (the "Audited Financial Statements"). The Company has also
delivered to the Investor a true, correct and complete copy of the Unaudited
Financial Statements. The Audited Financial Statements and the Unaudited
Financial Statements fairly present, or will fairly present, in conformity with
GAAP, applied on a consistent basis in accordance with past practice (except as
may be indicated in the notes thereto), the consolidated financial position of
the Company Group as of the respective dates thereof and the results of its
operations and its cash flows for the periods then ended. The notes to the
Unaudited Financial Statements for the Period ended March 31, 1998 have been
prepared in a
<PAGE> 22
manner consistent with the notes to the Audited Financial Statements heretofore
delivered. A schedule of Indebtedness for Money Borrowed of the Company Group as
of the Closing (including Capital Leases) is attached hereto as Schedule 7.9.
7.10 Absence of Certain Changes or Events. Since the date of the
Audited Financial Statements, each Member has conducted its business in the
ordinary and regular course consistent with past practices, and there has not
been:
(a) any Material Adverse Effect;
(b) any material damage, destruction or casualty loss to
any material asset or property of any Member that is not covered by insurance
that will be promptly paid to the Member;
(c) except as disclosed in Schedule 7.10, any entry into
any employment agreement, deferred compensation or other similar agreement or
any arrangement with any of their officers or employees; any increase in the
rate or terms of the compensation payable or to become payable to employees of
any Member, except increases occurring in accordance with customary practices or
in accordance with existing collective bargaining or employment agreements, or
any modification in employee benefits, or any borrowing of money from any Member
by any employee of any Member (other than routine travel and similar advances);
(d) any waiver by any Member of any rights or claims
having value, except rights or claims not in excess of $10,000, in the
aggregate, or that were waived in the ordinary course of business and consistent
with past practice;
(e) any failure to collect the accounts receivable of any
Member other than in the ordinary course of business and in amounts not
exceeding the applicable reserves or to pay the accounts payable and other
current liabilities of any Member in any manner when due other than amounts that
are subject to a bona fide dispute;
(f) any sale, assignment, lease, transfer or other
disposition, or the execution of any agreement for the sale, assignment, lease,
transfer or other disposition, of any assets of any Member, except in the
ordinary course of business and consistent with past practice;
(g) any change by any Member in accounting or bookkeeping
methods, principles or practices, except as required by GAAP;
(h) any borrowing of money, including any increase or
extension of purchase money credit of any Member or any increase in the
Liabilities of any Member from those reflected in the Unaudited Financial
Statements other than current Liabilities incurred in the ordinary course of
business and consistent with past practice;
(i) any transaction with any officer, director or
shareholder (including any of their
<PAGE> 23
respective family members) of any Member or any of their respective Affiliates,
other than payments of salary and employee benefits in the ordinary course;
(j) any declaration or payment of any dividend or other
distribution on or with respect to, or any redemption or purchase or other
acquisition of, the capital stock of any Member;
(k) any change in any material Tax election or any other
action with respect to Taxes that is inconsistent with past practices;
(l) any material change in the Net Worth of any Member;
or
(m) any agreement, arrangement or understanding, whether
oral or written, to do any of the foregoing matters listed in clauses (a)
through (l) inclusive.
7.11 Real Property.
(a) Schedule 7.11(a) lists all real property owned,
whether or not used by any Member (the "Owned Real Property"). Except as further
set forth in Schedule 7.11(a) and except for utility easements and public rights
of way, each Member has good and marketable title in its Owned Real Property,
free and clear of all Liens. With respect to any Owned Real Property, no Member
has received written notice (nor has any reason to believe such exists) of any
violation of any applicable zoning ordinance, building code, use or occupancy
restriction, or other law, or any condemnation, Action or Proceeding with
respect thereto.
(b) Schedule 7.11(b) lists all real property leased,
whether or not used, by the Members (the "Leased Real Property"). Except as set
forth in Schedule 7.11(b), each Member has a valid and existing lease or
sublease for, and is in peaceful and undisturbed possession of, all Leased Real
Property. All leases covering any of the Leased Real Property are valid and
enforceable in accordance with their respective terms, are, to the Knowledge of
the Company, in full force and effect, and there is no material default by any
Member or by any landlord or lessor under any such lease, or any condition,
event or act that, with the giving of notice or lapse of time, or both, would
constitute such a default. With respect to any Leased Real Property, no Member
has received written notice (nor has any reason to believe such exists) of any
violation of any applicable zoning ordinance, building code, use or occupancy
restriction, or other Law, or any condemnation or Action or Proceeding with
respect thereto.
(c) All structures and improvements, and all structural,
mechanical and other physical systems thereof that constitute part of the Owned
Real Property, including but not limited to, the walls, roofs and structural
elements thereof and the heating, ventilation, air conditioning, plumbing,
electrical, mechanical, sewer, waste water, storm water, paving and parking
equipment, systems and facility included therein (collectively, the "Tangible
Assets") (i) are usable in the ordinary course of the operations and business of
the Members; and (ii) have been maintained in a reasonably prudent manner in the
ordinary course of the operations and business of the Members.
<PAGE> 24
No maintenance or repair to the Owned Real Property or any Tangible Assets has
been unreasonably deferred.
(d) To the Knowledge of the Company, all structures and
improvements, and all structural, mechanical and other physical systems thereof
that constitute part of the Tangible Assets and other material items of tangible
property and assets at any of the Leased Real Property (collectively, the
"Leased Real Property Tangible Assets") (i) are usable in the ordinary course of
the operations and business of the Members; and (ii) have been maintained in a
reasonably prudent manner in the ordinary course of the operations and business
of the Members. To Knowledge of the Company, no maintenance or repair to the
Leased Real Property or any Leased Real Property Tangible Assets has been
unreasonably deferred.
7.12 Personal Property. Schedule 7.12 lists all personal property
leased, whether or not used, by each of the Members. Each Member owns or
otherwise possesses adequate rights to use such items of personal property that
are being used in the conduct or operation of the Company Group Business (the
"Personal Property"). Each Member has good and marketable title to all Personal
Property owned and used by it, free and clear of all material Liens. All
Personal Property (A) is in good working order and condition, ordinary wear and
tear excepted, (B) is usable in the ordinary course of business; and (C) has
been maintained in a reasonably prudent manner in the ordinary course of
business. All fixed assets used by any Member that are material to the operation
of the Company Group Business are owned by the applicable Member.
7.13 Litigation. Except as described in Schedule 7.13, there is no,
and for the past three (3) years there has been no, claim, Action or Proceeding
(whether at law or equity, before or by any Government Entity or before any
arbitrator) pending or, to the Knowledge of the Company, threatened against or
affecting any Member or any of its assets or properties that would result in a
Material Adverse Effect upon any Member. There are no Orders, stipulations or
awards (whether rendered by a Government Entity or by arbitration) against any
Member or against any of its respective properties, assets or business.
7.14 Legal Compliance. To the Knowledge of the Company, except for
matters covered by Section 7.15, each Member has conducted its operations in
compliance in all material respects with all applicable Laws. Except for matters
covered by Section 7.15, neither the Company nor any director or Principal
Officer of any Member has received any written complaint or notice from any
Government Entity alleging that it has violated any Order or Law and, to the
Knowledge of the Company, no such complaint or notice is threatened.
7.15 Environmental Matters.
(a) Compliance.
(i) Each Member is in material compliance with
all applicable Environmental Laws.
<PAGE> 25
(ii) No Member has received any written
communication from any Person or Government Entity that alleges that any Member
is not in compliance with applicable Environmental Laws or Environmental
Permits.
(b) Environmental Permits. Each Member has all
Environmental Permits necessary for the conduct and operation of its business,
and all such Environmental Permits are in good standing, and each Member is in
compliance with all terms and conditions of all such Environmental Permits and
is not required to make any material expenditure in order to obtain or renew any
Environmental Permits.
(c) Environmental Claims.
(i) There is no Environmental Claim pending or,
to the Knowledge of the Company, threatened against any Member, or against any
(A) Owned Real Property, (B) Leased Real Property, (C) Personal Property, (D)
operation that any Member owns, leases or manages, in whole or in part, or (E)
other property for which any Member would be responsible, in whole or in part,
for an Environmental Claim.
(ii) No Member has received notice that it is
liable for any response, removal, investigative or remedial costs under any
applicable Law.
(iii) All Hazardous Materials any Member may have
generated have been transported, stored, treated or disposed of by carriers or
treatment, storage and disposal facilities authorized or permitted under all
applicable Environmental Laws and Environmental Permits.
(iv) (A) Each Member has fully complied with all
applicable provisions of any Environmental Laws that condition, restrict or
prohibit the transfer, sale, lease or closure of any property for environmental
reasons; (B) no Member is required to place any notice or restriction relating
to the presence of Hazardous Materials in any instrument or deed to the real
property owned, leased or operated by it; (C) no environmental Lien has attached
to any portion of the real property owned, leased or operated by any Member; and
(D) no Government Entity actions have been taken or, to the Knowledge of the
Company, are in progress or threatened that could subject any or all of the
foregoing to any such Lien.
(d) Release of Hazardous Materials. To the Knowledge of
the Company, there has not been any release of Hazardous Materials at or from
any facility or real property owned, operated or leased by any Member.
(e) Underground Storage. (i) There are not now any
underground storage tanks on or at the real property owned, leased or operated
by any Member; and (ii) any removal of underground storage tanks or any
remediation associated with such removal conducted by or on behalf of any Member
was conducted in accordance with applicable Environmental Laws and Environmental
Permits.
<PAGE> 26
(f) Asbestos, PCBs, Etc. To the Knowledge of the Company,
no polychlorinated biphenyls ("PCBs"), asbestos-containing material ("ACM"), or
urea formaldehyde insulation is present at any of the real property currently
owned, leased or operated by any Member in such condition or under such
circumstances as would reasonably be expected to give rise to an Environmental
Claim, and each Member has complied in all material respects with all regulatory
requirements under all applicable Environmental Laws relating to the storage,
removal, disposal or release, if any, of ACM or PCBs located on the real
property owned, leased or operated by any of the Members.
7.16 Insurance.
(a) No Member has received any notice of cancellation or
termination with respect to any material insurance policy.
(b) All material insurance policies of each Member are
valid and enforceable policies. Schedule 7.16(b) contains a description of all
insurance policies maintained by each Member on its properties and assets and on
its operations and personnel. Such description includes the insurance carrier,
the amount of premiums thereunder, the type of coverage and limits of coverage
of such policies and the expiration dates of the current premium periods
thereunder. Such insurance is of the kinds, covering such risks and in such
amounts and with such deductibles and exclusions as are consistent with past
business practices of the applicable Member. To the Knowledge of the Company,
there have been no threatened terminations or material premium increases with
respect to insurance of any Member.
7.17 Intellectual Property. Each Member owns or possesses, and has
taken all actions necessary to record, preserve and protect, adequate and
enforceable long-term licenses or other rights to use all copyrights, patents,
trade names, trade secrets, trademarks, franchises, source codes and similar
rights now owned, used or employed by such Member in connection with its
business, including, without limitation, all trade names, trademarks and logos
of each Member, that previously have been used in the conduct or operation of
the Company Group Business.
7.18 Labor Matters.
(a) No Member is engaged in any unfair labor practices as
defined in any applicable Law, and each Member is in compliance in all material
respects with all applicable Laws respecting employment and employment
practices, including, without limitation, terms and conditions of employment,
wages, employment discrimination, workers' compensation, family and medical
leave, the Immigration Reform and Control Act, hours of work and occupational
safety and health requirements.
(b) Except as disclosed in Schedule 7.18(b), there is no
unfair labor practice, charge or complaint brought by any employee pending or,
to the Knowledge of the Company, threatened against any Member and, to the
Knowledge of the Company, there is no basis for any such charge, complaint or
grievance.
<PAGE> 27
(c) There is no labor strike, lock-out, slow-down,
employment-related arbitration or work stoppage pending or, to the Knowledge of
the Company, threatened against any Member, nor have there been any such actions
or threats since the Company's formation.
(d) No Member has experienced any significant work
stoppage or been a party to any Action or Proceeding for the past three (3)
years.
(e) No employees of any Member are represented by any
labor union nor are there any existing collective bargaining agreements or any
other types of agreements with labor unions otherwise in effect with respect to
such employees and, to the Knowledge of the Company, no union organizational
campaign is in progress, no such activities have taken place within the past
three (3) years, and no notice has been received by any Member concerning
representation in respect of such employees.
(f) All Persons classified by any Member as independent
contractors do satisfy and have satisfied the requirements of Law to be so
classified, and the Members have fully and accurately reported their
compensation on IRS Forms 1099 or other comparable reports when required to do
so.
(g) There is no charge or compliance proceeding actually
pending or threatened against any Member before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the prevention
of unlawful employment practices.
7.19 Employee Benefits.
(a) No Member has maintained or contributed to any
Qualified Plans since January 1, 1994. The Qualified Plans have always qualified
in form and operation under Code Section 401(a), and their trusts have always
been exempt under Code Section 501, and nothing has occurred with respect to
such plans and trusts that could cause the loss of such qualification or
exemption or the imposition of any liability, lien, penalty or tax under ERISA
or the Code.
(b) Each Company Plan and each Company Benefit
Arrangement has been maintained in all material respects in accordance with its
constituent documents and with applicable provisions of the Code, ERISA and
other domestic Laws, including federal, state, and foreign securities Laws and
all Laws respecting reporting and disclosure.
(c) No Member or other ERISA Affiliate has ever
contributed to or been obligated to contribute to or had any actual or
contingent liability with respect to any Benefit Plan subject to Title IV of
ERISA or Section 412 of the Code.
(d) No Member and other ERISA Affiliate has ever made or
been obligated to
<PAGE> 28
make, or reimbursed or been obligated to reimburse another employer for,
contributions to any multiemployer plan (as defined in ERISA Section 3(37)).
(e) There are no pending claims or lawsuits by, against,
or relating to any non-Company Benefit Plans or non-Company Benefit Arrangements
and no claims or lawsuits (other than routine benefit claims) have been
asserted, instituted or, to the Knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, and the
Members do not have Knowledge of any fact that could form the basis for any such
claim or lawsuit. To the Knowledge of the Company, the Company Plans and Company
Benefit Arrangements are not presently under audit or examination (and have not
received notice of a potential audit or examination) by any Government Entity
and no matters are pending with respect to the Qualified Plans under any
governmental compliance programs.
(f) No Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would give rise to any
vesting of benefits, severance, termination or other payments or liabilities as
a result of the transactions this Agreement contemplates, and the Members have
not declared, paid or promised any bonus or other incentive compensation or
established or amended any severance plan, program or arrangement in
contemplation of the transactions contemplated by this Agreement.
(g) The Members have made all required contributions to
the Company Plans as of the last day of the each plan's most recent fiscal year;
all benefits accrued under any unfunded Company Plan or Company Benefit
Arrangement will have been paid, accrued, or otherwise adequately reserved in
accordance with GAAP as of the end of the preceding fiscal year; and all monies
withheld from employee paychecks with respect to Company Plans have been
transferred to the appropriate plan within the timing required by governmental
regulations.
(h) The Members have no liability (whether actual,
contingent, or otherwise) with respect to any Benefit Plan or Benefit
Arrangement that is not a Company Benefit Plan or Company Benefit Arrangement or
with respect to any Benefit Plan sponsored or maintained (or which has been or
should have been sponsored or maintained) by any ERISA Affiliate; and the
Members have no Knowledge of any facts that could reasonably be expected to
result in such liability, as a result of a termination, withdrawal or funding
waiver with respect to any such plan, program or arrangement.
(i) No employee or former employee of the Members nor
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits
subject to reporting under Statement of Financial Accounting Standards No. 106,
other than as required by Code Section 4980B or other applicable law.
7.20 Contracts.
(a) Schedule 7.20(a) lists or describes: (i) all
unexpired written or oral contracts, leases, agreements, arrangements,
commitments, instruments or understandings ("Contracts") that
<PAGE> 29
restrict any Member from engaging in any business activity; and (ii) all
Contracts of every nature to which any Member is a party or to which it or any
of its assets or properties are bound if such Contract obligates such Member to
pay more than $50,000 in remaining payment obligations.
(b) True, complete and correct copies of all written
Contracts listed in Schedule 7.20(a) have been made available to the Investor
and true, complete and correct descriptions of all oral Contracts have been
provided therein. Each such Contract is enforceable in accordance with its terms
(except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
and by general principles of equity) and is in full force and effect. No Member
is, nor to the Knowledge of the Company, is any other party to any of such
Contracts (with or without the lapse of time or the giving of notice, or both)
in material violation thereof or in material default thereunder.
7.21 Absence of Undisclosed Liabilities. Except as set forth in
Schedule 7.21, no Member has any Liabilities of any kind whatsoever, either
accrued, absolute, contingent, determined or determinable or otherwise, or any
existing condition, situation or set of circumstances that could reasonably be
expected to result in such a Liability (including documentary or standby letters
of credit, bid or performance bonds or customer or third party guarantees),
except Liabilities reflected or reserved against in the Audited Financial
Statements or the Unaudited Financial Statements and not heretofore paid or
discharged. To the Knowledge of the Company, there are no asserted claims for
indemnification by any Person against any Member under any Law or agreement or
pursuant to the Organizational Documents of any Member, and the Company has no
Knowledge of any facts or circumstances that could reasonably be expected to
give rise to the assertion of such a claim against any Member thereunder.
7.22 No Illegal or Improper Transactions. No Member has, nor has
any director or officer of any Member paid, offered or promised to pay, or
authorized the payment, directly or indirectly, through any other Person or
firm, of any monies or anything of value to (a) any Person or firm employed by
or acting for or on behalf of any Person, whether private or governmental, or
(b) any government official or employee or any political party or candidate for
political office, for the purpose of illegally or improperly inducing or
rewarding any action by any official favorable to the Investor.
7.23 Certain Fees. No Member nor any of their respective officers,
directors or employees, has entered into, or will enter into, during the term of
this Agreement, any agreement, arrangement or understanding with any Person to
pay any finder's fee, brokerage commission or similar payment in connection with
the transactions contemplated hereby.
7.24 Substantial Customers and Suppliers. Schedule 7.24 lists the
principal customers of each Member on the basis of revenues for the most recent
fiscal year. No such customer has ceased or materially reduced its purchases
from any Member since December 31, 1997, or to the Knowledge of the Company, has
threatened to cease or materially reduce such purchases after the Closing. To
the Knowledge of the Company, no such customer or supplier is threatened with
bankruptcy or insolvency.
<PAGE> 30
7.25 Books and Records. The minutes books and other similar records
of each Member contain a true, complete and correct record, in all material
respects, of all material actions taken at all meetings and by all written
consents in lieu of meetings of the stockholders and the boards of directors of
each Member up to and including the Closing. The stock book and the share
certificate ledgers and other similar records of each Member as made available
to the Investor or their Affiliates prior to the Closing accurately reflect all
record transfers and any rights or Contracts related to or involving any shares
of capital stock of any Member. No Member has any of its Books and Records
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct control
of such Member.
7.26 Assumptions or Guarantees of Indebtedness of Other Persons.
(a) Third Party Guarantees. Except as set forth on the
Audited Financial Statements and the Unaudited Financial Statements, no Member
has assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss) any Indebtedness of any other Person (not including a Member),
except for endorsements made in the ordinary course of business in connection
with the deposit of items for collection.
(b) Affiliate Transactions. Except as disclosed in
Schedule 7.26(b):
(i) there are no outstanding Liabilities between
any Member, on the one hand, and, on the other hand: (A) any other Member; (B)
any officer or director or shareholder of any Member; or (C) any Affiliate or
family member of the Persons listed in (B).
(ii) none of (A) any Member; (B) any officer,
director, Affiliate, or family member of the Persons listed in (A); or (C) any
Affiliate of any such officer, director or Affiliate (other than a Member)
listed in (B), provides or causes to be provided any assets, services or
facilities to (x) any other Member; (y) any officer, director, Affiliate, or
family member of the Persons listed in (x); or (z) any Affiliate (other than a
Member) of any such officer, director or Affiliate listed in (y); and
(iii) no Member beneficially owns, directly or
indirectly, Investment Assets of (A) any other Member; (B) any officer,
director, Affiliate or family member of the Persons listed in (A); or (C) any
Affiliate (other than a Member) of any such officer, director or Affiliate
listed in (B).
Each of the Liabilities and transactions listed in Schedule 7.26(b) was incurred
or engaged in, as the
<PAGE> 31
case may be, on an arm's-length basis. All settlements of outstanding
Liabilities between any Member, on the one hand, and any other Member, Affiliate
or any such officer, director, family member or Affiliate of the same on the
other, have been made, and all allocations of intercompany expenses have been
applied, in the ordinary course of business consistent with past practice.
7.27 Disclosure. No representation or warranty concerning any
Member in the Investment Documents or any Exhibit or Schedule hereto, or
contained in any certificate or instrument delivered or to be delivered or made
available to the Investor by or on behalf of any Member pursuant to any of the
Investment Documents, contains or will contain an untrue statement of material
fact, or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not materially misleading.
7.28 Securities Act. Assuming the accuracy of the representations
and warranties of the Investor set forth herein, neither the Company nor anyone
acting on its behalf has offered or will offer to sell, the Preferred Shares,
the Warrants or similar securities to, or solicit offers with respect thereto
from, or enter into any preliminary conversations or negotiations relating
thereto with, any Person, so as to bring the issuance and sale of the Preferred
Shares and the Warrants to the Investor under the registration provisions of the
Securities Act. Assuming the accuracy of the representations and warranties of
the Investor set forth herein, the issuance of the Preferred Shares and the
Warrants to the Investor pursuant to this Agreement is not required to be
registered under the Securities Act or any applicable state securities laws.
7.29 Registration Rights. Except as provided in the Registration
Rights Agreement, immediately following the Closing, no Person will have (a)
demand or other rights to cause any Member to file any registration statement
under the Securities Act relating to any securities of any Member or (b) any
right to participate any such registration statement.
7.30 U.S. Real Property Holding Corporation. No Member is now, nor
will be immediately after the Closing, a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.
7.31 Investments in Other Persons. Except as disclosed in Schedule
7.31, no Member has made any loan or advance (other than trade credit advanced
in the ordinary course of business and consistent with past practices) to any
Person which is outstanding on the date of this Agreement, nor is any Member
obligated or committed to make any such loan or advance.
7.32 Computer Programs and Software. The technology consisting of
computer programs and software used by each Member, and any and all present and
prior versions, new releases and derivative products related thereto or
resulting therefrom (the "Software") (i) are licensed by such Member under valid
License agreements, (ii) constitute original works for hire compiled or prepared
by employees of such Member within the scope of their employment, the right,
title and interest (including copyright to such Software) being vested in such
Member or (iii) are works prepared or
<PAGE> 32
performed by consultants to such Member and all right, title and interest in and
to such Software having been transferred and been vested in such Member with no
royalties or other payments due in respect thereof. Each Member has all
documentation necessary to enforce their respective rights in the Software.
ARTICLE VIII COVENANTS
8.1 Affirmative Covenants of the Company. Without limiting any
other covenants and provisions hereof, the Company covenants and agrees that, as
long as any of the Preferred Shares or Warrants are outstanding, it will perform
and observe the following covenants and provisions and will cause each other
Member to perform and observe such of the following covenants and provisions as
are applicable to such Member.
(a) Financial and Business Information. The Company
during the term of this Agreement will, and will cause its Subsidiaries to
deliver to the Investor:
(i) As soon as practicable and in any event
within 120 days after the close of each fiscal year of the Company, beginning
with the current fiscal year, a consolidated balance sheet of the Company and
its Subsidiaries as of the close of such fiscal year and consolidated statements
of income, retained earnings and cash flows for the Company and its Subsidiaries
for the fiscal year then added, certified by the chief executive officer or
chief financial officer of the Company to be true and accurate in all material
respects (it being understood by the parties hereto that the delivery to the
Investor of the Company's annual report on Form 10-K, together with an
unqualified auditor's opinion, will satisfy the requirements of this Section
8.1(a)(i));
(ii) As soon as practicable and in any event
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year, the consolidated and consolidating balance sheet of the Company
Group as at the end of such fiscal quarter and the related consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company Group for such fiscal quarter and for the period from the beginning of
the then current fiscal year to the end of such fiscal quarter, all in
reasonable detail and certified by the chief financial officer of Company that
they fairly present the financial condition of the Company Group as at the dates
indicated and the results of its operations and its cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments (it being understood by the parties hereto that the delivery to the
Investor of the Company's quarterly report on Form 10-Q will satisfy the
requirements of this Section 8.1(b)(ii);
(iii) Prompt notice of any event having a Material
Adverse Effect;
(iv) Promptly upon their becoming available,
copies of (a) all financial statements, reports, notices and proxy statements
sent or made available generally by the Company to its security holders, (b) all
regular and periodic reports, if any, filed by the Company Group with any
securities exchange or with the SEC or any governmental or private regulatory
authority, and
<PAGE> 33
(c) all press releases and other statements made available generally by the
Company Group to the public concerning material developments in the business of
the Company Group; and
(v) Within a reasonable time, upon Investor's
request, such other information about the property, financial condition and
operations of the Company Group as the Investor may from time to time reasonably
request.
(b) Notice of Certain Events. Unless the Investor
otherwise consents in writing, the Company during the term of this Agreement
will, and will cause its Subsidiaries to, promptly give notice in writing to the
Investor of any litigation or proceeding before any court or administrative body
involving any Member which, if determined adversely to such Member, would have a
Material Adverse Effect on the Company Group, taken as a whole.
(c) Inspection Rights. At any reasonable time and upon
reasonable notice and from time to time and without material disruption of the
Company's business, permit the Investor or any of its agents or representatives
to examine and make copies of and extracts from the records and books of account
of, and visit and inspect the properties of, any Member and to discuss the
affairs, finances and accounts of the Company Group with any of its officers or
directors and independent accountants. The respective Members shall pay the
Investor the reasonable out-of-pocket expenses incurred by Investor in
connection with such respective rights.
(d) Keeping of Records and Books of Account. Keep, and
cause each other Member to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP, reflecting all financial
transactions of the Company Group, and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization taxes,
bad debts and other purposes in connection with its business shall be made.
(e) U.S. Real Property Holding Corporation. Use its
reasonable best efforts to avoid being classified as a "United States Real
Property Holding Corporation" as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated thereunder.
(f) Board of Directors and Committees. So long as a
number of Preferred Shares equal to at least 45% of the Preferred Shares issued
at Closing have not been converted to Common Stock, the holders of the Preferred
Shares shall have the right to elect one-third of the Company's directors;
provided, however, if the Company receives an additional investment in an amount
of at least $5,000,000 from a third party that is not an Affiliate of the
Investor, in accordance with and subject to Section 8.1(g), then (i) if the
Board consists of one to five members, the holders of the Preferred Shares shall
have the right to elect one director to the Board or (ii) if the Board consists
of six or more members, the holders of the Preferred Shares shall have the right
to elect the greater of one-sixth of the Company's directors or two directors to
the Board. The Company shall reimburse the Investor and its appointees for all
reasonable out-of-pocket costs incurred by them in connection with meetings of
the Board and Board committees in addition to any directors fees regularly paid
to all members of the Board. In the event a director nominated by the Investor
vacates his position
<PAGE> 34
on the Board, for whatever reason, the Company should use its best efforts to
cause a representative of the Investor to be recommended to the stockholders for
election as the replacement director.
(g) Additional Financing. If the Company receives a bona
fide proposal from any third party that is not an Affiliate of the Investor to
provide additional financing (whether equity or debt financing) to the Company
so long as any of the Preferred Shares remains outstanding, the Company shall
give written notice of such third party offer to the Investor identifying the
thirty party, stating all of the material terms and conditions of proposed
financing and attaching a copy of the Third Party Offer to such written notice
("Third Party Offer Notice"). The Company's delivery of such notice shall
constitute an irrevocable offer to the Investor (or its designee) to provide
financing to the Company on the terms and conditions set forth in the Third
Party Offer Notice. The Investor may elect (on behalf of itself or its designee)
to provide the financing to the Company on the same terms and conditions set
forth in the Third Party Offer Notice by providing written notice thereof to the
Company 20 days after the delivery of the Third Party Offer Notice. If the
Investor elects to provide such financing (on behalf of itself or its designee),
the Investor shall pay the third party the reasonable costs and expenses
incurred by such third party in preparing the proposal to provide financing,
which costs and expenses shall be duly evidenced by invoices and receipts. The
closing of the financing shall take place at the offices of the Company on the
later of the date indicated in the Third Party Offer Notice and 90 days after
delivery of the Third Party Offer Notice. If the Investor does not elect to
provide the financing (on behalf of itself or its designee) within such 20-day
period, the Company may proceed with the financing with the third party
specified in the Third Party Offer Notice; provided that the terms and
conditions of the financing are the same as the terms and conditions stated in
the Third Party Offer Notice and such financing is completed within 120 days
after the above noted 20-day period has expired.
(h) Accounting Controls and Systems. The Company shall
engage a full time controller, which controller shall be satisfactory to the
Board of Directors, within 180 days after the date of this Agreement. The
Company shall, within 120 days after the date of this Agreement, have
established and implemented accounting systems and controls satisfactory to the
Board of Directors, including without limitation, a cost accounting system.
(i) Directors and Officers Liability Insurance. The
Company shall purchase directors and officers liability insurance as soon as the
Board of Directors determines that the Company is financially capable of paying
for such directors and officers liability insurance without impairing the
Company's operations.
8.2 Covenants of the Investor. Without limiting any other
covenants and provisions hereof, the Investor covenants and agrees that, as long
as any of the Preferred Shares or Warrants are outstanding, it will perform and
observe the following covenants and provisions and will cause each of its
members to agree to perform and observe such of the following covenants and
provisions as are applicable to such member.
<PAGE> 35
(a) Permitted Transfers. The Preferred Shares shall be
freely transferable, in whole or in part, subject to the limitations specified
below.
(i) The Preferred Shares shall be transferred only if:
(A) either a registration statement under
the Securities Act is in effect covering the
Preferred Shares or the Company has received an
opinion from the Company's counsel to the effect that
such registration is not required, or the Investor
has furnished to the Company an opinion of Investor's
counsel, which counsel shall be reasonably
satisfactory to the Company, to the effect that such
registration is not required; and
(B) the proposed transfer complies with any
applicable state securities laws.
(ii) In the event the Investor seeks an opinion from the
Investor's counsel as to transfer without registration, the Company shall
provide such factual information to Investor's counsel as Investor's counsel may
reasonably request for the purpose of rendering such opinion, and such counsel
may rely on the accuracy and completeness of such information in rendering such
opinion. In the event the Company seeks an opinion from the Company's counsel as
to transfer without registration, the Investor shall provide such factual
information to the Company's counsel as Company's counsel may reasonably request
for the purpose of rendering such opinion, and such counsel may rely on the
accuracy and completeness of such information in rendering such opinion.
(iii) Subject to the limitations set forth in this Section
8.2, the Investor may transfer the Preferred Shares on the books of the Company
by surrendering to the Company:
(A) a certificate representing the Preferred Shares
to be transferred;
(B) a written assignment of the Preferred Shares, in
form reasonably satisfactory to the Company and its legal
counsel, wherein the assignee agrees to be bound by the terms
of the applicable Investment Documents and duly executed by
the Investor and the assignee; and
(C) the funds sufficient to pay any stock transfer
taxes payable upon the making of such transfer.
The Company shall thereupon execute and deliver a new certificate representing
the transferred Preferred Shares in the name of the assignee specified in such
instrument of assignment, and if the Preferred Shares surrendered to the Company
were transferred only in part, the Company shall also execute and deliver in the
name of the Investor a new certificate covering the untransferred portion of the
Preferred Shares. Upon issuance of the new certificates for the Preferred
Shares, the certificate of the Preferred Shares originally surrendered for
transfer shall be canceled by the Company.
<PAGE> 36
(iv) The Company shall pay all expenses, taxes (other than
transfer taxes) and other charges payable in connection with the preparation,
issue and delivery of any new certificate for Preferred Shares, provided that
each party to the transfer, including the Company, the Investor and the
assignee, as applicable, shall pay their respective legal costs associated with
such transfer.
(b) Securities Laws. Neither the Investor nor anyone
acting on its behalf will sell, offer to sell, or solicit offers to buy, the
Preferred Shares, the Warrants or securities in the Investor, so as to bring the
issuance and sale of the Preferred Shares and the Warrants to the Investor
within the registration requirements of the Securities Act or within the
registration requirements of any applicable securities laws.
8.3 Affirmative Covenant of the Kenneth H. Smith. Kenneth H. Smith
agrees to use his best efforts to cause the amendment of the Company's Restated
Certificate of Incorporation, upon the earlier of (a) the first amendment to the
Company's Restated Certificate of Incorporation by written consent and (b) the
next annual shareholders meeting of the Company, by voting his shares of the
Company and any shares for which he holds a proxy (other than proxies
specifically requiring a vote against such amendment) to amend the Company's
Restated Certificate of Incorporation to eliminate the provision set forth in
Section 4 thereof restricting the preferential amount payable with respect to
preferred shares in the event of an involuntary liquidation.
ARTICLE IX INDEMNIFICATION
9.1 Indemnification. In addition to the payment of expenses
pursuant to Section 11.14, whether or not the transactions contemplated hereby
shall be consummated, the Company agrees to defend, indemnify, pay and hold
harmless, the Investor and its officers, directors, employees, agents and
affiliates (collectively, the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened by any Person, whether or not any
such Indemnitee shall be designated as a party or a potential party thereto),
whether direct, indirect or consequential and whether based on any federal,
state or foreign laws, statutes, rules or regulations (including, without
limitation, securities and commercial laws, statutes, rules or regulations), on
common law or equitable cause or on contract or otherwise, that may be imposed
on, incurred by, or asserted against any such Indemnitee, in any manner relating
to or arising out of the Investment Documents or the transactions contemplated
thereby (collectively called the "Indemnified Liabilities"); provided that the
Company shall not have any obligation to any Indemnitee hereunder (a) with
respect to any offering of securities or other financing transaction undertaken
by the Investor, except to the extent that such Indemnified Liabilities are
related to or arise in connection with a misrepresentation or omission in the
Company's filings with the Securities Exchange Commission, or (b) with respect
to any Indemnified Liabilities to the extent such Indemnified Liabilities arise
from the gross negligence or willful misconduct of that Indemnitee as determined
by a final judgment of a court or
<PAGE> 37
competent jurisdiction. To the extent that the undertaking to defend, indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.
ARTICLE X TERMINATION
10.1 Termination by Either of the Investor or the Company. (a) This
Agreement may be terminated and the purchase of the Preferred Shares and the
Warrants may be abandoned by the Investor or the Company if (i) the purchase of
the Preferred Shares and Warrants shall not have been consummated by 5:00 p.m.
Eastern Time on August 1, 1998, or (ii) a Government Entity shall have issued an
Order or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such Order or
other action shall have become final and nonappealable; provided, that the party
seeking to terminate this Agreement pursuant to clause (ii) shall have used all
reasonable efforts to remove such Order.
(b) This Agreement may be terminated at any time prior to
the Closing by either Party, if there has been one or more breaches by the other
Party of any representations, warranties, covenants, or agreements contained in
this Agreement which would entitle the terminating Party not to close pursuant
to Article IV or Article V, as the case may be; provided however, that the
terminating Party may not terminate this Agreement pursuant to this Section
10.1(b) unless, within five (5) days of becoming aware of such breach, the
terminating Party has given written notice of such breach to the other Party and
has provided such other Party with fifteen (15) Business Days to cure such
breach.
10.2 Effect of Termination and Abandonment. In the event of
termination of the Agreement pursuant to this Article X, the terminating party
shall give written notice thereof as promptly as practicable to the other
Parties to this Agreement and this Agreement shall terminate and the
transactions contemplated herein shall be abandoned, without further action by
any of the Parties hereto. If this Agreement is terminated as provided herein:
(a) other than pursuant to Section 11.14, there shall be no liability or
obligation on the part of the Investor or the Company or any of their respective
officers and directors, and all obligations of the Parties shall terminate,
except for the obligations of the Parties pursuant to Articles X and XI;
provided, however, that a Party who is in material breach of its
representations, warranties, covenants or agreements set forth in this Agreement
shall be liable for damages occasioned by such breach, including, without
limitation, any expenses incurred by the other Parties in connection with this
Agreement and the transactions contemplated hereby and (b) all filings,
applications, and other submissions made pursuant to the transactions
contemplated by this Agreement shall, to the extent practicable, be withdrawn
from the agency or Person to which made.
ARTICLE XI MISCELLANEOUS
<PAGE> 38
11.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, void or unenforceable, such provision
shall be amended by the Parties only to the extent necessary to be enforceable
consistent with the Parties' intent, and the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect, unless such action would substantially impair the benefits to any Party
of the remaining provisions of this Agreement.
11.2 Specific Enforcement. The Parties each 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 preliminary relief 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 they may be entitled by law or
equity. Any Party shall be entitled to recover from the breaching Party all
reasonable attorney's fees and expenses incurred by such Party in connection
with the enforcement of any obligation of the breaching Party hereunder.
11.3 Entire Agreement; Amendments. This Agreement (including the
Schedules and Exhibits hereto) and the other documents and instruments referred
to herein contain the entire understanding of the Parties with respect to the
matters covered hereby and supersede all other prior agreements and
understandings, both written and oral, among the Parties or any of them, with
respect to the subject matter hereof. This Agreement may be amended only by an
instrument in writing executed by the Parties.
11.4 Notices. Any notices or communications required or permitted
hereunder shall be in writing and shall be delivered by hand, international
courier, or facsimile (confirmed by international courier) addressed as follows:
If to the Investor: USV Partners, LLC
Attn: Gregory C. Earls
c/o U.S. Viewing Corporation
2001 Pennsylvania Avenue, NW
Suite 675
Washington, DC 20006
Telephone: 202-466-3100
Facsimile: 202-466-4557
with a copy to: Wilmer, Cutler & Pickering
Attn: Duane D. Morse
2445 M Street, NW
Washington D.C. 20037
Telephone: (202) 663-6041
Facsimile: (202) 663-6363
<PAGE> 39
If to Company: U.S. Technologies Inc.
Attn: Kenneth H. Smith
3901 Roswell Road
Suite 300
Marietta, GA 30062
Telephone: 770-565-4311
Facsimile: 770-565-8815
with a copy to: Smith, Gambrell & Russell, LLP
Attn: W. Thomas King
1230 Peachtree Street, N.W.
Promenade II, Suite 3100
Atlanta, GA 30309-3592
Telephone: 404-815-3678
Facsimile: 404-815-3509
Any Party may, on fifteen (15) days' notice given in accordance with
this Section 11.4 to the other Parties, designate another address or Person for
receipt of notices hereunder. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (a) in
the case of a facsimile transmission, when received by recipient in legible form
and sender has received an electronic confirmation of receipt of the
transmission; (b) in the case of delivery by a standard overnight courier, upon
the date of delivery indicated in the records of such courier; (c) in the case
of delivery by hand, when delivered by hand; or (d) in the case of delivery by
first class (registered or certified) mail, upon the expiration of seven (7)
Business Days after the day when mailed (postage prepaid, return receipt
requested), addressed to the respective Parties at the above address (or such
other address for a party as shall be specified by like notice).
11.5 Waivers. No waiver by either Party of any default with respect
to any provision, condition or requirement hereof shall be deemed to be a
continuing waiver in the future thereof or a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of either Party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
11.6 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.
11.7 Successors and Assignees. This Agreement shall be binding upon
and inure to the benefit of the Parties and their successors and permitted
assigns. Neither this Agreement nor any of the rights or obligations hereunder
may be assigned by any Party without the prior written consent of the other
Parties, provided that the Investor may assign its rights and obligations
hereunder to one or more Affiliates without the prior written consent of any
other Party.
11.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the
<PAGE> 40
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.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each Party and
delivered to the other Parties, it being understood that all Parties need not
sign the same counterpart.
11.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
United States of America, without regard to the conflicts of laws principles
thereof.
11.11 Dispute Resolution.
(a) All disputes, controversies, and claims directly or
indirectly arising out of or in relation to this Agreement or the validity,
interpretation, construction, performance, breach or enforceability of this
Agreement shall be finally, exclusively and conclusively settled by binding
arbitration, as provided in this Section, under the International Rules of
Conciliation and Arbitration of the American Arbitration Association (the "AAA")
which are in effect as of the Closing.
(b) The arbitral tribunal shall be composed of three (3)
arbitrators, each of which shall be appointed by the then President of the AAA.
The arbitration proceedings shall be conducted in the English language, and all
documents not in English submitted by any party must be accompanied by an
English translation. The arbitration proceedings shall be conducted and any
arbitral award shall be made in Atlanta, GA. No discovery shall be conducted
except by written agreement of all Parties.
(c) The Parties agree: (i) that the arbitrator shall have
no authority to award punitive damages or any damages other than those
recoverable in accordance with this Agreement (which may include reasonable
attorneys' fees and other costs of arbitration); (ii) to be bound by any
arbitral award or Order resulting from any arbitration conducted thereunder and
that any such award or Order shall be a reasoned award, shall be in writing,
shall specify the factual and legal basis for the award, shall be final and
binding; (iii) not to commence, procure, participate in, or otherwise be
involved as a party in any claim, Action or Proceeding that might result in any
Order concerning a dispute (except for initialing Actions or Proceedings to
obtain a judgment recognizing or enforcing an arbitral award or Order and except
for applications, claims, Actions or Proceedings by the Parties, seeking interim
interlocutory or other provisional relief in any court having jurisdiction, but
only on the ground that the award to which the applicant may be entitled may be
rendered ineffectual without such provisional relief); (iv) any monetary award
shall be made and payable in U.S. Dollars, in each case through a bank selected
by the recipient of the award, together with interest therein at the lesser of
the one year London Interbank Offered Rate (LIBOR), as appearing in the Reuters
screen, plus five (5) percent or the maximum interest rate permissible under
applicable Law, from the date the award is granted to but excluding the date it
is paid in full; and (v) that judgment or any arbitral
<PAGE> 41
award or Order resulting from an arbitration conducted under this Section may be
entered in any court of competent jurisdiction, having jurisdiction thereof or
having jurisdiction over either Party or any of their assets.
(d) The Company and the Investor hereby irrevocably waive
and exclude all rights of appeal, challenge, or recourse to any court from any
arbitral award or Order resulting from any arbitration conducted under this
Section (except for initiating Actions or Proceedings to obtain a judgment
recognizing or enforcing an arbitral award or Order and except for Actions or
Proceedings seeking interim, interlocutory or other provisional relief in any
court having jurisdiction, but only on the ground that the award to which the
applicant may be entitled may be rendered ineffectual without such provisional
relief). Each of the Parties to this Agreement hereby consents to the
non-exclusive jurisdiction of any court of competent jurisdiction in the State
of Georgia for all Actions or Proceedings to obtain a judgment recognizing or
enforcing an arbitral award or Order and waives any defense or opposition to
such jurisdiction.
(e) The arbitrators, in their discretion, may consolidate
two or more arbitrations or claims between any of the Parties arising pursuant
to this Agreement or any other agreement among the parties or to which the
Investor and shareholders of the Company are a party into one arbitration, or
terminate any such consolidation and/or establish other arbitration proceedings
for different claims that may rise in any one arbitration. Notwithstanding the
foregoing, the arbitrators shall consolidate arbitrations and/or claims, if they
determine that it would be more efficient to consolidate such arbitrations
and/or claims than to continue them separately and (i) there are matters of fact
or law that are common to the arbitrations and/or claims to be consolidated,
(ii) there are related payment and performance obligations considered in the
arbitrations and/or claims to be consolidated or (iii) there is a danger of
inconsistent awards.
(f) Each Party shall bear its own expenses in connection
with the arbitration provided in this Section, provided that the fees of the
arbitrators shall be divided equally between the Parties.
11.12 Drafting. Each Party acknowledges that its legal counsel
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any Party against the other.
11.13 Waiver of Jury Trial. EACH PARTY HERETO WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OF OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
11.14 Costs, Expenses and Taxes. The Company agrees to pay on demand
all reasonable costs and expenses of the Investor in connection with (a) the
preparation, execution and delivery of this Agreement, the Preferred Shares, the
Warrants, the other Investment Documents and other
<PAGE> 42
instruments and documents to be delivered hereunder, and in connection with the
consummation of the transactions contemplated hereby and thereby, (b) all
reasonable costs and expenses of the Investor in connection with the amendment
or waiver (whether or not such amendment or waiver becomes effective), the
Preferred Shares, the Warrants, the other Investment Documents, and other
instruments and documents to be delivered hereunder and thereunder and (c) all
reasonable costs and expenses of the Investor in connection with offering
interests in the Investor; provided that the Company shall not be required to
pay more than $35,000 in the aggregate with respect to such costs and expenses.
In addition, the Company agrees to pay any and all stamp and other similar taxes
(expressly excluding income taxes) payable or determined to be payable in
connection with the execution and delivery of this Agreement, Preferred Shares,
the Warrants, the other Investment Documents and the other instruments and
documents to be delivered hereunder or thereunder unless otherwise set forth
herein, and the Company agrees to save the Investor harmless from and against
any and all liabilities with respect to or resulting from any delay in paving or
omission to pay such taxes and filing fees.
11.15 Further Assurances. From and after the date of this Agreement,
upon the request of the Investor, each Member shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, Preferred Shares and the Warrants.
11.16 Disclosure to Other Persons. (a) The Company acknowledges that
the Investor may deliver copies of any financial statements and other documents
delivered to the Investor, and disclose any other information disclosed to the
Investor, by or on behalf of the Company in connection with or pursuant to this
Agreement to (i) the Investor's directors, officers, employees, agents and
professional consultants, (ii) any Person to which the Investor offers to sell,
in accordance with the applicable securities Laws, the Preferred Shares, the
Warrants or any security received with respect thereto pursuant to any stock
dividend, stock split, recapitalization or similar event or any part thereof, so
long as such potential purchaser agrees, in writing, to preserve the
confidentiality of such information (except that such potential purchaser may
disclose such information in accordance with this Section 11.16); provided,
however, that such disclosure will not be made to any potential purchaser which
is known to be a competitor, or an Affiliate of a direct competitor, of the
Company without the prior written consent of the Company, (iii) any Person to
which such holder sells or offers to sell a participation in all or any part of
the Securities, so long as such potential purchaser agrees, in writing, to
preserve the confidentiality of such information (except that such potential
purchaser may disclose such accordance with this Section 11.16); provided,
however, that such disclosure will not be made to any potential purchaser which
is a competitor, or an Affiliate of a competitor, of the Company without the
prior written consent of the Company, (iv) any federal or state regulatory
authority having jurisdiction over the Investor or (v) any other Person to which
such delivery or disclosure may be necessary or appropriate (A) in compliance
with any law, rule, regulation, or order applicable to such holder, (B) in
response to any subpoena or other legal process, or (C) in connection with any
litigation to which the Investor is a party.
<PAGE> 43
(b) The Investor agrees to keep confidential any
information delivered by the Company hereunder; provided, however, that subject
to the provisions contained in Section 11.16(a)(ii) and (iii) hereof, nothing
herein shall prevent the Investor from disclosing such information (i) to any
Affiliate of, or investor in, the Investor or, any actual or potential
purchaser, participant assignee or transferee of the Investor's rights under the
Note that agrees to be bound by this Section 11.16, (iii) upon order of any
court or administrative agency, (iv) upon the request or demand of any
regulatory agency or authority having jurisdiction over the Investor, (v) which
has been publicly disclosed (vi) which has been obtained from any Person that is
not a party hereto or an Affiliate of any such party, (vii) in connection with
the exercise of any remedy hereunder, (viii) to the independent and certified
public accountants for the Investor or (ix) as otherwise expressly contemplated
by this Agreement.
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Investment
and Loan Agreement as of the date first above written.
U.S. TECHNOLOGIES INC
By:
-------------------------------------
Name:
Title:
USV PARTNERS, LLC
By:
-------------------------------------
Name:
Title:
FOR PURPOSES OF SECTION 8.3 ONLY:
KENNETH H. SMITH
------------------------------
<PAGE> 45
EXHIBIT 3.1(a) - CERTIFICATE OF DESIGNATIONS
<PAGE> 46
EXHIBIT 3.1(b) - WARRANTS
